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Here’s how China is making credit cards obsolete

Have you ever wondered why some establishments do not have a POS to pay with a card, or why do they establish a minimum amount? The answer in many cases is that they do not want to have to pay the commissions imposed by intermediaries (banks, card providers such as VISA or MasterCard …). In the United States, it is estimated that for every $ 100 transaction, only $ 97.25 reaches the seller, with the rest falling by the wayside.

In China they found a way to skip these commissions for the most part, eliminate costs for businesses, and allow living with mobile payments that go far beyond what we know in Spain.

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While we are used to mobile payments consisting of having a virtual copy of the physical card on our smartphone, in the Asian country they go further with payments using QR codes, a system that has completely changed business transactions in supermarkets, gas stations, taxis and any type of establishment. Even to pay bills.

In most countries of the world, payments are made up of cash and a list of banks and partners for “plastic money”, with VISA and MasterCard at the helm. In China they hardly compete Alipay and WeChat Pay, controlled by AliBaba -which comes to be the Chinese Amazon- and Tencent Holdings -owner of WeChat, the “WhatsApp of China” that goes much further in terms of functions.

Point the camera, touch, confirm. That’s what the QR checkout process in China comes down to.

The Alipay service is free for less recurring users, as increasing commissions are added. But even the highest of all is lower than PayPal’s, for example: 1.2%.

Alibaba and WeChat digital platforms have become almost integral ecosystems where their users perform many actions for which perhaps in the West we are used to using several apps separately.

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Each user has a unique QR, also the businesses, and communicating with each other is how payments are completed. Banks and providers of debit and credit cards are left out of an equation that is expected to rise and with no signs that it is any fashion.

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The United States observes this model with some concern: By the time a major tech player adopts this model, their business may be in trouble. Although this figure still exists in many shops, in others there is no longer even a POS to process card payments. Another cost reduction for the merchant.

The secondary role of banks and card issuers

Demo of Samsung Pay in a regular purchase process, with an establishment's POS. Demo of Samsung Pay in a regular purchase process, with an establishment's POS.

Demo of Samsung Pay in a regular purchase process, with an establishment’s POS.

Those who do not have one of these POS terminals should only have the QR of their business printed on any piece of paper that buyers point to with the camera to make the payment.

John Engen, de American Banker, wrote that “banks are often reduced to passive players”, referring to the same concept that is sometimes used to talk about operators in the OTT era: They have ceased to have control over what happens to their clients, limiting themselves to being an intermediary soft that tends to commodity.

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The victims of this mobile revolution are not limited to banks and card providers, cash is also seeing how its use remains in residual. Engen himself explains that it is enough to see a queue in a store to realize how whoever uses cash slows down the process very noticeably.

It is not necessary to be aware of whether the establishment has a POS, or if it has NFC to pay with the mobile, or if it requires a minimum payment: it is assumed that everyone has a smartphone

AliExpress recently introduced a novelty to Alipay to streamline payments even more: payment by facial recognition through the ‘Smile-to-pay’ platform. Through a system supported by Artificial Intelligence, this platform recognizes the user and asks him to confirm the payment simply by pressing a screen. Even the QR sounds outdated when compared to this variant.

On the other side of the world, WhatsApp Pay begins to show its paw very little by little after years of ruminating such a landing, although it is being extremely slow. If this integrated payment platform is successful internationally and we end up seeing it in our bull’s skin, we could see a completely different panorama in Spain in a few years, since our country has one of the highest penetrations of WhatsApp use in the world. At the moment, the only thing we have seen have been mobile payment solutions that bring the plastic card to our smartphone or watch, but without the change to an experience based on QRs (those resurrected by the pandemic).

Other countries, such as India, have a similar penetration but also use WhatsApp for practically everything: calls, video calls, ephemeral content … Will Facebook be the one who wins the prize for payment by QR in the West?