Future Of Payments

Communication protocols on the internet are both wildly varied and constantly evolving. You have voice, text, video, and image as the underlying infrastructure. Atop this framework, there is great variation, and there are networks that capture the best aspects of each.

Bell-AT&T and others established the first voice protocol on a twisted pair of insulated wires known as the telephone line. It has since evolved into hundreds and hundreds of thousands of cellular towers distributed across the world, with satellites that route and re-route the data packets near-instantly. Networking protocols like TCP/IP and OSI enabled a new class of voice protocols known as VoIP, which powered the rise of Skype and GrandCentral. SMS also moved onto the web, and WhatsApp and Voxer are dominating global markets. Data is increasingly the leading communication utility today. Instagram and Snapchat make photo-sharing and photo-communication second-nature, while Vine makes short-videos as addictive to watch as to make. Verizon, Huawei, AT&T, Sprint, Vodafone, etc. are all constantly adapting their strategies to stay competitive as user behavior on these platforms evolves wildly, and start-ups tackling this category will never get old, as youth culture evolves, our hardware and sensors change, and so on.

The same can be said about payment infrastructure. When Bank of America first experimented with sending out unsolicited ChargEx (VISA) cards in 1958, they were creating the equivalent to the first twisted pair of insulated wires. That same year, engineer Bill Fair and mathematician Earl Isaac released the first credit scoring system under their company Fair, Isaac and Co. (FICO). The credit card industry was born, and has been, along with the physical banking infrastructure of branches, checks, and later ATMs, the leading technology in the universe of payments. With the creation of the World Wide Web and HTTP protocols, a new era could have been born, but wasn’t, just yet. Patrick Collison from Stripe pointed out that “HTTP Error 402: Payment Required” was one built into the new communication protocols. PayPal came nearly 10 years later, as it took some time for the web to touch enough consumers for online payments to make much sense. But now, thanks to mobile devices, evolved communication protocols, and billions of people connected, the evolution of payment applications has followed.

Chris Dixon writes eloquently about how content on the Internet is best consumed in digestible packets, which he calls “snacking.” In a world of snacking, there are all manner of services, communication types, and pieces of worthwhile content that requires a transaction layer. As is the case with the communication platforms, payment platforms will evolve to be optimized for each of these types of snacks. International e-commerce requires one expertise, while mobile commerce requires another. Escrow-based platforms require one type of user experience, while peer-to-peer or crowdfunding platforms require another.

Right now, Balanced, our portfolio company creating payment solutions specifically for peer-to-peer marketplaces, is growing extraordinarily fast. Gumroad, another of our portfolio companies aimed at providing solutions for digital creators to sell their wares directly to consumers, is also seeing amazing growth. Braintree/Venmo is being acquired by eBay. Stripe, PayByGroup, and Patreon are all experiencing eye-popping hockey-stick growth curves. I wondered how it was possible that the tide was lifting all boats in the “payments space,” but I realized that “payment” is almost as fundamental to communities and business as “communication.” And we have all come to terms with the fact that the “communication” space has nearly infinite upside as the space constantly evolves and tools get more sophisticated. So it’s reasonable to imagine the same in payments; it couldn’t possibly be less winner-take-all.

Where this gets really exciting is virtual payments. Bitcoin (and others like it: Ripple, IOU) introduces payments protocol designed specifically for the internet. The applications that will exist running atop this protocol, like Instagram and WhatsApp on 4G and TCP/IP, stand to create payment experiences that meet our micro needs more elegantly than was ever previously possible. And that is cause for excitement, indeed.