"The banks and credit card companies have spent 50 years building a proprietary, locked-down system that handles roughly $2 trillion in credit card transactions and another $1.3 trillion in debit card transactions every year," Daniel Roth writes in Wired. But now "an army of engineers and entrepreneurs is rushing in, hoping to do to the payment world what has already been done to the music, movie, and publishing businesses—unseat a legacy industry built on access and distribution, drive the costs to zero, undercut the traditional middlemen, and unleash a wave of innovation."
You should read the whole article, but an excerpt should give you an idea of what he's talking about:
Moving money, once a function managed only by the biggest companies in the world, is now a feature available to any code jockey. [Twitpay founder Michael] Ivey is just one of hundreds of engineers and entrepreneurs who are attacking the payment ecosystem, seeking out ways small and large to tear down the stronghold the banks and credit card companies have built. Square, a new company founded by Twitter cocreator Jack Dorsey, lets anyone accept physical credit card payments through a smartphone or computer by plugging in a free sugar-cube-sized device—no expensive card reader required. A startup called Obopay, which has received funding from Nokia, allows phone owners to transfer money to one another with nothing more than a PIN. Amazon.com and Google are both distributing their shopping cart technologies across the Internet, letting even the lowliest etailers process credit cards for less than the old price, cutting out middlemen, and figuring out ways to bundle payments to sidestep the credit card companies' constant nickel-and-diming. Facebook appears to be building its own payment system for virtual goods purchased on its social network and on external sites. And last March, Apple gave iTunes developers the ability to charge subscription fees through their applications, making iTunes the gateway for an entirely new breed of transaction. When Research in Motion announced a similar initiative last fall at a session of the BlackBerry Developer Conference in San Francisco, programmers crowded the room, spilling out into the hallway. About 20 percent of all online transactions now take place over so-called alternative payment systems, according to consulting firm Javelin Strategy and Research. It expects that number to grow to nearly 30 percent in just three years.
But perhaps nobody is as ambitious as PayPal. In November, it further opened up its code, giving anyone with rudimentary programming skills access to the kind of technology and payment-industry experience that Ivey used to build Twitpay. The move could unleash a wave of innovation unlike any we've seen since self-publishing came to the Web. Two months after PayPal opened its platform, 15,000 developers had used it to create new payment services, sending $15 million through the company's pipes. Software developer Big in Japan, whose ShopSavvy program lets people find an item's cheapest price by scanning its barcode, used PayPal to add a "quick pay" button to its app. LiveOps, a call-center outsourcing firm, built a tool that streamlined payments to its operators, turning what had been a nightmare of invoicing and time-tracking into an automated process. Previously, anybody who wanted to create a service like this would have had to navigate a morass of state and federal regulations and licensing bodies. But now engineers can focus on building applications, while leaving the regulatory and risk-management issues to PayPal. "I can focus on the social side of the business and not on touching money," as Ivey puts it.
Elsewhere in Reason: Back in 2005, Radley Balko remembered the libertarian fervor that at first fueled the company and asked, "Who killed PayPal?" Apparently the corp. still has some life in it after all.