Why AI Agents Could Finally Reinvent the Credit Card

The card payment interface is the singular best user interface ever created. It is the world's largest market by any stretch of imagination. And there are no niches in payments that are smaller than a hundred billion.

Once you go really big, the numbers get small, which is strange. There's a lot of volume, but the large volume revenue opportunities in payments tend to be the smaller dollar amounts.

There's always an opportunity to use another form of payment delivery device to satisfy a basic need. Convenience just trumps as the total amount you're trying to send goes down. The best user interface ever created is the credit card. This may actually be finally up for renegotiation because AI is already there. It's just that you haven't yet trusted your agent to do as good a job as you would.

There is something else that you're surprised has not happened yet. I went to some cryptography-related conference and presented a new idea in digital payments and was literally booed off stage because it was certainly not anonymous. And the big innovation of PayPal was: what if we don't care about anonymity at all? And in that sense, um...

I think the rise of Apple Pay and Google Pay and the extent to which they've really penetrated, because it's very hard to change consumer behavior in general. And it was a bizarre set of accidents, if you will, where there is this merchant liability shift because magstripe stripes were so easy to replicate that you probably noticed a while ago your new cards had a little chip on them and you had to dip the chip and then the machine would be like, you know, don't remove, don't remove, right? That's because the chip was being rewritten. It was much more secure than a magstripe and basically Visa and Mastercard. Um, and then the Euro Pay, that's what the E is for. Uh, but what is EU for? EMV.

Europe card.

Euro card.

I don't know. The Europeans somehow got their say because they always do. They insert their... not electronic. That's...

Yeah, it's Euro something Mastercard Visa. So it was called the EMV switch. So all of these machines, if you did not want to be liable, um, like I could go to Best Buy, buy a TV, and then get home, use my TV, and say, 'Nope, never bought the TV.' And if I was using my magstripe and Best Buy didn't have the machine switch over, then Best Buy would be like, 'Oh, shoot. We lost all the money on that TV, and Alex gets the free TV.' I'm exaggerating slightly for effect. So everybody had to get a new machine. And then it turned out that those new machines had a little contactless, you know, thing where you didn't have to dip the chip or swipe the card. You could just tap. Nobody was using taps when those machines came out and now it's ubiquitous. So that's something where, I mean, generally speaking, it's hard to change consumer behavior, but I feel like between COVID and the fact that all these merchants independently had to switch over their machines and the fact that, I mean, I wouldn't have guessed in... I mean, you obviously did because Confinity was Palm Pilot sending money. So you're ahead of the whole PDA wave, but I wouldn't have guessed that those three things would have come together. It's like change of consumer behavior, ubiquitous new merchant payment terminal plus ubiquitous mobile telephone, and that's certainly one thing that has changed the world a lot.

It's very hard to step back from the soup if you're cooking in it for the last plus or minus 30-odd years. Uh, I think to sort of further illustrate Alex's point, one of the things that's really amazing and subtle about Apple Pay/Google Pay and its interaction with the Visa Mastercard networks is Visa and Mastercard have a hard two-and-a-half-second limit on interaction between the network, the issuing bank and the merchant and the acquiring bank. And so the whole thing has to happen in two and a half seconds where the transaction gets retried or maybe just canceled out and really leaves very little room for any kind of clever innovation. And online you can play games. If you're doing e-commerce, you're like, well, yes, we're going to submit your card to Visa, but first we're going to run some anti-fraud checks and we're going to do some other things to reduce liability. But offline, like once your card is presented, two and a half seconds, that's all you got. And Google and Apple Pay have singularly time-shifted the whole thing by creating secure enclaves inside their chips and saying, I already know your card. I can do all kinds of things before I actually have to talk to Visa Mastercard. And maybe the shocking thing is that Visa Mastercard have not yet introduced some new standards saying actually it doesn't have to be two and a half seconds at all. It could be 15 seconds while we go and get a bunch of issuers to bid on better credit quality terms for you or any other type of innovation.

The sort of hardwritten rules of the hawk era are more or less intact and that's not 30 years, that's like more, you know, 60 years. And so I think that's probably a critical or more criticizing take on what happened. Um, but the shocking thing about payments is that it is the world's largest market by any stretch of imagination and anything and everything you could have possibly thought of being sort of deconstructed and being the nichiest little thing to poke around and innovate in always turns out to be a hundred billion dollar. There are no niches in payments that are smaller than a hundred billion. And so that's probably the most surprising thing I've seen.

Although it's interesting, like once you go really big, the numbers get small, which is strange, right? Like if I send a $1 trillion wire, right? The United States just announced we are $40 trillion in debt, right? Let's just say that, like, you know, Elon's Mars colony is worth $40 trillion and, you know, Roana decides to tax him $40 trillion and he needs to send a wire. That wire is not going to be very profitable. Like there's a lot of volume, but the large volume revenue opportunities in payments tend to be the smaller dollar amounts, um, which is surprising, right? Because it turns out, I mean, like all of the QSR, the quick-serve restaurant, the payment opportunity there, that's massive. That's why Starbucks invented Starbucks Pay because they wanted to stop having to pay. It's like these prepaid, they only have to pay one time. You charge, you put $50 on your Starbucks account. Well, they only have to pay Visa, Mastercard, and everybody else one time as opposed to every successive time. So a lot like what's surprising about payment area under the curve, if you will, is that like the bigger the dollars, like the smaller the rake, which I guess makes sense because you're not going to get 2% of that $40 trillion payment. But everybody goes after B2B payments. Everybody has a clever idea for B2B payments and like that's the only one that is probably the exception to the rule.

I was trying to find, so it's lost in time, the original email between the two of us, which I think we have slightly different origin stories of how we actually met. But I was trying to find the original email between the two of us where we start mentioning what becomes a firm eventually, and it's dated April 2011. And in it, I think I ask you, like, tell me more about this Bill Me Later thing because I was working on something else while you were watching PayPal buying Bill Me Later, and you send me these really long elaborate sort of here's exactly what it is and all these ideas around it. And we then veer off into this ping-pong of emails around Bill Me Later for business and conclude that it's actually a dumb business where there isn't an opportunity.

Well, and that's actually, it's funny you mentioned, I bought the domain paymesooner as a result. So it's like, ah, Bill Me Later was a good idea, Pay Me Sooner would be an even better idea. Actually, the idea there, it still is, it's not terrible because it's not payments, it's lending. So think of it this way. Imagine that. Like big companies beat up small companies all the time to get better payment terms. Better payment terms for them, right? It's like, so if I'm GE and you're Eric Torenberg and you're a little guy, I'm big GE. I'm like, I'm going to pay you net 90. So you invoice me and I pay you 90 days later. Now you have to pay your employees. So you go to a bank, you go to somebody else. You're like, hey, I'm Eric. I run this business. Most of my money comes from GE. They're an awesome company. They're going to pay me in 90 days. Bank doesn't care, right? They're just like, yeah, we're going to charge you 15%. Meanwhile, GE can issue bonds at like, you know, whatever, SOFR plus 10 basis points or something. Like GE is paying 5% for credit. You're paying 15% for credit, but it kind of doesn't make sense because your credit is GE's credit, if that makes sense. Now, there's something called factoring where you can sell the invoice. You can actually sell the receivable. That's somewhat usurious. Um, that's very, very, actually it's not usurious because credit laws don't apply because you're selling a receivable. But I always thought that Pay Me Sooner was an interesting idea because the whole economy runs on the fact that like my business is waiting on payments from you. Like the reason why I have to borrow money is because you don't pay me sooner, uh, or the other way around, sorry, I don't pay you sooner. And yeah, so, but yes, we didn't pursue that.

There are some healthy businesses these days in both accounts payable financing and accounts receivable financing. So it's not a bad idea, but the revenue opportunity, despite being an unregulated lending space, is seemingly lower than the one in consumer because the convenience factor is something that every participant understands and there are plenty of players that'll offer you a slightly cheaper charge, which is also the root origin of why a $40 trillion wire to Roana is going to be a not very profitable business for whoever processes it.

You know, we're forever in search of the great way to pay biometrically, and it manifests itself more in movies where people's thumbs and eyeballs get removed for authentication purposes. And yet, like, we're still paying with chips. By the way, the card payment interface is the singular best user interface ever created. And it's not something that people haven't tried to do better. Remember, even before PayPal, there was this wand that I think Mastercard and one of the gas refueling station networks produced this thing where you could like wave this wand next to a gas station and payment is secured and you can fuel your car. And when I saw it, I'm like, oh my god, this is obviously going to take over credit cards. And it didn't. And therein lies a really interesting lesson in payments innovation in general. There's some unobvious a priori but clear a posteriori version of critical mass and if you don't reach it, you're going to fail. Like there's not really okay outcomes in payments. You either get there and everyone needs to have your widget or your network or your whatever, or it's just going to go into the time. And this is a fine example of a thing that actually made a lot of sense. Like of course you want to have a little wand on your car keys to just sort of wave and get refueled, but it's just a little bit faster, not a lot faster than the credit card you have in your pocket. And that just works. And so I keep on waiting for some completely different way of authenticating the payer to the device and like other than the mobile phone, we haven't done better.

Amazon actually just discontinued the whole thumb payment at Whole Foods.

They actually, it's not a thumb payment. It's like, it's the palm.

The palm. Yeah. I loved it. I would literally go to Whole Foods next to whatever hotel I'd be staying in.

I was sad that they got rid of it.

I know. I used to use it too.

It's actually not even faster. It's just fun.

I know. It's probably slower.

It is slower. It's like, tell me my fortune and these grapes.

The fortune is you owe me money. Yes. That is the only fortune that you ever get. Well, that was, I mean, I think I called it thumb by accident, just given the almost name of a firm.

That's right.

So I'm frequently late to trends. Like I'm not the world's earliest adopter of the majority of things I encounter.

Well, sort of. Um, to give you full context for PayPal, I really wanted to build something very specific and quite different from PayPal that operated on very low power chips. And to do that, I needed to work out how to make cryptographic primitives work on a very, very low power chip. And we did. And then we promptly realized that it really couldn't do very much other than encrypt some very, very small amounts of data and small amounts of data that need to be encrypted and decrypted quickly. That kind of leads you to payments, which is how PayPal came about. But right before all of that began, I went to the wind-down/bankruptcy party for DigiCash, which was the original granddaddy of all digital payments. And it was sort of a somber affair. I was on Stanford University grounds and there was like, you know, pouring out of the 40s and a bunch of very sad-looking cyberpunks telling each other how the age of digital payments is not upon us. And so in that sense, we were very late when sort of I was listening to these people talk whose idea was crushed. It was blind signatures and David Chaum was somewhere. He was actually not present, but he was roaming the streets of Palo Alto despondent because his brilliant idea and a truly brilliant one was, you know, basically being proven to not have product-market fit. And then we promptly soon thereafter started PayPal and I went to some cryptography-related conference and presented, you know, a new idea in digital payments and was literally booed off stage because it was not nearly as secure. It was certainly not anonymous. And the big innovation of PayPal was: what if we don't care about anonymity at all? In fact, people don't. They just need to pay for their coffees or their, you know, online purchases. And in that sense, I feel like we were again very late to that game. The game had played out, like all the enthusiasts had left the building. And so cryptocurrency, not to be confused with cryptography, when so I read the original Bitcoin paper and thought, wow, that's a really clever way of solving the Byzantine general problem. I sort of, as all the math cryptography nerds, was impressed with the approach, but I did not think for a second it would become a currency or a payment method and etc. And I'm not convinced it's a payment method now and it's been quite some time, but as currency and commodity and a store of value goes, it's certainly proven to be extraordinarily successful. So I think the as I watched cryptocurrencies expand and become a thing and more and more of a thing, the use cases are coming out now. We're, you know, stablecoins are upon us and that's certainly a collection of very clear uses, but none have, in my opinion, come close to breaching the I'm going to use this to buy a cup of coffee, which is kind of, that's the canonical and most important, I would argue, use case for old forms of payments. So as currencies go, as store value goes, fascinating. You know, when was the last time you spent a Bitcoin or a Satoshi on anything actually important? You know, putting aside people who make it a point of spending it just to sort of prove the point wrong.

And it's the most important, that buying coffee is the most important metric because of just the volume of it, because the frequency, the practical...

There's always an opportunity to use another form of payment delivery device to satisfy a basic need. So if you're sort of contemplating a $40 trillion transfer, you'll spend a lot of time figuring out the secure way, the fast way, the cheap way, etc. If you're passing through your nearby bagel shop and you need a cup of coffee, if your cryptocurrency wallet passphrase is too long, you're going to look for change in your pocket. And if you don't have it, you'll pull out a debit card or credit card. So user interface as the payment amount diminishes, it takes over. Cost takes over everything. Basically, convenience just trumps everything else as the total amount you're trying to send goes down.

Well, hopefully our stories match.

Who would do such?

Yes. And this wouldn't have worked today because now obviously I would have used Gemini or, you know, ChatGPT to write this probably somewhat riddled with grammatical flaws Russian note. Actually, that probably would have given it away of not being ChatGPT. It wouldn't have passed, it would have passed pangram, but I took Russian in high school and college, worked there, lived there for a while. And I think you were like, why do you speak Russian? I think that was the response. But then we just became friendly. I think you sold to Google, so I could not ever convince Slide to become a client of TrialPay, sadly. But I seem to recall you had like a tweet like, I'm looking for something to do. Any idea? And that was like my reason to reach out. And I think we had coffee at the forbidden building at Google. Remember how like there was one Google building that no guests were allowed at, but you just didn't care. Statute of limitations were so they can't.

Yes. Exactly. Because I know how much you love Vic. So we had coffee there and then that's where this... Yeah, we were talking about Bill Me Later, but it was like, you know, my recollection was it's really hard to pay for something on a mobile phone. Mobile phones are becoming more ubiquitous. We should have a way of solving the pajama problem of you're upstairs in your pajamas, you want to buy something, your credit card is downstairs, how do you pay? Meanwhile, not just are mobile phones ubiquitous, but social networks are ubiquitous. And maybe there's a new underwriting mechanism of kind of going back to the old general store from like the 1800s of it's like you show up in the general store, you don't have cash, like both literally and figuratively. You don't have it on you, but you don't even have it, you know, back home. But you run the general store and you're like, okay, Max, I got you. Don't worry about it. But today, you're just like a cookie and an IP address, so I don't really know who you are. Or if you go to Walmart offline, it's like, you know, you get greeted by the very nice greeter. I don't think they have them anymore, but like you get greeted by the nice greeter. They have no idea who you are. You can't do the general store thing. But if you have 500 friends on Facebook, this was wrong, by the way, but if you have 500 friends on Facebook and they all have, you have a thousand pictures that you've uploaded, you're probably a low credit risk. And if you're not looking for credit, this is the key thing. It's like a lot of credit offers are sent out proactively. So you have an 800 FICO. I know that you have $14,000 that's revolving for some reason on your Capital One card. I'm going to send you a customized mailer saying, why don't you go refinance with me, Bank of America? But if you go on Google and you say like, I'm out of money. Need money, need money, credit, credit, credit, like you're probably a bad credit risk. So kind of going back to the general store concept, people that aren't looking for credit that might not have their wallet with them, kind of make it like the 1800s and pay with your identity. That was kind of how I remembered it.

Yeah, I think that matches. To add a little bit more color to it. So the year at Google was definitely a challenge in a sense that I was still coming to terms that I ran for like over five years a company in social media that I had no business running. Like I worked very hard, had a financially very positive outcome for a lot of people, but ultimately it never sort of scratched the sort of entrepreneurial itch that I thought I was scratching. And so one of the things that happened during that year, I spent a lot of time soul-searching like what am I supposed to do next with my life? I was going to start a company, but you know, maybe I should be more thoughtful about what company I'm going to start next. And my wife, who's pretty much always right, said, you know, the hardest you've ever worked and the happiest you were was during the anti-fraud days at PayPal, like when you nearly died, or we nearly died. She was there as well. Those were the days when you looked exhausted, but you actually were obviously very happy. And you know, she was telling me, I know you swore off doing financial services. I know you're never going to touch payments again, but just this once. Give it a chance. And that actually had some influence as to my responsiveness too, because you're working on a payments company. And part of my reluctance to deal with TrialPay was like, I can't handle another near payments company. Like I went into social media for a reason. I don't want anything to do with this stuff. And so as I was slowly getting reeled back into working on payments, we started talking about this. The sort of social BML was one of the sort of shorthands we used, discussing what it would be. The general store analogy was interesting because at the same time, I can't remember which one of us knew this because you also speak Japanese and this could have been the thing you told me, but I remember reading about social credit in different economies. There's a notion of just pay me later or pay me next time in Israeli grocery stores, which is still common today. If you're checking out in Israel, apparently in a small enough town, you can just show your bag to the cashier. They'll remember and then they'll get you next time if you forgot your money. This is even more formalized in Japan where until very recently you would give your business card to the storekeeper even if they didn't know you. If you had a business card, they would write what you bought on the back of it and that was your total. And the notion of like you just put it on my tab is a thing that's, you know, obviously fairly American concept and so on. And so we were converging on this. I was talking to a startup at the time, just learning about the industry that was trying to build a social credit score kind of modeling it on the Chinese social score which is used for a lot more than credit obviously. So we were swirling around this idea of payments and solving the I don't have my credentials with me but I still need to get through this. Like another sort of metaphorical version of this was I'm watching TV. Did this really cool ad back in the day when people had advertisements in between things in TV. And I really want the thing that was promised to me at the price that it was promised to me, but I could do it on my phone, but I'm definitely not going to get off my bed. And so like what if there's some area under the curve that you can capture by bringing these transactions closer in time and improving conversion obviously. And so that's the kind of the swirly origin story. A lot of it, I think the two of us had a slightly different version of what would be fun. So I think you as a payments guy, you were mostly thinking like let's go do some payments stuff. As a person recovering from doing lots of machine learning in the service of social media which was, you know, good and well but wasn't really what I was meant to do and lusting for the days of doing machine learning to fight fraud. My MO was I just want to build a really cool credit score and then someone else will take care of payments like lending payments. Don't really know anything about it. And I've done payments. Don't need to do lending. But building a really cool score that would be amazing because I remember just the reams of data we had access to at PayPal. We could maybe get some data. Maybe we could buy some data. We could mine Facebook for data. I'm trying to get in touch with Mark Zuckerberg to see if he might give me some of his data. And so a lot of that was sort of in my head while you were like I just want to close some transactions. I think that maybe if there's any difference between the motivations, you were much more motivated by let's go find a merchant.

Oh, yeah. I don't find it a negative thing.

Yeah. So two other colorful points from that. So it was a good breakfast. And then in the middle of it, he goes, oh, yeah. We used to do exactly this thing back in the day when the service members would call us and say, send me my wife some flowers. And, no, I don't have my credit card with me. And like, oh, that's fine. Like, you know, thank you for your service. We'll just get you on the next one. And he like intuitively grokked this idea that like you can absolutely post-pay a thing if you have enough trust. And we were basically there raising our hands saying we'll take the responsibility for, you know, if they don't pay you, it's okay. We're going to eat it. And so he was like instantly smitten. He had been a great proponent of the product and like a supportive, you know, person slash presence in my professional life ever since that breakfast. And he had absolutely no reason to trust us other than like he has some degree of sense who we were. And it was like, you guys are great. You seem like you really know what you're doing. Like he was so excited. We have no idea.

Successful startup. The uh the guy that was Amit. Yes. Amit Sha.

Yes.

Yeah. So, Amit took over. We implemented he was very very excited. But and I remember I I I came up in Microsoft I think I did this in Microsoft Word or Excel like here's our pricing sheet. We need a pricing sheet and I was like why don't we charge 7%? [laughter] Um like so in in consumer finance for these things there's a concept of an MDR and an APR. So merchant discount rate because you're discounting what you pay the merchant because you're advancing in the cash right now. You're not collecting it until later. So call it a 7% merchant discount rate but I think there was like some table. I just literally made this up. Um and then and then there was an APR. Um but the APR here there was no APR. It was just MDR. Um but then nobody like I I showed this to somebody. I think it was Rob Feifer actually uh before we hired you.