When mentioning Payments War, some people think of Shopping Wars and fist fights at Walmart on Black Friday. This article is not about that. The Payments Wars are actually multiple wars. A war on cash. A war for your shopping behavior and data. A war for your wallet. These wars are raging both online in the digital world as well as offline in the analog world and the two worlds are converging as combatants vie for cashless digital transactions for offline payments. Why should you care? Every time you buy something, whether you like it or not, it is over you and your data for which the battle is being fought. Your payment behavior and your payment data is what they are after. How will you pay and which platforms will be used? Will that be cash, credit card, debit, PayPal/Venmo, Square, Bitcoin and other cryptocurrencies, Apple Pay, Samsung Pay, Amazon one-click payments, Visa, Mastercard, Discover, Amex or even a credit line offered at the time of checkout?
Many may not realize this war going on right before their eyes each and every day as they buy their coffee, their lunch, their gas, groceries, electronics and anything else. And it has been going on for a long time. The winner wants to be the master of how consumers pay for things. As hinted above, the reasons are several-fold. One is, that at scale, there is money to be made processing payments and slicing a few cents or more off of each transaction which amounts to massive amounts at scale. To put this in some context here were the quarterly revenue volumes reported by a few of the combatants in the summer of 2018
- July 2018 Visa reported $5.2B in revenue for the prior quarter (+15% YoY)
- July 2018 PayPal reported $3.86B in revenue for the prior quarter (+22% YoY)
- July 2018 Mastercard reported $3.67B in revenue for the prior quarter (+18% YoY)
- August 2018 Square reported $817M in revenue for the prior quarter (+48% YoY)
A 2017 report by Statista estimates that total payments revenues, which were 1.6 trillion US dollars in 2016 will reach 2.2 trillion US dollars by 2021. That is what the processors are earning on payments. The overall payments volume, what PayPal calls TPV or Total Payment Volume, is a much higher amount.
These massive volumes of payments occur each day online, in stores around the world, at market places, peer to peer, travel and transportation, domestic services, credit payments, business to business payments, cross border and international payments… in other words, there is a lot. We were unable to find exact figures for the total value and number of transactions comprising annual payment volumes including cash and non-cash world-wide, but you can easily see that this number is easily in the trillions. Effectively it would probably be very close to the sum of the GDP (gross domestic product) of all countries – in other words the Gross World Product which is currently near $80 Trillion dollars a year.
Alibaba, the world’s largest (454M buyers) online market place processed $547 Billion of payments in China alone in 2017. So while $547B is large, it is a small fraction, less than 1% of world GDP … or total world payment volume.
Secondly and some may argue even more valuable than the processing fees, generating revenues for payments companies such as the ones mentioned above, is the data that can be collected on consumer and merchant behavior. The Hutch Report recently chronicled how data is quickly becoming the new biological nerve gas. The credit card associations assign a merchant category code to each merchant and this code corresponds to the type of business or service the company offers. But this is just the tip of the iceberg, data is collected for each transaction on the amount, the location, the date and time, the type of transaction (purchase, refund, withdrawal, deposit, etc), the type of account, card number, identity of the card acceptor (eg. merchant), information on the terminal used for payment, and much more. Apple already has over 450 million credit cards on file related to iTunes, the iOS Appstore, and Apple TV. In addition to knowing what media you consume, with Apple Pay, they will know even more about you. In addition to advertisers and the merchants themselves, payments data is also super interesting to investors and market speculators. Investors and speculators will go to great lengths to collect data in order to build an edge for themselves. There are now even companies such as RSMetrics that produce and sell aerial imagery of retail outlet parking lots and production facilities. Payment data is much more granular and refined. In addition, the Government also loves digital data, particularly digital cash because then they can completely monitor it, control it, and even charge negative interest rates quite easily if they so choose.
Given the size of the battlefield, a fragmented regulatory landscape and the existence of a plethora of consumer segments, consumers and consumption types … these wars for how you pay and how your payments data is collected will continue to rage for some time.