So, there is a flywheel coming up to speed: FedNow [1]. I beat this horse to death here [2], but only because it is so revolutionary (for US financial infra). It catches us up with 54 other nation states with instant payment systems. It removes credit risk from delayed settlement, checks (and the risk that goes along with paper instruments), the need for a deposit account to underwrite you (if they simply disable any ability to go below $0). It's run by the Fed as a cost recovery utility, not a for profit enterprise to squeeze as much profit from as possible.
There are already 400 participants who have signed on in less than a year of the network being live [3] (the list includes Chase Bank and the US Treasury), and the CFPB is already getting in front of financial institutions attempting to charge insufficient funds fees for instant payments when unnecessary [4]. There are substantial entrenched interests fighting it (The Clearinghouse and their competing private RTP network, credit card rails, etc) due to the revenue at stake (~3-5% of the economy running through this FinInfra), but as long as the infra uptake continues and it isn't sabotaged by policy and lobbying, it will deliver more efficient value transfer at scale. Also helps when merchants surcharge credit card rail payments when cheaper alternatives are enabled.
Tangentially, the unbanked stand at ~4.5% in the US per the Fed [5]. That should be driven to as close to 0% as possible, which instant payments contributes towards (getting funds to recipients faster with less float and necessitating less or no credit extension, depending on use case).
(humorously, you mention it's very "Indian" when UPI [India's instant payment system] is probably the gold standard success story [6] alongside Pix [7] in Brazil)
This system is one of the reasons PayPal's stock has imploded massively over the past ~18 months. FedNow will all but directly kill their primary business.
PayPal was around $290 / share in August 2021. Now $63 / share. Their business got larger in that time, not smaller. The market is front-running the end of the necessity (or general usefulness) of services like PayPal in the US. The stock is back to where it was in 2017, when PayPal was a far smaller business, and it's now trading for 14 times operating income. They better find a new, large business, fast.
Interestingly the market isn't regarding FedNow as a serious threat to Visa & Co. at all. Visa's stock is at an all-time high ($569 billion market cap, making them the most highly valued financial services company in the world).
The belief must be that credit cards will retain their utility (purchase protection being one), both in the US and globally.
I would expect Visa's extraordinary margins to get damaged by FedNow.
The market may be looking at the Europe where instant wire transfers are free and people use them (paying rent, phone, anything recurring, paying for larger items like a car). Often people use them to split a lunch bill.
Mastercard/Visa is a huge thing here in retail but PayPal is really niche. No app leveraging the instant wire transfers is getting much traction. The network effects are huge and the card fees apparently aren't that high.
This doesn't seem right. At least from the small business point of view. The banks here in CZ charge around 1 % + $10/month for the device and card acceptance.
Purchase protection is a minor thing. The credit card companies let you spend money to don’t have, and that is valuable to both sides of the transaction.
I think PayPal will do fine. FedNow requires a frontend for UI and to find contacts. PayPal and Venmo have that and people are used to using them. Instead of ACH transfers, they will do FedNow transfers.
They had to compete with banks and Zelle, and did fine. I think Zelle is doomed.
> Zelle is an example of a P2P option, but with one major difference from those outlined below; its transactions can be cleared via The Clearing House’s RTP rail. If both the payee and the recipient use banks that leverage the RTP rail, the transaction will settle instantly. If not, it will typically settle in a matter of minutes. Since users can send money to recipients outside of their bank and the funds settle in real-time (or nearly), it is considered to be an open (rather than closed) loop payment.
> Notably, Zelle has seen massive growth since its launch in 2017 and is now available to nearly 80% of the U.S. population, with adoption by over 1,600 financial institutions. Similar to The Clearing House, Early Warning Services (owner of Zelle) is privately held by 7 major banks.
There are already 400 participants who have signed on in less than a year of the network being live [3] (the list includes Chase Bank and the US Treasury), and the CFPB is already getting in front of financial institutions attempting to charge insufficient funds fees for instant payments when unnecessary [4]. There are substantial entrenched interests fighting it (The Clearinghouse and their competing private RTP network, credit card rails, etc) due to the revenue at stake (~3-5% of the economy running through this FinInfra), but as long as the infra uptake continues and it isn't sabotaged by policy and lobbying, it will deliver more efficient value transfer at scale. Also helps when merchants surcharge credit card rail payments when cheaper alternatives are enabled.
Tangentially, the unbanked stand at ~4.5% in the US per the Fed [5]. That should be driven to as close to 0% as possible, which instant payments contributes towards (getting funds to recipients faster with less float and necessitating less or no credit extension, depending on use case).
[1] https://news.ycombinator.com/item?id=36801491
[2] https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
[3] https://www.frbservices.org/financial-services/fednow/organi...
[4] https://www.pymnts.com/news/cfpb/2024/cfpb-proposes-banning-...
[5] https://www.fdic.gov/analysis/household-survey/index.html
[6] https://en.wikipedia.org/wiki/Unified_Payments_Interface
[7] https://en.wikipedia.org/wiki/Pix_(payment_system)
(humorously, you mention it's very "Indian" when UPI [India's instant payment system] is probably the gold standard success story [6] alongside Pix [7] in Brazil)