Why is mobile payment not popular in developed countries？
Writing/Photo courtesy of Liu Zhirong
Since the People’s Bank of China issued the first batch of third-party payment licenses in 2011, China’s mobile payment has mushroomed. According to the data on the overall operation of the payment system recently released by the People’s Bank of China, in the third quarter of 2019, banks handled a total of 59.464 billion electronic payment transactions, amounting to 612.9 trillion yuan. Among them, there were 27.274 billion mobile payment services, amounting to 86.11 trillion yuan, up by 61.05% and 31.52% respectively. Non-bank payment institutions handled 191.187 billion online payment services, amounting to 63.99 trillion yuan, up 37.01% and 23.04% respectively.
At present, many mobile payment platforms attract customers and compete fiercely for market share by sending red envelopes, and many people like to use mobile payment in their daily life. In order to help readers better understand this emerging payment model, this paper talks about seven aspects of mobile payment that many readers are interested in.
Mobile payment technology has a history of 19 years.
Payment can be divided into two categories: one is traditional payment, such as cash, money order, check, bank transfer, etc. The other is electronic payment, that is, the payer pays the amount to the payee through the electronic payment hardware and software provided by financial institutions or electronic payment business enterprises (third-party payment).
America is the first country to use electronic payment system. As early as 1978, the United States promulgated the Electronic Payment of Funds Act. In 1985, the United States supplemented Chapter 4A of the Uniform Commercial Code, which stipulated in detail the operation process and flow of electronic payment. These laws became the blueprint of the Model Law on International Credit Transfer signed by the United Nations in 1992. In 1999, the United States passed a Uniform Electronic Transactions Act, which further regulated electronic transactions.
On August 11th, 1994, a customer bought a record "The Legend of Ten Preachers" by British singer Sting, and made payment through the Internet, which was the first electronic transfer service based on the Internet in the world.
For banks, it is hoped that customers will reduce the use of cash as much as possible, and electronic payment, such as smart cards, contactless cards, ATMs, debit terminals, fixed telephones, computers, tablet computers, mobile phones, etc., can enable customers to achieve the purpose of daily consumption payment without withdrawing cash from banks, which not only brings convenience to consumers, but also helps commercial banks to create money. Because the less cash residents have, the more cash the banking system keeps, the greater the money multiplier and the more money supply. Thus, if the currency issuance is not well controlled, electronic payment will easily lead to inflation.
The electronic payment system is very complicated, and the payment realized by mobile electronic devices is mobile payment, including mobile phones, tablet computers, POS machines, near field payment (NFC), bar code scanning and so on.
On December 11th, 2000, the United States Patent Office received the world’s first patent application for mobile payment system with the application number of 09/733409, which was approved on June 13th, 2002. It can be seen that mobile payment technology has a history of 19 years.
In the electronic payment system, if the transfer is realized through the Internet, it is called online payment. At present, the mobile phone payment used by China residents mostly belongs to online payment, because there must be a condition to realize payment, that is, the Internet should be unblocked, and without it, the transfer cannot be realized.
However, foreign mobile payment also includes near-field payment, and the transfer can be realized without the Internet.
Mobile payment is mostly realized by third-party payment platforms.
In addition to the direct payment of "cash on delivery", we are familiar with the payment methods, that is, going to a bank or using a bank card to realize payment, and transferring money from one bank to another or from different banks with the help of banks.
Most mobile payments have a "third party". This "third party" is a non-financial institution enterprise. Now they are generally called "third-party payment platforms". The third-party payment platform acts as a "middleman" between consumers, merchants and banks. An enterprise with a third-party payment license can exchange data with the bank by signing an agreement with the bank and accessing the payment gateway system, thus assisting the bank to realize the transfer.
Of course, some banks set up their own payment platforms, so there is no need for a "third party" to intervene.
Therefore, mobile payment still depends on the banking system. Without banks, mobile payment cannot be realized. If you want to pay by mobile phone, you must download a payment APP with your mobile phone and bind one or several bank cards. After you order a product online, open the mobile payment APP to pay the merchant, and the payment APP will transfer the amount you want to pay from your bank card account, but the money will not be paid to the merchant immediately, but will be temporarily stored on the third-party payment platform. When you receive the product and confirm it, send a receipt payment information to the third-party payment platform, and then the third-party payment platform will transfer your payment to the merchant.
It can be seen that third-party payment has certain security for customers’ online shopping. That is to say, if you don’t receive the goods within the specified time, or the goods you receive are inconsistent with the description of the goods, you can apply for a refund. This payment will either be returned to your bank card account, or it will still be stored in your account on the third-party payment platform for future consumption and payment.
But this is not foolproof. If you don’t give the third-party payment platform an instruction to pay the merchant at the agreed time, the money will be automatically transferred to the merchant. If you order a commodity online, the agreement is to receive the goods and pay within 7 days, but you don’t receive the goods within 7 days, and you forget the refund operation, at this time, you are deemed to have received the goods, and the money will be automatically transferred to the merchant without your instruction. You didn’t see what you bought, but the money was transferred away.
If it is a small payment or on-site consumption, mobile payment is often an instant transfer. For example, if you go to a restaurant or shop, open your mobile payment APP and generate a payment QR code. The store will immediately transfer your money to the merchant with a scanning gun.
3 Why are so many companies keen on third-party payment platforms?
According to the data of 2018, there are 250 third-party payment platforms in China. As the saying goes, "it is not profitable to get up early", and enterprises’ enthusiasm for engaging in third-party payment platforms is also driven by interests. So, where are the benefits of third-party payment platforms?
One is the handling fee. In order to attract users, many third-party payment platforms don’t charge transfer fees at the initial stage, but with more users, users have become dependent on the payment platform, and the third payment platform begins to charge fees, with the rate generally ranging from 0.08% to 0.22%. Don’t underestimate this handling fee, because there are many transfers, and the average handling fee for each transfer is 20 cents, but every accumulation of sand makes a tower, and every 100 billion transfers is 20 billion yuan!
Then there is the precipitation of funds. As mentioned above, the third-party payment platform is entrusted by consumers and merchants, acting as an agent for payment and receipt, and keeping the payment for a short time. Some payment platforms are tens of millions of users, and the amount of money kept is huge, so you can put this money in the bank to get considerable interest income.
All of the above are legitimate incomes. However, it does not rule out that some third-party payment platforms, like bike-sharing enterprises illegally misappropriate users’ deposits, divert the funds deposited on the platforms for other purposes, which eventually leads to inability to pay.
Bike-sharing ofo promised to refund the deposit within 1-15 working days, but most users waited for more than one year and didn’t return the deposit. Several ofo users around me applied for a refund of the deposit in 2018, but they have not returned it so far, and they will never return it because the deposit was forcibly converted into gold coins. What is the use of gold coins? Let you go to the designated online store to buy high-priced goods, such as a 268-gram bag of dates, 23.9 yuan for a bag, only four "gold coins" can be used, and you must also transfer 19.9 yuan in cash.
If there is a lack of supervision on the third-party payment platform, the boss takes away the money deposited on the platform, or forcibly converts it into "gold coins", then the user will also stare blankly. This loss is not great for a single user, and many users don’t care, but for a payment platform with tens or even hundreds of millions of users, it may be tens of billions or even hundreds of billions of yuan.
This is why some enterprises try to squeeze into the ranks of third-party payment, which has huge benefits.
Our commonly used QR code was invented in Japan in 1994.
Barcodes were widely used before QR codes. At 8: 01 am on June 26th, 1974, at Marsh Supermarket in Troy, Ohio, a customer bought a pack of Wrigley gum, which was paid by scanning the bar code.
By the way, George laurel, the co-inventor of bar code and an American IBM engineer, died on December 5, 2019 at the age of 94.
Bar code technology uses linear scanning, that is, scanning the bar code from one direction. The information contained in the bar code is not large enough, but it occupies a large area, which is no longer suitable for the needs of modern commercial development. For this reason, people began to develop coding and decoding technology with small occupation area and more information, and QR code came into being.
As the name implies, two-dimensional code is scanned from vertical and horizontal dimensions, which occupies a small area, but contains much more information than bar code.
There are many encoding and decoding technologies for QR codes. In 1994, Denso Wave Company of Japan developed "QR Code" for production tracking on automobile production line. "QR Code" has become ISO/IEC18004 standard, and anyone can use it for free. Now most of the QR Codes we use are "QR code".
On May 15th, 1995, andrew lang Ike, Jr. and Robert Hess also applied for the patent of two-dimensional code coding and scanning code in the US Patent Office, which improved the coding and scanning decoding technology of two-dimensional code, and the patent application was approved on January 7th, 1997. Later, the patented technology became the ISO/IEC 24778:2008 standard.
American Baby is the most widely used mobile payment platform in the world.
There are some world-famous third-party payment platforms in the United States, such as "Google Pay", "Apple Pay" and "Amazon Pay", but PayPal is the most widely used in countries and regions in the world. In 2019, "Baby" has 290 million active users in 202 economies around the world and can be paid online in 25 currencies. Baby landed in China in July 2017.
Founded in December 1998, Baby is a constituent stock of Nasdaq 100, Standard & Poor’s 100 and Standard & Poor’s 500. In 2018, "Baby" had a turnover of $15.45 billion, operating income of $2.2 billion, net income after tax of $2.01 billion and net assets of $15.39 billion.
"Baby" went public in 2002, with an issue price of $13 per share and a total financing of $61 million. On October 3rd, 2002, Yi Bei, an e-commerce giant, bought "eBay" at a price of $23 per share, 77% higher than the issue price. Soon, a large number of online shopping customers choose "Baby" to pay, and 70% of transactions in Yi Bei are transferred through "Baby".
In 2007, "Baby" established a payment cooperation relationship with MasterCard, and in that year, "Baby"’ s annual operating income reached $1.8 billion. "Baby" also made Fortune’s list of "Top 500 Enterprises in America in 2008", ranking 222.
"Baby" involves almost all fields of electronic payment, not only online payment, but also offline payment, and electronic transfer can be realized with or without the Internet. By the end of 2012, "Baby" had paid a total of $145 billion.
On July 18th, 2015, Baby was spun off from Yi Bei and became an independent listed company.
On May 17, 2018, "Baby" acquired the Swedish mobile payment platform iZettle, which was founded in 2010, for $2.2 billion.
On November 20, 2019, "Baby" acquired Honey, an American e-commerce service company founded in 2012, for $4 billion, which is the biggest acquisition by "Baby" so far. Honey is a service provider for consumers to find the most affordable online shopping products on the Internet.
The security of mobile payment has attracted much attention.
An indisputable fact is that in the field of payment, the more people involved, the more likely it is to go wrong and the greater the risk.
Only the buyer and the seller participate in the "cash on delivery" payment method, which is the safest at present, because "you don’t scatter an eagle if you don’t see a rabbit", and your money and the purchased goods are exchanged in your sight.
There is a certain risk in the payment involving the bank, because if the merchant deliberately swindles, he will receive the payment and will not deliver the goods to you. Of course, there are also criminals who steal bank card accounts and passwords and transfer money away.
In addition to banks, there is a third-party payment platform for mobile payment, which increases the risk. The convenience of mobile payment also encourages some crimes, such as gambling, fraud, money laundering, bribery, illegal transfer of funds, etc. Because it is so convenient, you can pick up your mobile phone and turn away with a little money, and it is difficult to track the money transfer all the way.
There are countless cases of fraud and theft by using mobile payment. In 2015, the police in Wuhu City, Anhui Province cracked a theft case by using mobile phone transfer. Criminals send a short message with a URL link. When this link is opened, the user’s mobile phone will be controlled by criminals, thus transferring the bank account funds bound to the mobile phone.
In 2015, the police in Zhuhai City, Guangdong Province cracked a serious case of stealing Alipay funds by hacking. Criminals obtained a large number of Alipay accounts through illegal means, and tested the payment password through scanning software. After the test was successful, the funds in Alipay users’ accounts were transferred away. In addition, more than 4 billion pieces of citizen information were found from the criminal’s computer hard disk, involving more than 10 million electronic payment accounts such as Alipay, JD.COM and Baobei. It is estimated that the total funds of these accounts are close to 1 billion yuan.
Criminals also use QR codes to steal funds from time to time. Criminals can implant a Trojan horse program into the QR code, and the mobile phone scans the QR code and the Trojan horse is automatically installed. All information in the mobile phone is stolen, including various mobile payment accounts and passwords, and bank card accounts and passwords bound to the payment platform. Some criminals also implant a phishing website into a QR code, scan the QR code into a phishing website, and cheat users of their funds.
In addition to financial security, personal privacy is also threatened when using mobile payment. As mentioned above, mobile payment must be bound to the bank card account number on the mobile phone, and both the mobile phone and the bank card are bound to the ID card. Knowing your payment APP account number, you will know your bank card account number, your ID number and a lot of your personal information.
In 2013, the police in Hangzhou, Zhejiang Province cracked a case in which employees of a payment company sold citizens’ information. The suspect sold 20G of user information to e-commerce companies and data companies, including the citizen’s name, gender, date of birth, ID number, home address, mobile phone number, e-mail, consumption records and so on.
It is more risky to use mobile payment under WIFI, and hackers can easily invade mobile phones and obtain various information such as accounts and passwords. Readers are advised to avoid using mobile payment under public WIFI as much as possible.
Moreover, the third-party payment platform itself also has potential risks. As mentioned above, if the payment platform uses the funds deposited on the platform for other purposes, as bike-sharing enterprises do, the loss of users will be great. According to the information released by the Central Bank of China, in the past two years, China has cancelled 27 third-party payment licenses.
7 Why is mobile payment popular in developing countries?
Although the mobile payment system was developed and first applied in developed countries, it seems that residents in developed countries are not interested in mobile payment; On the contrary, mobile payment is developing rapidly in developing countries, especially in Asia and Africa.
On November 13, 2019, the data released by the Bank for International Settlements showed that the mobile payment transaction volume in India increased by 55% in 2018, ranking first in the world.
Kenya launched the mobile payment service as early as March 6th, 2007, and the payment platform is M-Pesa. "M" is the initials of "Mobile" in English, while "pesa" means "money" in Swahili. M-Pesa has been extended to Tanzania, South Africa, Mozambique, Democratic Republic of Congo, Ghana, Lesotho, Ethiopia, Egypt, Afghanistan, India, Romania, Albania and other countries.
According to the statistics of the World Bank in 2018, 73% of Kenyans use mobile payment, and their wages are transferred through mobile payment. According to the data released by M-Pesa, Kenya has 37 million active users on the platform (Kenya has a population of 50 million) and transfers money 11 billion times a year. Recently, on the occasion of its 50th anniversary, the world-famous project management institute (PMI) selected the "50 most influential projects in the past 50 years", and Kenyan M-Pesa ranked 9th on the list.
The reason why mobile payment is favored in developing countries is mainly because the banking system in developing countries is relatively weak, and many residents have never used checks and credit cards at all, which leaves room for mobile payment to develop. According to the data released by China Banking Association in 2016, the average American holds 3.11 credit cards, while in developing countries, the average number of credit cards is 0.81 in Brazil, 0.74 in Turkey, 0.30 in China, 0.25 in Mexico and 0.02 in India.
Because mobile payment reduces the dependence on banking facilities, it does not need to go to bank outlets, nor does it need ATMs or terminal equipment. It can transfer money with a mobile phone, which is very suitable for developing countries with weak banking system.
As far as developed countries are concerned, their banking system is quite developed, and the integration of banks is also very good. Merchants can realize the online transfer payment business of all banks as long as they have a VISA plug-in. Residents can take a credit card with them casually, and they can cope with daily consumption payments, even paying by credit card when riding in bike-sharing, which is very convenient, which leads to their lack of motivation to pay by mobile. Because it is better to take out your mobile phone, open the payment APP and choose several operations, it is better to use the credit card directly. In addition, the risk of mobile payment is much greater than that of credit card payment. Most residents in developed countries are not interested in mobile payment and think it is unnecessary.
Furthermore, citizens in developed countries have a strong sense of personal privacy protection, and some well-known websites have leaked user information from time to time. They are also worried that third-party payment platforms will steal or disclose personal information. There is no guarantee that every third-party payment institution is law-abiding, nor can every employee of the payment institution be law-abiding. There have been cases in which employees of well-known third-party payment platforms resell user information to other companies, including citizen’s name, gender, date of birth, ID number, home address, mobile phone number, e-mail address and consumption records. If they are sold to criminals, the consequences are unimaginable.
From the perspective of supervision, because mobile payment transfers money through the third-party payment platform, it shields the bank clearing system, and it is difficult to guarantee the authenticity and transparency of payment transactions, making supervision more difficult, which easily gives various crimes an opportunity. To this end, developed countries take precautions and have strict laws to regulate mobile payment services, and the entry threshold is high.
Joseph schumpete, an economist at Harvard University, called mobile payment "creative destruction" and thought it would inevitably shake the existing economic order. We should not only see the convenience of mobile payment, but also fully evaluate its negative effects, predict all kinds of risks, improve the supervision system, plug all kinds of loopholes, and prevent it from inducing crimes, infringing users’ interests and undermining financial order.