In a new book about PayPal founder and former executive Elon Musk by Ashlee Vance — titled Elon Musk — the creator of practical electric cars (Tesla) and potentially practical Mars-commuting rockets (SpaceX) discusses how companies need to think big.
Worried about global ecology? Some focus on global warming, Musk prepares a fleet of spacecraft to relocate humans so they can inhabit another planet. Think electric cars will be halted by a lack of infrastructure? Create a huge number of electric gas stations that offer power for free, courtesy of solar power collectors.
In the book, Musk argues this big thinking is missing from PayPal and payment startups. Put another way, NFC and QR codes won't repair the global economy. The problem is Musk’s big-picture approach is it would challenge interoperability and ultimately stagnate the very industry he’s trying to save.
Musk starts off on what seems initially to be an ultrageeky distraction, where he defended his push for development to happen in C++ rather than Linux. But he argued that, to this day, that programming decision has crippled PayPal's ability to continue to be relevant to its shoppers, limiting its feature set. As a result, early innovations that allowed PayPal to inexpensively and efficiently execute electronic transactions has not been followed up by similar game-changing advances. PayPal has also made non-technological mistakes, Musk argues, such as not offering checking accounts, which would extend the incentive to consumers to avoid traditional bank accounts and broaden their relationship with PayPal.
"Even though people don't use a lot of checks, they still use some checks. If you say 'We're not going to let you use checks ever,' they're like 'OK, I guess I have to have a bank account.' Just give them a few checks, for God's sake."
Another key challenge for PayPal today, Musk said, is keeping cash. "How do you give people a reason to keep money in the system? That's why we created a PayPal debit card. It's a little counterintuitive, but the easier you make it for people to get money out of PayPal, the less they'll want to do it." It's not really that nonintuitive. The rationale is that if she people are confident that they can get their money out at any time — with little to no hassle — they will feel no great pressure to do so today.”
His big-picture point? Startups — along with PayPal — don't understand what a payments company is supposed to be doing. "None of these (payments) startups understand the objective. The objective should be whatever delivers fundamental value. I think it's important to look at things from a standpoint of what is actually the best thing for the economy. If people can conduct their transactions quickly and securely, that's better for them. If it's simpler to conduct their financial life, it's better for them. If all your financial affairs are seamlessly integrated in one place, it's very easy to do transactions and the fees associated with transactions are low. These are all good things. Why aren't they doing this? It's mad."
I think it's a stretch to say startups, even in general, don't get this point. There is only so much that any single startup can do. Take mobile wallets. The hurdles are not merely technical: maintaining speed, ease of use along with security are also problems. Payments is one of the most interdependent systems of all global industries. Between a payments startup and the end-user consumer are retailers, banks, processors, card brands, government regulators and, depending on the segment, a dozen other players.
Innovation means doing something differently. When you're just one small cog in an elaborately interconnected payments machine, "different" quickly becomes "incompatible."
The kind of breakthrough approach that Musk is pining for is simply a deal-breaker today. To accomplish it requires standardization and alliances of many payments players — very few of whom have much of an incentive to enable one startup's innovations.
Incremental may be boring, but it's the most realistic way for payments to grow. It's great for Musk to dream, but I think many of us will be living in one of Musk's Mars human habitat colonies long before we'll see meaningful payments changes.
Evan Schuman is a writer for PaymentsSource.