Israeli banking supervisor Daniel Hahiashvili announced last week that he plans to allow payment apps Bit and Paybox to collect fees starting in January 2025.
The fee, which can be as high as 1%, will only be charged to customers whose total transactions exceed NIS 25,000 per year. This may seem like a lot, but it amounts to an average of NIS 2,080 per month, including making and receiving payments.
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The payment app industry in Israel was established in 2017 when the three major banks launched or acquired their own P2P applications. Bank Leumi (level:room) Set up and then close the payment, Bank Hapoalim (level: Poly) launched bit, and Israeli Discount Bank (level: I shut up) launched Paybox. Since then, banks have provided the service for free, and it has cost the banks dearly. It is estimated that Bit has lost NIS 700 million since its founding, while Paybox has lost NIS 250 million.
Why did the banks agree to absorb these losses for years? Getting consumers accustomed to a new way of paying. Until Bit and Paybox came on the scene, it was difficult to get Israelis away from paying with cash, and it was clear to both apps that they would have to incur huge losses in order to start making 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 2021 study by the Israel Competition Authority found that “competition in the payment apps space is expected to converge into a single-winner market structure that handles almost all routine transactions between individuals.” The authority warned that payment apps are converging to a “network effect.” A market structure that describes the situation where the more people use a product, the more useful it is. This network effect creates high entry costs for new competitors, turning the most popular app into a monopoly.
In fact, today we see that Bit has captured 90% of app payment transactions with 3.5 million customers, while Paybox has 1.4 million customers but only 10% of the transaction volume.
This article was published in Globes, Israel’s business news – en.globes.co.il – on July 1, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.