Market Watch: How a global currency war is threatening the future of payments

Four years on, even without the benefit of hindsight, it has been entirely acceptable to believe the popular rhetoric that the present US administration is wholly incompetent and hasn’t a clue what or why it has been elected to office. But a picture is gradually emerging highlighting the latent intent of current neoconservative thinking – together with the impact it will eventually have on the global gambling market. Last week’s example highlighting the way that M&A – and global ecommerce – has been interfered with by a supposedly free-market government, raises a call to arms to the world to prevent a near-full implosion of the industries that support gaming, fintech and the way each of us transact commercially. Central to this new battleground is finance; more specifically, currency transfers. To fully comprehend why, it’s important to unpick the underlying motives behind the most recent administrative decisions.

The message behind the message

The TikTok executive order can, prima facie, be easily justified under national security, and is a flash in the pan. It might give influencer-led brands such as EA Sports and Hollister a few panic attacks over the coming weeks, but ultimately will be resolved. This acquisition and conversion platform is all-too-important not to be owned by the US, and it only really will come down to commercials – and IP-handover terms – before the Gen Z-led channel becomes another fully owned Stars-and-Stripes entity. Hiding behind the executive order, however, is a more sinister message. The order to ban WeChat – specifically WeChat Pay – is a significantly more alarming move that signals how the government wants to control payments, and the importance of the US dollar, in the foreseeable future. The reasons are mainly protectionist. It is becoming a commonly accepted trend that the US dollar is gradually diminishing in significance – not necessarily as a base currency – but as a global reserve currency. Additional clues have been peppered all over a series of recent moves by the other leading superpower. Earlier this week, China’s central bank lamented the unnecessary influence of the dollar over the Society for Worldwide Interbank Financial Telecommunication. Or as we more commonly know it, SWIFT. In the same statement it claimed that its own recently minted digital yuan would be perfectly positioned to displace any incumbent fiat currencies. This, and the prevalent global acceptance of Sino cash-free transactions – unlike most of Europe and indeed the US – places China with a real and present threat to displace a once-unthinkable dollar dominance over SWIFT transfers, replacing it with a state-controlled cryptocurrency.

Which makes the underlying reasons for blocking WeChat Pay in the US more apparent, especially given that, until 20 September, it was the second-largest Chinese cross-border payments provider. It’s only a matter of time before other (non-US, non-dollar-centric) payment gateways face similar challenges. Whether it will be for ‘national security’ or ‘displacement’ or otherwise, there is a real and present threat to the existing payments industry. Add this to the already mounting problems the market already faces. Wirecard’s demise, encumbered EU legislation, banking de-risking strategies – it’s safe to say that in the very near future gambling operators’ payment options will be severely limited. But the worst damage to the industry is being inflicted by other PSPs. Instead of lowering barriers to entry for new clients and new territories, PSPs are scrambling and fighting to claim an ever-shrinking size of an over-regulated market. In doing so they have largely let their customers – and the industry they serve – down. This is a big problem for gambling. While there are still alternative payment providers around, their solutions are immensely fragmented per territory, slow to respond, and the on/off-ramp costs incurred are ludicrous. And that’s assuming they work most of the time, as in recent years even their uptime availabilities have started to falter. But taking into account that a protectionist currency war is breaking out at global level, the choices themselves are decreasing, and something truly disruptive needs to rescue an ailing cross-border payments industry.

The next chapter

Which pivots us nicely to cryptocurrency. After a decade of being pigeonholed as a solution solely for incels and hitmen, its decentralised nature suggests the greater market is finally ready to accommodate a framework that will lead the e-commerce industry, and drag finance and gambling with it, into a new era. Properly implemented, a cryptocurrency-enabled payments provider should do away with any incumbent politics, currency wars, legislative bureaucracies and solve the problem of putting money in the hands of the customer. And, of course, vice versa. This new disruptive service should not be confused with anything that’s already on offer. Most crypto-payment offerings have been sporadic at best, intended as a last-mile or region-specific solutions, and mostly intent on peddling (and ICO-ing) their own coin instead of facilitating major currencies. A true crypto disruptor is a wholly different proposition, one integrating into local PSPs to facilitate seamless fiat/xbt adoption, much like a meta-payments aggregator. Think Curve, but on a PSP level. Only by combing the best of localised solutions and injecting a bit of crypto and aggregator magic, can the revolution truly happen. Which is also why the solution cannot just be offered as another payments solution. This service needs to integrate multiple local gateways, gradually onboarding additional on/off ramp solutions into more territories, incentivising local banks and legislation to endorse them as preferred solutions. In other words, a meta-wallet – in every user’s phone. This is how PayPal gradually built momentum over half a decade until it reached critical mass in the late 90s. But the real strengths of such a disruptive solution lie with payments and exchange. Through a properly designed UX with intuitive workflow, a casual user should be able to seamlessly open their wallet in any territory, connect to a local exchange and buy/sell coins or currency respectively. And specifically, where gambling stands to especially benefit, the need for seamless deposit into operators using multiple merchant gateways. This is where the use of ‘stablecoins’ and QR codes becomes prevalent; a user should be able to easily deposit anything they wish into their preferred bookie by simply scanning a QR code using either a pegged currency or a blend of cryptocurrencies in their wallet, whichever they prefer and without losing out on spot rates. Perhaps the most important feature – and the one that will drive the great unwashed into adopting such a service – is the use of own-named accounts to facilitate withdrawals irrespective of territories. In other words, a unique IBAN for each user account, which will also enable daily use of funds as per any normal bank account. Without, get this, the need for a bank.

The Apple iPod of decentralised payments

Sounds too ambitious or lofty to properly pull off? Too much legislative or protectionist Goliaths facing a plucky David? Well this is exactly what the world thought of MP3 players 20 years ago, until a certain hardware vendor thought it might be a good idea to mass produce readily available devices that could simply act as delivery mechanisms for a nascent music subscription service. And subsequently took on all the recording publishing houses of the time, and beat them at their game, gradually becoming the dominant player in music streaming services – and currently the highest-valued business in the world. So, the (billion dollar) question bears asking again. Who will become the Apple to the payments industry?