The Third Wave: Rethinking the Future of Payment Networks
Mastercard went public 20 years ago last week (Visa followed two years later, in 2008). David Hirsch and I have been thinking about the future of the card networks as the payment industry approaches another inflection point. We’ve evaluated the first two waves of network evolution and question what it will take for them to succeed as we enter wave three.
Sixty years ago the card networks persuaded banks who compete with each other to cooperate in order to foster trust, risk mitigation, and interoperability. Dee Hock called Visa “a system for the orderly exchange of value.” It was a profound accomplishment and the beginning of an ever-fascinating, often lucrative, and economically critical payment industry.
But somewhere between IPOs and today, the networks transitioned from global infrastructure for value creation to machinery for value allocation: shifting economics from small banks to large ones, small merchants to large ones, appeasing stakeholders in complex behind the scenes negotiations. Wave Two (embedded payments, the Pays, PayFac, AP software VCC monetization) protected card volume but we argue that it also hollowed out the network value proposition. The networks have never been bigger. But there are now layers of intermediaries between them and their ultimate customers: cardholders and merchants.
If it sounds like we’re network haters, we’re not. We admire networks logical dedication to a highly attractive business model. And we find their continued success and resilience all the more impressive given the competitive and regulatory pressure they’ve faced.
As we enter Wave Three, though, three forces are reshaping the ground under the networks. First, stablecoins are emerging as a real settlement rail. Second, the largest banks are building their own tokenized infrastructure (Kinexys, Citi Token Services) and collaborating to interlink those efforts (see TCH announcement last week). With the commoditization and decentralization of settlement, the data that contextualizes a transaction (invoice, identity, working capital signals, agent intent) increasingly matters more than moving the money itself. Most of that data, despite being cloud native, is not carried in the auth and settlements message the networks convey. And those loyalty and brand assets they spent countless decades and dollars building? Well, agents don’t watch Olympics ads.
The networks recognize the shift. They’re responding with M&A (Mastercard’s $1.8B BVNK acquisition) and partnerships (Visa/Bridge). But their track record of integrating and realizing value from non-card assets is disappointing. Expensive acquisitions get a large press release before quickly getting sidelined, underfunded, and failing to thrive.
For the networks to succeed in Wave Three, David and I believe they need to become genuinely multirail, orchestrate data exchange at a scale few others can convene, and get real about B2B: monetizing the check-and-ACH base, not forcing card penetration onto invoiced spend. Whether they’re structurally capable of any of this, given bank-member politics, regulatory and sovereignty pressure, and legacy architecture, is the open question.
We hosted an intimate dinner in SF to discuss this topic with a curated group of fellow B2B nerds. We’re planning to do a few more dinners, in London, NYC and Singapore. We’re asking:
The networks have been entirely logical in their dedication to today’s model, and impressively so given the competitive and regulatory pressure they’ve faced. What actually spurs change inside a system this entrenched, and how do you see your role in it?
If the networks don’t lead Wave Three, who does? The hyperscalers (Apple, Google, Amazon) sitting closer to the customer? Workflow owners with cross-vertical scale (SAP/Ariba, Intuit)? Interbank bodies (Swift, Pay.UK, TCH)?
In a programmatic, agentic world, does AI break the logjam on orchestration and interoperability? Could that itself be the opening the networks need?
Dee Hock built an extraordinary system for the orderly exchange of value. We’re asking what “value” will mean in 2030, and who will orchestrate it.
David and I have a view, and several hypotheses. We’re curious where you’d push back. Please reach out if you’d like to debate with us.