After the Bell: Banking payment systems and the magic of money

Daily Maverick

2 days ago

The big banks are the ones that really seem to benefit from our banking payment systems. They operate most of the banking cards, run the merchant's systems and then get proper access to the payment system. However, it looks like this might change soon.
It has become so normal, so baked into our lives, that it's easy to forget the simple set of miracles that happen whenever you pay for something and you are not using cash.
Somehow, through a series of communications between different people who don't know each other, I am able to tap my phone and get a good, strong, hot and nearly black Americano in exchange (cappuccinos, as everyone knows, are for wimps).
The line of connections here, the different parties that need to communicate, is intricate and long.
My phone needs to hold my credit card details, the light blue machine that I tap needs to communicate with my bank, verify the card, check there is money in it (this has been very depressing this close to the end of the month), take some of the money out of the account, pass it to someone else and tell that person that all of that has happened.
In the brief seconds that the transaction and interchange takes place, I usually don't even get a chance to check my WhatsApp.
Or, sometimes, my bank account to predict what the outcome of this transaction will be.
So much of this is about trust.
I am trusting the merchant I'm tapping my phone on. They are trusting me. We both trust the light blue machine that I am tapping.
And both of us, despite our better instincts, are trusting our banks.
That's just the start of the process.
Banks are trusting each other as they interact behind the scenes and move numbers around.
Amazingly, nothing gets lost in this process.
Profitable
While this is amazing, it is also profitable for some of the parties involved.
The big banks are the ones that really seem to benefit. They operate most of the banking cards, run the merchant's systems and then get proper access to the payment system.
However, it looks like this might change soon.
The SA Reserve Bank has now said it wants to open up this system a bit — to drive the modernisation of our payment system.
It would seem likely that cash might be the loser in all of this. Already, cash has become one of the more expensive ways for companies and merchants to accept payment.
But the other big loser could be the big banks; they'll lose their sort-of monopoly. Instead, a host of other actors, such as fintech companies, could start playing a bigger part.
I think that trust is going to be the big issue here. I have full faith in the SA Reserve Bank and the people who run it to pull this off, and to do it well. At the very least, I know their real intention is to create a payment system that works well for everyone.
Strangely, it now looks like one of their big competitors will actually be cryptocurrencies. More and more people seem to be looking in that direction.
Recently, The Economist investigated one currency, a stablecoin called Tether (its selling point is that it retains its value to the dollar, one stablecoin=1USD no matter what).
'Useful to criminals'
The Economist described Tether as 'The financial equivalent of being able to turn up at the airport, open a secret door and go straight on to the plane, without any X-rays, passport inspections, customs controls or intrusive questions. There aren't many other products that are as useful to criminals, and as much of a threat to the financial system, that have been allowed to flourish with so little regulation.'
To put this another way, when the Zondo Commission wanted to total up how much money the Guptas had stolen from us, they were able to do it using bank records.
That's how they know that, in the end, the Guptas stole just under R50-billion.
If the Guptas were operating now (and who is to say that someone like them is not, look at the criminal network around Tembisa Hospital and Vusimusi Matlala), we would never be able to work it out. They could be using cryptos such as Tether to literally take our money away from us.
One of the things that the banking system does is keep an eye on what we're doing. It doesn't matter how many Americanos we have (although it may judge the cappuccinos). But there are thousands of people who are checking that the money flows are compliant.
You might get annoyed by this, but this system also detects when someone is able to steal your credit card details and then tries to steal money from you. I'm sure that, like me, you've had a call from your bank one arbitrary Saturday afternoon to ask if you're really in Bogota buying a boat (or, in my case, a cappuccino).
Grateful
I have good reason to be grateful for these systems.
Last year, on Black Friday, the busiest shopping day of the year, I was keeping a very close eye on our credit card. I noticed a payment to Facebook for around R20K.
I was able to contact my bank and they could confirm within hours that it was a scam. Literally, the next morning, the money was back in my account.
While cryptocurrencies work very differently, that moment re-instilled my faith in how the current system works.
It meant that if the magic of payments had been hijacked by people-who-cannot-be-named, Dumbledore was still around to make things right.
I wish the SA Reserve Bank luck with its new mission. It won't be easy.
And if it fails, I wouldn't want to be them.