On Monday, the United States Supreme Court issued a ruling in favor of the credit card industry, at the expense of cardholders and merchants who accept credit card payments. While the decision has been read narrowly in terms of antitrust law, it highlights the potential for broader common ground among innovators of new financial technologies, public interest lawyers who are pushing back on monopolistic behavior, and progressive economists.
In the immediate aftermath of the the Court’s decision, left-leaning economists took to social media to express outrage at the holding and propose solutions ranging from industry-correcting legislation to government-regulated pricing:
Putting aside political feasibility or efficacy, these measures are entirely focused on centrally-controlled federal solutions to the problem of monopolistic behavior by payment providers.
Another, broader possibility to consider in the wake of the Court's ruling is promoting the use of open-source, peer-to-peer payment networks, like the Lightning Network, that could compete with or someday replace the credit card industry altogether. If “We The People” can’t beat credit card oligopolies in courts, then we might be able to beat them by building something better.
Frustration with the credit card industry is longstanding and well-founded. The credit card industry is a classic oligopoly - three companies control 95 percent of the market - and they price accordingly, often squeezing as much revenue as possible from retailers and customers. Moreover, credit card companies have, thus far, foregone payment privacy in favor of what some describe as “surveillance capitalism”: they monitor and monetize transactions, package and sell it to third parties, and assign users an opaque “credit score” that determines their worthiness for a loan. Unlike cash, there is essentially no privacy with plastic.
By contrast, open-source, peer-to-peer payment networks offer an alternative approach to payments, akin to spending your own “digital cash” rather than borrowing money from a credit card’s bank to make a payment that will be collected, stored and sold to third parties. Because payments are peer-to-peer (rather than, e.g., cardholder-to-credit card bank-to-merchant bank-to-merchant), there is no oligopoly pushing parties to pay expensive transaction fees. On the Lightning Network, the most prominent of these peer-to-peer networks, transactions are instant with near-zero fees and use onion routing, like on the Tor Browser, to better protect privacy. And it’s all open-source and available to anyone with an Internet connection.
So while attempts to correct credit card industry oligopoly through legislation or courts may be well-meaning, they also beg the question: do these economists think credit cards are the best we can do for payments? And if not, why aren’t they talking about this?
I have two theories.
My first theory is that many economists are simply not familiar with peer-to-peer payment networks. That’s understandable, since the technologies are still in beta and need more work to become user-friendly and widely adopted. But if they’re waiting until the network is widespread to start considering it as a payments alternative, then there’s a chicken-and-egg problem, because the more attention paid to these networks, the more likely they can bring developers, users, merchants, and retailers to them. If unfamiliarity is driving the silence, then here’s an easy way to get familiar with making a Lightning payment, using "fake" money (tBTC):
- Go to https://htlc.me and get a free tBTC Lightning wallet.
- Go to https://yalls.org, click a story. When it prompts you to pay, copy the invoice address into your wallet, and press “send.”
- That’s it!
It’s not terribly pretty (yet), but it works and it’s faster than making a payment via a credit card. As for using it with real money, there’s a wallet out for Android, and iOS development is reportedly in the works. So if that’s the holdup, I hope they try it out.
My second theory for why left-leaning economists aren’t talking up the Lightning Network has more to do with politics. A number of them seem to not like Bitcoin and associate Bitcoin with the Lightning Network. However, while it is true that the wallets I’ve linked to make payments via the Bitcoin network, the Lightning protocol is itself currency-agnostic. You can’t make Lightning payments with USD, because, at least at this writing, USD isn’t issued on a Bitcoin-like blockchain. But if that changes - if, for example, the Federal Reserve or another bank lets people trade dollars in exchange for a Lightning-compatible digital currency backed 1:1 with dollars (let’s call it zUSD) - then retailers and customers alike could get all the benefits of the Lightning Network, without ever having to purchase bitcoin. So an objection to peer-to-peer payments on the grounds that it specifically promotes Bitcoin is short-sighted, at best.
To be sure, peer-to-peer payment networks like the Lightning Network are still young. They need to undergo more testing. But that’s precisely why greater coverage by progressive economists and antitrust scholars like could help. More competition for payment processing could spur innovation and lower fees from the hundred-billion dollar credit card industry. And attention could encourage more investment in companies that build infrastructure and drive programmers to dedicate time towards making the network robust so it can handle a massive amount of peer-to-peer payments without sacrificing speed or security.
Down the road, widespread adoption of Lightning-compatible payments, combined with a development known as “atomic swaps,” could enable instant, global inter-currency payments - like a “Rosetta Stone” for money. But that’s a subject to explore in a later essay.
In sum, although remedying Monday’s SCOTUS ruling with new legislation and strict regulation is conceivable, it is at the least a medium- or long-term goal with uncertain prospects of success. And there is certainly no reason for proponents of those goals, particularly economists concerned with monopoly and oligopoly power, to ignore the idea of handling point-of-sale transactions on a peer-to-peer basis, rather than via third party payment processors with little competition or reason to improve fees or services. Retailers and customers can still choose to use credit cards if they wish, earning points or miles or any other benefits, but plenty might prefer to skip the transaction fees and handle their purchases privately and peer-to-peer, akin to using cash, with the speed and convenience of plastic.
Picture from Wikimedia Commons.
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Misha holds a J.D. from Yale Law School, where he co-founded the Yale Law and Technology Society (TechSoc). He can be reached on Twitter @MishaGuttentag.