Thread by @MrAllenMiller

(1/10) The #payment #networks really are incredible businesses. Consider this: @Visa is used at nearly 55M merchant locations, has issued 3B+ cards and processes $11T worth of payments each year. It's current market cap is $355B.

(2/10) In fact, if we look at the stock performance of the 3 biggest payment networks in the US (@Mastercard, @Visa & @PayPal ) over the last 3 years vs FAANG or the S&P 500, they are absolutely crushing it:

+ MVP: +154%
+ FAANG: +127%
+ S&P 500: +38%

(3/10) Why? Payment networks are classic network-effect businesses. Like most network-effect driven businesses, all 3 sides: merchants, banks and consumers, benefit as the network scales.

(4/10) But unlike most network-effect driven businesses, payment networks have a second advantage: #regulation. Security and fraud requirements are stringent and technically hard to implement w/ a very high cost of failure. This is a significant barrier to entry for new entrants.

(5/10) That is why these businesses are so tough to compete with. Consider this: despite all the talk of "major disruption" to digital payments, when @Apple entered payments with Apple Pay - they did not re-invent the wheel but instead partnered with existing networks/ rails.

(6/10) So where then is the opportunity for new entrants? I think it comes down to 4-5 key areas: (a) new technology that provides orders of magnitude improvements on payment speed. I don't think we've seen it yet - some say #RTP but that seems too incremental so far.

(7/10) (b) there are certainly opportunities in alternative financing built on-top of existing rails (e.g. @Affirm, @AfterPayAU.) I think we'll see a lot more of this as there are many demographics that remain underserved.

(8/10) (c) enterprise payments has a long way to go. $120T flows through B2B markets annually and the billing / payments for much of this is still done in an old-fashioned way. Much of this will be "verticalized" (e.g. @Toast, @Flywire @payitgov.)

(9/10) (d) developer tools (e.g. @stripe, @Plaid, etc.) will continue to make access to the payment networks and money movement more easier. This is particularly significant for SMBs, freelancers and 1099s. We are still in the early innings of this.

(10/10) (e) wild card: distributed ledgers and blockchains have several unique properties that are appealing...if they can overcome the scaling, throughput and regulatory challenges that have so far thwarted early efforts. The efforts here are worth paying attention to. {fin}