In this Update by LinkedIn News, we learn that major US banks are working together to create a product to compete with PayPal and Apple Pay: “These firms are concerned that third-party wallet operators like Apple could dominate the customer experience and let banks control the financial architecture behind the scenes. » The banks can actually build and maintain the infrastructure that makes banking and broad financial services possible, while PayPal and Apple Pay only clean up the value created.
The nation’s major banks are working together on a digital wallet that can be used to shop online – and which will compete directly with Apple Pay and PayPal, reports The Wall Street Journal. The wallet will be linked to customers’ debit and credit cards and will be operated by Early Warning Services (EWS), a joint venture owned by JPMorgan Chase, Bank of America, Wells Fargo and several other banks. These firms are concerned that third-party wallet operators such as Apple could dominate the customer experience, leaving banks to manage the financial architecture behind the scenes. EWS, which also manages Zelle, plans to launch the wallet in the second half of the year. A PYMTS study in December found that in-store use of Apple Pay was up 56% year-on-year, while online use was up 63%.
As things stand today, that is actually what is happening. When you receive $100 in your US bank account, the bank does not charge any fees. But when you receive the same in your PayPal wallet as payment, you will be free with finally $3. While some may argue that the money kept in the bank can be used by the bank to make loans, we can also suggest that the funds in the PayPal wallet can also be used by PayPal for many other profit-making activities. My point is clear: banks don’t capture much value while PayPal and others like it do.
You can explain what happens in a curve: the smiling curve. The companies that are in the center capture the least value, and are often the ones that support the ecosystem the most. But those at the edges capture the most value even if they don’t provide much catalytic support in the ecosystem.
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PayPal and Apple Pay operate on the edges, extracting tons of value while the US banks remain lost at the center, capturing only a small amount of value.
This video explains the phenomenon. In fact, where you operate on that curve determines the value you can create and capture, far more than the effort you put forth. You can work very hard as a bank by handling the delivery and centralization of customer funds while these firms by origination/creation and discovery/aggregation positions smile.
Of course, there are many value challenges for banks in general:
Fed up with big banks’ measly interest rates on checking and savings accounts, many wealthy Americans are pulling their money out and investing in higher-paying products. While the Federal Reserve has been raising interest rates for nearly a year, the typical savings account pays just 0.33% interest, The Wall Street Journal reports. But government notes, money market funds and brokered certificates of deposit pay between 4 and 5 per cent. Wealthy customers benefit from the higher interest rates, leading to a flight of deposits from the banks’ asset management businesses. Deposits at Bank of America’s wealth unit fell 17% last year to $324 billion. Deposits in the consumer unit, meanwhile, fell just 0.6% to $1 trillion.
