The banks are coming under fire.
In the United States, 53% of all mortgages in 2018 were originated outside the banking sector. This took a lot away in terms of fees.
Next on the list could be the fees on credit card processing. What is going to alter the landscape is presently up for dispute.
In China, more than 1 billion people pay for their daily purchases via social media. WhatsApp and Alipay account for the vast percentage of purchases in that country.
While they have not taken hold in the United States, Alipay is gaining steam in Latin America.
Together, WhatsApp and Alipay conduct over $40 trillion worth of transactions.
Retailers are looking for ways to cuts the fees they pay. Many, such as Starbucks are using gift and reward cards as a way to entice customers into a new payment method. For example, Starbucks could offer a free cup of coffee on a gift pack of 10 cups, including the charges just once.
By going the social media route, Chinese retailers are able to save 2% on all transactions.
Odds are that the United States does not see a similar path as China. Social media companies are coming under fire for a variety of reasons including privacy concerns. The Libra project caused many to question Facebook. It is unlikely that retailers want to hitch their wagon to that.
Nor do technology companies really want to act like banks. This comes with a bunch of headaches in the United States including having to adhere to the banking laws.
A more likely outcome is the development of cryptocurrency by some of the largest retailers. This would be a way to cut the cost of transactions to almost nothing while enhancing their brand.
Wal-Mart is one that could really benefit from its own token. With over $500B in annual sales, even .5% could end up adding a lot of money to the bottom line. Amazon is another company that could see benefits from tokenizing their processes.
We can conclude that the mega retailers cut some pretty good rates with the processing companies. The ones that are really hit hard are the smaller companies who do not have the negotiating power like Amazon and Wal-Mart.
Cryptocurrency could be a saving grace for them. With payments nearing 3% at times, dropping that via tokens is not going to require too much convincing. As it becomes easier for smaller companies to develop tokens, we should see them take the opportunity to improve their margins.
The retail sector is going to keep getting more competitive. This means we will see margins pushed lower. Retailers are going to look for ways to enhance their profit margins.
The processing charges are a great place to look. There are other options for companies coming along. When they start to take advantage of them, it will be another hit to the banks.
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