While China was the country that first invented paper money way back in the thirteenth century, it could also be the first to dispense with it altogether.
China’s economy has undergone a revolution, led not by the son of a peasant, but by everyone’s closest friend – the mobile phone. Two companies – Alibaba and Tencent – have almost absolute control over the nation’s spending. People use their apps to chat, shop, send money, and make purchases in physical stores. The country is rapidly becoming cashless, and at the same time, richer. But the most worrying part for the banks: they don’t get a cut.
In the US, payments processed through mobile phones still have to go through a bank, allowing the various companies involved to feast on the accrued fees: fees for the issuing bank, the card processor, the merchant’s bank, and the card companies themselves. If the US were to transition to an app-based purchasing system like China, these companies would stand to lose $43bn in revenue.
US banks also generate revenue through dispensing cash, and administering current accounts: in China, many don’t have bank accounts, and they’ve dispensed with cash altogether.
Phone payments offer an obvious advantage for the consumer, and American banks are slowly waking up to the fact that they can’t have their cake and eat it too. Stumbling from their beds after gorging on card fees, they rub their weary eyes, struggling to see that the world of mobile payments has moved on without them.