As Banked emerges from beta, keys to next-gen payments eagerly grasped between the fingers of marketing and sales, the biggest hurdle we’re faced with is an Aristotelian dilemma.

Since I moved into FinTech four years ago, one phrase has ascended from teen-philosophy-vernacular to professional-adult-meeting-buzzword status, ‘Well, it’s all chicken and egg, isn’t it?’

Why is oviparity the bane of a fledgling FinTech?

Put simply:

PRODUCT enhances the relationship between A and B.
A will use PRODUCT when B does.
B will use PRODUCT when A does.

Which comes first?

Emerging FinTech start-ups aren’t alone in the chicken and egg quandary of adoption cycles. Any innovative network application can only showcase its full potential once it reaches a critical mass of users — just think of Facebook and eBay in their infancy, what is a social platform without friends? What is a marketplace without buyers?

At Banked, we have changed the way payments move by creating an instant and direct payment network, where consumers never have to enter any card details and merchants benefit from real-time transactions at a reduced cost (our processing fees are 0.1% compared to the current ~2% blended average).

For us, consumers are the chicken (A) and merchants are the egg (B).

A merchant might want Banked’s cheaper and improved payment experience, but they’re not going to potentially sacrifice sales by using an unknown provider at checkout.

A consumer might dream of never looking up their card information again, easily and securely authorising all transactions from a redirect to their banking app; however, Banked needs to be an option at checkout for that to happen.

Cracking the egg

This adoption hurdle isn’t without historical precedence. Pertinently, Bank of America faced this exact challenge 60 years ago, and their solution set in motion a series of events that changed the payments landscape forever, catapulting society into the gut of modern consumerism.

In 2020, we’re given a name and blank credit score at birth. We tactically borrow when we don’t need to so that one day, if we’re lucky enough to ever afford a home, the mortgage arbiters might deem us worthy of adhering to monthly payments. For some, disposable funds are calculated from the bottom of their overdraft to the tip of their credit allowance: there’s no single figure, just the spinning plates of in and out, yours and mine, this month next month. But how did we get here?

It all started with The Fresno Drop.

Before 1958 the idea of revolving credit was an alien one. So, let’s start with a little contextual history…

Installation credit (let’s call this the catalogue model) found increasing popularity during the boom of the roaring twenties, before plateauing with the consumption collapse of 1930: household debt had reached its highest point since the post-war economic resurgence. The recession that followed (a product of inflated stocks, consumer indebtedness and, a few years later, mass default on credit) may have slowed the evolution of payments but it did little to deter it. Two things about installation credit were abundantly clear:

  1. Consumers love consuming (A)
  2. Credit increased conversion (B)

In 1950, ‘the world’s first credit card’ was created by Frank McNamara.

After enjoying a delicious meal at Major Cabin’s Grill, Frank discovered he had left his wallet in another suit. Having suffered the embarrassment of his wife footing the bill, Frank devised the Diner’s Club Card, and returned to Major Cabin’s Grill a year later to put it to good use.

The Diner’s Club Card had a few restrictions: it was intended for use in restaurants, it was realistically just a bit of cardboard, and it demanded a monthly settlement. The Diner’s Club Card functioned more as a long-term tab than a modern-day credit card, but the idea was evolving.

Then Bank of America changed the world.

The Fresno Drop

September, 1958. Bank of America mails 60,000 Fresno residents $500 of revolving credit, to be accessed via a little plastic card with the word BankAmericard emblazoned across the front. No warning. No requirements. Just a little card through the mail: congratulations, here’s $500, pay us back sometime. Supposedly, the rationale was that Fresno was nondescript enough that, if the plan failed, it could be easily forgotten. Fresno also fell into that sweet spot for Bank of America’s target market: stable income families who were likely to stave off a default whilst spending to keep up suburban appearances.

Okay, so there’s the chicken.

Until this point, Fresno’s merchants had been extending individual lines of credit, usually linked to tokens or chips. There was no single rule as to how each store provided credit or documented loans. Frustratingly for customers, they had to request credit at each store and keep track of respective spending. Suddenly, with 60,000 consumers wielding a simple and universal line of credit, merchants had to either adapt or lose out: $30,000,000 had just been flushed into the Fresno economy.

And there’s the egg.

BankAmericard was born.

Today, you might know BankAmericard as Visa, the dominant half of a payments duopoly which boasts a combined market capitalisation of $658 billion.

The omelette

That was 1958, and whilst credit cards have evolved in ways that were unpredictable 60 years ago, the underlying payments infrastructure has remained unchanged. Visa’s well of innovation has become a silent, incumbent bottleneck for the future of payments.

We’re standing in a new century, on the cusp of a decade cracked open by PSD2 and Open Banking, in the mids of economic uncertainty.

A new revolution is hatching.