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« Payment and tender | Main | Which planet? »

What kinds of competitors?

By davebirch posted Oct 30 2007 at 9:22 PM
[Dave Birch] PayPal has pottering along nicely. The steady growth of their off-eBay business means that they are sitting side-by-side with traditional online acceptance brands (Visa, MC, Amex, Discover, et. al.). Competitively, payments companies and their issuers have looked at this as an online phenomenon. Rightly so, as it has been. Online transaction volume is just north of 10 per cent. One of PayPal's new products is their virtual debit card, a response to customer requests that PayPal be accepted at more online merchants. If you want to buy something at a merchant that accepts cards but not PayPal, PayPal will generate a one-off MasterCard number for you. Now in testing, the virtual card is expected to be rolled out in the Unites States by Christmas. They are also steadily putting together other services that may pose a genuine threat to incumbents, according to Aite Group payments analyst Adil Moussa: deferred-payments options and mobile payments. But why? Surely a bank can work out how to offer a good mobile payments service can't it (or, more likely, wait until someone else has worked out how to do it and then buy it, rather as RBS did with WorldPay and Bibit). Why is it considered a threat to banks? Similarly, the deferred-payment option is already provided by banks in some countries, and if customers show that they want deferred-payment options that it doesn't seem wholly implausible that MBNA or HSBC could provide them. In this particular case it's not actually PayPal that provides the underlying instrument, it's GE Money that is delivering the credit behind the deferred payment and since (as a general rule) providing credit is the most profitable part of the payment process for banks, that is why banks might be eyeing PayPal more nervously than before.

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I wonder if the next cycle of nervousness might involve other more novel underlying instruments? We've noted before the kerfuffle about virtual currencies in China, for example. These are now far from niche. The "QQ currency" is substantial: while it was created for use on the web, it is being used in other kinds of commerce (which, since I think that stimulating trade is one of the good things that a payment system should do, is probably a good thing overall). The Chinese government had a bit of a crackdown on QQ coins with the predictable (to economists) result: the price of the money went up (in fact it went up by 70% against the Yuan) which clearly indicates that there is a significant unfulfilled consumer demand for the new currency.

Now, QQ may not mean much to consumers in the U.K., but just suppose that eBay or Tesco or Google were to create their own currency for special purposes and then it were to be adopted more widely? I think this might be rather fun. And rather likely, since the marginal cost of the "n+1"th currency in the electronic world is very low. Just because this was tried before and didn't work -- Beenz, Flooz and others -- doesn't mean that what Javelin call the finite-to-universal currency phenomenon couldn't happen in the future especially given the brand and presence of the big web players. Why would they do this? Well, a few years ago, I contributed to an excellent book by Forum friend David Boyle: The Moneychangers. One of the other chapters is by noted lateral thinker Edward de Bono. It's called "The IBM Dollar" and is based on a 1994 pamphlet he wrote for the Centre for the Study of Financial Innovation (CSFI) -- in fact it was the first CFSI pamphlet I read -- and sets out some reasons as to why a company might want to issue its own money. Well worth a read: in fact, I'm going to read it again myself.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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