I’m going to make the assumption that as great as advertising driven revenue streams are for the Internet today, that one of the transformations in the Metaverse is going to be about changing how the revenue streams work. This is really about reducing the friction involved in taking money directly from users and getting that money online, because at the end of the day a lot of the hype is driven by businesses that are eager for the opportunity to more directly monetize their users. When it comes to advertising revenue vs user payments, why not both?

In this part of my talk about payments, let’s look at how to get money into the eco-system, that is to connect a user to their money and give them a way to spend it.

The first way to do this is with credit card processing, and much like my discussion on Identity, the ability to make transactions against your credit accounts is something that could benefit from standardization and centralized management. Credit Card processing benefits from economies of scale, in that it is really hard to do right, really important to do right, and really profitable as long as you are doing a TON of it. So a few large services should be involved in turning medium and large purchases (>$5) for example into credit card charges and putting that money, minus a service fee, into the hands of merchants. This needs to be done better, but isn’t revolutionary, and it will be surprising if Visa/MC/Amex don’t get more and more involved, or if the big tech companies don’t end up creating their own directly managed credit card services that are specifically designed for the online world. Imagine a credit card account that you can’t use at a real store, but that is otherwise exactly like every other card you own.

So more exotic payments will be the next step, and the real contender here is crypto-currency. The primary interesting property here is that it is anonymous, which is probably useful in some corners of the internet, but I would argue that there are a huge number of concerns here that are likely going to prevent this from being the dominant way to manage payments online. The first is transaction speed across the entire system, with Visa handling something like 1,700 per second and bitcoin managing about 5, not because of demand, but because of underlying technology. The cost of those transactions is also radically different with bitcoin transactions requiring massively more compute and time to complete. I see the other primary area as one of risk management, where CCs are protected by various laws and have fairly strong systems in place to avoid fraud, crytpo-currency is like driving around with all of your wealth piled into the passenger seat of your car, it’s convenient and anonymous, but if it gets stolen or used inappropriately you don’t have any recourse. Price stability and the complexity of adoption by general users makes it unlikely for any of the crypto currency offerings to be a primary replacement for the existing banking infrastructure.

Payments are also a key interface with the legal systems of the countries in which they operate, not only are they a ‘good’ location to make sure that taxes are being properly enforced and that laws are being obeyed, but the money also has to come out of the system at some point and this is likely the same interface, ensuring that governments can watch and tax those streams as necessary. Any efforts to reduce the ability for local governments to have insight into how money is flowing are likely to be met with extremely strong resistance, the kind of resistance that will keep large companies from investing money and effort into building out a strong eco-system and with it the security and functionality that can only be provided with large investments. There is an argument that any government that is not concerned about this kind of tracking actually has it’s own serious problems.

If you want to make the easiest money in the Metaverse, just stand between the world of real money and the world of electronic money and take a cut of each transaction. The bad news is that this benefits very strongly from economies of scale, of the companies who are already doing it have a huge head start. This market is likely a natural monopoly that has been held to an oligopoly to retain some ability to regulate it.