Change is not a given.

5 min readMar 25, 2023

The choice to adopt a new, more efficient technological system is not always a given. From an engineering perspective, system efficiency is its own justifications, and engineers are often perplexed when more efficient technologies are not universally adopted. When we take a historical perspective however, we can see that increased efficiency is not always a benefit to all groups within a system. If increases in efficiency will harm a powerful group, that group will resist that change or even shape the system in such way as to heighten the inefficiency.

Source: Electronic Value Exchange, David L. Sterns, Pg 5 [1]

I enjoyed this line “from an engineering perspective, system efficiency is its own justifications, and engineers are often perplexed when more efficient technologies are not universally adopted”. It brought to mind funny recollections of conversations with perplexed product and engineering folks (love these convos) on – why would a company NOT choose the most easy to integrate APIs, or choose to build better and more efficient technology? Why might inefficient systems reign?

History demonstrates that technology is shaped by society

The opening quote is from a fascinating book called “Electronic Value Exchange” (a book that traces the rise of Visa). The quote was from a section discussing the US cheque clearing system and the Fed in the 1960–70s. The summary is that despite the Fed’s attempt to create a more streamlined cheque clearing system, only about a quarter of the member banks chose to use the new system, and “there was too much to lose by such efficiencies”. Eventually, things changed with more Fed action (not the focus of this post, but I highly recommend reading the full story in the book).

What I found interesting was the mention of the “Social Shaping of Technology” (SST) [2]. The simplified core arguments are:

Technology is not neutral, and is shaped by social factors such as culture, politics, and economics.
Technology matters, but it is not deterministic in defining the course of social change, but rather is a product of social choices, and therefore can be shaped by society itself.

In this post I’ll discuss the implications for payments systems.

Implications for payments systems

Payment systems refer loosely to payments between parties, which can be national (within a country) or global (within countries). I’ll mostlyuse “B2C” aka merchant <-> consumer examples, but there are more use cases (peer to peer, business to business etc).

The three implications I’ll discuss are:

The best technology is not the default winner
New systems need multi parties to buy in
Government and centralized authorities are crucial

1. The best technology is not the default winner

The idea that the best technology wins slots neatly into theories of creative destruction — the best ideas remain, the worst ones eventually disappear. But over simplifies change. Just because it is easier if money moved via less layers, doesn’t mean that less layers are the default outcome. There are tangible local boundaries (licenses, regulations, profits to defend), which means the best technology takes time to gain traction. For example, sometimes adopting new software makes operations faster. But unless there’s a reason (impact on revenue/costs and internal incentives aligned to those goals) to care about the operations being faster, there’s no necessity to choose better software. We may desire for the the best technology to win, but we should not assume this is the default outcome, and instead consider what else could be done to lower local boundaries and increase adoption.

2. New payments systems need multiple parties to buy in

Transactions are value exchanges between parties. It is two parties who choose to participate in the transaction. To over simplify —

Seller/merchant acceptance: Merchants accept a payment method if consumers want it and the payment method bring them more revenue.
Buyer/consumer acceptance: Consumers can’t use a payment method if it’s not accepted at the merchant that they’re shopping at.

Both the seller/merchant and buyer/consumer have to participate continuously and increasingly in the network, for new networks to gain traction. It is over simplistic to say — XYZ payment method is available at 100 merchants, and therefore we have achieved adoption. What share of checkout is it? Are consumers actually using it? How many consumers have that XYZ payment method? Is the checkout flow for consumers better than it’s been before (faster and more frictionless)?

3. Government and centralized authorities are crucial

What incentivizes the private growth of an instant, low cost, 24/7, peer to peer, consumer to business, business to business, national payment system that is both efficient and inclusive?

If we compare payment systems to railroads, water pipes, electric lines, the upfront investment into building national payment infrastructure is high. What more the high investment required to build a secure, robust, stable and fast system able to manage peak loads? And most of all — who should coordinate multiple private companies with complex interests, who might be benefiting from the existing system, or not have anything to gain from moving to more efficient and newer systems?

People often laud the rise of instant payment networks like UPI (India), Pix (Brazil), PayID (AU), FAST/Paynow (SG), Promptpay (TH), to name a few. It is hard to imagine that any of this would have been possible without the strong leadership of governments to drive adoption. I’ll argue that centralized authorities are crucial in driving new technological change and mass adoption. Private companies might develop networks that somewhat improve the payments systems (thinking of Zelle), but it’s not a profound change — nationwide, inclusive, and beneficial to all groups in the system.