From between the early 1970s and 2015, you can count the number of consumer payment innovations that have been widely used by people in the world on one finger: PayPal. Beyond PayPal, the rest of the payment innovations that are widely used today were all created before the Internet existed:
- Personal, commercial, and mortgage loans (invented in Babylonia in 2000 BC)
- Checks (invented in England in the early 1700s)
- Credit cards (invented in California in 1958)
- Debit cards as a substitute for checks (invented in California in 1966)
- ATMs (invented in England in 1967)
- Wire transfers (invented in California in 1972)
All of these products lack many of the characteristics that consumers now expect from cheap, fast, global services built natively on the Internet. We deserve better.
Why hasn’t there been much innovation in consumer payment products?
There are two fundamental reasons that consumer payment innovation in the world has been lacking for the past 30 years:
Payment infrastructure is fragmented and bank and payment network software is antiquated. In the software-oriented world we live in today with APIs and developers building useful products on top of those APIs, consumer payment infrastructure has missed the mark. Traditional payment infrastructure was built before the Internet existed, in a world where a lot of people and physical resources (land, buildings) was owned by central parties (e.g. a bank) to monitor and facilitate transfers of value. There hasn’t been an efficient, standardized way for banks across the world to communicate with each other and for developers to interact with. While banks have slowly improved their software and some have even rolled out APIs of their own (e.g. https://developer.fidor.de/api-browser/), traditional payment infrastructure fundamentally lacks interoperability and requires two trusted parties to communicate, which makes it nearly impossible for developers to build global, fast, convenient new services on top of it.
There have been a lot of hoops to jump through for entrepreneurs to build applications that facilitate transfers of value on behalf of consumers. Banks and payment networks have generally closed their payment systems and only allowed services with existing brands to build on top of them (e.g. Apple, Facebook, Google and Amazon). There have been significant regulatory constraints associated with building consumer payment applications as well, which has created a big barrier to entry for startups and kept innovative new products out of the hands of consumers.
As a global language for transferring value that anyone with an Internet connection can write rules on top of to facilitate transfers of value, Bitcoin has spawned massive innovation in consumer payments and has the potential to improve the lives of billions of people across the world. You no longer need to be a large existing brand to build a payment application and you can build on top of a global, fast, cheap payment network that is native to the Internet. There are new sets of APIs that enable developers to easily build applications on Bitcoin and there is new legislation being crafted around the world that could open up innovative payment applications to consumers for the first time. These are the primary reasons why developers (~350 bitcoin companies exist right now) and VCs (over $222M has been invested in bitcoin companies in Q1 2015) have been flocking to Bitcoin over the past year. The developers and VC money is ultimately leading to new consumer behaviors like micropayments, global peer-to-peer lending, and cross-border transfers which we are just starting to see emerge.