
Payments: The end of a monopoly - niuzeta
http://www.economist.com/news/special-report/21601624-and-no-end-new-ways-pay-your-bills-end-monopoly
======
abalone
Some cold water: Square Wallet was discontinued 2 days after this article was
published.

If that doesn’t convince you to take these puffy “payments revolution” pieces
with a huge grain of salt I don’t know what will. They tend to be big on
exciting futuristic hype and pretty poorly reasoned when it comes to actual
analysis.

For example, it just blasts on through the “PayPal accepted at major
retailer!” opening without even touching on whether there’s a reason for
consumers to use it. Hint: not much. Credit cards offer rewards and don't
require entering your phone number, plus have well established consumer
protections.

We now know that Simple was incredibly overhyped. It wasn’t a revolutionary
un-bank, it was a regular banking UI layer with maybe a couple more budgeting
features and a more modern design. It was acquired by a bank -- not exactly a
monopoly killer.

M-PESA is cool but it is not the “end of a monopoly”. It is a practical
solution for an underserved market. The article even notes that fewer people
even use banks in the first place. Ergo, not ending a monopoly.

Bitcoin, too early to tell what niches it may find (maybe international
transfers). But none of its coverage AFAIK has made a compelling argument for
why ordinary consumers would generally choose it over cards. Hard to see how
that would break that monopoly.

~~~
dasil003
> _We now know that Simple was incredibly overhyped. It wasn’t a revolutionary
> un-bank, it was a regular banking UI layer with maybe a couple more
> budgeting features and a more modern design._

Simple was indeed overhyped, but your characterization is too far in the other
direction. Aside from having a truly great web and app UI in a field with
across-the-board atrocious UI, Simple provided three killer features that I
never found anywhere else:

1) Link other bank accounts and push/pull money at will. Yes it still is slow
going through ACH, and yes it still feels like the dark ages compared to
European banking, but it works.

2) Immediate push notifications to my device as soon as charges hit. I know
this should be trivial, but other banks I've used do not seem capable of this.
Heck they don't seem capable of creating an app that won't crash my phone, but
still, Simple does it, often within seconds of the physical transaction
occurring.

3) Free incoming wire transfers. There must be some other bank that does this
right? Well, I haven't found it. Heck, even when I wired money to my company's
bank account to exercise stock options some mysterious fee was taken out
somewhere _and no one at any bank ever owned up to it_. I mean I was literally
in international branches and on the phone for over an hour and no one could
explain who took a cut and why. Well, with Simple I can wire myself money from
overseas, and true to their word, every penny shows up unmolested.

They may have failed in their stated goal of revolutionizing the bank industry
from the ground up, but also when they said that they probably had no real
idea of the regulatory minefield they were getting into. In the end the
product they created may be less than we hoped for, but it is a damn good
product regardless.

~~~
abalone
Simple did have low fees -- but almost certainly unsustainably so, given the
evaporation of their interchange-based revenue model with the passage of the
Durbin amendment. Unsustainable pricing does not constitute a good product.

As for the others, linking external bank accounts for transfers is actually a
super common feature? Not sure what you mean. And lots of banks have apps for
checking charges (I don't know about realtime alerts, but that seems like more
of a design choice).

I think this supports my claim that Simple was more of a premium UI on top of
standard banking features than anything really disruptive. But in the end we
agree on that.

~~~
dasil003
What bank lets you link accounts for ad-hoc push/pull of funds? I have had
major headaches just trying to get one bank to transfer funds to another, at
least involving Wells Fargo.

Also not sure why you are using past tense for Simple. I am still using it and
the fees have not changed so far to my knowledge.

~~~
coldpie
Are you talking about transfers between accounts owned by different people, or
accounts owned by the same person? I've got accounts at three banks, one of
them Wells Fargo, and have never been charged a fee for transferring funds
between them.

------
pbreit
This article just proves that the monopoly is not going anywhere anytime soon.
The Square Wallet is gone, Simple sold itself to a bank for cheap and bitcoin
is still looking for a reason to exist. For starters.

~~~
jpatokal
From the friendly article:

 _For the most part, however, the challenge is not head-on. In fact, by making
it easier to buy things, most new payments services are pushing extra business
to the existing channels, dominated by banks. ... In the long run, banks risk
becoming the providers of a cheap, commoditised service, with most of the
money in the payments business going to firms that make customers’ lives
easier or provide new services. ... Even worse for banks would be a future in
which people begin to store more of their money outside the banking sector and
make payments that are not tied to a formal bank account._

------
ihuman
Google cache allows you to bypass the paywall:

[https://webcache.googleusercontent.com/search?q=cache%3Awww....](https://webcache.googleusercontent.com/search?q=cache%3Awww.economist.com%2Fnews%2Fspecial-
report%2F21601624-and-no-end-new-ways-pay-your-bills-end-
monopoly&oq=cache%3Awww.economist.com%2Fnews%2Fspecial-report%2F21601624-and-
no-end-new-ways-pay-your-bills-end-monopoly)

~~~
davidw
A subscription to The Economist is well worth the money, in my opinion.

~~~
icebraining
If only the _digital_ subscription didn't cost twice as much in my country
than it does in the US, even though we're poorer. But hey, I get a tree
planted in my name! /s

~~~
davidw
The digital subscription is pretty useless terms of getting a cheaper deal as
it costs as much as the print edition. The information is the same though, and
the Android app is pretty good, so I've mostly switched to reading it on my
tablet. Also, I like getting it on Thursday night, rather than waiting for the
Italian postal system to take their sweet time about delivering it (or not).

------
rahimnathwani
tl;dr:

Banks' revenue from credit cards is under threat from payment mechanisms which
bypass them:

\- Paypal encourages bank transfers in some countries, to avoid cc interchange
fees

\- Bitcoin

\- Telecoms operators' mobile payment services

\- Store-specific prepaid cards

Furthermore, payments could become a loss leader for companies that make
revenue from other sources (like ads or data). This would increase competition
and further threaten banks' revenue from payments.

EDIT: As dllthomas pointed out below, _loss leader_ isn't the right term here.
Payments could be _cross-subsidised_ by other services (e.g. ads) which are
enabled/enhanced by the data/relationships from payments.

~~~
rayiner
> make revenue from other sources (like ads or data)

Just what we need, mining credit card history to target ads. :(

If this is the future of payments, I'd rather have the monopoly.

~~~
hassanhassan
The future is already here. Cardlytics (a card-linked marketing company) has
partnerships with 400+ financial institutions, and claims to have insight into
consumer purchase behavior for ~70% of U.S. households and ~30% of U.K.
households according to their Crunchbase profile.

~~~
rahimnathwani
As far as I can tell from their web site, the customer data doesn't leave the
financial institution, and the ads appear only on communication from that
institution (e.g. on the credit card statement).

------
beat
Try to not be US-centric when thinking about this. There are some very
interesting (and often strange) payments systems in use around the world.
Really exotic systems like Bitcoin stand a much better chance of catching on
at first in smaller countries, shaking the issues out before they face the
complex US and EU government/commercial orgies.

~~~
brazzy
Paypal supports quite a lot of such exotic payment systems, that's an
important part of their offering.

------
kephra
I mainly use credit card and paypal for one reason:

Give me 2% discount and I pay cash, or I pay in the US way, and you lose 3%.

This of course works best in countries like Germany, where credit cards and
paypal are not widely accepted.

~~~
kijin
In South Korea, it is illegal for merchants to offer different prices based on
the payment method.

The law was intended to encourage credit card payments, because the paper
trail makes it more difficult for merchants to under-report their tax
obligations. (And the card companies lobbied hard, of course.)

In practice, merchants have found workarounds, such as offering more loyalty
points for cash payments. Some of these workarounds are legal, some are not,
but in any case the government is changing its stance on credit card payments
due to soaring consumer debt. Now they're trying to encourage debit card
payments . . .

~~~
sliverstorm
I love my credit cards precisely for the paper trail! Makes everything much
easier- tracking my finances, doing my taxes, etc...

~~~
levosmetalo
The same reason you love it is the reason I don't use credit cards. I don't
like anyone having paper trail of all my purchasing history. And I don't use
any loyalty cards, since that's just another way of tracking. Offering 2%
payback on credit card purchases gives those companies a way to upsell you a
lot of unwanted stuff because they can target you very accurately, and in the
end you pay more in total.

I like the fact that in Germany people don't use credit cards at all, and EC
cards rarely, or only for purchases they deem are worth to be tracked, like
utility bills or similar. Then, if my landlord complains that I didn't pay on
time, I have my bank on my side to happily provide transaction id of the
payment as an evidence.

