![]() ![]() The new system was faster and more efficient than debit magnetic cards, producing a host of direct and indirect benefits for those two companies as well as for broader society. Exploiting these opportunities, the two tech firms created a QR code digital wallet scan-based system, which essentially leapfrogged the debit magnetic cards. Chinese merchants, particularly small ones, lacked interest in such a costly system. The story diverges with Chinese technology companies, WeChat and Alibaba, who appreciated the inherent inefficiencies in the card-based system: the interchange fees, design apparatus of cards and card readers, and the costs borne by merchants. Founded in 2002, Union Pay’s prevalence rose sharply to achieve over 3.5 billion cards in circulation in just a decade and volume that was roughly half of what Visa was processing in the mid 2010s. At an earlier point in its economic development, China attempted to emulate and graft onto this system, with multiple banks introducing their own sets of magnetic stripes and cards including Union Pay as the most prominent example. Magnetic striped cards came to dominate the world of retail payments in developed economies. To put that in perspective, the peak number of daily transactions in Bitcoin is estimated around 400,000. These ‘ Diners Cards’ eventually transformed into a series of plastic cards, building a set of payment rails that process more than 130 billion transactions a year in the United States, which is more than 350 million transactions per day. This system has its roots in a series of inventions from roughly 50 years ago in New York, which began as a set of solutions for restaurants and frequent customers who were unable to access cash over the weekend and sought an alternative to the paper-based check payment system. ![]() created and essentially dominates global retail payments through a magnetic stripe card-based interface running through the global banking system. The story in payments begins along this common narrative. China is simultaneously modernizing its own domestic system to resemble western economies while at various levels integrating into the broader global financial system. In the standard model, the United States is the advanced incumbent economy while China is playing economic catch-up. ![]() The Chinese payment wars stand in sharp contrast to the standard analysis of the global economic game. ![]()
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