Israel’s Supervisor of Banks Daniel Hahiashvili announced last week that he plans to allow payment apps Bit and Paybox to charge fees from January 2025.
The fee, probably of 1%, will only be charged on customers whose total transactions exceed NIS 25,000 annually. This may sound a considerable sum but it is only NIS 2,080 per month on average including both making payments and receiving payments.
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Israel’s payment apps industry was set up in 2017 when the three big banks launched or acquired their (P2P) apps. Bank Leumi (TASE:LUMI) set up and subsequently closed Pay, Bank Hapoalim (TASE: POLI) launched Bit, and Israel Discount Bank (TASE: DSCT) launched Paybox. Since then the banks have provided thew service for free and it has cost them dearly. Estimates are that Bit has lost NIS 700 million since it was founded and Paybox has lost NIS 250 million.
Why have the banks agree to absorb these losses for years? To accustom consumers to a new form of payment. Until Bit and Paybox bust onto the scene, it was difficult to wean Israelis from paying in cash, and it was clear to both apps that they would have to suffer heavy losses until they started earning money from their activities. In other words, Bit and Paybox have invested hundreds of millions of shekels in making Israeli consumers dependent on them.
That’s not all. A study by the Israel Competition Authority in 2021 found, “Competition in the field of payment apps is expected to converge into a market structure of a single winner, which has almost taken over all routine transfers between individuals.” The Authority warned that payment apps are converging into a “network effect”. A market structure that describes a situation in which the more people use a certain product, the benefit from using it increases. This network effect generates high entry costs for new competitors, turning the most popular app into a monopoly.
Indeed today we see that Bit has captured 90% of app payment transfers with 3.5 million customers, while Paybox has 1.4 million customers but only 10% of the amount of transfers.
Published by Globes, Israel business news – en.globes.co.il – on July 1, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.
