In 2013 and 2014, USV made a number of payments-related investments and we went deep on both consumer and business-to-business payments infrastructure.
By the latter part of that decade, we had come to believe that the credit card system, and the interchange fees that make up much of the cost of the credit card system, is eventually going to go away.
Since then, we have had an active investment thesis that we called The End Of Interchange.
We use Notion AI to maintain a thesis description based on past meeting notes, emails, and internal discussions related to the topic. Our current thesis description says:
USV has had a longstanding interest in the end of the interchange/credit card system and the move to stablecoins and bank-to-bank direct payments.
The credit card interchange fee model—where merchants pay 2-3% per transaction—is vulnerable to disruption from:
Stablecoins enabling near-zero-cost value transfer
Bank-to-bank direct payments (ACH, FedNow, etc.) with identity/security layers
Pay by Bank platforms
Adding cryptographic identity layers to ACH
Will stablecoin rails win, or retrofitted ACH/bank rails?
How do fraud and reversibility concerns get addressed?
What's the timeline for meaningful interchange compression?
What's great about having these constantly evolving and updating thesis descriptions is that they help us monitor news and company formation activities and allow us to be proactive in reaching out to founders to get to know companies working in an area we are deeply interested in.
We also link every potential investment to one or more of these thesis areas to make sure that our investing activies are aligned with the areas we are most interested in.
We have always deeply believed in thesis-driven investing at USV. For many years, we did this in a very unstructured way based on lots of debate and discussion. With the advent of AI and the ability to add structure to unstructured data, we are moving to a more structured approach to thesis-driven investing that opens up a lot of possibilities for us. It is very exciting to me.
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Fresh quick read on USV's 'the end of interchange' thesis by Fred: credit card system vs stablecoins vs ACH with a new cryptographic layer https://avc.xyz/the-end-of-interchange
Hi Casters. I wrote about our increasing ability to add structure to a thesis driven investing approach using our thesis around The End Of Interchange as an example. https://avc.xyz/the-end-of-interchange
Super interesting. Stablecoins are part of the answer here, but problem is most consumers don’t hold them, and most merchants don’t have the ability to accept them. And from my upfront view, merchants (at least in US) don’t care in the slightest about stables. It’s crickets when talking to merchants about stablecoin settlement. Merchants want a high spending consumer (ie credit fueled) in their stores, at a lower cost of acceptance. So stablecoins get us part of the way there. To really challenge interchange/discount rate, we need to go big and fully replatform the “closed loop” onchain. Onchain consumer credit, powered by stablecoins and a liquidity pool in the backend, with a dramatically lower cost of acceptance for merchants, is the massive opportunity here. Here’s more thoughts: https://x.com/philip0x/status/1982219251479097601?s=46
Most stablecoins are stored in wallets, either self- or hosted. To unlock that purchasing power, those wallets must be seamlessly connected to e-business / e-commerce. Key Test: how easy can one pay for a house, a car, a capital call, a funding event with stablecoins, with 2 clicks. My belief is that stablecoins should excel for big ticket items, not small transactions; at least not initially.
Thanks for sharing! I have been following USV's theses since 2019. They have always been forward thinking and informative. Just reposted it here https://farcaster.xyz/miniapps/I2DBmK5cKZJB/content-hunt
Interesting concept!
Interesting read!
A lot of conversation around stablecoins here is that despite there being business adoption, consumer do not hold stablecoins on mass. One of the things stablecoins unlock is new economic models as money turns into liquid and flows omni-directionally. To that end, a meaningful way that consumers will end up with stablecoins is through the rise of marketplaces that facilitate payments to consumers in the form of rewards and/or payments as advertising, rewards and online work evolve. $1T is already spent annually on digital incentives, 4x more than all stablecoins in existence. Consumers don't care about interchange fee's incurred by business, they care about what makes money easier, faster and cheaper for them. Any person online can now be paid by any business for any reason, be it engagement, loyalty, rewards or any other incentivised outcome. We are building components of this over at app.earnos.com - Excited for the future of payment transmission and true internet native economies.