The Future of MoneyIt’s Flexible, Frictionless and (Almost) FreeCredit cards are expensive and inefficient. iTunes and PayPal streamline the transaction process.
Credit Cards
The swipe is just the beginning. The actual transfer of money from a buyer to a vendor can take days and cost up to 3.5 percent of the sale price.
- 1 Merchant runs customer's card through card reader, for which it pays a fee.
- 2 Card reader sends sales data to merchant's bank.
- 3 Merchant's bank requests approval from the card-issuing bank.
- 4 Card-issuing bank grants approval.
- 5 Merchant's bank sends approval to card reader.
- 6 Merchant approves sale.
- 7 Merchant sends record of transactions to its bank for processing.
- 8 Merchant's bank requests payment from card-issuing bank.
- 9 Card-issuing bank transfers funds, minus a fee.
- 10 Merchant's bank deposits payment in account, minus a fee.
iTunes
Apple's online store cuts credit card fees and friction by bundling a customer's purchases over time and processing them as one transaction.
- 1 Customer orders and downloads purchase from iTunes.
- 2 iTunes aggregates orders over a period of time, then requests payment from card-issuing bank.
- 3 Card-issuing bank transfers payment, minus a fee.
PayPal
Merchants don't have to wait to get their money; PayPal fronts them the funds immediately, then waits to get reimbursed by the customer's bank.
- 1 Customer makes purchase.
- 2 PayPal algorithms determine likelihood of sufficient funds in customer's bank account.
- 3 If approved, Paypal fronts money into merchant's Paypal account, minus a fee.
- 4 Paypal sends transaction data to third-party processor.
- 5 Processor requests payment from card-issuing bank (or customer's bank account).
- 6 Card-issuing bank transfers payment to processor.
- 7 Processor transfers payment to Paypal, minus a fee.
