Payments Are No Longer A Product. They're A Feature.

Transcript

How many of you use iCloud? Yeah. So, so back in uh iCloud launched in um Can I get my slides? So, iCloud launched in uh 2011 and back in 2009, Steve Jobs went to see the founders of Dropbox and uh he he had a conversation with them. You know, they want iCloud comes with storage. Dropbox is a storage provider and uh eventually at the end of this conversation he's like listen you guys are basically you're not a product you're just a feature and this is basically I think where we are now with payments and so I spent uh I spent the last few months thinking about payments infrastructure

uh and I've been trying to raise money for my startup Nightfall Networks and I've had a lot of uh tough experiences where people say the market is cooked and I have come to the conclusion unfortunately that they might be right in a lot of respects and so is it sent me back to the drawing board in terms of thinking about how I how I run my startup uh but is also you know want to share with you a little bit of my perspective after raising money for a startup for the last couple months and then before that spending 11 years as a global head of blockchain at Ernston Young and turning that into a billion dollar uh business for EY uh so what's happening right so three things I think are really happening that are are commoditizing the whole payment space. Number one, we have new rails,

right? People are are excited about blockchain. We got 300 billion in in stable coins. Number two, we have regulation that basically clears the path for everybody. And number three, at long last, we don't just have blockchain capacity, we have buckets of it. We have mountains of it. And you know, the Ethereum Foundation basically has a roadmap to a trillion transactions. uh which by the way doing the math it's about a 100 transactions per person per day right even I can't spend money that quickly um so uh and and the consequence of that is basically uh absolutely collapsing transaction pricing so for the Ethereum ecosystem what that means is that basically per transaction

pricing revenue is down more than 98% from the peak 98% that is that is a pretty substantial reduction Ethereum is ground zero, but from my point of view, it's just the starting point. This phenomenon, this kind of incredible extreme commoditization is going to spread. And uh what I've had to face is that the TAM, the total addressable market that I've been thinking about for part of my business uh doesn't look good. Right? So I say your TAM is toast. It's really my TAM is toast. Right? I you know you're taking a business like crossber payments used to get 10 15 20 $50 for a crossber wire

transfer we are looking at a future where it's a penny or less right that's not a TAM that's not a market that's that's what you price a feature that is like a bolt-on to something else um and so that that's my takeaway and by the way you might be thinking to yourself well you know at a penny a transaction volumes are rising and and yes they are but but not at a level that's even remotely large enough to offset the the collapse in pricing. So if you if you immerse yourself in the world of Twitter, right, you've probably heard all the AI people talking about Givvon's paradox, make things cheaper and the market gets bigger. That's working great for the AI folks. Like demand is up literally 330fold for the AI guys. We're up 3x in

blockchain. and 3x is not enough of a volume increase to make up for a 98 or 99% reduction in in per transaction pricing. So it's fairly grim uh but it's not entirely grim. And we do have some templates for how this kind of thing tends to work out. And uh my favorite one for this is voice telefan. So a long long time ago to be precise 1983 which is when the Bell system was broken up and most of like at least half of you are probably not alive then but back in 1983 voice telefan was 98% of all telecom traffic and it was a in 2025 it was a $225 billion a year business and

then in the 90s we got basically new rails for voice telefan voice over IP right and so you could Instead of paying like 40 bucks a month or $70 a month inflation adjusted for having a landline at your house, you paid eight bucks a month for a voiceover IP. So at first we had it was a product, then it was a cheaper product and now no one pays for voice at all. I mean maybe there's somebody's grandparents who have a landline at home and are actually paying AT&T or Bell South for that, but you know for the rest of us the voice comes free with your cell phone plan. and it comes free with WhatsApp. I mean, you know, no one none of us have paid for a voice telephone call in in I don't know

how long, right? So, eventually ended up as voice as a feature. And this market didn't didn't disappear, but now voice telefan is just something that goes into your conferencing system or whatever in the same way that storage comes with your iCloud, right? And and it comes with your office suite and all of those things. So we we have a model for this but it's not a model where voice is a separate business and I think we are not looking at a future where payments or for that matter a lot of banking is fundamentally a separate business right even something like an IPO right I think in the next couple of days we're getting SpaceX right you know I don't know what they're spending on on their IPO

infrastructure the technical execution cost but if you did it all on chain the true technical execution cost of an IPO is like under a dollar, right? Just kind of you could raise a hundred billion dollars and you could the whole thing would cost you like a dollar. Um, and so I really think the future of banking is that we're going to pay for airport lounges and we're going to get banking for free. I I guess my sense of humor isn't that good. Um, this is a joke. Although, if you are if you're sitting on a lot of capital and you love this idea, do uh get in touch. Um, practically speaking, what do I mean? I think, for example, that basically things like payments, liquidity

management, that'll be a feature in somebody's enterprise cash flow management software. You know, it'll be like, hey, we have this great software package and by the way, all the transactions that you need to run your payments, your billing, everything that's just included, right? We've outsourced it. We've white labeled it, right? Payroll, consumer billing, retail, loyalty, doesn't matter what it is. Uh it's not going to be that banking has features and partnerships. It's that software products, things that you own are going to have banks, right? Instead of having a consumer finance app that connects to your bank, your consumer finance app will just be your bank. Uh and so I think payments are are just going to be part of the workflow. It's going to be a standard application.

Uh how will this happen? I think eventually what's going to happen is we're going to shift from this model that we have today of paying things in batches, doing things once a week or once a month towards basically daily or almost realtime payments for stuff. And and then eventually when we get to that point actually our transaction volume in payments will go up like 200 or 300fold because we won't be doing something once a month. We'll be doing it once a day. we might in some cases be doing it uh once an hour or in the case of machines and machine payments like almost in a stream. And so I think of this as kind of the streaming theory of money. Uh but it takes time to implement. And again I

got another example for you. Think about like music, right? We started with physical albums and then the first step that everybody does in every de digital revolution is what we used to call at IBM your mess for less. Right? We're not doing anything fundamentally different. We're just kind of doing it cheaper. So, first we went to digital albums. And then Steve Jobs said, "You know what? I'm gonna charge you to just download the whole song." And eventually the guys at Spotify were like, "Wait, bandwidth is cheap. We'll just stream everything. You can have all the songs, right?" But it took time. We were years and years into like the digital music revolution before people got comfortable with the, "Oh, we'll just stream it all." Right?

You can have access to every album ever for a one monthly fee. I think we're going to get there in the same way with payments. Right now, we're doing big batch payments in expensive ways, right? Blockchain crypto ecosystems are making it possible to do the same big batch payments for very cheaply. But the next stage is really I'm a utility. I'm an electric company. I have a billing system that tells me every night I know exactly how much electricity you consumed. Why am I extending you 30 days of credit, right? I send you a bill once a month and you get a month to pay it.

That's crazy. That's like 60 days of cash flow. How about at midnight I'm going to bill you for your actual electricity consumption today? And by the way, not only is this amazing for cash flow, but it's incredibly effective for all kinds of promotions. Like daily payroll is a really good example. If you work for on an hourly basis and your boss offers you overtime but says you're not going to get the cash for it for two weeks, your incentive to to take that overtime work is much lower. If the boss offers you overtime and you can get it tonight, double extra hourly pay, I think a lot of people will take that kind of deal. And so any kind of deal incentive, if the payout is immediate, the return on that investment is

substantially larger. So, we do eventually get there. Now, just to finish up, let's check in on our friends at Dropbox. Steve Jobs told them they were doomed. They're just a a feature, not a product. Um, it's true. They're not like, you know, a $200 billion corporation. They just do a very respectable $2.5 billion dollars a year with over a billion dollars a year in cash flow. So it's by no means the end of the world if you end if we all end up as a feature not a product. And that is it for me. So thank you very much.