Thursday, August 23, 2018

"Banks Are Becoming Obsolete in China—Could the U.S. Be Next?"

The writer, Ellen Brown, is a proponent of state-owned banks, using the Bank of North Dakota as the exemplar.
The idea hasn't really caught fire although there are proposals for a couple small tests. I'm always surprised that Berkeley hasn't rolled one out.

Here she focuses on an idea that has to be scarier to Jamie Dimon or MasterCard than a Bank of Vermont.

From TruthDig, August 22:
The U.S. credit card system siphons off excessive amounts of money from merchants. In a typical $100 credit card purchase, only $97.25 goes to the seller. The rest goes to banks and processors. But who can compete with Visa and MasterCard?

It seems China’s new mobile payment ecosystems can. According to a May 2018 article in Bloomberg titled “Why China’s Payment Apps Give U.S. Bankers Nightmares”:
The future of consumer payments may not be designed in New York or London but in China. There, money flows mainly through a pair of digital ecosystems that blend social media, commerce and banking—all run by two of the world’s most valuable companies. That contrasts with the U.S., where numerous firms feast on fees from handling and processing payments. Western bankers and credit-card executives who travel to China keep returning with the same anxiety: Payments can happen cheaply and easily without them.
The nightmare for the U.S. financial industry is that a major technology company—whether one from China or a U.S. giant such as Amazon or Facebook—might replicate the success of the Chinese mobile payment systems, cutting banks out.

According to John Engen, writing in American Banker in May 2018, “China processed a whopping $12.8 trillion in mobile payments” in the first ten months of 2017. Today even China’s street merchants don’t want cash. Payment for everything is handled with a phone and a QR code (a type of barcode). More than 90 percent of Chinese mobile payments are run through Alipay and WeChat Pay, rival platforms backed by the country’s two largest internet conglomerates, Alibaba and Tencent Holdings. Alibaba is the Amazon of China, while Tencent Holdings is the owner of WeChat, a messaging and social media app with more than a billion users.

Alibaba created Alipay in 2004 to let millions of potential customers who lacked credit and debit cards shop on its giant online marketplace. Alipay is free for smaller users of its platform. As total monthly transactions rise, so does the charge; but even at its maximum, it’s less than half what PayPal charges: around 1.2 percent. Tencent Holdings similarly introduced its payments function in 2005 in order to keep users inside its messaging system longer. The American equivalent would be Amazon and Facebook serving as the major conduits for U.S. payments.

WeChat and Alibaba have grown into full-blown digital ecosystems—around-the-clock hubs for managing the details of daily life. WeChat users can schedule doctor appointments, order food, hail rides and much more through “mini-apps” on the core app. Alipay calls itself a “global lifestyle super-app” and has similar functions.

Both have flourished by making mobile payments cheap and easy to use. Consumers can pay for everything with their mobile apps and can make person-to-person payments. Everyone has a unique QR code and transfers are free. Users don’t need to sign into a bank or payments app when transacting. They simply press the “pay” button on the ecosystem’s main app and their unique QR code appears for the merchant to scan. Engen writes:
A growing number of retailers, including McDonald’s and Starbucks, have self-scanning devices near the cash register to read QR codes. The process takes seconds, moving customers along so quickly that anyone using cash gets eye-rolls for slowing things down.
Merchants that lack a point-of-sale device can simply post a piece of paper with their QR code near the register for customers to point their phones’ cameras at and execute payments in reverse.
A system built on QR codes might not be as secure as the near-field communication technology used by ApplePay and other apps in the U.S. market. But it’s cheaper for merchants, who don’t have to buy a piece of technology to accept a payment.
The mobile payment systems are a boon to merchants and their customers, but local bankers complain that they are slowly being driven out of business. Alipay and WeChat have become a duopoly that is impossible to fight....MUCH MORE