In China, people use mobile services owned by Alibaba and Tencent to do almost everything.
They chat, shop, send money to each other, and even make purchases in physical stores.
And the country is becoming cashless.
So here’s the scary thing for American finance executives — the banks never get a cut.
In fact, many Chinese don’t even have bank accounts.
China is among the growing number of countries showing that payments can happen cheaply and
easily without banks or credit cards.
In contrast, U.S. consumers still rely on banks for most of their purchases.
Even mobile payments made through apps like Apple Pay, Uber, or Venmo, are tied to the
users cards or bank accounts.
That all adds up to a feast of fees for many of the companies that handle and process payments.
For a typical $100 credit card purchase in the U.S., $97.25 goes to the merchant and
the rest is split between issuing banks, payment processors, the merchant’s bank and card networks.
Those small slices add up to billions of dollars for banks every year.
If apps were to grab market share in the U.S. at roughly the same rate as they have in China,
banks would lose a projected $43 billion in revenue from one of their most profitable
businesses.
And that’s not the end of it.
Banks also generate revenue by dispensing cash and administering checking accounts.
If payment apps were to replace paper money and offer alternatives to regular bank accounts
— as they increasingly have in China — other sources of income could take a hit.
Checking accounts alone generate $3 billion in bank fees in the U.S.
Whether you have access to a bank or not, being able to make or receive payments through
your phone is an obvious advantage — as Alipay and WeChat Pay have demonstrated in China.
And that's the challenge facing traditional banks, as the evolution of mobile payment
systems gains momentum.