Patrick Collison: belief

Transcript context

…Maybe there's a Chesterton’s fence kind of thing going on here. If you had to design payments from first principles now, does it make sense that all these things you've mentioned: taking on credit risk, the chance of fraud, dispute adjudication, should that cost 2% or 3% of each transaction that happens in the economy? What would payments look like if you had to design that from first principles? We're seeing a live version of this experiment play out for the first time in many years in a number of countries today, where central banks are becoming more active in designing national payment schemes. PIX in Brazil launched in late 2020. I'm sure you've heard of UPI. UPI was the instigator in this process. It's the central bank payment system in India. And it was tied up with AadHaar and their national identity system and so on. That inspired a lot of central bankers in other countries to go and build their own UPIs. So PICS in Brazil launched in 2020 and now a significant majority of all Brazilian adults are weekly active users of PICS. Again, even though it launched in 2020. So it just had this incredibly rapid adoption curve. You have Swish in Sweden, There are examples across East Asia, Japan, Thailand, Switzerland. Central bank after central bank is deciding: "Hey, we should have our version of this." This is a kind of reinvention of the payment system from scratch. For some weird reasons hard to understand, once you layer in the customer support, consumer protection, fraud prevention, anti-money laundering controls and the credit, things seem to asymptote at around 2% or 3%. It's important to also note that beyond just covering the costs, much of it ends up getting remitted to consumers in the form of rewards, not in every country, but in many countries. If you look at the public reports from various banks in the US, their interchange revenue, where they're getting these delicious fees on every transaction, as you put it, a lot of that is going straight back out the door to the consumers. So it's not clear how exactly one should think about economics. If it's going back to the consumer, should you include that as a transaction tax or is it just like a weird circular relationship? I've not seen any evidence to suggest that the 2% or thereabouts is massively inefficient in the scheme of things. I'm not saying it's the optimal level— maybe 1% would be better, but within some range of 1% to 3%, it's probably reasonable. As we think about these ad valorem fees and figures, the place where there's even more change at the moment that we find ourselves thinking more about is the changing structure of global tax. There's been a reasonable amount of innovation in the tax domain over the last century: income taxes got pretty high, then we added value taxes, and so on. The new thing, at least in the online context, is jurisdictions remitting or imposing sales taxes on businesses that don't have any "locus" in the jurisdiction in question. So if you're a podcaster in the Bay Area, hypothetically "Dwarkesh merch store" will have to pay the town of Uppsala in Sweden, which will have a special tax on baseball caps. And you will need to know about that particular tax on baseball caps. othetically "Dwarkesh merch store" will have to pay the town of Uppsala in Sweden, which will have a special tax on baseball caps. And you will need to know about that particular tax on baseball caps. And for any baseball caps that you are selling to the Uppsalians, you'll have to collect that amount from the buyer, report to Uppsala, and then eventually figure out how you're going to get that money to Uppsala. Obviously, it's this combinatorial problem of buyer jurisdictions and product types, and then all the different jurisdictions that you have to remit the money to. As to those amounts, we're not talking three basis points — the taxes in question are often 5% or 10%, so it's not trivial. As I think about the funds flows on the internet and how all that's evolving and unfolding, I think changes in tax law are actually a much bigger deal than anything about the transactional economics.…

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