Does the story sparked by the modern credit card industry herald the future of cryptocurrencies?
Original: Could Crypto ever come to its Credit Card moment?
Author: Patrick Tan
Compile: LlamaC
Cover: Photo by Richard Horvath on Unsplash
"Recommended message: Do the stories sparked by the modern credit card industry herald the future of cryptocurrencies?
➖It's happening and creeping in. "
In 1949, postwar America was experiencing unprecedented economic prosperity. While many of the world's industrialized economies are in ruins, America's industrial might is in a new phase.
Across the United States, factories that once produced B-29 bombers are being converted to make Buicks to feed the growing middle class.
Wages are rising across the U.S. as companies look for workers to make more and more of the gadgets and appliances that define modern American life.
In such abundance, a businessman named Frank McNamara, after enjoying a sumptuous steak lunch with friends at a restaurant called Major's Cabin Grill in midtown Manhattan, realized that He forgot to bring his wallet.
McNamara, who didn't want to do the dishes, managed to get out of the Major's Cabin Grill, signing a negotiated agreement promising to come back the next day to pay his bill.
McNamara believed that he must not be the only one who forgot his wallet before going out, so he thought of a better way and founded the "Diner's Club".
Diner's Club has a cardboard membership card that members can use at any of the 27 participating restaurants it works with – not surprising enough, but definitely a good start.
Diner's Club started with just 200 members, most of whom were friends or acquaintances of McNamara, but quickly grew to 42,000 members, becoming the first credit card nationwide to be accepted across borders.
Only ten years later, in 1959, American Express successfully issued the first plastic credit card.
And in 1969, when IBM engineer Forrest Parry asked his wife how to attach a magnetic stripe to a plastic card, she suggested using an iron, and the magnetic stripe credit card was born.
Jump forward forty years later to 2009, when the first Bitcoin transaction was successfully completed.
bet on bitcoin
However, Bitcoin, and other cryptocurrencies, have yet to replace the other payment methods currently available.
Today, more people in industrialized countries use credit cards than ever before, and the global credit card business is worth about $150 billion and is expected to double in the next decade.
Of course, other payment methods have started to replace credit cards, including Stripe, WeChat Pay, Alipay and Grab Pay.
Today, there are tons of payment methods, not all of which are tied to credit cards, some are prepaid credit, and some work as a quasi-debit card system through store-of-value apps.
Unlike the birth of Diner's Club, payment gateways are more likely driven by e-commerce and online shopping than dining, which has grown rapidly over the past two decades.
The popularity of smartphones and the convenience of payment applications have made QR code payments more common. In Southeast Asia, total e-commerce sales will almost quadruple in 2022 from 2019.
Ironically, emerging markets lead the way in digital payments, eschewing credit cards entirely, just as Africa skipped copper wires and went straight to mobile.
Indonesia, a vast archipelago of 273 million people, has about 10 million online merchants, many of whom do not have the ability to accept payments by credit card.
In emerging markets in Asia and South America, entrepreneurs are often unable to use credit card networks due to onerous on-boarding requirements and lack of banking support.
The difference is that credit card boycotts by merchants have sprung up in Asia and South America, and have spread to Australia as well. Exorbitant card company fees have led many merchants to either refuse to accept credit cards or charge an additional fee of up to 5% on the bill amount to encourage consumers to use their cards less.
In places closer to us like San Francisco, there are even some restaurants that still only accept cash payments to this day, to avoid the exorbitant costs of maintaining credit card terminals.
In order to avoid the high fees associated with credit card transactions, more and more merchants have begun to adopt Stripe as a payment solution to avoid the high fees associated with credit card transactions to a certain extent.
Software problem?
Irish brothers Patrick and John Collison see high credit card fees not as an economic problem, but as a software problem.
They designed an API (Application Programming Interface) that includes credit card numbers, payment amounts, and other key transaction details, enabling merchants who lack the equipment to accept credit cards to receive payments in their bank accounts.
Stripe will process up to $800 billion in payments by 2022, but one limitation of Stripe and other online payment gateways remains that merchants still need to have a bank account.
Then, cryptocurrency came into being.
The inability to move money across borders and receive payments remotely at a time of the pandemic is especially acute in emerging markets, especially places like Indonesia, made up of thousands of islands.
At this point cryptocurrencies, especially Stablecoin, suddenly look like a viable payment option, especially for the unbanked.
Freelancers from Latin America to Southeast Asia are beginning to be willing to use Stablecoin as a payment solution, whether they are designing websites or providing call center services.
While Bitcoin may not be economically designed for widespread use, Stablecoin have evolved into a parallel currency system that not only supports payments but also enables cross-border money flows, circumvents capital controls, and provides self-service banking for the unbanked Serve.
With the growing popularity of Stablecoin, a "mini-industry" has emerged consisting of financial services, such as lending. Stablecoin holders are able to earn a yield on their deposits. Different financial industry services are helping small industries to grow.
While the problems facing the first decentralized and unregulated cryptocurrency-based financial services have been on full display, their existence has not disappeared with the tragic collapse of many of these entities.
The failures of Celsius Network, Voyager, and Terra Luna were linked to high depositor expectations and fraudulent founders.
While banking can be solved with code, economic incentives and monopolistic interest groups cannot be solved with software.
"That ain't workin', that's the way you do it
Money for nothin' and your chicks for free"
— “Money for Nothing” off the album “Brothers in Arms” by Dire Straits © 1985
However, the demand for alternative payment and banking solutions is so strong that financial institutions seem to have realized the disruptive potential of cryptocurrencies.
mechanism
Despite the ongoing “crypto winter,” with the aftermath of multibillion-dollar bankruptcies and a widespread regulatory crackdown, some of the financial industry’s biggest names are building out their cryptocurrency trading capabilities.
Established financial institutions that continue to invest in cryptocurrency companies include Standard Chartered Bank, Nomura Securities and Charles Swab.
These institutions are not like FTX.com, but set up their own trading venues, which rationally separate exchanges from custodians.
Charles Swab, which manages approximately $7.13 trillion in assets, has partnered with market trading giants Citadel Securities and Virtu Financial to back cryptocurrency exchange EDX Markets.
British banking giant Standard Chartered has launched exchange Zodia Markets with its standalone custody solution called Zodia Custody.
While Wall Street's foray into cryptocurrencies may trade the same digital assets, the infrastructure and protections being laid out are significantly different than those of the likes of Coinbase and Binance.
Business units such as trading are separated from custody, conflicts of interest are managed, and meet the institutional standards Wall Street currently expects.
U.S. banking giant BNY Mellon and Fidelity, one of the world's largest asset managers, already have their own digital asset custody divisions, while Nasdaq, the world's second largest stock exchange, is awaiting approval from U.S. regulators to launch its own services.
While there have been criticisms that Wall Street's entry into the cryptocurrency space is merely a continuation of its penchant for speculation, at least some of it is motivated by the belief that cryptocurrencies may one day have their own Diner's Club moment.
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