Visa Inc., Apple,
and Hong Kong:
Together again
for the first time

Apple & Hong KongTwo weeks ago I blogged about what happened when Apple tried to stand on principle (something I admire) against the Great Firewall of China. Brief recap: China shut down iTunes Movies and iBooks for a month. The loss of 700 million Internet users being nothing to sniff at, Apple capitulated (something I understand).

But Apple and China are by no means through. Visa, Inc. just announced plans to use Apple Pay to secure all online payments for online payments in Hong Kong.

Now, you could argue that Hong Kong isn’t really China, and you’d be right. Sort of. Trouble is, I could argue that it is China, and I’d be right, too. Sort of. It might (or might not) clarify things if I pointed out that Hong Kong’s official name is Hong Kong Special Administrative Region of the People’s Republic of China. There’s a clue to this mystery in the “Special Administrative Region” part.

During talks regarding the UK’s relinquishing Hong Kong’s sovereignty to the People’s Republic of China (PRC), Hong Kongers feared losing to the communist government the autonomy they had come to enjoy under British rule. The PRC and the UK hammered out a solution in the form of Special Administrative Regions, or SARs. (Not to be confused with the unfortunate, similar acronym SARS, for Severe Acute Respiratory Syndrome.)

The idea behind SARs is to allow for the best of both worlds. Hong Kong has its own government, laws, property ownership, legislature, currency, police force, national sports teams, passports and immigration policies, and more. But when it comes to foreign affairs and national defense, Beijing remains in charge. And SAR status comes with a 50-year expiration date. What changes, if any, will take place in Hong Kong in 2047 is anyone’s guess. Hopefully Visa Inc. and Apple will have had plenty of time to become established.

The authority to designate SARs was written into the PRC’s 1982 constitution. Hong Kong became an official SAR when the UK relinquished its sovereignty in 1997. Macau is also a SAR, and the PRC may create others.

For all I know, the People’s Republic of China and Apple have settled their disagreements. Either way, it appears that Hong Kong has the autonomy to proceed with Visa, Inc., even as it proceeds with Apple Pay.

(It is appropriate for me to pause here to remind readers—and myself—that I am no international law expert. I’m a writer doing the best he can.)

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To build, or not to build,
that is the question


New bank building in the works?

THESE DAYS when a shiny new banking office sprouts, someone inevitably wonders aloud how close we may be to a tipping point where online banking renders physical locations obsolete. Will this building will be the one too many that shouldn’t have been built?

That might have seemed like a silly question in 1995 when, after largely unsuccessful forays in the prior decade, online banking had its real start. To ask if online banking might someday threaten in-person banking would have seemed as ridiculous as to ask if streaming might someday threaten the music industry as we knew it.

Though by the end of 1995 people could use a personal computer to check balances, transfer funds between their accounts, and make payments, not many did. Those who dared dabble accounted for not quite four percent of bank customers and comprised mostly the better educated, the better heeled, and the young. Despite the meteoric rise of PCs, people were still afraid of turning HAL loose with their money. After all, it was only a decade earlier that people over 35 were largely afraid of ATMs.

Things changed over the next decade. In the September 2006 issue of the Federal Reserve Bank of Kansas City’s newsletter, Perspectives, Division of Supervision and Risk Management of policy economist Eric Robbins reported that computer banking had risen to just over 35 percent. I hardly need point out that the upward trend continued, thanks in part to a hefty boost from the emergence of mobile banking. By the end of 2014, the number of people availing themselves of mobile banking was increasing by 33 percent a year.

Newer, related studies, like this one reported by Fiserv, confirm that electronic banking will only continue to grow in importance. Or take, for instance, this observation made in 2015 by Market Watch’s Bill Gunderson: “A whopping 85% of U.S. banking transactions now take place outside the branch, with branch traffic continuing to decline 4% per year for an aggregated decline of 51% over the last 16 years.”

Still, survey after survey shows that the proximity of a physical office remains the Number 1 factor in choosing a financial institution. Fine for now—but I have my reasons for doubting pundits who predict that that will be ever so. Here’s why: 

  • Self-reported data are not reliable. Asking people what matters most to them reveals more about their self-concept than about their actual values or habits.
  • The payments business isn’t limited to banks. When you count online payments to merchants and utilities, the growth of electronic transactions looks even more dramatic. 
  • We must beware motivated reasoning. It is human to reward pundits who say you can stay the course and to dismiss those who say you must change. 
  • As markets grow more accustomed to nonphysical banks the likes of PayPal and Simple, the importance of brick and mortar will diminish. 
  • We humans are lousy at predicting the future. If you don’t believe me, watch the second installment in the Back to the Future series, which takes place in 2015. Or look at Captain Kirk’s communicator, which holds not a candle to today’s least capable smartphone. And, speaking of smartphones, iPhone took Google unawares, and the rise of texting took miniaturizing-obsessed phone manufacturers unawares. 

To be clear, I’m not telling you not to build that new office. I can’t foretell the future any better than the next person. What I can tell you is that it’s important to remain open and flexible. Change isn’t as slow as it used to be. Today, we must remain ready to change on a virtual dime.

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Getting tough with China? Good luck.

patriot-1019852_960_720 copy

If you thought Apple’s recent confrontation with the FBI over phone hacking was fun, you’ll love the sequel taking place in China.

The People’s Republic of China does not have, shall we say, the regard for freedom of access that we in the United States have. According to a recent article in The New York Times, Chinese authorities demand more than the international norm when it comes to prying behind encrypted doors. Nor does China let high tech corporate leaders answer its questions via electronic communication. Executives are required to show up in person. 

And then there’s the matter of government-run Internet censorship in China, which has earned itself the nickname “Great Firewall of China.” It keeps Chinese citizens from accessing what authorities don’t want them accessing. Obviously the Firewall defies market demand. There would have been no need for it were not Chinese citizens accessing, aka creating demand for, now-verboten material.

We’re a little spoiled in the United States. Yeah, I know, we endure our fair share of onerous regulations, especially in financial services, but we still operate in a fairly market-driven economy. It’s tempting to assume that that’s how the world works: Meet market demand and you’ll prosper; don’t and you’d better adapt or go out of business. So it might be tempting for Apple, Google, et al to sit back and smugly wait for Chinese market forces to change the government’s mind.

Just one problem. Well, actually, 700 million problems, all of them living in China and using the Internet. In a reversal that not a few Libertarians should find disturbing, China’s Internet has experienced record growth. The Washington Post reports that China’s 700 million users account for nearly 25 percent of the world market. That’s a slice big enough to make it financially unwise for even the smuggest company to take its ball and go home. The Post also reports:

China is the world’s leader in e-commerce, with digital retail sales volume double that of the United States and accounting for a staggering 40 percent of the global total, according to digital business research company eMarketer. Last year, it also boasted four of the top 10 Internet companies in the world ranked by market capitalization …

Apple, not terribly fond of letting governments into iPhones and iPads, tried getting tough with China. It ended up taking one for the team: China out-toughed them by shutting down iTunes Movies and iBooks. Between China and Apple, guess whose stock took the hit.

The fun has only just begun. Not long ago, Russia’s Safe Internet League, which is a euphemism for “censorship committee” and is at best only nominally a non-government entity, took an admiring look at the Great Firewall and said, “Cool.” Last month, the League met with China’s chief of cybersecurity and Internet policy, presumably to seek advice.

China and Russia. Ideology aside, that’s a lot of users to leave to a competing high tech company willing to play ball with censors.

Oddly enough, all of this is market forces at work. It’s just that you have governments controlling the market forces that control the capitalist tech companies. It’s not supposed to work that way. Is it?

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New player in DYI payments

Securion logoThe Internet has a history of taking services that once required a professional and making them accessible to the Do It Yourself (DYI) crowd.

Not that you can expect to end up with the same level of quality you’d expect from a professional. Knowing your way around the likes of, say, desktop publishing, digital music, word processing, and website template applications doesn’t necessarily make you a designer, rock star, author, or web designer. But if you see no difference between your homemade effort and that of a professional, or if you do see a difference but don’t value it enough to pony up, a DYI app might just be the way to go.

Might be. There’s a caveat. Take a DYI website made from a template app. It may please its creator, but pleasing customers is another matter. Customers have grown accustomed to experiencing world-class sites. If a DYI site lacks a certain look, feel, tone, user-friendliness, or je ne sais quoi, it can end up costing you business.

It was inevitable that the DYI trend would make its way into the payments industry. PayPal and others blazed that trail. Now, Swiss company SecurionPay has announced an online payments function designed to work with drag-and-drop website builder Weebly.

Though there is some question as to whether SecurionPay differs substantially from other DYI payment apps, positioning itself as a made-for-Weebly product creates the impression of a Unique Selling Proposition, or USP. Weebly is klutz-proof and easy to use. Devotees may well favor an option designed specifically for it.

Like other DYI applications, SecurionPay has its limits. Right now it’s available only to companies incorporated in Europe. It lacks the breadth of options and resources that major players like Fiserv, my employer, offers. Its niche will likely be smaller companies that don’t need or can’t afford a full suite of services. There are a lot of them out there. As such, SecurionPay and others like it promise to fill a viable niche.

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PayPal: Making business
and consumer news

Keep an eye on these guys.

Keep an eye on these guys.

PayPal has been showing up quite a bit in the news lately, and not just in the business press. Consumers are well aware that PayPal nixed its plans to build a facility in North Carolina following Governor Pat McCrory’s signing of the Public Facilities Privacy and Securities Act. 

PayPal is making news in the trade press, too. PayPal One Touch, introduced last year, has 21 million and counting active users. As “One Touch” implies, users log in once and, from there, purchase with a single touch on a mobile device, laptop, or desktop computer. Increasingly, retail merchants like Macy’s and others are accepting One Touch as well. 

According to a report published two days ago entitled “Online Payment Type: Conversion Analysis,” by comScore’s Associate Analyst of Media Insights Amy Peterson, PayPal enjoyed a conversion rate of 87.5 percent during Q4 of 2015. Visa came in a distant second with 51.1 percent. “All others” combined totaled 45.6 percent, that is, just over half of PayPal’s performance. 

So when Kat McKerrow of recently reported, “PayPal has grown into a giant,” she was not hyperbolizing. “In 2015 alone,” wrote McKerrow, “the company processed 4.9 billion payments, more than a quarter of which were made with mobile technology. The company has 179 million active customer accounts and handles transactions in more than 200 markets worldwide and in more than 100 currencies.” 

It would not be unfair to characterize PayPal as something of a tail that has wagged more than a few dogs. PayPay began life in 1998 under the name Confinity, making security software for handheld devices. In 2000, Confinity merged with, Elon Musk’s foray into online banking. Later that year, Musk discontinued other online banking operations to focus on Confinity, by then rebranded as PayPal. Not longer after, he changed the parent company’s name from to PayPal. 

It was only a question of time before PayPal went public. Shortly after the IPO, eBay gobbled up PayPal and encouraged its shoppers to use it. With shoppers only too willing to comply, PayPal took off, outperforming and outlasting competing payment services such as Citibank’s c2it, Yahoo!’s PayDirect, Google Checkout, and Western Union’s BidPay. 

It wasn’t long before the acquired became the acquirer. Over the years, PayPal has picked up Verisign, Fraud Sciences (per Wikipedia, “a privately held Israeli start-up company with expertise in online risk tools”), Bill Me Later (now PayPal CREDIT), IronPearl, BrainTree, Xoom Corporation, and others. Along the way, PayPal forged partnerships with the likes of MasterCard, Discover, and others. 

Midway through last year, eBay spun off PayPal into a separate, publicly traded company. If recent numbers are any indication, the newly independent PayPal should manage quite well on its own.

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