The PAYTECH Book

The Payment Technology Handbook for Investors, Entrepreneurs, and FinTech Visionaries

Susanne Chishti, Tony Craddock, Robert Courtneidge, Markos Zachariadis, Susanne Chishti, Tony Craddock, Robert Courtneidge, Markos Zachariadis

• Publisher: Wiley
• Year: 2020
• ISBN:
  9781119551959
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

The only globally-crowdsourced book on the future of payments ("PayTech"), offering comprehensive understanding of a rapidly evolving industry at the centre of global commerce

The movement of money between individuals, organisations and governments is crucial to the world economy. The payments industry has undergone immense transformation ­– new regulations, technologies and consumer demands have prompted significant changes to the tools, products and use cases in payments, as well as presented lucrative opportunities for entrepreneurs and FinTech professionals. As payment technologies become faster and more efficient, companies and investors are increasingly favouring PayTech innovation due to better customer experience, increased revenues and manageable risks. The PAYTECH Book brings together a diverse collection of industry experts to provide entrepreneurs, financial services professionals and investors with the answers they need to capitalise on the highly profitable PayTech market.

Written by leaders in the global FinTech and payment sectors, this informative volume explains key industry developments and presents valuable first-hand insights from prominent industry practitioners. Contributors include advisors and consultants to the payments and financial services industry, entrepreneurs and business owners utilising cutting-edge PayTech capabilities, academic researchers exploring the social-political-economic impact of PayTech and many others. Detailed chapters cover essential topics such as cybersecurity, regulation and compliance, wholesale payments and how payment systems currently work and how PayTech can improve them. This book:

• Defines PayTech and identifies its key players
• Discusses how PayTech can transform developed markets and accelerate growth in emerging economies
• Describes how PayTech fits into the larger FinTech ecosystem
• Explores the future of PayTech and its potential as an agent of social change and financial inclusion
• Provides diverse perspectives on investment in PayTech and what consolidation and expansion will look like

The PAYTECH Book: The Payment Technology Handbook for Investors, Entrepreneurs and FinTech Visionaries is an indispensable source of information for FinTech investors and entrepreneurs, managers from payments companies and financial services firms and executives responsible for payments in government, corporations, public sector organisations, retailers and users of payments.

1
Payments Explained

Executive Summary

From banknotes and coins, to plastic cards and mobile devices, payments have evolved over the centuries to include a number of instruments and means that help financial transactions to take place in the real economy. By nature, payment transactions are increasing as economic activity grows; the demand for payments is expected to rise globally as developing countries build their infrastructures and become more financially inclusive, and as the emergence of the digital economy allows for more “on-demand” products and services driven by consumer demand. But what exactly is in a payment and how are these cleared and settled in a modern financial system? What are the different technologies and infrastructures involved, and which elements are necessary in order to facilitate a payment?

This part looks at the broader question of what’s in a payment? and provides explanations and descriptions of the various stages and elements of payment systems, as well as how automated clearing houses and real-time settlement systems work. It looks at these from historical as well as technological, procedural, socio-political and regulatory perspectives. It goes on to put this in the context of modern and emerging economies around the world. Special focus is put on the evolution of money and payments that look at the material representations of money, the establishment of electronic transactions and payment institutions, and the emergence of cashless societies. Case studies from emerging infrastructures and regulatory trends are used in order to illustrate progress in the field, and examples of new business model approaches – such as “payments as a service” – are highlighted to demonstrate how many of these technologies can introduce new business opportunities.

Payments are Getting Political Again

By Bill Maurer

Dean of the School of Social Sciences, University of California, Irvine, CA

In the USA, more and more retailers are adopting a “no cash” policy, only accepting payments by card or mobile phone. Sweden has long been touted as a country on an inexorable march towards becoming a “cashless society”. In both countries, however, policy-makers are starting to worry about the impact of cashlessness on the public good. Some states and municipalities have even taken up the cause of cash, arguing that refusing cash unfairly excludes the un- and underbanked from everyday commerce, and disproportionately impacts the elderly and recent immigrants. Some of them even see Indian Prime Minister Narendra Modi’s demonetization of high-denomination rupee notes as a cautionary tale. It sparked panic across the country during November and December of 2016, as people sought to exchange old notes for new, while the existing digital payment infrastructure was unprepared for an influx of new users.

Meanwhile, mobile app-based payments have swept through China. Alipay and WeChat Pay provide all-in-one suites of services, allowing users to purchase short-term bicycle rentals, order food delivery, buy movie tickets and even get fashion advice, and pay within the app or via QR codes scanned by the phone’s camera. These companies have pioneered new ways to bridge the divide between the physical world and online or mobile interactions. Alipay can send near-instant push messages for shoppers in physical world stores containing digital offers and coupons, pegged to products customers have picked up and scanned with their phones while walking the aisles. WeChat and Alipay are going abroad, too, setting up across the world from the USA to Finland to provide payment options for Chinese tourists. Only those with Chinese bank accounts have access to these services, however, creating a sort of distributed, virtual zone of Chinese state sovereignty created through payment, whether in Helsinki or Hanoi. In response, some countries have put restrictions on these companies, with Vietnamese authorities sanctioning store owners who set up WeChat and Alipay services without going through a Vietnamese intermediary.

Why Payments are Political

Payments are political in that they are a function of state sovereignty, and also an extension of it. This is old news, of course: money itself emanates from state sovereignty. But digital payments, obviating the anonymity of cash transactions and generating vast quantities of data in their wake, provide new opportunities for states to extend their reach. It goes without saying that the Chinese government is able to garner vast troves of information on its citizens in-country and overseas by tapping into the data streams of mobile payment services. Much is being made of the partnership between Alibaba, the parent company of Alipay, and the Chinese government around various “social credit” scoring schemes. But I think the more mundane practice of state surveillance via machine learning algorithms, which are learning to spot shopping behaviour in which the government believes it has an interest, is more chilling because it is so banal.

Payments in the World’s Largest Economy

These politics of payments are not, of course, limited to authoritarian regimes. Payment providers have been enlisted into government service almost since their inception, whether in the tracking of cash to hamper criminal activities or in the regulations around customer due diligence and identification for cross-boundary payments of all kinds.

One of my colleagues once joked to me: “The [US] Bank Secrecy Act is the most moronically named law on the books. It means the bank can keep no secrets from the government.” When the card networks and PayPal froze donations via their networks to WikiLeaks in 2010, they inserted themselves into a debate over information security and freedom. They also created one of those moments when the politics of payments were made explicit: in the ability of payments infrastructure to serve political ends.

Operation Choke Point followed: the US Department of Justice in 2013 mandated that banks conduct additional scrutiny of transactions over the automated clearing house (ACH) marked with a set of codes for merchants deemed “high risk” for criminal activity and money laundering (firearms dealers, payday lenders, dating services and other businesses). This was suspended due to a political pushback from the right wing in 2017, which saw it as targeting businesses associated with their constituencies (such as the gun lobby). Most American legislators – to say nothing of the general public – probably didn’t even know what the ACH was before this.

Payments Across a World in Turmoil

Recent geopolitical turmoil has put the spotlight on the politics of payments, too: it appears that Russian conspirators during the 2016 US Presidential election accepted payment in the cryptocurrency Bitcoin, in order to avoid the scrutiny of banking authorities. In February 2018, when there were rumours online that Chase Bank had been summarily closing the accounts of prominent figures of the white nationalist movement in the USA, there was renewed attention on Bitcoin among the far right. This underscored the origins of the cryptocurrency in libertarian philosophies about the relationship between so-called sound money and “liberty”.

But this is also an old phenomenon. Payments are getting political, again.

In the USA, the abolition of interchange on cheques was one of the first important achievements of the Federal Reserve. It not only smoothed interstate commerce, but also represented a new extension of federal power over the states of the union. That the majority of non-par banking states were historically members of the Confederacy only underscores the politics of payment and, specifically, their inflection by histories of American racism. One can trace a lineage from those in Congress who argued against par clearance of cheques to today’s white nationalists. At the time, the est...