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China’s Payment Apps Give U.S. Bankers Nightmares
- ksec 8y agoWhy are some Bloomberg article paywalled and some are not? As I am over the limit and I was expecting I cant read the article when I click through it.
- lainga 8y agoI have noticed that Bloomberg won't wall off their longform or graphic-design articles, I'm thinking because they're from Businessweek and not regular news you could get on the Bloomberg Terminal.
- awat 8y agoNot to be overly pessimistic but this sentiment seems to be one of the the default themes at the moment. Fear of not getting a cut whether you offer value in that space or not.
- hclalpha 8y agoThis has been like this for at least 2 years over there now. This is facebook/whatsapp best's and only strategy to stop living off consumer data and start living off an actual service industry. Very poor management decision from my perspective, perhaps they had trouble gathering political support.
- chii 8y ago> stop living off consumer data and start living off an actual service industry. the apps in china boomed due to the fact that credit cards weren't popular nor available at the time, and the opportunity for the app (wechat) to become the payment method presented itself. This can't happen in the western world, because credit cards are so ubiquitous, and displacing it is high neigh impossible.
- eddieplan9 8y agoThis. Also those payment apps are like PayPal in the sense it provides very little fraud detection and protection. You are petty much on your own. They process almost no chargebacks, for example. The Chinese consumers have vastly different expectations when it comes to money because the lack of protection throughout history. To them, it looks very unsafe to just swipe a card without a PIN, and chargeback is an alien concept.
- TACIXAT 8y agoBackground on the two. Alipay started similar to eBay, serving e-commerce, and WeChat payments captured the P2P market. Both have expanded to physical retail.
- sevensor 8y agoHow do these systems compare with Mpesa, which I'm given to understand is big in Africa?
- MrsPeaches 8y agoJust a note that you can only have max $1,000 in an Mpesa account.
- TACIXAT 8y agoThat would be totally fine for 99% of my purchases.
- kevin_b_er 8y agoThe banks have been pushing for a cashless society for awhile now. So once they achieve their goal of preventing me from paying someone else $10 without a 3rd party getting a 2-3% fee for the privilege of exchanging money between two private parties, it won't be them getting the 2-3%? Cry me a river.
- mixmastamyk 8y agoHmm, most other countries have free transfers between bank accounts. It's just the US (maybe a few others) still stuck in the stone age.
- gruez 8y agoyou can transfer free between friends using services like paypal, doesn't that count?
- deleted 8y ago[deleted]
- baq 8y agopaypal isn't a bank, though.
- gruez 8y agoGP mentioned: >free transfers between bank accounts does it really matter if it was done through some third party service?
- crooked-v 8y agoAbsolutely, given that Paypal can freeze your money indefinitely for arbitrary reasons (and has a long history of doing so).
- skinnymuch 8y ago
- gruez 8y ago>Western bankers and credit-card executives who travel to China keep returning with the same anxiety: Payments can happen cheaply and easily without them. but there are plenty of "bank -> wallet -> merchant" services in US as well. most notably paypal: you deposit money to your paypal wallet, and spend that money at various online merchants, no credit cards involved.
- tluyben2 8y agoThe anxiety probably stems from the scale of wechat pay; you can pay basically everywhere with it now. Even in places that do not officially accept it, the store clerk will usually just accept on his private phone and put money in the till for you.
- gruez 8y agohow's that any different than payment processors like square, which allows just anyone with a cellphone onto their platform? >the store clerk will usually just accept on his private phone and put money in the till for you is that really a thing people do? the risk-reward ratio is all off. you take on the risk of possibly getting a chargeback (maybe the phone/account was stolen), in exchange for... nothing? it's not like the cashier is getting paid commissions.
- em500 8y agoAlipay and WeChat pay don't do chargeback, so where's the risk to the clerk? They're mainly replacing cash / direct debit, which don't provide chargeback either.
- tluyben2 8y agoSlightly offtopic; how easy is it to do chargebacks over there as it sounds trivially easy? On my dutch and spanish creditcards I have tried chargebacks but it is a royal pain in the ass; writing letters (in the actual post, not digitally) and providing proof for obvious things like hotel double charge.
- drb91 8y agoIs there any evidence these chat based payment apps (venmo, apple pay, facebook messenger, snapchat...?) are replacing credit card transactions in the US? They seem to replace person to person cash transactions instead.
- drivingmenuts 8y agoShould Apple Pay be on that list? AFAIK, it's not possible to pay someone directly Apple Pay to Apple Pay. It's more like the standard stand-in for a credit card. Don't get me wrong, I'd love for Apple Pay to be that convenient, but it's not there yet. Ed: changed easy-to-use to convenient
- vel0city 8y agoYou can send money through iMessage with Apple Pay Cash. You can even use an Apple Watch or Siri to send person to person cash transfers. https://support.apple.com/en-us/HT207875 https://support.apple.com/en-us/HT207875
- MBCook 8y agoIt is now with Apple Pay Cash, as the sibling comment pointed out. HOWEVER, that’s backed by a real bank account at a real bank Apple chose for the purpose (in the US). Transfers involving credit (paying as credit card or using a credit card to move money in) still hit the standard fee. Other transfers are just normal US debit transfers. So Apple Pay Cash isn’t bypassing anything, at least in the US. It’s further entrenching them. Don’t know how it works in other countries.
- TACIXAT 8y agoVenmo takes a loss just to get people into the PayPal ecosystem. The other P2P options are just there in hopes they take off. My understanding of Apple pay was that it's just a pass through for credit card transactions. Those P2P apps need to branch into physical retail.
- the_watcher 8y agoAs long as banks get the FDIC guarantee while American WeChat-type competitors don't, they'll be fine.
- ISL 8y agoOnly among those well-enough versed in history and consequence.
- IkmoIkmo 8y agoTwo different products tbh, we all throw it into (retail) 'banking' but, payment processing and savings/investments are different products that needn't exist under the same umbrella. Moreover, the median American has around $3000 in his bank account and a lot of people have negative cash balances. FDIC insurance isn't a big deal in the lives of many millions of people. And even if it was, there's no reason you can't have a bank account with FDIC insurance for your cash savings, and a WeChat like payment system for day to day payment processing.
- frockington 8y agoHow exactly does WeChat make money? I was under the impression that banks ate the cost of poor customers with a checking account and generated revenue from individuals who could use their money in other avenues. If anything WeChat might trim poorer individuals from the balance sheet for other banks
- gruez 8y agoalso, credit cards have consumer protection by law in cases of fraud, "wallet" type services like alipay? not so much.
- tluyben2 8y agoWhile there is no guarantee by law, these companies do cover fraud with their vast reserves. Ofcourse an economic downturn could change that.
- PeterisP 8y agoEven the first line of illustration is kind of misleading - "Paycheck is deposited into employee's bank account"; there's no such thing as a paycheck in most places worldwide, no checks get involved. The employers pay out the salary with free or cheap bank-to-bank payments, and have done it long enough that the term 'check' has no colloquial relation to your salary. The main difference for accessibility of such payments is that, unlike cards, there's no percentage fee involved; and that, unlike paper checks, processing them can be so automated and cheap that payments can be offered for free or nearly so.
- nneonneo 8y agoI believe “paycheck” is now understood as a catch-all term for the periodic payment of wages or salary. It doesn’t have to mean a literal check - paychecks can be direct-deposited too, in which case they go through precisely the bank-to-bank transfer that you mention.
- bas 8y agoRemember that we still call our pocket supercomputers "phones".
- tialaramex 8y agoAlso we keep thinking the important thing is that they're computers but actually the important thing is the Network. So in a way phones (which are all about being connected to the network) might be the best term anyway even though we rarely use them to make a voice call.
- ForHackernews 8y agoAgain, only in America. They're "mobiles" many places.
- krapht 8y ago... which is short for mobile phone.
- 8y ago
- dzink 8y agoRegulation in the US makes it harder for this to happen but 3 stepping stones will let the tide turn and Amazon is very close to crossing them. 1. Money transmission regulations require at least $2 million in reserves and 2 years to get a license to transmit money in all 50 states. 2. Knowing the credit and identity of your customers is critical in preventing fraud, illegal transactions, and other issues which cost huge $$$ to payment ecosystem providers with the current consumer guarantees in the US. Only a company with mass market deep data on every user’s consumer patterns can pull this off cheaply, and Amazon is far closer to this than anyone else. 3. Getting plugged into the trusted banking ecosystem for deposits to consumer accounts and the whole ACH process is a total mess. Banking regulation puts a wide number of restrictions on anyone who tries to act like a bank to get access to those payment networks. A mass market company could probably replace that, but it has to have a way to do what it does whiteout being regulated as a bank. These will be broken down one at a time.
- PeterisP 8y ago$2 million in reserves seem like peanuts, any serious attempt to enter this business would imply investing enough money that mere $2 million is just a reasonable cost of doing business. Paypal needed $200m of venture capital to get started, a $2m requirement isn't prohibitive. As for the delay, a common practice to enter a new market in finance is to "just" buy an existing bank that has all the required permits and all the legal and technical connections to the settlement infrastructure. There are thousands of banks, many of them small and relatively affordable for any investor trying to make a serious entry into the market. E.g. if some foreign financial company would want to start business in a new market, they usually would not start from scratch and bother with the licensing delays but buy some existing institution to absorb, rebrand and grow. If Amazon or Google or a new VC-backed company would want to enter the market, they're likely to do the same. If Amazon can spend a dozen billion on WholeFoods, then spending ten or fifty million on a small bank to get a banking operation running much faster is just natural, and not even a waste of money, as they'd likely need tens of millions of capital reserves anyway to justify holding immense amounts of customer money.
- dzink 8y ago
- azinman2 8y agoI don’t know why our society hasn’t fully realized that everything is 3% more expensive specifically because of these fees. Europe at least has far lower upper limits on these fees. I hope someone is able to replace the banks here one day.
- khuey 8y agoBecause we like our 2% credit card rewards.
- frockington 8y agoAfter and afternoons worth of research I've manged to get ~4% back on every purchase. As long as you have a decent credit sore you can really optimize your "cashback" and beat the fees. If you're one of the churner people I'm sure you could do much better
- volgo 8y agoHow do you get 4% cash back without using any of those airline points? I mean straight up cash back
- frockington 8y agoChase Freedom and Discover IT have 5% rotating, I also normally redeem my point for travel and get 1.5x multiplier for that
- azinman2 8y agoWhat card gives you 4%? And how long will that last? Just wait until interest rates start to climb... I opened years ago a Schwab checking account with 4% interest. Now it’s something like 0.04%. Regardless, the merchant never got their 3-4% back! Which means everyone has to pay 3% more for their items, cash or credit card.
- kerbalspacepro 8y ago"I don't know why our society hasn't realized that everything is X% more expensive specifically because of these [things that are required to pay for the service you're getting]"
- Fjolsvith 8y agoStripe has made it possible to accept Alipay on their processing platform: https://stripe.com/docs/sources/alipay https://stripe.com/docs/sources/alipay
- chatmasta 8y agoThe critical difference is that in China, the apps effectively are the banks, whereas in the US, regulatory capture ensures that the banks stay the banks and it's the app's problem to figure out how to interface with them. The reason the banks are scared is not because "banks" are not involved. They're scared because these apps have successfully vertically integrated to become banks. This is the logical next step for Apple / Google Pay and I'm sure it has consumer banks shaking in their boots, because there's no way they can outcompete those companies in tech. So instead they focus on regulatory capture and making it as difficult as possible for tech companies to play in their sandbox without banker supervision. One only needs to look at the adoption rate of Apple Pay outside the US to see this system at work. In parts of Europe and the UK it's extremely popular because the banking systems have much friendlier regulations and fewer integration points. In the US the uptake has been slow because the integration is so cumbersome and the banks / payment networks control the entire cycle from point-of-sale to deposit.
- jbob2000 8y agoI'm not sure about the US, but in Canada, these companies would not be allowed to accept deposits or facilitate withdrawals; they could never "become banks". Our banking act and recent revisions are in place to protect a foreign entity from holding Canadian citizen's money hostage and shielding them from exterior economic impact (We fared very well in 2008 because of these regulations!). The most they could do is be a fancy wrapper around the bank's own software.
- fauigerzigerk 8y ago>They're scared because these apps have successfully vertically integrated to become banks. I'm not sure tech companies really want the core banking business, which is to lend money (taking on credit risk in the process) funded by deposits. I can imagine Amazon doing it for smaller consumer purchases as they know their customers well. But who will make loans to SMEs and larger retail loans? Google and Apple? I doubt it. Eventually interest rates will rise and then bad loans will increase, and tech companies will start to wonder if that's really the business they want to be in (like GE has been "wondering" for many years now). And then there's the regulatory aspect. Do tech companies really want to be regulated as banks? I get the impression that they have daily run-ins with all sorts of regulators already and they're running scared.
- solotronics 8y agothere are a couple important things to consider here - who is liable or who will make it right when your money is stolen? - retail banking in the US sucks in every way except that they will reimburse you for fraud if it was up to me all my payments would only happen on a cryptocurrency layer and all my cash storage would happen in an account you could only withdraw from in person to the crypto account. the pull model without credentials banks work under is totally flawed and wont last much longer.
- pishpash 8y agoThey will reimburse you for fraud, after fraud already happens. It would be much better if they worked proactively to prevent fraud. Then they'd be offering a service for a fee, rather than, essentially, selling insurance.
- forkLding 8y agoIts interesting how they didn't mention Paypal as a wannabe Alipay tech company, last time I used Paypal, its basically functioned as an alternate bank account that just doesn't accrue interest whenever I use it to buy stuff on the internet or sell stuff. I can also see the similarities between the UI of my actual online bank account and Paypal account. Users (like me) will also really appreciate if they took on more banking stuff because I already have cash in the account. I think Stripe is similar in that aspect too. This is basically Paypal's dream scenario to become a bank because they already deal with the regulatory stuff but don't get the full money earning potential of a bank.
- steve19 8y agoPayPal is already a bank. From wikipedia 'Since July 2007, PayPal has operated across the European Union as a Luxembourg-based bank'
- forkLding 8y agoI meant bank in the USA, although in many ways financial regulations in the EU should be more restrictive and complex due to member state issues so interesting that it hasn't done so in the US.
- xstartup 8y agoIf money has to flow in the economy through limited hubs then hubs automatically grow rich. It should be a fundamental right in the capitalist country, right to process payment for any party. Today, we need special license/approval for this which limits the "access to disrupt" to few lucky people who have a connection in the big banks. Startups like stripe have to give away a chunk of their equity to old guards at big banks in return of access to a market. Is this the best a capitalist country may offer?
- frockington 8y agoI think the fear is that without this "license", you would have a bunch of "banks" that collect customers and then exit scheme to the Southeast Asia similar to the frequent ICO scams you see with cryptocurrencies
- intrasight 8y agoThe May 3 edition of "The Economist" had a special section on this topic which excellent.
- TACIXAT 8y agoI applied to YC to bring this idea to the US (rejected). Credit cards are our primary form of digital money and their fees are excessive. The basic design was ACH money into the wallet, transfer money between balances for ultra low cost (1%), ACH money out of the wallet. The difficulties are regulation. Doing this would make you a money service business and banks really don't want to touch that. Plus it costs a nice chunk of change to register in every state. If card processing companies are taking around 3% + 30 cents of each transaction, they've effectively devalued our money by that much. I think you could skip all the NFC terminal nonsense and just do QR code based payments with the camera. Make low fee transactions a reality. Then you could pay for individual news articles online, support forums monthly (no way to pay a fraction of a cent for a page view), or tip your favorite streamer. It would be beautiful. It could also set us free from the ad based tracking economy. Maybe one of the big players will implement it (Google, Apple, Walmart), or at least figure out the business model for someone to copy. I think it could really change the US economy.
- pishpash 8y agoThe claim is that the fees primarily cover fraud and fund various consumer protections. It would be interesting to know how much of the 3% that actually is.
- TACIXAT 8y agoI bet a lot of those go to rewards. Also, cards are pretty insecure. Maybe a phone with a lock on it to prevent physical theft and use, and all the data you would have associated with each transaction would make a great fraud detection system.
- driverdan 8y ago> I bet a lot of those go to rewards. This is the kind of thing you should know off the top of your head if you're interested in competing with them.
- 8y ago
- mwexler 8y agoAll the payment stuff aside, how does money get into the Alipay/Wechat ecosystem? How do I add money to the account? In the US, where the single purpose Starbucks wallet is outpacing Apple Pay (https://techcrunch.com/2018/05/22/starbuckss-mobile-payment-service-is-slightly-outpacing-apples/ https://techcrunch.com/2018/05/22/starbuckss-mobile-payment-...), most users pay into the thing with a credit card, so the banks still get their cut. Sure, they aren't getting the cut when it's spent on coffee like they would with a credit card, but in some ways, they already got it on the front end. Is the bank totally out of the picture in the Ali/Wec version? Do people put cash money into Ali/Wec via top-up shops or other experiences? Direct deposit salary? Or is it a free transfer from a bank?
- cmplxconjugate 8y agoYou sign up to the Alipay/Wepay services using a bank card. Money is transferred from the card to the payment account using the transfer credit interface in the app.