educating markets

In 1958, Bank of America conducted an experimental financial campaign in Fresno, California, where they mailed out 60,000 credit cards to residents. These cards were a new product offering a $500 line of credit (~$5k in today’s terms). This move was a pioneering effort in the credit card industry and marked a significant shift in consumer finance. This event is known as the “Fresno Drop”.

Before this event, credit was primarily offered by local businesses, like corner bars or stores, which allowed patrons to maintain open tabs recorded in ledger books. For larger purchases, consumers had to obtain individual loans. The Fresno Drop was a major step in expanding the availability and use of credit cards. Within 10 months, over a million BankAmericards had been distributed across California.

After dropping the new credit cards on many new customers, mostly not familiar with the concept of credit, BoA experienced massive fraud for a few years. But it later became a very successful business (and today one of the best businesses on earth as Visa). But note that in 1958, Bank of America was already one of the largest and most influential banks in the United States. The ability to educate the market in using a credit card, and standing the losses and massive fraud was the consequence of its stability and of being a well-established business. Could a credit-card startup educate the market in 1958 and take control of the market like they did? Probably not. Startups usually have 2-3 years between financing rounds, and they need to show results quickly. Withstanding years of fraud could be the valley of death for startups. Which means that not every market adoption product or behavior should come from startups, sometimes incumbents are actually the ones doing the heavy lifting of opening the market.

In the crypto industry, I think for the first time we have trusted ‘institutions’ that can do this heavy lifting for us. One example is Coinbase, which lately issued a new product of attesting to their customers onchain (sort of a verification service). In less than 2 months, they have gotten to ~50k verified account attestations. Now for the first time, we have bridged massive amounts of people’s identity from offchain to onchain. This is not something very monetizable at the moment, so hard to see startups pulling this off. But as a public good / education mechanism, it is extremely effective.

I believe that many of the things we want to see happen in crypto (e.g., onchain payments, voting) will actually be bootstrapped by institutions who have enough firepower to educate the market and withstand it financially. Sometimes the startup opportunity is actually piggybacking these efforts, and riding the incumbent education.