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Payment Innovation: Progress?

Here is a bold statement - Payment innovation is largely a solution to a problem that doesn't exist.

There. We have said it. Glad that is out of the way.

Lets go back to the Swinging 60's. How much fun were they?

All that music. All that fashion, All that freedom. All that fun.

The Beatles; Carnaby Street; Flower Power; Trampolines without safety nets.

There were exciting headlines in the newspapers every day.

BUT NOT ONE OF THEM WAS ABOUT PAYMENTS.

People used cash. Period.

You spent the money you had. If you wanted to spend more than you could earn or than family or friends were prepared to give you, an overdraft or loan from your bank was the route to limited debt.

Cash was very convenient. There were bank branches galore and, from 1967, when those branches were closed, ATMs became available to deal with out-of-hours cash needs.

There were a few plastic cards, of course, such as American Express and Diners Club, but they really hadn't caught the public imagination to any significant extent. Plastic itself was considered to be a bit "naff", analogous at the time to "Made in Hong Kong". In others words, cheap and cheerful enough, but not expected to last.

We didn't realise then just how long plastic could last. Now we only have to glance at our beaches to give us a clue.

Anyway, in those happy, carefree days, payments equaled cash - and personal debt was not a big issue.

However, one thing we now know about debt is that it makes lenders huge profits. Recent experience of this includes Wonga, with their trillion % loans but, back in the 1960's,ordinary people ( like you and me) may have been crazy about somethings BUT they were NOT daft!

Lenders had to change that, so they invented Credit Cards. These bits of plastic made getting into debt easier, which is what the lenders wanted.

Credit Cards were not an overnight success. Why would they have been? Why would those already happy people have seen a need for them?

So what did lenders do? People weren't asking for cards fast enough - so the lenders decided to give everybody a card without being asked!

Of course, they wouldn't get away with that today, but in the early 1970's unasked for  "ACCESS CARDS" were posted through millions of letter boxes in the UK, with a typical credit limit of £250 - in todays money, around £3500.

The impact of such cards was particular bad for youngsters. Students developed wheezes such as using the cards to withdraw cash at one counter at their bank - and then going to the next counter to use the cash to pay their ACCESS bill! Note, by the way, that In those days, debt was considered embarrassing, so no one would have withdrawn the cash on a Credit Card and paid the bill at the same counter.

So that how it all really started, when lenders managed to persuade the UK public that it was easy to get into debt. Today, average household debt (leaving mortgages aside) in this country is around £13,000. Very, very unlucky for many of us.

Debit Cards didn't come along until much later, because lenders couldn't work out how they could make big profits from them. They knew the public in those days were not going to be daft enough to use Debit Cards instead of cash, so they had a puzzle to solve.

The internet gave cards a huge shot in the arm in the UK. 

In other countries, this was not necessarily the case. In Germany. for example, the wise public for a long time insisted  that internet purchases were "cash on delivery". Why should they trust a vendor just because they had a colourful screen to display their wares on a computer?

Actually, Germans are even smarter than that in other ways. They don't like Credit Cards.

Never mind. Why should the UK learn from Europe's most successful economy?

Anyone, back to our Small Island.

Here, the public was told they had to pay when ordering goods on the internet. So they did. 

At peak times of the year, the internet now accounts for 20% of retail sales in the UK. A nice land grab for card issuing lenders - and now Pay Pal and others,who have muscled their way in to a rich vein of easy profits.

Meantime, the Debit Card issuers solved their problem as to how to make really high profits from their bits of plastic. They augmented the % of each card purchase they extract from retailers with high charges levied on Debit Card users when traveling. Every time a member of the UK public - you and me again - makes a purchase using a card abroad, they have to pay major card issuers between 2 and 3% for the privilege.

Of course, there is a much longer and more detailed story to be told - but for now you get the drift.

In those care-free days of the '60's,people didn't think they had payment issues - and they certainly didn't have debt problems.

Now they have both.

That's progress?

 

 

 

Saturday, 11th August 2018

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