Everyone wants to be your wallet
Summary
Patrick McKenzie reads an updated essay on the economics of digital wallets, explaining how they profit by holding balances and optimizing transaction flows. He contrasts traditional acquiring businesses with wallet models like PayPal and Venmo, detailing revenue streams from interest, debit card partnerships, and instant transfer fees. The discussion also covers Apple Pay’s market power, Stripe’s Link product, and how these systems collectively renegotiate payment costs for the internet.
Topics discussed
Introduction and overview of wallets business
Definition and evolution of digital wallets
Regulatory implications of holding balances
PayPal's origins and value proposition
Wallet economics: stocks vs flows
Transaction costs and ACH pools
Monetizing payouts via debit cards
Instant withdrawal fees and rails
Sponsors: Mercury and Granola
Co-branded credit cards and incentives
Loss sharing agreements with issuers
Apple Pay and phone-based wallets
Checkout optimization and ads business
Stripe Link and network effects
Interchange fees and distributed negotiation
Conclusion and outro
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