Fragmentation of Payments – The $6.42 problem!

Here is a challenge. Try sending $6.42 across the world to another random person. There are three conditions to this challenge:

(a). Do it in real-time (sub 5 seconds transfer)
(b). Do it for a fraction of the cost, like 2% or 3% of $6.42, and
(c). Send it to someone who does not use the same banking app or payment app that you use.

Learn more about this problem and why you should be thinking about it more and more.


Hello. My name is Faisal Khan. I’m a banking and a payment consultant. Today I want to talk about a problem that I call the $6.42 problem. $6.43 whatever.

The problem is, let’s say if you’re in Chicago and someone is in Manila and you know they ask ‘hey send a picture of a baby’, and you can WhatsApp them, and almost instantaneously they will get the picture. However if someone is in Chicago and someone is in Manila again in this example and say ‘can hey can you send me five dollars’. The fact is we cannot. We cannot send value across the Internet in real time, from one person to the other. We can send data that we have no problems with. We figured that part out, we’re doing it very efficiently.

But, when it talks about sending let’s say $6.43 from Chicago to Manila. So that’s the first problem, it is a micro transaction, it is under $100. We want to do it in real time, that’s the second problem. And we want to do it for a fraction of the cost, so let’s say I want to do it for 5 percent of the value. 5 percent of $6.43 would probably be, I don’t know, something 30 to 33 cents. That’s almost inconsequential. But, today the world that we live in today, if you’re trying to transfer $6.43. If I, if I were to walk up to a store, a money transfer operator in let’s say Copenhagen and say ‘hey I want to send $6.43 to Faisal Khan in Karachi Pakistan’. You know, they’d laugh, because it’s not possible.

There is a floor price. That floor price is about a $100 and anything below that, we simply, cannot be transmitted in an efficient and cost effective manner. They’ll do it for you but they’ll probably charge you $40 for it. That’s a lot of money. So the we way have to think about this problem is, we need real time payments. We need them to be a fraction of what the, the fees associated with such payments can be you know 2 percent plus $4.50. It just cannot be that. That $4.50 cannot be there. It has to be 2 percent, 3 percent, a percent and half of the value will be transmitted.

If I want to transfer $2, and 2 percent of that is going to be 4 cents. That’s okay when I’m making 2 percent on my on my transfer. But, if you say it’s going to be $2 plus $3 for transfers, so $2 I’m trying to transfer, $3 as the fee – that just doesn’t compute. It doesn’t make sense.

So, the $6.43 problem is a very real problem. You will see that more and more companies will come into micro payments, small value transfers, real time payments, and for a fraction of the fee. It can be done today, it’s not that it cannot be done, it’s just that many money transfer operators feel that they’ll be leaving money on the table if they were to go and pursue this real time payments. And I think there’ll be a lot of upward and downward pressure coming from marketplaces from large providers like PayPal and Xoom and Google and Fiverr etc. that will warn their providers to do real time payments. It is going to be a very normal thing. PayPal is now launching a service where if a business makes a sale at let’s say 12:00 at 12:01, 1 minute afterwards, they get that money. It’s not that, that money would be credited the next day or T plus two or T plus three. It’s instantaneous. Likewise, payments across the borders will happen, have to happen instantaneously. And once they do happen instantaneously, the size of the GDP market will increase. We will find ways and means of communicating and doing trade for small value that we have never seen in this world before.

So, the $6.43 problem is a huge one to solve. It is, the potential is trillions of dollars literally. And maybe I’ll make a video and show you the calculation of how it is really trillion dollars and how that number came up to be. But, if you are entering the payment space this is something you really really want to think about. How does the $6.43 problem become part of your DNA? How has it become part of your solution provisioning?

That’s what I wanted to talk to you today about. Till next time, have a good one. And if you have any questions please as always, ask below.

This page was last updated on September 1, 2022.

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