Thread by @InfiniteAtman

1/ Wonder what the future of consumer payments in western economies could look like?

We can get an idea of what lies ahead by referring to China, who have pioneered mobile payments and are years ahead in user adoption.

2/ Today mobile payments in China account for 40% of all POS payment methods, compared to a mere 4% in North America, where credit card payments are still the dominant payment method in store.

Source: World payments report bit.ly/37PGekp

3/ In this article, Bloomberg is looking at WeChat and Alipay’s mobile payment solutions, and their impact on Chinas economy. Main takeaway: Through consumer adoption, digital rails have largely disintermediated the legacy banking system.

bloomberg.com/graphics/2018-…

4/ Mobile payments are frictionless, safer and cheaper. Most importantly they have a massive economic impact through financial inclusion, international reach and stronger feedback loops between merchants and customers.

woodburnglobal.com/why-wechat-is-…

5/ A UN study estimated that within China, WeChat and AliPay enabled nearly $3 trillion in digital payments in 2016 alone, a 20-fold increase over the previous four years. They further project an increase of China's GDP by $236 billion by 2025.

Source: bit.ly/3r1wMSH

6/ The shift from cash to digital payments in China happened dramatically fast. Within 4 years cash in circulation relative to gross domestic product fell by 13 percent.

Source: World cash report 2018 - cashessentials.org/app/uploads/20…

7/ The stakes for the banking sector are high. Bloomberg estimates the total volume of merchant fees to be 100 billion in the US alone. Looking at China as a reference, 3rd party apps could capture as much as 40% of this market.

8/ Whoever controls mobile wallets also controls the market of overdraft and maintenance fees, which means the TAM (total addressable market) is even bigger. “Checking accounts generate about $3 billion in bank fees, which would dwindle if consumers embrace apps.” - @Bloomberg

9/ We cannot simply extrapolate the Chinese case study to the US, where the landscape of payments is vastly different. Customer behaviour revolves heavily around credit card payments, compared to China, where Visa and Mastercard had a hard time to take a foothold to begin with.

10/ However, we are seeing COVID and other factors triggering a change in customer behaviour. @McKinsey is forecasting a drastic decline in the use of cash. Against the backdrop of CBDCs and the launch of Diem, we might see a shift towards mobile payments in the US soon.