Payment News

Volatility in Crypto Markets

Cryptocurrencies are in a strange place. There were 18,465 cryptocurrencies ¹ as of March 2022, although perhaps only 10,363 are active. There are over 300 million users worldwide and more than 18,000 businesses now accept some form of crypto as payment.

Sounds good, but the recent collapse in TerraUSD, which is not meant to be able to happen, has been a big story alongside a major slide in the value of Bitcoin. At the same time non-fungible tokens (NFTs) have also been having a hard time. What is going on?

As Chris Skinner explained in a recent piece ² referring to TerraUSD, ‘how could a cryptocurrency, using the technologies that are meant to create stability, drop from a market cap of $40 billion to $500 million overnight and, if that’s the case, could that happen to bitcoin and others? Is this market just a massive Ponzi scheme, or does it have substance?’

His conclusion was that ‘too many people believe these currencies are all about ‘hodling’ (keeping them as an investment) instead of what currencies are really about, which is allowing the exchange of value to buy and sell products and services.’ 

These events also led to a statement about what happens if Coinbase were to go bankrupt. Coinbase is a crypto exchange with 98 million verified users in 100 countries who trade about $310 million every quarter. The problem is Coinbase’s statement that should they go bankrupt, in which case user funds would become inaccessible, users might lose all the cryptocurrency stored in their accounts as they would become ‘general unsecured creditors’, placing them low down in the list of creditors.

Identity Cards Used for Payments in Vietnam

The Ministry of Public Security in Vietnam has worked with several banks to run a pilot project to enable people to use their identity cards to withdraw money at ATMs. The goal is to reduce the risk of forged cards and to ensure financial transactions are safe. The banking system can use the biometric data, face and fingerprint recognition, to verify the card information rather than using the PIN code.

Currently cards and QR codes are used at ATMs. In branches people have to show their ID cards and fill in a form. With the new scheme people can link the ID card to a number of accounts.

Alipay Looks to Accelerate Uptake in Europe

Ingenico, which is part of Worldline, offers secure payment transaction processing. It has announced a partnership with Ant Group, owners of AliPay, to allow payment service providers to offer Alipay+ across their merchant networks using Ingenico’s Payments Platform as a Service (PPaaS). The advantage of PPaaS, which is cloud based, is that payment terminals can be configured to accept Alipay without needing complex and expensive development, rollout and certification.

Alipay+, launched in 2020, is a suite of global cross-border digital payments and marketing solutions supporting a wide range of digital payments methods, including e-wallets, bank apps and buy- now-pay-later services, such as GCash in the Philippines, Kakao Pay in South Korea, Klarna in Europe as well as Alipay in China.

Alipay+ already reaches over a billion users of digital payment methods in Europe, according to Alice Zhan, Head of Marketing in Europe for Ant Group.

She said: ‘we believe that through our cooperation with Ingenico, millions of merchants in Europe, connecting to Ingenico’s acquirers and payment institutions, can integrate to Alipay+ more efficiently and smoothly.’

Ant Group has wider ambitions since it sees this system allowing merchants in Europe to connect to its Asian consumers whether in Asia or visiting Europe.

Debit Card Usage in Europe on the Rise

Payments Cards and Mobile (PCM) has published new data about the use of debit cards in Europe. In 2021 the debit card base grew 5.5%, with 1.31 debit cards per person. Debit card payments grew twice as fast as the number of debit cards issued, with a compound annual growth rate over the last five years of 9.53%.

PCM credited this growth to the rise in contactless transactions, saying that about 80% of card transactions are now contactless across Europe, an increase of over 25% since March 2020.

• Czech Republic – more than 100 debit transactions per person per year

• Greece – transactions up 55.73% 

• Lithuania – transactions up 42% 

• Germany – transactions up 25.4%.

PCM drew three conclusions from the data. The pandemic accelerated the move from cash to electronic payments, primarily using debit cards to pay. Companies and individuals are using debit cards for low value transactions and internet spending.

There is a shift from credit to debit cards. They suggest a factor in this is a desire to reduce short-term credit given economic uncertainty.

How Long will Free Banking be ‘Free’ in the US?

A recent blog by a Federal Reserve Bank of Atlanta member, David Lott, considered how banking has become apparently free in the US. Given that publicly traded companies have to make a profit, and all non-government organisations need to cover their costs and have healthy reserves, how can bank accounts and services be free?

He suggests four reasons:

• Competition – pricing, quality and convenience of location

• Interchange fees as a source of revenue and profit

• Banks need core deposits in order to lend

• Bundling services, bill payment, direct deposits etc, means customers have to be more dissatisfied to decide to switch banks.

In the US banks charge fees if account holders don’t hold an agreed level of funds in an account, or if they go overdrawn. In 2019 the Consumer Financial Protection Bureau estimated financial institutions received nearly $15.5 billion from these charges, about two thirds of their entire fee income. Many financial institutions have now announced they will eliminate or reduce these fees. If so, how will they replace these revenues? Higher payment fees? Bank charges?

One has to wonder whether this explains why in April Visa and Mastercard, which are owned by the banks, made wide ranging changes to their card fees in the US. Nilson Report says fees average $2.22 of transaction amounts for Visa and Mastercard credit cards. Swipe fees have doubled between 2011 and 2021 and, after labour costs, are now sellers highest operating cost.

1 - Sources: CoinMarketCap, investing.com

2 - ‘The rocky road of cryptocurrencies’ – Chris Skinner’s blog (thefinanser.com)