Process: Issuing bank 🏦 —> customer 💵 hands information to payment gateway 🚪—> payment processor 🏭 handle the rest of the transaction details —> card network 🌍 authorises credit —> acquiring bank 🏦 pays merchant 💼
How it works?
- Many middlemen between customer and merchant charges fee = merchants lose ~ $3 in a typical $100 transaction 💸
Disruption possibilities 🚀
- Bypass system entirely, e.g. Kenya’s M-Pesa and China’s Alipay
- Reduce middlemen/edit existing system, e.g. Apple Card
- Re-imagine the economic distribution, e.g. pay back consumer based on fees received
- New credit cards – e.g. for children
- Corporatisation of credit cards/Payments or Fintech as a service - e.g. Railsbank
- Efficiency generating/adjacent technologies, e.g. measuring customer sentiment/optimising conversion etc.
- Cross-border disruption 🌍
Disruption is inevitable. 🎉
- Obvious and large pain points with tech solutions
Key is: what form the disruption will take? 🔑
Element #1: What are we replacing?
- Historically, the credit/debit card system in the US replaced cash.
- Vs In China, they replaced cash with e-wallets.
- What disrupts the credit/debit system will replace credit cards in a settled and comfortable economy
- This replacement will need to serve the same functions and provide the same perks with less cost.
- Whilst some of this might come from reducing middlemen, we will still need to eventually make cuts to perks, as they (and the entire system) are funded by middlemen fees.
- = New revenue streams will need to be found.
- 💡 However, can be noted that credit/debit is more obsolete, and so doesn’t need to be replaced?
- On-demand age moves us further away from need of credit for unnecessary costs. FinTech solutions turn large expenses into smaller, more regular transactions.
- Additionally, credit/debit cards provide one function, whereas we’re moving towards conglomeration and the “everything” app.
Element #2: How are we replacing? 🏛
- Technical and governmental infrastructure required for current debit/credit card system means any replacement has to deal with that entrenched interest against changing.
- It also means that any replacement that doesn’t re-use the existing system (in novel ways), short of bypassing it, will be limited in ability to disrupt it.
- That said, to bypass it entirely, infrastructure is required that may not exist in the West. China has ID cards to track all citizens, India’s government has a banking tech stack that provides infrastructure. 🏗
Element #3: Trust enabling? 🤝
- Consumer behaviours is not to be understated. Consider HK 🇭🇰 vs Shenzhen 🇨🇳 – one is a near cashless society, whilst the other, despite being the same country and having similar resources to expansion is still very much a cash society. Reasons include a comfortable populace with little reason to ‘risk’ moving onto a new system.
Element #4: Market dynamics
- Incumbents will play a role. Increasing fragmentation, e.g. penetration into China is unlikely.
- 🤯Interestingly, this suggests different middlemen, but that they will not be as reduced as we make them out to be.
- Politics will also continue to play a role – payments are still international, and tensions are still high. 🥵 But note that China has a strong hold on Asia and Africa.
🎯 Key Question: what is the credit/debit card to the target consumer of the start-up? What is the solution?