For what seems like a very long time, banks have seemed to operate under a kind of monopoly where they were free to set their own terms to consumers and each other, owing to the lack of a credible alternative. Recently though, this has all begun to change.
The root cause of this change is of course the internet, which has completely revolutionised communication since becoming mainstream in the late twentieth and early twenty-first century. By granting people all over the globe the ability to collaborate and discuss new ideas, the internet has changed the world, and almost every industry with it — and banking is no exception.
Starting with one you will almost definitely have heard of, PayPal was founded in 1998 under their original name: Confinity. They took on the PayPal name and brand in 2002, and later that year were acquired by eBay, after having worked closely together for some time. Thirteen years later in 2015, PayPal once again became a separate company, independent of eBay.
PayPal is widely considered to be the most popular and most well-known service available for making payments online. This includes payments to businesses as well as the P2P (person to person) payments that made PayPal such a valuable partner to eBay and brought it the ubiquity it now enjoys. It is even one of the most popular online casino payment options, thanks to the strength of the PayPal brand and the inherent simplicity of making and receiving payments to an account that is connected to your bank account and credit/debit cards.
Thanks to this service, people are no longer reliant on expensive credit card transactions or complicated bank transfers to make or receive their payments — and although PayPal do charge fees for processing certain transactions, these often offer better value for money than other solutions.
Known as the first decentralised digital currency, Bitcoin was first introduced in 2009. Breaking that down a little, ‘decentralised’ means that there is not one single person or entity which controls or administers Bitcoin, and ‘digital’ means that it doesn’t exist in any physical form. Bitcoins are kept in a kind of digital wallet that stores the digital credentials for your Bitcoin holdings, and from there they can be used to affect online payments to businesses or other people that are connected to the Bitcoin network. As there is no need for an intermediary (this would be the role of your bank when making debit card payments), the fees required are minimal, or none at all.
Without an intermediary to approve and track payments, Bitcoin relies on a peer-to-peer system whereby its users validate the payments made by people. When this happens, it creates a ‘block’ which is then added to the ‘blockchain’ — a kind of digital ledger that tracks every Bitcoin payment that occurs. This process is known as mining, as new bitcoins are created as a reward to those users that keep the system operational.
However, the number of Bitcoins in circulation is tightly managed in order to reduce the risk of devaluation via inflation. The reward for adding a block decreases by half approximately every four years, and will decrease to zero once the limit of 21 million Bitcoins is reached. It is estimated this will occur in the year 2140. After that, the reward for maintaining the ledger will come from transaction fees.
Because of the low or non-existent fee structure, the anonymity that the currency provides, regulated inflation levels, and the relative security that comes from operating with a decentralised currency free from the whims of greedy executives and banks, Bitcoin has become very popular in some parts of the world. Gambling companies are also getting in on the act, with several fully-regulated Bitcoin casinos in operation, and preparations being made to enable players to use this as a payment option with their existing accounts.
As the name suggests, this company is revolutionising how people spend money in currencies that they don’t hold in any form of bank account. In the past, when someone from the UK went on holiday, for example to Spain, in order to spend money while there they would need to:
- Exchange their Pounds for Euros either before leaving or upon arrival. This would usually incur a commission fee of 3-5% of the amount being exchanged. Not only that, but the rate they use to exchange money would almost always be several cents below the mid-market rate (this is the one you see if you search on Google or xe.com).
- Withdraw cash from an ATM in Spain, and absorb four or five different fees applied by their bank and the ATM owner. Again, the exchange rate used would be lower than the mid-market rate.
By contrast, a Revolut card allows you to top-up with Pounds and convert it to Euros for free at the mid-market rate all through a simple mobile phone app. Then you simply take it on holiday with you and use it as you would any other card in the UK. Cash withdrawals are charged at 2% after the first £200 in a month, but card payments are free. There are a host of other features, with more being added all the time.
Being able to make payments in countries all around the world without paying huge amounts in fees and lost currency conversion has handed a lot of power back to the consumer, which was previously held by the large banking institutions around the world. Revolut is not alone in providing this type of service either; you can also check out Monzo, WeSwap, and FairFX for ‘fairer’ currency conversion.
Whether you are a big-city banker pulling in huge salaries for securing contracts with multi-national clients, or simply a holder of the most basic current account, the internet has opened a wide vista of opportunities with regards to your finances — some of which will save you more money than you’d think!
Revolut in particular is tipped for big things going forward, and has some great ideas which will help it to expand its user base. Bitcoin is enjoying a period of high growth right now and will only increase in ubiquity as people become more accustomed to and acquainted with the concept of cryptocurrency. Finally, PayPal is already one of the biggest and most profitable companies in the world, and it is largely thanks to their efforts in the first decade of the twenty-first century that the concept of e-wallets is so familiar now.