Modern institutions are the interface between individuals and their capital. Gains are returned to individuals. By investing in this way, people typically deploy their own money, with the fund acting as a mere tool. Banks also use deposits, the money of others, to extend loans. But customers expect to get their deposits back in full: they do not expect to bear the bank’s loan losses in bad years, nor to reap greater rewards in good ones. It is the banks that take both losses and gains.
The first blow to banks is that both companies earn as little as 0.1% of each transaction, less than banks do from debit cards. Interchange fees around the world have tumbled because of such firms. “It was very lucrative for fintechs to come in and compete these fees away,” says Aakash Rawat of the bank. “In Indonesia they have fallen from 200 basis points to just 70.” But the bigger threat is that payment platforms may become a gateway allowing tech platforms to attract more users.
Tech firms are using their platforms to reverse-engineer banking.This has even caught on in America, where credit-card sweeteners keep users hooked and payments tech has lagged. Enthusiasm for payment platforms has accelerated during the covid-19 pandemic, which forced shoppers online. PayPal has almost doubled in market value over the past year to more than $310bn, making it the world’s most valuable payment platform.
Banks still dominate the holding of credit and lending assets. Just shy of 40% of all credit assets, including securities and loans, are held by non-banks, though their share is growing fast. It rose by nearly 9% in 2019, whereas banks’ credit assets grew by just 4.6%. Yet banks remain the largest source of specific loans, holding 83% of global lending assets at the end of 2019.
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