Y Combinator Challenge #17 – New Payment Methods

For more information about the Y Combinator Challenge, check out this post first 

17. New payment methods. There are almost certainly things whose growth is held back because there’s no way to charge for them. And the people who could implement solutions don’t realize how much demand there would be, precisely because this growth has been held back. So pretty much any new way of paying for things that’s easier for some class of situations will turn out to have a bigger market than its inventors expected. Look at Paypal. (Warning: Regulated industry.)

My Idea – MyVC

Shucks.  I had two ideas around this one, but I did some quick searches and turns out they’ve both already been done.  The first was an option called “PayLater”, where users could opt to purchase items immediately and then get a bill up to one year in the future (there would be an increasing fee depending on how far in the future they wanted to be billed).  But, BillMeLater is already in that market – and doing really well.  The other idea was for a virtual currency that you would earn by playing mini-games (and viewing ads).  But I knew it sounded familiar and, sure enough, my buddy Adam had already cornered this market with his awesome ZuckerBucks Facebook app

Well, as my grandpappy used to say: “When life gives you lemons, make a consolidated online virtual currency gateway and payment system”.  I never quite understood what he was talking about.  Until today.

My idea is a consolidated online virtual currency gateway and payment system.  The limited number of virtual currency systems in the market today are already ridiculously fragmented and closed – and it’s not likely to change as new virtual currencies come online.  What if I wanted to use my XBox 360 points to buy something on Amazon.com?  Or use my Facebook dollars (this has to be coming and it will be huge) to buy some shoes on Zappos.com?  Or use my MySpace bucks (they’ll jump on this along with every other social network once Facebook rolls it out) to buy party favors from eBay?  Or what about a more complex case, such as using my Linden Dollars to refill my Starbucks card using the current exchange rate (approx 250 LD to 1 USD)?

The core feature of this system is the ability for e-commerce sites to add a simple bit of code (like PayPal offers) that users could click on for an additional payment option.  Users would be redirected to the site, and once they logged in they would see all of the balances across each of their virtual currency accounts (converted into USD or their local analog currencies).  Users could choose the virtual currency they’d like to use, and under the hood the system would manage the process of deducting points from the virtual currency and passing the payment on to the e-commerce site.  Users could also set up “quick pay” options, where they would just have to enter their name/password (or click on an infocard) and the system would automatically carry out the transaction via the user’s primary virtual currency account.

This idea is a little bit ahead of it’s time, but what do you think?  Maybe something worth patenting now, and waiting a few years before the technology catches up before it would be implemented?  Or maybe start by defining a standard for adding or deducting to/from a virtual currency system? Thoughts, feedback, and mockery are all welcome in the comments below.

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5 responses to “Y Combinator Challenge #17 – New Payment Methods

  1. Hm. I’d go for defining some standard.. nothing too advanced, just focus on the core features and security. And maybe keep in mind that it should be decentralized.

  2. It seems like a good idea, but in practice most of the points systems forbid transfer, and list the monetary value of their points at $0.0001. As such while one could plan to trade “virtual currencies” actually doing so my prove prohibitive.

  3. It would be a hit on governments and taxes, as, for instance, Brazilians could earn and expend money on US (or, let’s say, “the web”) without having to bother with Brazilian taxes, which are absurdly high. Things that are not physical, like music, are like this today.

  4. It is likely that most of these virtual currencies have a bit of the “gift card” mentality to them — the people who run the currency expect it all to eventually be “spent” in there system, and might try to make it difficult to freely or automatically exchange them.

    But I posted because I was a bit puzzled by your remark, “Maybe something worth patenting now, and waiting a few years before the technology catches up before it would be implemented?” . Doesn’t a patent have to contain enough information that an ordinary person working in that field could implement it ? You know, it used to be a requirement that a patent application be accompanied by a working model. If the technology is not there to implement it, can it be patented ? The US Patent system does not allow the patenting of ideas.

  5. I’ve watched people try similar ventures ever since I started working in the online payments space 14 years ago. Paypal made it easy for individuals to transfer money to each other. They basically used third party billing in a way that had not been done before on a large scale.

    Coming up with new payment methods is a whole other thing, and IMO a solution looking for a problem. I never did hear a convincing argument for micropayments, which have tried and failed many times over. From the consumer perspective credit cards work very well, and if you are going to complicate their lives with something else, you better have a really good value proposition.

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