October 11, 2014
Marc is the most prolific VC investor, thinker, mentor in the tech space. Why do we say that? He has invested and has been associated with Facebook, Twitter, Dwolla, Boku and many others. If Warren Buffet is the Oracle of Omaha, Marc is the Valley guy with the Midas Touch. For a while now, he has been enthusiastic about payments space and has said/written about Bitcoin and other interesting stuff in this space. His insight into the technology trends is legendary. He recently spoke about the Payments space in great detail in an interview with Bloomberg Markets magazine. We thought of bringing you some excerpts:
The startups chasing disruptive technology aren’t working within the existing system. This is the cryptocurrency phenomenon. If it works, we can re-implement the entire financial system as a distributed system as opposed to a centralized system. We can reinvent the entire thing.
We needed a new technology to have the wedge to be able to enter the market, to be able to justify all the work to rebuild the system. With bitcoin, we now think we have that wedge. Bitcoin is a classic venture capital endeavor: It will either work or it won’t. And if it doesn’t work, we will lose all our money. But if it does work, it will work in a spectacular way. Our investments will pay off 1,000 to 1 or 10,000 to 1 or some other crazy extreme, because these markets are so big.
Data Analytics (And Lending)
There is a growing idea in Silicon Valley that there are sources of data on consumer behaviour we can use to predict creditworthiness. These will be completely different than the traditional approach to credit ratings, which are tremendously imprecise and laggy. PayPal can do a real-time credit score in milliseconds, based on your eBay purchase history—and it turns out that’s a better source of information than the stuff used to generate your Fico score.
‘The hypothesis is that there are many other similar sources of consumer data: credit card bills, social-network behaviour, potentially even search history. Lots of people, both in the big Internet companies and at startups, are trying to get at these large pools of data and figure out new ways to do scoring. What they all have in common is that they are all being done outside of banks.
The problem with building a new product or service in the existing financial industry is that tens of thousands of pages of legislation and thousands of lobbyists are going to come down on you very quickly.
What a lot of financial technology entrepreneurs will tell you is that if you’re going to innovate in financial services, you want to do something so new and so different that the existing regulatory system doesn’t know how to react to you. That is your window of opportunity.
A New Beginning
We’re not going to go backward. When people start doing things a better way, it kind of doesn’t matter what the old way was. You can find people who will say that this is all just an arbitrage on the current trouble in the financial system, and I’m sure the big traditional banks will fight back and try to get things outlawed.
We have a chance to rebuild the system. Financial transactions are just numbers; it’s just information. You shouldn’t need 100,000 people and prime Manhattan real estate and giant data centres full of mainframe computers from the 1970s to give you the ability to do an online payment.