Realtime payments are actually real.

I posted this today and right after I had a bit of a… Moment.

All #realtime. All new rails. All @Dwolla. Here’s to ideas that become reality.

A few years ago this would have never been possible. 10 years ago, it absolutely wouldn’t have been possible.

When I say, possible… I don’t just mean real-time or faster payments in general because those are possible. VISA / Mastercard / The Fed / Shazam all have fast rails and there are no shortage of closed loop systems that are fast. I also don’t mean exchanging value in real-time on the internet.

I mean the real-time movement of government issued currency through regulated financial institutions without using anything but the internet.

No cards. No chips. No 16 digit numbers. Just the internet.

Financial Institutions have even become an active participate flipping the script.

What is so dramatically different in this next iteration of payment networks is:

  1. HTTPS first.
  2. Security as math.
  3. No 16 digit card numbers
  4. No abusable static account numbers.
  5. No physical card.
  6. Tokenization at the network and bank level.
  7. The network doesn’t live anywhere.
  8. Designed to be open and joinable.

What (1) leads to is a complete and undying focus on digital and internet based interactions. Streaming… Not batch. Individual items settling as they occur rather than compiling in a text file. Things just won’t be held or stored in the same way as a requirement to do business.

What (2,6) lead to is an evolution of protection and analysis. Cryptography is the new security. Guns won’t do much to protect vast amounts of money anymore but cryptography can, does, and will to a further degree in the future. A hashnonce, and encryption in general have become the basics.

Tokenization at the network level (above the bank stack) and at the account level (at the bank stack) changes just about every assumption about information access and protection between the consumer, the merchant, and the bank.

What (3,4,5) lead to is a dramatically different risk structure. Some underlying assumptions are no longer good.

They even lead to a dramatically different cost structure to route the payments because the internet rather than proprietary switches are being used.

What (5) leads to specifically is dynamic account provisioning in real-time as opposed to the physical delivery of a piece of plastic to access your account. Brand new access points will be and are being provisioned on the fly. There is no mail and there is no physical location to pick something up. There is only an access point and a delivery path to get you information.

This also means that POS and physical/location specific hardware no longer will need to plug in more hardware… The companies who own those portals simply need to run a software update to become aware of the new rails and teach their machines to recognize the payment.

This shift to real-time changes everything and it’s now happening with the participation of the financial world. This shift will only happen once in our lifetime and it’s happening right now.

It’s not just about speed it’s about the technology driving the speed driving the marginal cost of the transactions to zero. Albert Wenger, did a great talk that includes this concept at DLD.

This substantially changes how payments work when distributed at scale. It changes days to seconds and does it with completely different processes.

At scale, any of these new systems running at absolute efficiency should really only cost whatever the electrical bill is to keep them running.

Which brings me to potentially the most ignored part about all of this. The effect of (7) is this…

The digital first network is load balanced across current providers. It augments providers when it needs while optimized and is rarely tied to one support system, let alone one physical address.

There are not boxes to buy and amortize. There are only resources to rent when required.

One way of optimizing for speed used to be putting the boxes next to one another in a building. Running a cable from one to the other and latency would be reduced to a running joke.

The new architecture is driven by a URL and a permission. The rented resources don’t even need to be in the same place and the operators don’t even need to speak the same language. There doesn’t even have to be one provider. There can be many.

Dwolla has become less of an end-run around the system and more of an option for people inside of the current system to simply run on new rails and processes.

It’s an opportunity to jump ahead.

(8), makes it available to those who want it. The ability for anyone in a served market who wants to join and make use of the new system can. No economic restrictions except for a device that can access the internet who hold a legal identity.

This is important because while not everyone will switch… The most motivated people will if they find out it’s available.

Which brings us to our final point. You no longer have to learn about a network from your bank… You can learn about it from the internet.