Payments Principles
The immutable truths. Markets shift. Technology evolves. These don't.
The Five Principles
| # | Principle | Why Immutable | Implication |
|---|---|---|---|
| 1 | Behavior resists change | Rewards loops are self-reinforcing | Don't fight consumer checkout |
| 2 | Money is a message | Same routing physics as telecom | MEV extraction applies |
| 3 | Friction compounds | 3% on $30M = $900K/year | Small percentages, massive dollars |
| 4 | Working capital has velocity | Days in transit = capital not working | Settlement speed is treasury alpha |
| 5 | Infrastructure commoditizes | Rails become utilities | Value accrues to routing and experience |
1. Behavior Resists Change
Credit cards have a structural moat that stablecoins cannot breach from the front.
The Loop:
CONSUMER REWARDS LOOP (Self-Reinforcing)
Merchant pays 2-3% interchange
↓
Interchange funds rewards
↓
Rewards drive consumer preference
↓
Preference forces merchant acceptance
↓
(loop continues)
| Segment | Card vs Debit Preference | Why |
|---|---|---|
| High-income consumers | 65% credit, 34% debit | 2% cash back funded by fees |
| Merchants | Must accept | Lose customers if they don't |
| Stablecoins | 0% interchange | But no consumer to use them |
The Costco Exception: Costco spent 30 years building leverage to negotiate 0.4% interchange vs. 1.8% everyone else pays. No one else has matched them. Target and Walmart have tried.
The insight: Don't fight the loop. Route around it.
2. Money is a Message
The same architecture governs messages, money, and data:
INTENT → ROUTE → INFRASTRUCTURE → SETTLE → FEEDBACK
| Flow | What Moves | Who Routes | Who Settles |
|---|---|---|---|
| Messages | Information | Telecom switches | CDR billing |
| Value | Money | Solvers, bridges | Blockchain |
| Data | Telemetry | Edge AI | Oracles |
The Telco Parallel:
| Telecom Concept | Payments Equivalent |
|---|---|
| Least-cost routing | Rail selection (SWIFT vs stable) |
| Carrier interconnect | Corridor off-ramps |
| CDR billing | On-chain settlement proof |
| QoS metrics | Time-to-cash, FX accuracy |
| Wholesale vs retail | B2B treasury vs consumer POS |
The implication: Your telecom LCR expertise transfers directly to payments routing.
See Three Flows and Telecom MEV.
3. Friction Compounds
Traditional cross-border payments bleed 3-4% to invisible layers.
A mid-market U.S. distributor with $75M revenue:
| Friction Layer | Traditional Cost | Evidence |
|---|---|---|
| Wire fees | $35-50/transaction | 500 wires/year = $17.5-25K |
| FX spreads | 2-4% above mid-rate | Invisible in quoted price |
| Intermediary fees | $15-25 per hop | SWIFT multi-bank correspondent |
| Settlement delay | 3-5 business days | Working capital trapped in flight |
| All-in friction | 3-4% of volume | On $30M = $900K-1.2M annually |
The math:
- Old cost: ~$900,000 (3% friction)
- New cost: ~$300,000-450,000 (1-1.5% off-ramp)
- Annual savings: $450,000-600,000
On $3.75M EBITDA (5% margin), that's 13-19% improvement. From a back-office integration.
4. Working Capital Has Velocity
Fee savings are tangible. The velocity advantage may matter more.
| Working Capital Effect | Calculation | Annual Value |
|---|---|---|
| Capital trapped | 500 wires × $60K × 3-5 days in transit | $400-600K trapped |
| Financing avoided | At 8-10% cost of capital | $40-50K |
| Early-pay discounts | 2/10 net 30 = 36% annualized if missed | Variable, large |
| Treasury optionality | Idle cash earns yield (regulatory TBD) | Speculative |
2/10 net 30 explained: Pay in 10 days → 2% discount. Pay in 30 → full price. Keeping cash 20 extra days costs 2% = 36% annualized rate.
The insight: Most companies understand the math but miss the window because capital is trapped in 5-day wires. Faster settlement = more discounts captured.
5. Infrastructure Commoditizes
Rails are crucial early, then become utilities.
| Era | Rails Built | Value Captured By |
|---|---|---|
| Railroads | Train companies | Retailers, cities |
| Internet | ISPs | Google, Meta, platforms |
| Mobile | Telcos | Apple, Uber, apps |
| Stablecoins | Blockchains | Wallets, agents, platforms |
The telco trap: Don't optimize to be the telco. Optimize to be the Uber of programmable money.
Where value accrues:
| Layer | Commoditizes | Captures Value |
|---|---|---|
| Rails (chains, settlement) | Fast, cheap, interchangeable | Low margin, regulated utility |
| Routing (bridges, solvers) | Abstracted away | Modest fees, competitive |
| Distribution (wallets, apps) | Owns the user | High margin, network effects |
| Experience (agents, workflows) | Owns the outcome | Highest margin, defensible |
The winning bet: Own the experience, not the rail.
The Test
Before any payments infrastructure investment:
| Question | Yes = Proceed | No = Reconsider |
|---|---|---|
| Does it route around behavior? | Attacks B2B friction | Fights consumer checkout |
| Is the friction quantified? | Clear $/year savings | Vague "efficiency" |
| Is velocity captured? | Settlement delta | Just fee reduction |
| Is off-ramp mature for target corridors? | <1.5% cost | Uncertain, fragmented |
| Are you building experience, not rails? | Routing, treasury UI | Yet another chain |
Minimum: Yes to 4 of 5.
Principles → Performance
These principles determine what to measure:
| Principle | Performance Metric |
|---|---|
| Behavior resists change | Consumer checkout conversion (expect 0) |
| Money is a message | Routing optimization rate, path cost |
| Friction compounds | All-in cost per corridor, EBITDA lift |
| Working capital has velocity | Days to settle, early-pay capture rate |
| Infrastructure commoditizes | Value layer position, defensibility |
See Performance for the full metrics framework.
Context
- Payments Overview — The transformation thesis
- Three Flows — Messages, money, data converge
- Payment Rails — Platform architecture
- First Principles — Broader principles framework