Our primary goal is to help you to understand FinTech and to become more confident and persuasive in your ability to analyze and make recommendations to executives within the finance industry regarding how to react to these changes. This FIRST MOOC ON FINTECH IN ASIA-PACIFIC offered by HKUST presents the views of several professors from the top business school in Asia as well as perspectives from industry professionals. HKUST has been ranked for many years as the number one EMBA program in the world, as the number one Finance program in Asia, and as the top MBA program in Asia by multiple independent rating and review journals and surveys. This course offers the combined strengths of HKUST in Business, Finance, and Technology as one the world's leading academic institutions on an important area of technology and business innovations. For students from outside Asia, this also gives an insight into changes happening in the most advanced FinTech markets of the world, since Asia leads worldwide in FinTech adoption and creative innovations. This course (FinTech Foundations and Overview) is part of the HKUST FinTech specialization, there will be 3 other courses in the specialization including FinTech Security & Regulation (RegTech), FinTech Risk Management, FinTech Innovative Disruption: Implications for Society. The FinTech specialization will be launched in Fall 2018, stay tuned!
2.6: Payments and Retail Transactions (Part 1)
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Из курса от партнера The Hong Kong University of Science and Technology
FinTech Foundations and Overview
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FinTech Business Applications
The Business Applications of FinTech are essentially the Fin part of the FinTech world, and in this module, we will examine applications across six categories of FinTech, including lending and personal finance, crowd-finding and business financing, payments and retail transactions, equity, trading and investment applications, various types of cryptocurrencies, and banking infrastructure and tools.
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Theodore Henry King CLARKAssociate Professor
Information Systems, Business Statistics and Operations Management Department
Welcome back to our course on FinTech Foundations and Overview.
In this module, we're talking about the business of FinTech,
the business applications or the finance of FinTech.
In today's session, we're going to talk about payment and transactions.
Retail transactions and payment processing as part of this FinTech revolution.
These are firms that are competing with traditional banks to take
away some of the things that banks used to do in their business.
The first firm we'll look at is PayPal.
So as we look at PayPal,
this is an interesting company because you may say,
"Oh man, they've been around a long time.
They're old tech. I don't like PayPal.
I don't like their fees or something else."
Well, they are charging large fees because they've been very,
very successful and they have a huge number of customers,
and therefore they can start charging fees like banks do.
Whereas they didn't start out with
such large fees or certainly not with such a large market share.
PayPal is an interesting company because it was started by Elon Musk,
an entrepreneur that I have a lot of admiration for
things that he's done that are creative and interesting.
But at any rate, Elon Musk started up a business.
It was the big idea focused behind it essentially,
was to allow people to make digital payments from one wallet to another,
one digital wallet to another using a virtual currency.
This may sound like a cryptocurrency,
but there was no crypto and it was not a separate currency.
They were using US dollars and so in this sense,
it might be like a tethered cryptocurrency.
So there's some overlap between payment and retail transactions and currencies.
But we'll deal with cryptocurrencies and their opportunities
and challenges and threats to banks in another session.
This is an earlier threat that was very much real,
has very much hit banking retail transactions and payment processing.
This company started up in the year 1998,
merged with Musk's company in 2000,
took on the name of his company,
which at the time was X.com and then became PayPal in the next year.
Musk was also fired the next year.
You might have think of it as Musk retiring and somebody else being brought in as CEO,
but Elon says he was fired.
So I tend to believe him.
At any rate, he then used the money from the IPO and
later acquisition of PayPal after being
very successful the next year to raise a ton of money,
and Elon owned a good piece of the business
and that helped him get other businesses started,
which he's running today.
In 2002, PayPal went through an IPO.
By the end of 2002,
they had then been acquired by eBay for
a 77 percent increase in valuation over their IPO price.
That's 77 percent return in a couple of months. That's not bad.
By 2010, eight years later,
PayPal has reportedly said they have over 100 million accounts
in over 190 different markets or geographic areas.
So, 190 different markets,
not all countries like Hong Kong isn't really a separate country.
Hong Kong is a separate market.
It's a separate set of regulations.
It's a separate currency but it's not a separate country from China or a part of China.
But in 190 different markets and in 25 different currencies, Paypal does business.
So it's been very successful and is very global.
This company also has done a lot of acquisitions.
The second company we're going to talk about is Braintree,
which was acquired by PayPal in 2013.
Braintree, in turn, had already acquired by that point Venmo,
which is the third company we're going to talk
about because the business models are different.
Why are we going to talk about three firms owned by PayPal?
They started up differently and their business focuses are
different but they are in the payment and retail transaction space.
By 2015, eBay announced that they were going to spin off PayPal.
By 2015, also PayPal acquired Xoom.
Now, you may not know Xoom.
If you're in the US, you probably would use Venmo.
But Xoom is like Venmo.
If you're outside the US,
maybe you don't know Venmo but you might have used Xoom.
Xoom tends to be outside the US.
Venmo is inside the US but they're similar in space.
So PayPal has acquired both,
and Xoom is used in many different countries with
many different currencies and fits with PayPal's global focus.
So very successful firm,
done a lot of interesting things.
Another successful firm later acquired by PayPal was Braintree.
Braintree is a merchant payment gateway service.
They were started with the name Braintree rather than an
interactive payment processing or finance because the entrepreneurs who founded it said,
"We want to appeal to high-tech people.
We want to appeal to Silicon Valley.
We want to raise awareness not with
businesses because we'll get the business if we've got the right application,
we want to raise awareness of partners to help us develop this new idea,
to get excited about it."
They launched a service to provide almost an instant signup service for
financial services firms to be able to very quickly and
easily be able to accept merchant cards like Visa and Mastercard,
or American Express or to accept PayPal.
They also will accept bitcoin,
if you prefer bitcoin and other cryptocurrencies.
So, they're very flexible.
They'll let you make payments in many different ways,
and they're very easy to set up.
They started in 2007.
Today, they are across the world in many different countries on four continents,
and have over 500 employees.
They acquired Venmo, the third firm that we're going to talk about,
for 26 million in 2011 and in that same year,
later that year, no,
sorry, two years later,
they were acquired by PayPal for 800 million.
So, they've been very successful.
Gone from a startup raising a couple million of VC funding to selling out in 2013,
which is six years after their founding,
to a giant in the business.
A giant in the business who is also a disrupter of financial services,
and also a new pioneer of a different way of thinking about finance.
Venmo is focused like Xoom on peer-to-peer money transfers.
Venmo makes it easy to transfer money in your digital wallet to somebody else's.
This sounds a little bit like what PayPal started out to do,
but Venmo does it very, very nicely.
PayPal worked, but it's not the same experience as Venmo.
And Venmo, to consumers,
it feels like a very different product amongst other things.
Not only is it very easy to transfer money from
my wallet to your wallet and PayPal is not that hard.
So, you would look and say,
"I could do it with PayPal, but with Venmo,
I'm merging a social media type platform
of texting and emojis and saying what the money is for,
and hey, send me my portion.
You send me the money for your portion of our lunch bill.
I'm going to Venmo you.
And hey, thanks for lunch.
Appreciate you coming out.
Here's your Venmo, your portion of it, pay up."
And those short message services with the emojis can be
shared with the world so that other people can see I went to lunch with so and so.
You can't see how much I paid,
but you can see that I had lunch with them and you may say,
"Hey, I want to go to lunch with you or I
want to do something with you or let's go to the movies together.
I see that you went with John.
Why don't we get a group together,
and we'll go split the bill."
And so, it makes it easy to split bills,
easy to share information,
easy to transfer funds.
And it's much easier than using a web platform because we're now using smartphones.
Now, you might say,
"What do you mean, easier to use a smartphone than a web."
Well, I had an interesting discussion with one of
my students who was talking about a new business idea,
an entrepreneurial business idea for e-commerce business.
And I commented, "Well,
that's a lot like this other business which is similar."
And the students looked at me and said,
"No, that's a web business.
We're talking about an app."
And you know, I'm an old guy.
So I looked and said, "What's the difference?"
[inaudible] I mean there's the difference between something that's good and something that's bad.
It makes all the difference in the world.
The way that it feels,
the way that it's useful,
can make all the difference in the world.
And so, a payment processing system,
which is easy to use, may take over.
If you're in China, you know WeChat.
You know AliPay.
And if you visit China or you're from China,
you will find it's hard to find people paying with cash.
Everybody is using their smartphones.
I mean, there are stores literally that don't take cash anymore.
They don't need to. Everybody is paying with AliPay or WePay.
And so, digital payments has totally disrupted finance in China.
You're not using your Visa card.
You're not using your bank card.
You're not using your debit card.
You're not using a checking account.
The only reason you need a bank account is to link into
AliPay or WePay because it's part of your digital wallet.
And your digital currency is your currency.
It's literally replacing paper currency.
Now, it's tied to the value of that currency.
So it's not a cryptocurrency.
It's not a new currency,
but it's a new payment system and infrastructure and capability.
And that AliPay is so much bigger,
so much broader than Apple Pay because it is really easy to
use and what they had before was not so easy to use.
Now, in Hong Kong, where I live and teach at the university,
we're getting some hit from AliPay or
WeChat wallets or things like that or Apple Pay or Google Pay.
But they're finding it hard to make much inroads or penetration because on average,
99 percent of consumers in Hong Kong have an Octopus card.
And if you're from Hong Kong or have been to Hong Kong,
you will know what an Octopus card is,
and you will use an Octopus card.
An Octopus card is just a small card that you'd use to ride the subway.
Do you ride the subway?
Well, if you live in Hong Kong, yes,
you'll ride the subway or buses or use it in vending machines or use it at a 7-Eleven.
And it's a ubiquitous payments system.
When I go to McDonald's,
I use my Octopus card.
When I go to a nice restaurant,
I can also use my Octopus card.
When I go ride the subway, I use it.
And what's beautiful about this?
It's wireless. And so,
I don't even have to contact with a reader.
I just walk through the subway turnstile,
and my Octopus card could even be in my wallet,
or my purse, or in my hand,
and then it just scans over,
and it's very, very fast.
So we can process thousands of transactions in seconds.
So, crowds of people don't get slowed down at all on public transit.
And there are crowds of people on public transit in Hong Kong.
So, it is a crowded place,
there's a lot of people here, but it works.
Now, because it works,
because it's so user-friendly,
it's really hard to replace it.
You wouldn't need Xoom or Venmo as much if you have Octopus.
Although, the sharing feature of Venmo or Xoom is really nice. That's nice.
And there are some alternative payment systems that are coming
up with different value propositions, different business models.
There are certainly companies trying to compete with
Octopus or trying to compete with other standard payment cards.
But if you can get a payment card that has a utility,
and if it was a cryptocurrency,
we'd call it a utility token,
but it might be you can ride like with the token on the subway,
or has some other value for product or service that you like,
that you use a lot,
that can become a replacement of a traditional currency.
It could be tethered to a currency or tied to a currency or it can be independent.
In our next session,
we'll look at other types of financial services,
other types of business applications that have transformed the finance market.
Let me suffice to say in summary for this session,
these services like PayPal or companies owned by PayPal or competitors to
these companies are huge in the effect they're having on banking services.
And companies like Square,
in payment processing, they're competitor to Braintree.
They are really making strong inroads into merchant services for small business.
They aren't yet at the big, big companies.
They're not replacing traditional Visa,
Mastercard processing services in America for Wal-Mart yet,
but they are beginning to be accepted by Starbucks.
They are beginning to have an impact in medium-sized firms.
And it doesn't take long before the large companies say, "Hey,
this disruption also might have some value to me,
also might have some benefit to me."
And then, the banks have lost their bread and butter.
Though they can acquire PayPal.
It's independent now. It's available to be purchased.
Maybe a bank will buy PayPal.
They can acquire other companies, and they will.
But this is a new way of doing financial services and that's part of FinTech is
innovation in products and services which might be
offered by startup companies or it might be offered by traditional companies.
It's the innovation that makes it FinTech. Thank you.
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