2014: the year of payments
For all the talk that 2013 was a disappointing year in tech, I tend to agree with Om Malik and Paul Singh: some big, big things happened in 2013, they just weren’t obvious. After years of observing the payments space and spending the last few months working in it directly, it’s become clear to me that 2014 is going to be the year that the payments revolution finally arrives.
We’ve been waiting for a true revolution in payments for a long time now. I would argue that payments have followed the Hype Cycle almost perfectly: an early recognition that the Internet would change things, some early productivity (PayPal), a ton of hype that wasn’t realized (NFC, mobile payments, etc.), followed by a “Plateau of Productivity” in which we currently find ourselves. How do I know we’re in the “Plateau of Productivity”? First, companies like Stripe are growing as fast as companies often do during Y Combinator building common sense payments infrastructure, while payments and people continue to move online and become more mobile at a startling rate. Second, we haven’t had the revolution yet: we’re still basically using the same technology to pay for things (Credit/Debit Cards), complete with all the fees and closed ecosystem that come with it, that we have been using for 60 years. Finally, and perhaps most importantly: (the rise of dramatically radical things like Bitcoin and other Cryptocurrencies in the popular consciousness show us that people are ready.
Bitcoin is a tremendous signal that the payments industry is about to change. Yes, Bitcoin ITSELF right now has an inflated price propped up by speculators and media hype, but that’s irrelevant - what matters is that, as Chris Dixon points out, Bitcoin has shown us that the payments industry is too large and that there is a tremendous will to change that. For online payments, Credit Card companies are somehow able to charge 2.9% and $.30 a transaction (or thereabouts) for doing roughly nothing. Whenever I make that statement, I get a ton of weird push back from people arguing that the risk, technology, and convenience that Credit Cards provide make those fees entirely reasonable. This is plain wrong - Credit Card companies do not need to be charging those high fees, which can often account for as much as 10-50% of a company’s margin, and the fees they DO charge are a result of the way they’ve chosen to do business. Bitcoin shows us a different future - one with no fees, no central third-party system controlling how payments can be made, and one that is based upon openc and flexible technology.
Now personally, I’m working on a different solution (for an ugly but informative demo click here) based on fee-less payments passing directly bank to bank using online banking features. I believe that’s the winning solution or I wouldn’t be working on it. However, the specific solution isn’t the point - the point is that despite the fact that Bitcoin isn’t the primary way we’ll make payments when I imagine the future, I do believe that what Bitcoin has accomplished can not be undone - we’re going to reinvent payments technology, and it’s going to happen this year.
To close, some predictions for 2014:
Bitcoin will have a major crash, then rise again as it develops its true economic value as speculators are replaced by consumers as the primary owners and traders of Bitcoin. This will look remarkably similar to the “Hype Cycle” chart. It will remain an extremely small but influential segment of the payments market.
Another platform for payments that removes Credit Cards and their fees will emerge, and it will use ACH payments. This will either be a third party (like what I’m working on) or an effort by the banks themselves. The latter is a serious possibility - we talk to banks every single day that are looking for a way to do this. The only thing holding them back is themselves.
Person to Person payments will be become way, way easier. An app, probably Venmo, will reach ubiquity among certain demographics, but other solutions that don’t sandbox you into their system will emerge. Anybody looking to build one of these, we’d like to help.
More than 1 Cryptocurrency will cross the .1 BTC mark at some point. I’m assuming Litecoin will be one of them, but we’ll see.
I will not buy or mine any Cryptocurrency and I will regret it.
Talk to me on Twitter if you have any predictions of your own, discuss on Hacker News or email me @ tommy at paidez.com.