Recently, I’ve been studying innovation in payments – trying to identify the factors that influence market success (rare) vs. market failures (much more common). Certainly, the story of PayPal (as the most successful payments innovation in a long time) is at the center of my analysis.
On his Redeye VC blog, First Round Capital’s Josh Kopelman writes from his days behind the eBay corporate curtain about the days in the early years of this decade when BillPoint and PayPal were slugging it out in a contest about who was going to end up winning the online auction payments market. With his comments, Josh illuminates a fascinating case study in innovation in payments.
“There are many reasons why PayPal won — but I think it really came down to the differences in “risk tolerance” between a startup and a large public company. … It was clear to me (from inside eBay), that the Billpoint team knew exactly what they needed to do in order to offer a comparable product to PayPal. They just were unwilling to accept the risks of doing so.”
I have often told friends that I’m sure the venture investors who funded BillPoint were proud they had been able to recruit such an experienced team of former bankers. It’s that team who eBay acquired when it acquired BillPoint less than a year after BillPoint’s founding.
As it often turns out, the “tyranny of the experts” – those of us who know all the reasons things just can’t be done the way the market seems to be demanding – are responsible for restraining innovation rather than fostering it. Sometimes, we just know too much and seek to “manage” (reduce or eliminate) risk – where that risk is a core component of the actual market opportunity!
This is, of course, especially hard in financial services – as the regulatory regimes can certainly be daunting. What’s the latest example? Our friends in the peer-to-peer lending space who found a Federal regulatory (the SEC) very focused on their particular innovation and attempt to remove friction and enable a more market-driven response.
Think about your own experience – where and when were you most innovative? Was it when you knew enough – but not too much, when you weren’t worried about corporate rules, etc.? Or, when you were the expert, part of a big company, navigating the political waters? Eh?