Implications of American Payments being so different from Rest Of World

Europeans and Asians love pointing out how backward America is in payments, because American tech firms dominate the payments landscape.

There are three big ways that America is different in payments:

1. Americans still use Credit Cards with mag stripe, not chip and pin.

2. Americans still write checks. I have been back in Europe for 3 years now and have not written or received a single check. You send electronic instructions to your bank to pay your vendor. This means that vendors simply publish their bank account details; your bank account details can only be used to pay money into your account, not to withdraw money from your account

3. One time password. This is the norm in Swiss Banks (not sure about other countries). You have to put in user name/password and then enter a number (either from a piece of paper of a chip and card reader). At first it seems a pain, but then you realize how much more secure this is. Basically the banks enlist a bit of their customer’s time to make it more secure.

There are three ways this can play out:

A. America leap-frogs the current best practice in Europe. This will probably be done using Bitcoin and the Blockchain. Suddenly all the European celebrations related to how advanced they are will evaporate.

B. America gradually catches up with Europe. That means the big payments companies (which are still mostly American) will acquire the European payments companies. Or a European payment Unicorn will emerge and become big in America.

C. Some new technology emerges from the world of the unbanked that leapfrogs both America and Europe. This may have features like Mpesa but use the open architecture of Bitcoin & Blockchain.

2 comments

  1. ‘This means that vendors simply publish their bank account details; your bank account details can only be used to pay money into your account, not to withdraw money from your account’

    Not true for Germany. Here you can give your IBAN & BIC to a merchant and authorize him/her to collect a one-time or recurring payment. The result is that credit card transactions are restricted to international shopping/travel etc. Also the fee on credit card usage is high, resulting in direct bank transfers being the mode of choice for online payments. May not be the most advanced, but results in lower credit defaults and debt.

    • Thanks for pointing that out. I can see that works for trusted vendors and is low cost.

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