From Matt in response to the earlier piece:
Depends how long you get to keep the money on deposit. The marginal costs of running a payments business are negligible, it’s all in the operational overheads. Let’s say it costs $10M pa to run — I suspect it could be done a bit cheaper than that — with 200M users they only need to make 5¢ per user per year from payments; they can probably do that purely from fx margin.
Yes, but also no. Sure, you don’t need much in fees to cover such a cost. But don’t forget you’ve also got a float. The money that sits inside the system, that’s the float. The total of all the balances added up. So, everyone who’s got an account will have $10 in it. Say. The actual average, over time, will be much higher than that. But every user will have some positive balance.
You, the payment system provider, that’s their money. But the standard is that anything made from that money belongs to you, the payment provider. So, you scoop up those $10 amounts and lend them out. You’re very careful, you don’t start funding mortgages from it, all that. You don’t do “banking” which is maturity transformation. But you do take your 200 million times $10 and lend it out.
Put it in short term Treasuries for example. Notes (so, under 90 day maturity, and there’s a very, very, liquid market in these, you can sell your $2 billion in 10 minutes any time you like) not even bills or bonds. Earn perhaps 4%. Not checked that price but in nominal terms that sounds about right at present.
You’re now making 40 cents a year off each user. You’ve covered your costs.
Being able to lend out the float is a really, seriously, important part of the economics of either banking or payment systems.
On the other hand, in the US, you have to get your payment system licence state by state. Which is expensive and time consuming. In the EU you just need the one, once. It’s the regulation that will cost, not the system itself.