Payments

What did fintech offer to payment systems?

- Most impacting innovation has been the «digital wallet» - Emerging inititally as a respons to consumer concerns around the security of online payments - they provide a virtual alternative to consumers physical wallets, enabling them to complete online transactions without divulging card details Smartphones provided further development Customers could use smartphones to make payments, apps to send payments to each other or make international transfers.

Payments systems summary

- Number of electronic transactions significantly increased - cashless society - Digital commerce growth - Increasing cross- border activity

What made stripes idea spesial?

1. Simple: a process that used to take weeks was now a cut and paste job. Anyone could insert the code into any app or website in a day to connct to a payments company. 2. stable: it took years before the API needed to be changed

Why do we need to learn about it?

Any fintech idea will use PSD2 API dircetly or indirectly, even crowdfunding

What are the different ways in which a payment can happen

Cash - cryptocurrencies also have similar characteristics Non- cash/digital - transfer of money between accounts Examples Debit card, credit card, single and multipurpose prepaid cards, gas cards and store cards

What are the problems which lead to the emergence of fintech companies?

Transaction fees: - Merchant pays transaction fee of approximately 3% for accepting credit card transactions. - Merchant fee for debit car transaction is lower but still international transfer is costly Execution speed: Slow: - In the US: the automated clearing house for individual banking services had typically taken two or three business days.

What is stripe?

Founded by Patrick and John collison in 2007 They provide API's that web developers can use to integrate payment processing into their websites and mobile applications. The initial API that the company offered was just seven lines of code Today it handles payments for amazon, booking.com, lyft, diliveroo, shopify, salesforce, facebook and others They made it easier to set up merchant accounts, but merchant accounts required a buisness to partner with a merchant acquiring bank who facilitates all communication in an electronic payment transaction. Usually this is complicated because of regulation, fees and compliance standards, as well as banks, credit card associations etc It is a lengthy process that can take up to 3 weeks and these account relationships involve added costs. Stripe bypassed all these issues because they are the merchant. This role is called payment facilitator. They require a fee. Over the past year 80 percent of us users have bought something from a stripe powerd business. 2 mill websites use stripe in 43 countries

Payment systems

Global payments revenues increased to 1.9 trillion usd in 2019 Growth: tightly linked to the overall economic growth Over the last decade pyments revenues have grown substantially faster than GDP We are moving towards a cashless society Over the past 7 years, the share of cash transactions fell from 89% to 69% Share of combined debit and credit card increased from 5% to 15%

What was cross border payments like in the pre fintech era?

If you need a foreign currency (say, EUR, USD or GBP) for a trip, you have several alternatives: 1. Go to your bank and ask to convert your currency into the foreing one 2. When abroad, withdraw for ATM or just use your debit/credit card 3. Currency exchange shop or Bureau de change 4. Pre-paid cards In any of these cases you are charged with explicit fee(because the bank offers you a service) and implicit fee (this is the bid ask price)

What is a payment?

It is a (financial) transfer between twho parties; a buyer and a seller.

What is PSD2

It stands for Payment Service Directive 2 The directive set out a common legal framework for businesses and consumers when making and reciveing payments whitin the European Economic Area(EEA) It is a piece of payment related regulation which aims at increasing the competition in the payment industry.

Why do regulations change?

Many reasons, for instance: - Increase the competition - Protect the consumers - Prevent financial crime

How was it possible for fintech to offer payments sytems?

Paypal and later alipay provided an encrypted digital wallet that stored bank, debit or credit card details enabling users to make online payments on websites via their paypal accounts. For sellers, it provided a ready- made checkout system, allowing small and medium sized businesses to accept online payments. Apple pay, android pay and alipay's own mobile payment service represent a logical evolution of the digital wallet.

What is paypal?

Paypal was a major player in the payments catagory. They enabled any business or consumer with an email address to securly, convenitently and cost- effectively send and receive payments online. This success id due to two main ideas: 1. in 1999 no means of electronic payment had been developed to handle booming e-commerce. For instance: sales on eBay were being paid for by checks and money orders sent through the regular U.S. mail. In 2002, eBay bought PayPal for 1.5 billion US dollars. PayPal became the main method of payment on eBay. 2. They offer a solution to consumer concerns around the security of online payments Their encrypted digital wallet provided a virtual alternative to consumers' physical wallets, enabling them to complete online transactions without divulging card details PayPal builds on the existing financial infrastructure of bank accounts and credit cards to create a global, real-time payment solution Active accounts; Jan 2000= 12000 Aug 2000 = 2.7 mill Today = 400 mill

Does more regulation necessarily kill the new sector?

Regulation is a difficult business facing a crucial trade off: Incentivise birth of new companies and allow them to compete, but also limit behavior that could harm competition, customers and the entire sector. So yes bad regulation could kill a new and raising sector, but it could also improve it.

Mobile payments

The method is expected to grow faster in the future 95% of the world population owns a mobile phone. 25% of consumers purchase weekly via a mobile device The regulation for this has been friendly so far. And govnerments are encuouraging banks to build infrastructure to enable safe and secure mobile payments in rural areas

What is important with PSD2?

The objective is to create a digital single market in europe It is the next step to open banking for which customers have the option to share information about how they operate theri bank account with organisations that work to deliver an enhanced banking experience. It set up rules for which banks must provide third-party providers to their customers accounts through open API