FinTech - Shaping the Financial World mit course finance technology fintech

Class 6 - Payments

• What is a payment system?
  • A method to keep and adjust a ledger for money
  • Authorizing, clearing, and settling money movement
• ~90% of the money in the US is digital
  • Mostly commercial bank dollars
• Central bank usually owns or regulates commercial banks
• Modern payment systems
  • Consumer --> Issuing Bank --> Payment Instruction --> Network & PSPs (Visa, Mastercard, Stripe, ACH, etc.) --> Merchant Bank/Acquirer --> Access method (phone, POS, etc.) --> Consumer/Merchant
• Pain points
  • Chargebacks
  • Complexity
  • Costs
  • Cross-border payments
  • Data privacy
  • Delayed settlement
  • Financial inclusion
  • Fraud
  • Public policy compliance
• Chinese government is providing an alternative to Alipay and WeChat
• The whole point of crypto/tokenization is to try to address the pain points of the existing payment rails

Readings

• The Digitalization of Payments and Currency: Some Issues for Consideration Lael Brainard, Federal Reserve Board (February 5, 2020)
• 7 Key Payments Innovations in Fintech for 2020 Artur Olechowski, Codete (February 13, 2020)
• 9 Payment Trends That Will Shape 2020 Estelle Mense, BlueSnap (December 5, 2019)

Study Questions / Issues to Prepare

1. What are the challenges and opportunities in the current payment system architecture?
2. What lessons can be drawn from Big Tech payment innovations such as Alipay, WeChat Pay, M-Pesa, Paytm, Kakao Pay, Amazon Pay, Apple Pay, & Google Wallet? What lessons from FinTech disrupters such as Plaid, Square, Stripe, Toast, TransferWise, Venmo, etc.? What are incumbents such as the major banks as well as Visa, Mastercard, and PayPal responding to the changing landscape?
3. Do stable value coins and tokenized assets fill real gaps in payments and the financial markets? If so, will stable coins or tokenization take off or just be a passing fad?