A new wave of digitisation, driven by the arrival of smartphones and the internet, is changing payments systems. But it isn’t always new fintech firms, digital newcomers or fancy cryptocurrencies that are leading the rewiring
of the most fundamental economic activities. To buy anything, you need something the seller wants. One option is barter, but that is beset by friction . Early forms of money, from cowrie shells to beads to metal coins, offered a solution: they were always in demand to settle transactions. But they came with their own problems, from counterfeiting and delay to not having enough when needed . The use of credit for trade, first recorded in Mesopotamia five millennia ago, changed the game.
The arrival of digital-payment platforms promises to create new kings of the highly lucrative global payments system, which recorded some $2.1trn in revenues in 2021. Out with lumbering banks, expensive credit cards and grimy physical cash, it suggests. Instead, in with flashy crypto protocols, seamless fintech wallets and even digital central-bank money. Some of the excitement around this has been excessive.
A good example is China’s Alipay, initially an escrow service for Alibaba’s e-commerce platform. Before this, notes Jack Poon of Hong Kong Polytechnic University, “You had to go to a street shop to buy video-game points in-person.” Alipay, which drew inspiration from the servicing of eBay by PayPal, a payments firm, boosted e-commerce by using smartphones andcodes to scale up fast. Along with its counterpart WeChat Pay, it now processes some 90% of Chinese digital payments.
In some cases the subtle alliance between banks and the state has bolstered this stability. In China the crippling of Ant Group by the government let banks remain prominent in lending. In America Facebook came too close to finance when it tried to launch its online currency, Libra, and was forced back. Apple Pay and Google Pay are growing, but for now play only a niche role in payments.
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