Wednesday, May 8, 2013

A Payments Tree Grows in Providence

So yesterday I decided to hunker down and really try to understand the payments industry. It's a landscape I often dance around but rarely deal with directly at work, and I figured that it was about time I got my digital wallets straight.  Here is an incomplete list of topics that I consider to be "payments." If you know what more than 3 of these things are you're probably ahead of most people:
  1. eCommerce and shopping carts
  2. Point of Sale (POS) systems 
  3. Payment processing, payment gateways, and card networks 
  4. Near Field Contactless (NFC) mobile payments 
  5. Contactless card payments (EMV)
  6. Digital Wallets
  7. Peer-to-peer payments 
  8. Bitcoins and cryptocurrency 
  9. ACH & NACHA  
  10. Electronic Funds Transfer & Instant Funds Transfer 
  11. M-Pesa and mobile balances 
  12. Whatever Paypal is up to these days
  13. Remote deposit capture and checks 
  14. Biometric payments 
  15. QR Code Payments 
  16. Prepaid Cards 

Anyone involved knows that the payments industry isn't exactly easy to understand.  More precisely, in the words of my roommate who works for a payments startup, "It's fucking endless."  When I'm confused about something, I usually try to google a diagram that lays out the topic succinctly in two-space. If you are a newcomer to payments, this tactic is pretty much useless, because while infographics about the industry abound, I don't think anyone has managed to accurately and concisely map it out at a level of abstraction that's meaningful. The best graphic out there probably looks something like this:

There are a couple good explanations of how online and offline payments work, most notably this animated series of graphics from and this graphic from Dwolla:

Better, but still feeling a little woozy 

This graphic shows how money is transfered when you swipe your credit or debit card. There are at least 5 different organizations in between you and the merchant you are purchasing from; the card reader or Point of Sale (POS) system, the payment processor, the payment gateway, the card network (Visa, Mastercard, Amex or Discover), and the bank.  All of these organizations take a cut of the interchange, a 2-5% cut of your purchase paid by the merchant. The poor merchant also has to set this whole headache up.  No wonder the little guys don't accept cards.

Companies like Square and the the startup my roommate works for, Swipely, are working to make this process easier and cheaper for merchants, but they're leaving the general architecture essentially the same. Regardless, Dwolla and's wonderfully informative graphics only explain a fraction of the space.

So anyway, I decided to make my own graphic. I only spent like 2 hours on it, so overall it's a rather poor contribution, but I'll post it anyway. If this makes no sense to you, then congratulations, you are not insane. 

Yup this graphic was still made in powerpoint.Also the base is a little wonky because I was originally thinking its roots were in like 1600
Basically, I brainstormed every different type of payment I could think of today, and then sorted them into categories.  The outline below is actually a little more complete than the infographic because I wrote it after I made it:

  • Currency Based Payments 
    • Commodity Money Payment 
      • Gold, Cigarettes, etc 
    • Cryptocurrency Payment
      • Bitcoins, etc 
    • Cash Payment 
      • Dollars, Euros, Rupees, etc 
  • Account Based Payments 
    • Nonbank-Based (Non-bank institution maintains account, although unused funds may be swept into a bank account by the maintaining institution, as with Paypal) 
      • Closed-Loop Prepaid Card Payment
        • Gift Cards 
      • Open-Loop Prepaid Card Payment
        • Bluebird, Green Dot, Plastyc 
      • Preloaded Digital Account Payment
        • Paypal, M-Pesa 
    • Bank-Based (Direct bank to bank transfer) 
      • Check Payment  
        • Paper checks 
      • Electronic Funds Transfer
        • Direct Deposit, Wire Transfer, Western Union etc. 
      • ACH Transfer
        • Account to account via NACHA 
      • Dwolla Payment  
        • Dwolla gets it's own category 
    • Card Network Based (Visa, Mastercard, Amex, Discover) 
      • Card 
        • Credit Card Payment
        • Debit Card Payment
        • Contactless Card Payment
          • EMV (Eurocard, Mastercard, Visa) NFC enabled cards, etc
      • Digital 
        • Card-Linked Digital Payment, Online or Mobile 
          • Venmo, Paypal, Dwolla
        • Card -Linked Contactless Digital Payment, Mobile
          •  Google Wallet, Square Wallet, LevelUp, BumpPay, etc 
        • Card-Linked Biometric Payment 
          • Paytango 
I wanted to show how the types of possible payments have changed over time, and also how the different types of payments are related to each other. A tree seemed like a natural metaphor. The need for leaves to eventually taper off into points also gave me a natural way to insert my judgement about what payment types are on the rise (increasing as a percentage of total payments) and what types of payments are diminishing. For example, I checks are clearly on their way out, but I think Dwolla is gonna kick it. 

It's highly imperfect, but there you have it. 


  1. Sweet. I can think of one that you missed that I would file under Account-based > Non-bank > "Pay-later:" Non-card, non-pre-loaded credit accounts, such as Klarna []), PayPal's BillMeLater, and Max Levchin's new Affirm []. These just give you credit implicitly during payment and settle up against your identity before or after goods are delivered.

  2. Finally reading these articles.. hmm, that's so interesting, I didn't know that was possible. Man, PayPal is a monster.. everyday the awe grows. I can't believe the regulation lets them do this.. although perhaps I shouldn't be surprised that they've found the loopholes given Peter Thiel's political views. Funny, I went to high school with the girl who wrote the article from affirm.