Apple Pay and the rise of the five-party network(fin.plaid.com)
fin.plaid.com
Apple Pay and the rise of the five-party network
https://fin.plaid.com/articles/apple-pay-and-the-rise-of-the-five-party-network
2 comments
This is probably not a popular opinion. Visa and Mastercards were all owned by the banks that back your credit card. These are highly regulated organizations. I rather not have startups that have sometimes have pretty dubious reputations for skirting the law trying to get into this space. What if someone steals your bitcoin what do you do? Or if you purchase something and you don't get it.
> I rather not have startups that have sometimes have pretty dubious reputations for skirting the law trying to get into this space.
Why not? The Stroem protocol, combined with Bitcoin payment channels, is completely trustless from the consumer's perspective. The coins are stored on your phone (or whatever device you want to use for it).
Only merchants need to trust issuers, in exactly the same way that merchants need to trust VISA/Mastercard etc. now. The primary difference is that the system is designed for competition between issuers, instead of a centrally-defined issuer (e.g. VISA or Mastercard).
> What if someone steals your bitcoin what do you do?
If someone steals your bitcoins they're gone. But if you don't trust yourself to keep your bitcoins safe, you're free to deposit them with someone you trust. That's the benefit of Bitcoin: if you feel confident guarding a private key you can store them yourself and, if you don't, you can use an external wallet service -- the best of both worlds.
> Or if you purchase something and you don't get it.
If you find a merchant appears suspicious you should use an escrow service. With the Stroem protocol, adding a layer on top that enables chargebacks via an escrow service is really simple, and completely decentralized. Pick any escrow service you like, who all compete on service/features/price -- no need to always use PayPal/VISA.
Again, the advantage is that you're not forced to pay for something you don't need (chargeback insurance) unless you deem it necessary.
Why not? The Stroem protocol, combined with Bitcoin payment channels, is completely trustless from the consumer's perspective. The coins are stored on your phone (or whatever device you want to use for it).
Only merchants need to trust issuers, in exactly the same way that merchants need to trust VISA/Mastercard etc. now. The primary difference is that the system is designed for competition between issuers, instead of a centrally-defined issuer (e.g. VISA or Mastercard).
> What if someone steals your bitcoin what do you do?
If someone steals your bitcoins they're gone. But if you don't trust yourself to keep your bitcoins safe, you're free to deposit them with someone you trust. That's the benefit of Bitcoin: if you feel confident guarding a private key you can store them yourself and, if you don't, you can use an external wallet service -- the best of both worlds.
> Or if you purchase something and you don't get it.
If you find a merchant appears suspicious you should use an escrow service. With the Stroem protocol, adding a layer on top that enables chargebacks via an escrow service is really simple, and completely decentralized. Pick any escrow service you like, who all compete on service/features/price -- no need to always use PayPal/VISA.
Again, the advantage is that you're not forced to pay for something you don't need (chargeback insurance) unless you deem it necessary.
The stuff you describe pretty much sounds like a bank. Instead of a regulated FDIC backed institution you want to store your money at some wallet service which may or may not get hacked in which case you lose your money.
It's very different from a bank, primarily because consumers/payers don't deposit anything, they keep their bitcoins on their device.
Only merchants, who want to receive extremely cheap Bitcoin payments -- the fees are set by the market, but a thousandth of a cent is completely reasonable -- can choose to trust one or more issuers. They may redeem/"cash in" the payments they've received at any time; the more often they do this the less the risk but the higher the fees, but they choose their own risk profile. And if the worst comes to the worst, merchants lose a week/month of income (if they choose to redeem every week/month), the issuers dies, and the merchants will probably survive (assuming the lost income is not fatal to their business). So the bad issuers are flushed very quickly, and merchants can adjust their risk/fee ratio as they desire.
Only merchants, who want to receive extremely cheap Bitcoin payments -- the fees are set by the market, but a thousandth of a cent is completely reasonable -- can choose to trust one or more issuers. They may redeem/"cash in" the payments they've received at any time; the more often they do this the less the risk but the higher the fees, but they choose their own risk profile. And if the worst comes to the worst, merchants lose a week/month of income (if they choose to redeem every week/month), the issuers dies, and the merchants will probably survive (assuming the lost income is not fatal to their business). So the bad issuers are flushed very quickly, and merchants can adjust their risk/fee ratio as they desire.
> But if you don't trust yourself to keep your bitcoins safe, you're free to deposit them with someone you trust.
^ This is you, saying that people would deposit things if they fall into the same category of "most people" that don't consider the idea of trying their damndest to just be extremely careful with their cash (which, once stolen, is simply gone, and which can even be misplaced) to be a sane choice in comparison to using... a bank.
^ This is you, saying that people would deposit things if they fall into the same category of "most people" that don't consider the idea of trying their damndest to just be extremely careful with their cash (which, once stolen, is simply gone, and which can even be misplaced) to be a sane choice in comparison to using... a bank.
And they have a chargeback process that works and protects the cardholder. And they won't be gone in five years.
You won't use Uber Bank?
It's cheaper to lose 100% of your purchase 2% of the time than 3% of your purchase 100% of the time.
Insurance is for health and houses not my $8 lunch or $500 wallet contents.
Insurance is for health and houses not my $8 lunch or $500 wallet contents.
As both a consumer and a merchant I really like this world where even small transactions are insured as it means that everyone--including me--can just mostly trust everyone and not have to have some complex passcode or multi-factor security setup to access and spend money. I like that I just have a card in my wallet that I can nigh unto flash at people and be handed a hotdog, and yet if someone steals my wallet or tries to hold me at gunpoint there is never any reason to not just hand them my card.
You like it because the costs are hidden from you. I bet you'd think twice about using your card to pay for your hotdog (or even something like a MacBook) if they explicitly passed the fees onto you and you could opt out with cash.
There's room for both systems for different kinds of transactions with different kinds of merchants.
There's room for both systems for different kinds of transactions with different kinds of merchants.
As a merchant, they would pay those fees--so no, the costs are not hidden for them. Did you miss that part?
You don't think some startup will not take fees? Who is paying for infrastructure and salaries?
The fees can be a lot lower when you don't have to maintain rewards programs, liability for fraud, or dispute mechanisms.
Bitcoin is ridiculously inefficient compared to what a centralized entity could be and it's already cheaper than wire transfers or even credit card transactions over a certain size.
Bitcoin is ridiculously inefficient compared to what a centralized entity could be and it's already cheaper than wire transfers or even credit card transactions over a certain size.
There will definitely be fees, but they will be set through competition, as opposed to defined by VISA/Mastercard at will.
This seems like an idealistic restatement of the 'open always wins' mantra, with no real logic supported by facts.
The web that you mention is a strong counter example. It is dominated by a few giant corporations, and in many places, increasingly subject to government restrictions.
The web isn't successful because of ideological openness and resistance to control by powerful actors. It's successful because it is extraordinarily useful.
Merchants may see a few percentage points of fee reduction as a potential margin increase for themselves, so 'want' whatever cuts their costs.
Consumers on the other hand want an easy solution that they don't need to worry about.
Apple Pay delivers on the consumer end of this.
A competing solution would need to deliver both to stand a chance.
The web that you mention is a strong counter example. It is dominated by a few giant corporations, and in many places, increasingly subject to government restrictions.
The web isn't successful because of ideological openness and resistance to control by powerful actors. It's successful because it is extraordinarily useful.
Merchants may see a few percentage points of fee reduction as a potential margin increase for themselves, so 'want' whatever cuts their costs.
Consumers on the other hand want an easy solution that they don't need to worry about.
Apple Pay delivers on the consumer end of this.
A competing solution would need to deliver both to stand a chance.
Does anybody know how Apple Pay peer-to-peer actually works? I find all the information I can on the web disappointingly light. The same thing was true for the original Apple Pay which lead to myths like Apple Pay using a new PAN every time out pay.
> Bank transfers will be handled separately.
When are bank transfers used and for what? For unloading? If so do you have to unload via bank transfer or can you use a CFT transaction? I can't imagine a case where you want to unload using an ACH or SWIFT transaction. I would image you always want to use a domestic settlement system or T2 if you can.
> Apple Pay Cash’s back-end is powered by a Green Dot-backed Visa prepaid card
Only in the US or globally? I imagine there is a lot of fine print associated with that like the amount of funds you can store. I will get a tax statement even if I live outside the US, right?
> Bank transfers will be handled separately.
When are bank transfers used and for what? For unloading? If so do you have to unload via bank transfer or can you use a CFT transaction? I can't imagine a case where you want to unload using an ACH or SWIFT transaction. I would image you always want to use a domestic settlement system or T2 if you can.
> Apple Pay Cash’s back-end is powered by a Green Dot-backed Visa prepaid card
Only in the US or globally? I imagine there is a lot of fine print associated with that like the amount of funds you can store. I will get a tax statement even if I live outside the US, right?
It's a debit push payment. Everyone is issued a green dog virtual card and then the entire network works over debit (with a layer of abstraction that Apple builds on top).
> It's a debit push payment
What does that mean?
> Everyone is issued a green dog virtual card
I assume that's just a VISA Debit or VPAY with a special BIN range. Is that correct? Does everybody in the world participating in Apple Pay get a US issued VISA Debit card?
> then the entire network works over debit
There is no difference at all between VISA credit and VISA debit apart from interchange and when how the issuer bills the card holder. The whole infrastructure is the same. I assume with "works over debit" you mean is VISA cleared, is that correct? Does that also mean that unloading happens with a CFT transactions? If so what does the following sentence in the article mean "Bank transfers will be handled separately."?
What does that mean?
> Everyone is issued a green dog virtual card
I assume that's just a VISA Debit or VPAY with a special BIN range. Is that correct? Does everybody in the world participating in Apple Pay get a US issued VISA Debit card?
> then the entire network works over debit
There is no difference at all between VISA credit and VISA debit apart from interchange and when how the issuer bills the card holder. The whole infrastructure is the same. I assume with "works over debit" you mean is VISA cleared, is that correct? Does that also mean that unloading happens with a CFT transactions? If so what does the following sentence in the article mean "Bank transfers will be handled separately."?
They're good questions, but I think they're answered by the point that Apple Pay Cash is US-only. The service is just Apple's abstraction of Green Dot [1] branded prepaid reloadable VISA cards. If it's US only, Apple doesn't need to worry about the international corner cases yet.
There's some more info at Recode [2]:
[1] https://www.greendot.com/
[2] https://www.recode.net/2017/6/5/15741636/apple-pay-p2p-venmo...
There's some more info at Recode [2]:
[1] https://www.greendot.com/
[2] https://www.recode.net/2017/6/5/15741636/apple-pay-p2p-venmo...
> Apple Pay Cash is US-only
Thank you, I missed that point. I guess it's understandable given the environment but still I wish Apple would have gone for something more ambitious like the original Apple Pay.
Thank you, I missed that point. I guess it's understandable given the environment but still I wish Apple would have gone for something more ambitious like the original Apple Pay.
> which lead to myths like Apple Pay using a new PAN every time out pay.
Yeah I discovered much later that's effectively a function of tap-to-pay (which is highly prominent here in Australia, unlike many countries, almost every shop terminal has support and almost all bank cards have it also... chip and pin is also standard, and signatures are never allowed for domestic card even with a swipe)
Yeah I discovered much later that's effectively a function of tap-to-pay (which is highly prominent here in Australia, unlike many countries, almost every shop terminal has support and almost all bank cards have it also... chip and pin is also standard, and signatures are never allowed for domestic card even with a swipe)
With the iPod and iTunes, and the iPhone and the App Store, Apple created something that didn't exist before, and captured most of the newly created market. Replicating VISA's business model doesn't do the same, but simply adds a couple of features to an otherwise closed system where users will not benefit from competition.
An actual alternative to VISA needs to be open, allowing for competitors to easily enter and compete with existing actors. Such a system is the Stroem protocol on top of Bitcoin, which is a thin clearing protocol designed for competition, constantly forcing issuers to follow along on price or be left behind. This is what merchants want, and what's needed to revolutionize payments.