Chris Skinner

While new toys in the payments world may be exciting, they are unlikely to herald a revolution.

Many of us get excited about new and different toys in the payments world.

From Square - created by Twitter founder Jack Dorsey - to PayPal's billions of payments, we think the world is changing dramatically. SMS texting payments in Africa and credit exchanges on Facebook add weight to our arguments for change at the heart of bank processing.

We then use these illustrations of small change to make allegations about big change. We speculate that everyone will be using Twitter for payments via PayPal's core system within the next few years, for example.

I do it myself because it's nice to see a bit of concern in a banker's eye. But it's all just a bit of noise when you look at the reality of these systems.

In fact, I would say that all of the online P2P consumer developments added together do not amount to all that much.

PayPal, Facebook Credits, Square... even prepaid cards and mobile payments, they are all just a bit more cream on the layers of the payments processing and wider banking industry cake.

For example, PayPal deals with about $80bn-worth of transactions a year - it broke $20bn in transactions processed for the first time in the fourth quarter of 2009, processing $21.4bn in transactions for a revenue of $795.6m.

That sounds significant, doesn't it? PayPal is a major growth machine that outdid its parent, eBay, by becoming the de facto standard for online payments. PayPal's revenues hit 1 billion per year in 2005 - now the company does that per quarter.

But although the figures may be a big deal for PayPal, in the scheme of the overall payments world, they are not. These revenues are peanuts.

Assuming PayPal generates about $3bn a year in revenues this year, this is still a long way short of the $3bn in pure profit that the largest banks make in a typical year.

In addition, PayPal sits on top of the main banking infrastructure. It has not created anything new. It sits on top of Visa and MasterCard which, in turn, sit on top of bank accounts. So nothing has changed.

Chris Skinner is an independent financial commentator and chairman of London-based The Financial Services Club

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