Living in Boston for any length of time, you quickly realize that July 4th isn’t just another summer holiday punctuated by fireworks, family outings, picnics on the beach, parades and barbecues. Nope. The 4th is serious business in Massachusetts, where people see the Commonwealth (hey, we’re not just another state) as “ground zero” for the events that were the warm-up act for the signing of Declaration of Independence.
Many of the defining moments of the Revolutionary War took place in Boston and the neighboring towns of Charlestown, Lexington and Concord — events that were stimulated by a few passionate revolutionaries fed up with the status quo and with a vision of a better future. The status quo back in the mid-1770s was being bossed around by King George III – and the vision was new value that could be unleashed if enough people could be persuaded to see the future as they did and who could be persuaded to, literally, fight for a change.
Last Saturday, America celebrated the 239th anniversary of the outcome that these revolutionaries fought for: independence from the King,
But the payments ecosystem is rife with its own “revolutionaries,” visionaries fighting for independence from a status quo that they believe is or was too limiting and incapable of unleashing new value for themselves and the stakeholders they serve.
Thank goodness, these modern day payments revolutionaries have stopped short of dumping tea in harbors and massacring each other in public squares. Yet, the conviction that there is a better way forward is what drives the passions of the payments patriots set on solving one of the toughest problems in business today – igniting new ways of paying and being paid.
So, here are a few of those payments “patriots” – some of those who are declaring (or have declared) their independence from the payments and commerce status quo in one way or another – some successful, some not so much, and some whose battles are still to be fought.
Whether or not PayPal ever thought about fighting on its own for its independence from eBay, Carl Icahn channeled his inner Sam Adams to take the fight for an independent PayPal to the eBay board last fall. The rest, as they say, is history.
$PYPL will begin trading on July 20, just two weeks from today, a fully independent company now positioned, it says, to become the “digital operating system for commerce.” An independent PayPal, out from under the governance of its merchant parent, eBay, PayPal is free to unleash a lot of value from the consumer/merchant/financial services asset they have built over the last 17 years. Its technology/payments tender/operating system agnostic approach is also a nod to its commitment to giving stakeholders of its platform – merchants, consumers, issuers, and innovators – independence from any one particular device, technology or shopping channel.
Of course, PayPal’s founders were revolutionaries back then when the idea of a new way to send money was hatched. Launched in 1998 by Max Levchin and Elon Musk, PayPal was originally conceived as a money transfer platform that enabled people to send money each other. It ignited when that method of payment was leveraged by eBay to become a safe and secure way for buyers to pay sellers they didn’t know.
Interestingly, and in a nod to the notion that perhaps timing is everything in life, PayPal got back to those roots last week when it announced that it made a bid to acquire Xoom. Xoom is a money transmittal platform that moves money from people in the U.S. to 37 countries, including highly attractive receive markets such as China, Mexico, and the Philippines. Its 1 million customers are in no way the asset that PayPal acquired – PayPal has 68 million active U.S. consumers, but Xoom’s capabilities give Xoom senders and receivers a whole new way to move and manage their money, including to buy stuff using PayPal accounts and PayPal customers a new feature to keep PayPal top of mind.
The acquisition might not be as obvious a message about PayPal’s future intentions as Paul Revere riding on horseback the 14 miles from Boston to Lexington screaming that “The British are coming,” but it does do more than hint that PayPal is as serious about building out the consumer side of its platform as it is the merchant and SMB side.
Uber hasn’t just leveraged technology, smartphone, data and apps to reinvent the ride-sharing experience for consumers and drivers, but it has taken, head on, one of the toughest regulated industries there is - the taxi and livery business—in some of the most protectionist cities around the world. Something like 300 of them in 57 countries.
It’s an understatement to say that Uber has ruffled feathers everywhere. But rather than throw tea in the harbor to signal its displeasure with the “ruling parties” in each of the jurisdictions they enter, Uber’s strategy is to throw caution to the wind and enter markets by “asking for forgiveness and not permission.” The permission, that they are banking on, of course is getting consumers hooked on its service so that they have a stronger negotiating position with the regulators to giving consumers a choice about their ride sharing services.
Sometimes that strategy works, other times, well, let’s just say that Uber execs must always pack a toothbrush and an extra pair of underwear for when they get arrested and thrown in the city dungeons, as happened in Paris last week.
We’ve seen its service shut down temporarily (New York and Portland Oregon), be banned entirely in others (India), and be subjected to fines and operating concessions in others (Boston). In some markets like France and Singapore, its executives have even been thrown in the pokey or been threatened with jail time. And, in all markets – including foreign markets like China – Uber has spawned a whole new crop of revolutionaries who see the opportunity to disrupt the status quo and the path cleared for them by Uber as a model they’d like to follow.
Undeterred, like any good patriot who believes in their cause, Uber marches on, aided in battle by the consumer army who likes its services and uses it, confident that even if the service gets shut off or execs get jailed, consumer demand will create the political pressure necessary for consumers to win their independence from a taxi industry that has failed to deliver a great experience.
After all, it worked in the U.S. 239 years ago!
Visa & MasterCard
Visa and MasterCard’s revolutions about 14 years ago or so were far more civilized. At the time, each was owned by an association of banks – which was the operating and governing structure for the first four decades of their existence.
In 2006, that all changed, when MasterCard broke free from bank ownership to become the first publicly traded card network owned by shareholders. (Visa followed suit in 2008). Issuers, of course, remain a hugely important stakeholder, but today, each has a different relationship with their issuer stakeholders. Lest anyone forget, the merchants have staged their own revolutions against the card networks over the years. Their “fee parties” may not have involved dumping stuff in harbors, but they did involve litigation fought in courtrooms and in the halls of regulators around the world for more than a decade. Getting out from under all of that that was a big driver for the card networks' “independence” from the association model.
Issuers, of course, still issue cards bearing logos of the card networks and card networks still drive the fee structure that underpins the business model for the payments ecosystem today (much to the chagrin of the merchants). But as publicly traded companies, Visa and MasterCard have shareholders and Wall Street to keep happy. And to do that, they must pursue a path and a structure to unlock value for them as well as the innovators that are reinventing the payments and commerce ecosystem. That means making decisions that balance the needs of their issuers with merchants, innovators and businesses who have more options and opportunities to disintermediate them (in theory).
Maybe it’s being in Boston and in close proximity to the site of the Boston Tea Party, but LevelUp’s Chief Ninja, Seth Priebatsch, has built LevelUp’s business waging his own “fee party” on behalf of the merchants it recruits to its mobile payments platform.
“Interchange Zero” is the mantra of this mobile payments revolutionary, who has gone on record stating that the cost of enabling payments should be zero, and that the exchange of value between merchants and payments services providers should be based on, well, the exchange of value.
And that’s LevelUp’s value proposition to its merchant partners. LevelUp offers its mobile payments merchants an option to pay for its services like other mobile payments players do – a percent of the transaction – but LevelUp’s preferred and long-term business play is to monetize the engagement that its mobile app enables for merchants and their consumers by taking a percentage of the loyalty and/or promotional offer that consumers redeem. Whether via a white label or LevelUp branded mobile app, LevelUp’s mobile payments platform contains a number of engagement tools – themed offers, promotions, gift card trade-ins and redemptions – designed to incent frequency and usage. LevelUp’s data show exactly how many times consumers need to use it to get “hooked” and it is building out its platform to do whatever it takes for merchants and consumers to reach that tipping point.
This quiet, unassuming administrator for the nation’s ACH network, at first blush, may seem anything but a payments revolutionary. After all, NACHA’s goal is to make sure that everyone plays nicely by the same rules. But NACHA’s recent accomplishment to get nearly all of its member financial institutions – all 13k of them (who belong directly or through regional payments associations) – to agree unanimously to adopt Same Day ACH standards and rules gives them a place at the payments revolutionary table.
This, of course, happened at the same time that lots of other revolutionary factions - The Clearing House, The Federal Reserve and every Silicon Valley funded blockchain/bitcoin protocol venture - is out on the different battlefield fighting for a “real-time payments” outcome. NACHA has worked methodically and systematically to proffer a business case for all banks that addresses their concerns – namely cannibalization of revenue streams and services – and offers consumers, businesses and innovators a platform to safely and efficiently move money between banks. Instead of relying on cheap talk and lots of slick PowerPoint decks, it actually got things moving.
Hey, sometimes you don’t need to fire a single shot to win the war.
In 2009, Square stoked a revolution in payments by changing the way that micro merchants and small sellers got paid. A small piece of square hardware – the dongle – hooked into the antennae jack of a smartphone (an iPhone at first) gave sellers the independence to accept cards without paying a fortune for a wireless POS terminal and enduring the pain and agony of getting a merchant account – if they even could. Square’s dongle not only coined a new term – mPOS – but started a revolution throughout the payments ecosystem as competitors rushed to enter the market with variations on the mPOS theme. One can argue the viability of Square longer term (you can read my take on it here) but if the definition of a revolutionary is one who vigorously challenges the status quo with a vision for a better future, Square sure fits the profile.
MCX started life nearly three years ago as the mobile merchant network by the merchants, for the merchants and run by the merchants. In other words, it was positioned to become the network of choice for the consumers who shop at their stores, and ousting the traditional card networks – MasterCard, Visa, American Express and Discover. Their battle plan was to leverage the consumer's obsession with their smartphone and the merchant’s obsession with getting rid of interchange fees and feeling captive to merchant networks to complete their plan.
These “merchant revolutionaries” rallied together, unified in their belief that their way would be better for them and for the consumers they served. Like many rebellions that involve a long and hard fight, unless the revolutionaries see a glimmer of hope, and win a few skirmishes here and there, they start to wonder what they’re fighting for. That condition only gets worse when battle weary revolutionaries see the “other side” looking better and equipped with a better arsenal. In this case, that better arsenal is the range of mobile payments schemes that most everyone else has in the market. MCX, after three years, has yet to see the fruits of their labor in the market outside of a few beta tests here and there. And battle-weary revolutionaries are now defecting and MCX is learning that it’s hard to keep the troops motivated if you never win and offer no plausible game plan for how you ever will.
Zipline (aka National Payments Card Association)
Zipline is a payments revolutionary that has taken the “fee fight” to the streets but using a different battle tactic – getting consumers to purchase gasoline using a decoupled debit card that gives cash back on those purchases. Now, decoupled debit cards are nothing new – and is, of course the battle tactic that MCX has been using to persuade its merchant revolutionaries to join its fight. One of its largest merchants, Target, and its REDcard is one of the more successful attempts at scaling decoupled debit products.
But the history of decoupled debit is checkered and even includes an early revolutionary – Debit man (aka Tempo) that had its own theme song and a caped-crusader-like mascot in the early 2000s. It crashed and burned after learning that a consumer value proposition of high merchant fees meant nothing to a consumer if they couldn’t use the card they wanted to use at the merchants they liked shopping at.
Zipline’s revolutionary battle plan is similar but a little different.
It’s carved out a niche in gas and convenience stores (many of which are located together or are nearby) and offers a generous cash back discount on the purchase of gas. Seems as though that proposition was enough to get a bunch of consumers digging through their desk drawers to find a check to go online and get an account setup. Especially when gas was pushing $5 a gallon a couple of years back.
What remains to be seen is whether lower gas prices and cards that can only be used at gas stations is enough of a reason for consumers to keep the hopes of the patriots alive.
Alternative Lending Platforms
The real mark of a revolutionary is one whose vision and passion is so strong that it doesn’t let rules and regulations stand in the way of forward progress. That’s the story of the alternative lending platforms that have emerged and/or flourished over the last decade or so to fill a need made more pronounced by the financial crisis of 2008.
Some have setup new business models that turn loans into securities to avoid compliance with existing banking regulations. Others use technology and data to make approvals more efficient and the analysis of business performance more cost and time efficient. But like the American patriots before them, these revolutionaries are fighting back against the regulatory environment which constrains the ability for small businesses and consumers to access the capital they need to grow and run their businesses. And, in doing that, they’ve given those stakeholders the independence and freedom to pursue their own business dreams.
Sometimes revolutions are started by people so dissatisfied with the status quo that they want to get rid of everything and start fresh. That was the original intent of bitcoin - a totally and perfectly anonymous way to transact online without anyone knowing who you were and what you intended to do with your bitcoins. As we all know, bitcoin has evolved to become the all-consuming focus of those who believe that it can indeed become the Internet of money – a fast, free, secure and decentralized way of moving money around the world.
Thankfully, the fever pitch around bitcoin (the currency) has quieted a bit – thanks to the flat-out insolvency of some of the big exchanges and the embarrassing indictments and unsavory escapades of Bitcoin Foundation members. But that hasn’t quelled the passion of the bitcoin revolutionaries who remain convinced that the Internet of money is worth fighting for. That passion has inspired the investment of hundreds of millions of dollars of venture capital into the innovators who are keen on building the new global financial services superhighway controlled by no one and governed by laws of mathematics.
Of course, to most people that all sounds less like a revolution and more like anarchy headed for a train wreck. But that hasn’t stopped technologists and innovators, who keep fighting for the creation of a new financial system that has a global set of standards yet a decentralized operating structure.
But even revolutionaries with a shot at changing the status quo have to have a vision for the future that most people can get behind, and one that offers a glimpse for how lives can be improved if they get on board. Bitcoin, for all of its hype and big backing, has failed to pass that test and frankly, it’s unlikely that it ever will. Bitcoin enthusiasts might be the “irate, tireless minorities” that “are keen to set the brush fires in people’s minds” that Sam Adams said was needed to change the world. But it was one of the architects of the Declaration of Independence, John Adams, who said “facts are stubborn things; and whatever may be our wishes, our inclinations or the dictates of our passions, they cannot alter the state of facts and evidence.”
And the facts are that bitcoin, as a global currency, is a non-starter, and as an alternative network for moving money around the world for free is little more than Silicon Valley looking for a place to park the money they know they can afford to lose.
So, who’s on your list of payments revolutionaries fighting the good fight to be unleashed from the status quo? Would love to hear from you!