When did payments become a thing?
It used to be, we bought something and handed over cash, and the merchant gave you a receipt and your change. For big purchases you would get a bank check, so you didn’t have to carry cash and the seller didn’t have to worry about getting stiffed. Then we started buying items on the web – more, and more and more items on the web. Obviously, on the web, we can’t use cash.
Ebay, one of the first web marketplaces, bought Paypal to facilitate its growth. Amazon worked with credit card companies, to great skepticism. Many analysts thought people would be crazy to give their credit card information over the web to some unknown company. But they did: over, and over, and over again.
Payments aren’t boring, they’re big business. Governments are discouraging cash transactions, fighting drug trafficking, money laundering, and other illegal activity. In the US, most non-cash transactions are done with credit cards. But overseas, credit cards aren’t nearly as common. There isn’t a broad or deep credit market. Middle-class families still use cash quite often.
So, emerging market startups in India and China like PhonePe (pronounced “phone pay”) or Alipay (part of Alibaba) have tremendous potential. Indeed, Walmart’s recent acquisition of Flipkart in India included an 80% stake in PhonePe that may be valued at more than $8 billion – an additional benefit that wasn’t fully appreciated at the time of the transaction. Of course, no one knew when PhonePe was founded that Prime Minister Narenda Modi would soon announce the demonetization of 500 and 1000 Rupee banknotes. Smartphones have tremendous potential to both simply and secure electronic payments. That’s why payment giants like Visa and Mastercard are growing, mid-sized payment platforms like Worldpay and Greendot are courting (and accepting) acquirers, and payment startups like Stripe and Square are going public. Everybody wants to get into the act. That’s why Facebookand a consortium of companies want to create a sponsored digital coin to facilitate payments on their own platforms.
Of course, eventually there will be a shakeup. Markets will consolidate and pricing – currently fairly expensive – will come down as participants compete for at least $50 trillion in global transactions. That’s a lot of transactions. Like any land-rush, things can get a little excessive. (During the domain-name land rush, someone paid over $7 million for the site “beer.com.”)
So don’t be surprised at the crazy headlines announcing another innovative payment system. Already a lot of businesses and localities are cash-free. Cash may be still be king for a while, but if this payment trend continues, it won’t be “all about the Benjamins” for all that much longer.
Source: Pxhere. CC0
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”