By Phillip Silitschanu
Legacy payment systems are the traditional global payment systems that have been in place for generations. These are the credit card networks that span the globe, and allow a credit card holder from the United Kingdom to pay for dinner in Tokyo as easily as if they were back home in London. These legacy payment networks do make it easy for the cardholder to effect global payments – simply swipe a credit card and there is nothing else to worry about. But, not all businesses accept all credit cards. Also, while paying with a credit card for dinner or a hotel room is convenient, it may not always be ideal for B2B global payments, for several reasons.2
While retail businesses generally accept credit cards, businesses that focus on wholesale or B2B commerce will generally accept payments against invoices through checks or bank transfers. But, credit card companies are addressing these concerns, by linking their credit card services with global payment services, so that businesses can make global payments to vendors and suppliers easily and quickly, with favorable exchange rates.
Payment aggregators are generally geared towards smaller businesses and e-merchants, and offer simple to use apps for smart phones, with a card reader which can be plugged into the smartphone itself to allow for swiping of credit cards.3 One major positive of using payment aggregators for many small businesses and e-merchants is that all payment transactions and global payments associated with their businesses can be conveniently processed by the payment aggregator, and the merchant simply receives the payment from the aggregator. Additionally, it is fast and easy for a small business to get set up with a payment aggregator. It often takes one day – instead of several days or weeks spent filling out paperwork, establishing accounts, etc. But, there are also disadvantages.
Payment aggregators often charge higher fees and may have limited abilities to process global payments in foreign countries. Additionally, they may handle chargebacks and holds very differently than other solutions.4 As aggregators are geared towards smaller businesses and e-merchants, there may be other global payment solutions which are better suited to larger businesses.
Mobile payments systems have quickly become popular, but that enormous sudden popularity is occurring mainly in unexpected places: emerging market countries with large populations of unbanked persons. Countries in Africa, Latin America, and Asia have seen even their smallest businesses quickly adopt mobile payment systems, helping those businesses accept credit card payments for the first time, after lifetimes of being limited to only accepting cash.5
Interestingly, the leaders in the mobile payment space are companies who are not the traditional players in payments, such as banks, credit cards, etc. Instead, the leaders in the mobile payment space are technology companies. Apple introduced Apple Pay to be used with their iPhones and Apple Watches; Android Pay for Android based devices; and Samsung Pay for its Galaxy mobile devices.6 These mobile payment systems were developed with an eye towards furthering the popularity of each brand’s mobile devices, not necessarily towards developing payment services, per se.
Bitcoin, and other blockchain based cryptocurrencies such as Ethereum, are becoming accepted by more and more businesses and merchants as a form of payment. As Netflix recently launched its streaming service into 130 countries, . Netflix CFO, David Wells, stated, “Payments are becoming more of a global world,” and that Bitcoin could be used as global currency for global payments.7 But Bitcoin and Ethereum are unique currencies, and not global payment solutions. For that, there are Bitcoin and blockchain wallets. These wallets are essentially virtual bank accounts, in which Bitcoin and other cryptocurrencies can be deposited and then used to make global payments, nearly anywhere in the world, to and from any business or merchant.8Blockchain based cryptocurrencies hold promise as a way to revolutionize global payments, allowing businesses to send and receive payments around the world, quickly, efficiently, and inexpensively. The largest hurdle faced, however, is that very few businesses and merchants currently accept Bitcoin or cryptocurrencies.
There are several ways to make global payments, some more cost effective than others, and businesses need to choose the one which suits their needs. Fraudulent transactions must be carefully guarded against, especially as different global payment solutions offer varying degrees of security.
Phillip Silitschanu is the founder of Lightship Strategies Consulting LLC, and CustomWhitePapers.com. Phillip has nearly 20 years as a thought leader and strategy consultant in global capital markets and financial services, and has authored numerous market analysis reports, as well as co-authoring Multi-Manager Funds: Long Only Strategies. He has also been quoted in the US Financial Times, The Wall Street Journal, Barron's, BusinessWeek, CNBC, and numerous other publications. Phillip holds a B.S. in finance from Boston University, a J.D. in law from Stetson University College of Law, and an M.B.A. from Babson College.
1. Caravan Desert Transport, The Editors of Encylopœdia Britannica, https://www.britannica.com/topic/caravan-desert-transport.
2. CFO Journal, B2B Credit-Card Payments Jump, The Wall Street Journal, http://blogs.wsj.com/cfo/2014/10/28/b2b-credit-card-payments-jump/.
3. What is payment aggregation?, Paylosophy, http://paylosophy.com/payment-aggregation/.
4. What is the difference between Payment Gateway and Payment aggregator?, Quora, https://www.quora.com/What-is-the-difference-between-Payment-Gateway-and-Payment-aggregator.
5. Banking the unbanked with mobile payments, Vanguard, http://www.vanguardngr.com/2016/01/banking-the-unbanked-with-mobile-payments/.
6. 3 Trends In Mobile Payments You Need to Know About, Forbes, http://www.forbes.com/sites/ilyapozin/2015/09/10/3-trends-in-mobile-payments-you-need-to-know-about/#7b2188c36195.
7. Netflix executive considers bitcoin for payments, Virtual Currency Today, http://www.virtualcurrencytoday.com/news/netflix-executive-considers-bitcoin-for-payments/.
8. The Blockchain Wallet: Should You Stay or Should You Go?, Inside Bitcoins, http://insidebitcoins.com/news/the-blockchain-wallet-should-you-stay-or-should-you-go/27223.
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