Why Every Payments Product Needs an Ignition Strategy

Hard data are not available but based on my experience billions of dollars each year go poof in the payments industry from investments in products that crash and burn soon after launch.  These products didn’t have a sound ignition strategy which should be the foundation of all payments innovation.  This series describes what an ignition plan is, why every entrepreneur inside and outside of major corporations should have one, and why investors and directors should insist on seeing one.

Failure itself is hardly surprising. Most new businesses die young and few products become hits. Unless someone really does invent a working crystal ball that’s the way it will always be.

But a lot of money gets wasted in payments because of the failure to deal with a difficult coordination problem.  Many payments products provide value only if they are adopted by both buyers (such as consumers) and sellers (such as merchants).  They have to achieve a critical mass of these buyers and sellers to provide a valuable product.  If they don’t, they will crash and burn, after early adopters lose interest. If they do, they may ignite as an increasing number of buyers attract sellers and an increasing number of sellers attract buyers. Discover ignited. So did PayPal. Pay-by-Touch crashed and burned and hundreds more just can’t get off the ground.

The problem of getting both buyers and sellers on board is sometimes called the chicken-and-egg problem in payments.  That analogy to the childhood riddle of which came first is not helpful to understand either the problem or the solution.  In payments, it isn’t a question of first: the chicken and the egg better show up at the same time and that makes it silly to talk about chickens and eggs in the first place.  As I’ve describe in More Than Money, when Diners Club ignited the first general purpose payments card system it got restaurants and cardholders on board before it even opened its doors. Cardholders had restaurants they could go to, and restaurants had people who wanted to use their cards.  Payments is like dating.  There’s no product unless both sides of the market show up at the same time.

Payments isn’t the only industry that faces this sort of ignition problem. In fact there is a whole category of businesses that create value only when they can connect two or more different groups of customers, who benefit from each other, on the same platform. (See my book with Dick Schmalensee, Catalyst Code)  For these businesses to get off the ground they have to figure out how to get a critical mass of both sides on board quickly enough. In How Catalysts Ignite I describe the challenges that platform businesses have in igniting and the proven strategies that have worked for many.   One of the things we learn from examining the economic theory and experience of platform industries is that just like a rocket has a limited amount of time to achieve enough momentum to launch into outer space, platform businesses have a limited amount of time to achieve a critical mass of both customer groups to have the prospect of viable growth.

Despite sixty years of experience entrepreneurs and investors in my experience often either don’t really understand the ignition problem or vastly underestimate the challenge in solving it.  Irrational exuberance over some nifty new technology or the naïve belief that demand by one side can pull the other along leads to disappointment.  It isn’t just young overly enthusiastic entrepreneurs or inexperienced investors who fall into this trap. As I’ve written about extensively, in the United States the introduction of contactless cards by the card networks and large issuers lacked a sensible ignition strategy and has just sputtered along, fueled by too often by hype, although even that has tailed off.

An ignition plan won’t guarantee success. But it does force entrepreneurs and investors to think carefully about how they are going to get both buyers and sellers on board, in sufficient numbers, and quickly enough, to ignite.  In doing so they may realize that ignition is too difficult and save their money. A well-done ignition strategy, however, can also increase the odds of success.

My vision is that every VC deck, every board presentation, every proposal for investing in a payments innovation that requires adoption by multiple stakeholders, should have a detailed ignition plan.  An ignition plan is different from a typical marketing plan that seldom deals with the problem of coordinating the multiple sides of the platform. An ignition plan describes the strategies and tactics for getting both sides on board and reaching critical mass in a timely fashion.

This series will explain the ignition problem in more detail, describe some successes and failures, and conclude with a template for an ignition plan. Next time I will focus on the role of critical mass in ignition.


David S. Evans is an economist and a business advisor to payment companies around the world. His recent work has focused on helping companies create, ignite and profit from payments innovation. He is the originator of the Innovation Ignition Framework® , a tool provides a systematic way for companies to evaluate and implement innovative ideas and achieve critical mass.


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