The problem with PayPal, ‘old money’ and digital payments

For the most part, Super Bowl 50 was a competitive snooze-fest that showcased an awkward halftime show and underwhelming TV commercials. I don’t think it was what the National Football League had in mind for the golden anniversary of its beloved Big Game.

One of the things I was most interested in during last Sunday’s festivities was how the fintech-related commercials would play out with the Super Bowl TV audience. Companies such as SoFi and PayPal officially debuted their ads during the game.

PayPal’s commercial appeared in the first quarter and the people I watched the game with met the ad with a blank stare.

“PayPal isn’t new. Why do they have a commercial?” my sister asked.I explained to her that it’s because PayPal is its own company now and they’re trying to find an identity. As a sidenote, most of my family and friends have little insight into what I do for a living.After I gave the room my spiel about PayPal’s commercial, I tweeted the one problem I had with it:

Hey PayPal, I still need to use old money since the hipster businesses only deal with cash.

— Will Hernandez (@W_Hernandez16) February 7, 2016

What looks like a joke (and it was to an extent) is really a problem for PayPal, the card networks and fintech companies when it comes to digital payments. Old money is still relevant to many consumers worldwide.

I’ve mentioned this before on Twitter and in some blog posts on Mobile Payments Today, but let me recap the big problem that I’ve encountered over the past nine months while living in the Greenpoint section of Brooklyn.

Prior to this temporary stay in my hometown, I didn’t carry much cash. You were lucky to catch me with a dollar bill in my wallet. While I’m against the idea of a cashless society for many reasons, you didn’t find much paper on me outside of a footlong CVS receipt. But then I moved back to Greenpoint in May.

This part of Brooklyn is the hipster capital of the world. I can’t toss a rock across the street without hitting a hipster with a scraggly beard. The combination of Greenpoint and its neighbor to the south, Williamsburg, has more hipsters than any place I’ve lived. Wicker Park in Chicago is another hipster-dominated neighborhood, but north Brooklyn takes the top prize.

One well-known hipster characteristic is that they’re anti-establishment and like to go against mainstream trends. So, while companies such as PayPal and the card networks push proximity and remote digital payments and want to eliminate cash use, a lot of businesses that cater to hipsters (who also happen to be millennials, by the way) in north Brooklyn only accept cash. I live next door to such an establishment, a restaurant named Jimmy’s.

And when you walk up and down Franklin Street in Greenpoint, you’ll see a sign on some storefront windows that yells ‘Cash Only.’ Old money is thriving in this part of the country and the paper is burning a hole in my pocket as I have to carry cash on me to pay $1.50 for a cup of coffee.

And there’s another issue I see again and again around these parts with merchants outside the hipster bubble: the $10 credit/debit limit.

Thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act that went into law in July 2010, merchants can set a $10-purchase limit for credit and debit card transactions. The limit is a law that is now helping to prevent widespread mobile payments and forcing some consumers to carry that old money PayPal talked about in its Super Bowl ad.

Part of the reason why mobile payments prospered outside the U.S. is because providers portrayed it as a quick way to pay for small-ticket items such as coffee and a newspaper on the go. The Octopus Card in Hong Kong is a great example of this concept. What started as a closed-loop contactless-mobile payment method for transit fares morphed into something commuters also can use at retail shops throughout Hong Kong.

Mobile payment providers in the U.S. can’t use that small-ticket message as some businesses remain allergic to plastic thanks to fees, or insist on enforcing the $10 minimum to help offset the fees they’ll pay on those transactions.

Is there a way for the industry to fix this two-headed problem?

Industry analysts for years have pushed the idea of mobile payment-specific interchange rates, especially for methods that use tokenization and fingerprint authentication such as Apple Pay. I revisited this idea in an article from August 2014. The idea of mobile payment-specific interchange rates, at least for Apple Pay transactions, probably died when it was revealed that the banks pay Apple 15 basis points per credit tap and a half cent per debit tap.

And what about the $10 limit for credit and debit card transactions? Unless the banking industry can find a way to convince Congress to repeal that part of Dodd-Frank … I’m sure that would go over well with the American public.

I don’t fault PayPal, the card networks or fintech companies for pushing their agenda. We’re in the middle of unprecedented change in the payments industry. But, we need to keep in mind that not everyone wants to embrace it. Old money will be around for a long time. Blame the hipsters.

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