Book Review: “Clear Thinking: Turning Ordinary Moments into Extraordinary Results” by Shane Parrish

Ram SevakLeave a comment

The book titled “Clear Thinking: Turning Ordinary Moments into Extraordinary Results” by Shane Parrish has been on my reading list since its release last year. I have been a huge fan and follower of Shane Parrish’s writings on fs.blog through the last so many years. His work has been inspirational, original in critique and thinking and easily comprehensible. If anything I owe my interest in decision theory in parts to Mr Parrish’s work

This is one book which can be quite dense to read and grasp if you aren’t already familiar with many concepts around decision making and human biases. Nonetheless, it’s also one book which you may want to reread many times over till you internalize key concepts. Some crucial concepts are described as a matter of fact throughout this book (to be fair, an understated narration is indeed one of the charms this book possesses) and can be missed if you aren’t careful while reading. This book as the author describes succinctly is “a practical guide to mastering clear thinking”

Following are the key takeaways for me from this book

1. The basic premise of this book is that in order to get the results we desire, we must do two things a. We must first create the space to reason in our thoughts, feelings, and actions; and b. we must deliberately use that space to think clearly. Once you have mastered this skill, you will have an unstoppable advantage

2. What happens in ordinary moments determines the future. Each moment puts one in a better or worse position to handle the future. It’s that positioning that eventually makes life easier or harder. And clear thinking is key to proper positioning which in turn decides the options available 

3. You don’t need to be smarter than others to outperform them if you can out-position them. Unsurprisingly, the greatest aid to judgment is starting from a good position

4. Rationality is wasted when you don’t know when to use it. People who master their defaults get the best real-world results

5. There are four defaults or natural instincts that humans possess which are barriers to clear thinking

  • The emotion default: we tend to respond to feelings rather than reasons and facts. Emotions can multiply all your progress by zero
    • Biological vulnerabilities that leave us even more exposed to the emotion default’s influence: sleep deprivation, hunger, fatigue, emotion, distraction, stress from feeling rushed, and being in an unfamiliar environment. If you find yourself in any of these conditions, be on your guard!
  • The ego default: we tend to react to anything that threatens our sense of self-worth or our position in a group hierarchy
    • If you find yourself expending tremendous energy on how you are seen, if you often feel your pride being wounded, your ego is in charge
  • The social default: we tend to conform to the norms of our larger social group
    • If you’re frequently fearful of disappointing other people, if you’re afraid of being an outsider, or if the threat of scorn fills you with dread, then social default may be in charge
    • To protect yourself from the influence of the social default, you decide to implement a safeguard. You form a rule for yourself: never say yes to something important without thinking it over for a day
  • The inertia default: we’re habit forming and comfort seeking. We tend to resist change, and to prefer ideas, processes, and environments that are familiar
    • The longer we avoid the conflict, however, the more necessary it becomes to continue avoiding it
    • Establishing rituals is the key to creating positive inertia

6. The person who can take a step back for a second, center themselves, and get out of the moment will outperform the person who can’t. The following are the 4 key strengths needed to master this 

  • Self-accountability: holding yourself accountable for developing your abilities, managing your inabilities, and using reason to govern your actions
    • No one cares about your excuses at all, except you
    • When you put outcome over ego, you get better results
    • One of the most common mistakes people make is bargaining with how the world should work instead of accepting how it does work
  • Self-knowledge: knowing your own strengths and weaknesses—what you’re capable of doing and what you’re not
    • Understanding what you do and don’t know is the key to playing games you can win
  • Self-control: mastering your fears, desires, and emotions
    • A large part of achieving success is having the self-control to do whatever needs to be done, regardless of whether you feel like doing it at the moment
  • Self-confidence: trusting in your abilities and your value to others
    • Self-confidence is the strength to focus on what’s right instead of who’s right. Confidence also comes from how you talk to yourself
    • In order to be right, you must be willing to change your mind. If you’re not willing to change your mind, you’re going to be wrong a lot

7. Few things are more important in life than avoiding the wrong people

8. The best leaders expect more from people; they hold them to the same standards they hold themselves

  • If a team member is producing substandard work and you know they can do better, ask them “is this your best work” before you provide any feedback on their artifacts

9. Choosing the right exemplars or a “personal board of directors’ ‘ helps create a repository of “good behavior”. Ultimately one has to follow their examples in a given situation

10. The formula for failure is a few small errors consistently repeated

11. Safeguards are tools for protecting ourselves from ourselves—from weaknesses that we don’t have the strength to overcome. A few tactics to create safeguards are: prevention, creating rules for yourself, making checklists, shifting your frame of reference, and making the invisible visible

12. The path to breaking bad habits is making your desired behavior the default behavior

13. If you got some results you didn’t want, the world is telling you at least one of two things: a. you were unlucky and b. your ideas about how things work were wrong

14. Defining the problem is a critical task. And only the person who is responsible for the outcome should define the problem

15. The best decision-makers know that the way we define a problem shapes everyone’s perspective about it and determines the solutions

  • During the problem definition phase, build a problem-solution firewall. Separate the problem-defining phase of the decision-making process from the problem-solving phase
  • During the problem solving phase, test whether you’re addressing the root cause of a problem, rather than merely treating a symptom, by asking yourself whether it will stand the test of time. Will this solution fix the problem permanently
  • The 3+ principle: Force yourself to explore at least three possible solutions to a problem. If you find yourself considering only two options, force yourself to find at least one more

16. Many people think they’re bad problem solvers when in fact they’re bad problem anticipators

  • People who think about what’s likely to go wrong and determine the actions they can take are more likely to succeed when things don’t go according to plan

17. The opportunity-cost principle: Consider what opportunities you’re forgoing when you choose one option over another

  • The 3-lens principle: View opportunity costs through these three lenses: a. Compared with what? b. And then what? c. At the expense of what?

18. Most information is irrelevant. Get high-fidelity (HiFi) information—information that’s closest to the source and unfiltered by other people’s biases and interests

  • The person closest to the problem often has the most accurate information about it. What they tend to lack is a broader perspective
  • Evaluate the motivations and incentives of your sources. Remember that everyone sees things from a limited perspective
  • When you get information from other people, ask questions that yield detailed answers. Don’t ask people what they think; instead, ask them how they think
  • When someone close to the problem isn’t available to you, look for people who recently solved a similar problem

19. What questions to ask experts when looking for their opinion on a problem?

  • The goal isn’t to have someone tell you what to do; rather, it’s to learn how an expert thinks about the problem, which variables they consider relevant, and how those variables interact over time

20. How to differentiate an expert from an imitator in the age of influencers?!

  • Imitators cannot answer questions at a deeper level. For examples, if you ask them about non-standard cases or first principles, their answer may not be good 
  • Imitators  cannot adapt their vocabulary to make concepts clearer to their audience. They typically tend to use jargons
  • Imitators get frustrated when you say you don’t understand something. That frustration is a result of being overly concerned with the appearance of expertise
  • Imitators don’t know the limits of their expertise. Experts on the other hand can tell you all the ways they have failed in solving a problem

21. The ALAP principle: If the cost to undo a decision is high, make it as late as possible. Consequentiality and reversibility concepts. One should also remember to factor the cost of analysis into decisions. The core idea behind ALAP principle is to preserve optionality

22. The stop, flop, know principle: Stop gathering more information and execute your decision when either you Stop gathering useful information, you First Lose an OPportunity (FLOP), or you come to Know something that makes it evident what option you should choose

23. There’s always a moment when you simply know at a core level exactly what to do. Knowing what to do isn’t enough – you have to take action

24. When failure is expensive, it’s worth investing in large margins of safety i.e. a buffer between what you expect to happen and what could happen

  • When you don’t know what you are doing, a margin of safety saves you from the worst outcomes
  • The margin of safety is often sufficient when it can absorb double the worst-case scenario
  • You need a margin of safety most at the very moment you start to think you don’t

25. For big decisions, keeping it to yourself before executing allows you to keep open the possibility of undoing it

26. Performing small, low-risk experiments on multiple options—in other words, shooting bullets and calibrating—keeps your options open before you commit the bulk of your resources to shooting a cannonball is a sound strategy for embarking on life changing decisions e.g. quitting your job to start a side hustle

27. Execution fail-safes leverage your thinking when you’re at your best to protect you against the defaults when you’re at your worst. There are 3 kinds

  • Set up trip wires to determine in advance what you’ll do when you hit a specific quantifiable time, amount, or circumstance. This can include both negative signs as well as absence of a positive sign
  • Use commander’s intent to empower others to act and make decisions without you
  • Tie your hands to keep your execution on track

28. When you evaluate a decision, focus on the process you used to make the decision and not the outcome

  • Good decisions can have bad outcomes, and bad decisions can have good ones. However, a bad process can never produce a good decision. Of course, outcome can be good
  • Make your decision-making process as visible and open to scrutiny as possible
  • Keep a record of your thoughts at the time you make the decision. Don’t rely on your memory after the fact

29. The worst regret is when we fail to live a life true to ourselves, when we fail to play by our own scoreboard

  • We regret the things we didn’t do more than the things we did
  • Was I there when the people I love needed me?

30. Start thinking about the shortness of life, and it will help you see what really matters

  • Say things now to people you care about—whether it’s expressing gratitude, asking forgiveness, or getting information
  • Spend the maximum amount of time with your children
  • Savor daily pleasures instead of waiting for “big-ticket items” to make you happy
  • Work in a job you love
  • Key to a successful life is good company and meaningful relationships

31. The key to getting what you want out of life is to identify how the world works and to align yourself with it

  • If you want to develop good judgment, start by asking two questions: “What do I want in life? And is what I want actually worth wanting?
  • Improving your judgment is about designing systems when you’re at your best that work for you when you’re at your worst
  • Good judgment can’t be taught, but it can be learned

Decades worth of wisdom packed into a couple hundred pages, you cannot go wrong with this book. Pls read it and then re-read it! The book can be ordered from Amazon here!

Book Review: “Transformed: Moving to the Product Operating Model” by Marty Cagan

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This book titled “Transformed: Moving to the Product Operating Model” is the third one on core product management principles by the venerable Marty Cagan. His first two books Empowered and Inspired have been referenced umpteen number of times in product circles and are absolutely must-reads for anyone wishing to start their PM careers on a solid footing or in general for brushing up on fundamentals which sometimes are relegated in the background during professional grind!

This book as the many reviewers put it in its beginning aims to be “an essential guide for any company navigating the transition to the product operating model”. The book differentiates itself from author’s other two books by directly “addressing how to make the necessary changes to how you work”

Here are a few key takeaways for me from this book

  1. The product operating model is about consistently creating technology-powered solutions that your customers love, yet work for your business. And “the product model is meant to address the unique challenges of those who are building technology-powered products and services”
    1. There are 3 axes along which product model brings change
      1. how you build (product delivery)
      2. how you solve problems (product discovery)
      3. how you decide which problems to solve (product vision and strategy)
  2. The CEO in any org is the chief evangelist of the product model and for any transformation work to have reasonable chance of success, it’s imperative that the CEO is aligned, supportive and preferably the driver of the work him/herself
  3. The general rule of thumb is that any idea tested in product discovery should be at least one order of magnitude less expensive and faster than using the engineers to build, test, and deploy an actual product
  4. Here are a few thumb rules to assess product competency levels and expectations of PMs and their leaders
  • It’s important that product leaders are NOT seen by other leaders to be having their own agenda in the journey of transformation hence being transparent is a must
  • Product leaders should lead with context rather than control. People see what the their leaders do, especially under stress
  • It’s important for product leaders to assess the overall chemistry of each team and either coach or shuffle people to get the teams to operate together effectively. To foster collaboration, OKRs can be assigned to the product team rather than to individual members
  • One clear sign that the product team lacks a competent product manager is that all decisions require either an escalation to a manager or a stakeholder meeting where the stakeholders are asked to decide
  • How are PMs perceived by the executive team and are the product managers receiving coaching on a weekly basis?
    • Are product leaders deeply aware of what is going on in their product teams without micromanaging them?
    • Your head of product will be judged by her weakest product manager
    • Your CEO should believe that each of your product managers has the potential to be a future leader of your company in the next five or so years
  1. The product leaders are specifically responsible for the product vision, the team topology, the product strategy, and the specific team objectives
  • Purpose of the product vision is to describe the future that you are trying to create, whereas the product strategy begins by focusing on the most critical areas for business success
    • Product vision is typically the single most powerful recruiting tool for strong product people
    • Purpose of the product vision is to persuade and inspire—it is meant to be emotional
  • The product strategy describes how you plan to accomplish the product vision, while meeting the needs of the business as you go
  1. Experienced product leaders will manage the portfolio of risks by placing a series of bets each quarter, working to maximize the likelihood of meeting the company’s annual business objectives by the end of the year
  2. In any org, direct access to users and customers, direct access to data, and direct access to stakeholders is key for success of PMs. Having this direct access is one of the few truly non-negotiables in the product operating model
  3. Of all the principles underlying the product model, the single most important one is the realization that innovation absolutely depends on empowered engineers
  4. In data-driven product management, the big limitation is that this data generally can’t tell you why customers are using (or not using) your product ideas
  5. High integrity commitments (i.e. release a feature X by date Y because someone highest up there is asking for it!), though sometimes absolutely essential, should be sparingly used by leaders since they break the product operation model
  6. Technical debt is one of the true business continuity risks that companies face and of course sometimes is desirable
  7. It is usually better to have a smaller number of somewhat larger teams than a large number of small teams
  8. Innovation should be prioritized over predictability in product delivery 
  9. If at all the product team is to build a feature for one specific customer, it’s their job to ensure that the feature is useful for many other customers. Else this task should NOT be undertaken!
    1. These one-off requests generally come due to lack of having referenceable customers for salespersons
    2. The reason why strong product solutions rarely come from customers or salespersons is because they may not know what’s technically possible now
    3. With customers, if there is a choice it’s preferable to share the product vision rather than product roadmaps
  10. To build really fruitful relations with stakeholders in the organization, the onus is on the product leadership to ensure that every product team has a competent product manager who has put in the work to understand the various constraints of the business and to be an effective partner to the stakeholders
  11. Product teams depend on the executives to share as much of the relevant strategic context as possible, so as to make good decisions. And executives expect product teams to share openly and honestly the data and reasoning used to make their decisions
  12. To avoid surprises, Product teams must commit to preview any potentially risky solution with the relevant executives before building it
  13. How to know if there is enough focus on product discovery work in your team?
    1. If the number of ideas being tested is the same as the number of items being built, then this is likely product design rather than product discovery
  14. And lastly product teams must produce results!

This book can be finished in a long 5-6 hours sitting. The adage around valuability, viability, usability and feasibility is repeated many times over. Similarly belabored is the point about the need to build solutions for customer pain which also works for the business. Case studies, though enjoyable to read, break the flow. The impact of AI on the future of PMs, their competencies, product operating model and the overall transformation playbook is hurriedly described and I feel could have been covered adequately considering we are two years into GAI era now. All in all, you should read this book – not in the least to understand how inspired and empowered product teams can bring about transformative changes to their organization and how to overcome org inertia to the change!

This book can be ordered from Amazon or Flipkart!

Implementing Data-driven Decision Making when you don’t have data!

Ram SevakLeave a comment

Wrote this Article for Tamara, a FinTech start-up in the GCC Region and where I am currently working. The article is adapted from here (https://medium.com/tamara-tech-product/more-with-less-implementing-data-driven-decision-making-at-tamara-e08391f5b22c)

Tamara’s product culture has been built on a few core pillars namely:

  • Customer focus (solving a real customer pain)
  • Perseverance i.e. relentless pursuit of making things work (“finding a way” is one of our core values)
  • Data orientation

In this article, I will focus on how we work with data and what makes implementing data-inspired decision-making uniquely challenging for innovative start-ups like ours. This article is NOT exactly about how you use data in the software development life cycle, but more about how you supplement the lack of data and STILL remain true to the tenets of being data-driven in a fast-paced innovative setup!

Product managers at Tamara use data extensively during all stages of the product life cycle. What makes utilizing data for an innovative and disruptive product like ours interesting is that there is quite often not significant enough data to derive insights from and there is sometimes zero data to start with.

So how do we break this apparent deadlock?

Resourcefulness and scrappiness: Working with what you have!

This is the fundamental guiding principle we apply at Tamara. While one can derive additional insights and probably clearer actionable inputs from more data, sometimes you just don’t have it or, I would wager, you don’t need it!

So it’s better to look at what other data points would approximate insights you are looking for and then work towards gathering those data points. In general, please remember if you don’t have access to all the data points and you likely need to move forward, it’s a good sign! Otherwise, your product is probably too late to be released to the market.

Here are 6 specific pieces of advice to operate effectively when you don’t have all the data you need:

1. Getting comfortable in operating with insufficient data. The first starting point is acknowledging that if you are innovating or solving a problem without much precedence, data availability will be a constraint.

2. Start with industry-specific data points. Let’s say you are building a content product wherein you want to gauge what kind of content your customers like. For such scenarios, looking at Google Trends, Facebook’s Audience Manager, Google Keyword Planner, and site analytics from Google Webmaster are excellent sources to approximate customer demand. However, be aware to filter out data for your target audience based on geography, demographics, and other behavioral nuances.

3. Pivot to competitor / industry benchmarking. Products at Tamara are built to exceed customer expectations–which in most cases are defined by what they have experienced in other contexts and markets. Therefore, product managers at Tamara focus on understanding how the industry benchmarks around specific customer solutions look like and then work to create a WOW experience for our customers!

4. Look at the secondary data sources internally. Have an objective assessment of what data points will correlate to your use case and try to find the closest proxy towards that objective. When we were launching the Buyer Protection Program at Tamara, the team looked at data around customer tickets to prioritize roadmap items directionally. Since previously the program didn’t exist in Tamara, it was not possible to use quantitative data for prioritization.

Internal site search is another excellent source to understand what customers have been looking for. As an example, you can use this data point to estimate how customers view you and the competition. You would be surprised how often people would search for your competition on your own platforms!

If you are classifying customer intent and interest based on query and volume analysis, be mindful of the following biases:
a. Some customers may struggle to articulate their exact needs.

b. For innovative products, a low volume doesn’t necessarily indicate a lack of demand!

5. Evaluate alternate types of data. Sometimes when you don’t have access to quantitative data, it is perfectly okay to gather qualitative data and understand the customer perspective around problem space. Now the question arises, how many customers do you need to talk to? The exact answer of course depends on your customer profile and the problem but I have seen customer insights tend to converge around 15–20 in-depth customer interviews. If you have the prototypes ready, 6–8 customer interviews should also be okay.

6. Operating with a long-term mindset by investing in gathering data is key. One should be willing to invest in generating primary data insights from the customers. If that requires investing in specific products, tools, or technology, it should be okay. There are many plug-and-play tools one can integrate to understand customer journeys, create heat maps for critical pages, understand the most unhappy customer scenarios by analyzing the last event behavior before drop-off events, and even explicitly ask customers about their experience.

For some of the tools, be extra vigilant that you are absolutely compliant with Play/Google Store’s Privacy Policies and of course with country-specific regulations you operate under. When in doubt, please disclose to your users how you are going to use specific data and any extra permissions you may need from them! In such scenarios it’s a good practice to disclose proactively how you would NOT use that feature itself

Let us know what other methods, tools, and tactics you have found useful, I’d be glad to hear back from you!

Book Review: “Zero to One” by Peter Thiel with Blake Masters

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If you talk to a product manager, founder, VC or anyone who has been part of start-up ecosystems for some time, chances are at some point they’d utter the word “zero to one”. Most likely, their frame of reference for this term came from the seminal book “Zero to One” by Peter Thiel. I had bought the book a few years back but never really went through it but when I read it recently, it was a great experience!

Since the book is written mostly in a note-taking style, it can be read from any chapter without losing much context. Here are a few key takeaways for me

  1. Courage is in shorter supply than genius. Questions like “what important truth do very few people agree with you on” force one to express their learnings about the world without the need for conformity even in a very formal set-up like a job interview. Hence this marks a great interview question 🙂
  2. We have inherited a richer society than any previous generation might have been able to imagine
  3. Future of the world will be defined more by technology (0→ 1 progress) than globalization (horizontal progress). In my opinion, this has been fairly evident in the last few years wherein we have seen chorus of nationalism and reality of a multi-polar world putting some halt to the march of globalization
  4. There have been a few key lessons from the dot com Crash a. It’s better to risk boldness than triviality b. A bad plan is better than no plan c. Competitive markets destroy profits d. Sales matter as much as product
  5. If you want to create and capture lasting value, don’t build an undifferentiated commodity business. Monopoly is the condition of every successful business. Lot of monopolistic businesses of our era exaggerate the power of their non-existent competition to hide the monopoly  nature of their business (and profits!)
  6. In business, you should recognize competition as a destructive force instead of a sign of value. This essentially means cooperation with a competitor is often far more valuable than the hyped up notion of ‘war games’! Of course, if you must fight, you must and then pull no punches
  7. Rather than the first mover, it’s much better to be the last mover i.e. to make the last great development in a specific market and enjoy years of monopoly profits! The way to do this is to first dominate a small niche and then scale up from there
  8. A few characteristics of a monopoly are a. Proprietary technology (Google Search) b. Network effects (Facebook) c. Economies of scale (Amazon) d. Branding (Apple)
  9. From the dominant cultural theme of indefinite optimism (this terms means one is optimistic about future but doesn’t exactly feel agency over means to make the future happen), we have to move to definite optimism meaning accepting that we have agency not just over our small life but over a small and important part of the world. This is where startups as an endeavour play their role by rejecting the unjust tyranny of the Chance
  10. In the VC world, the best investment in a successful find equals or outperforms the entire rest of the fund combined
  11. Nobody knows ex ante which companies will succeed in a portfolio hence every single company in a good portfolio must have the potential to succeed at a vast scale
  12. Every great company is built around a secret that is hidden from the outside. In fact, the answer to the question “which valuable company is nobody building” is necessarily a secret
  13. A startup messed up at its foundation cannot be fixed. Bad decisions made early on like choosing the wrong co-founder are very hard to correct later on a. Everyone you involve with the company should be involved full time i.e. on the bus or off the bus b. Equity is one form of compensation that can effectively orient people towards creating value in the future c. CEO’s pay scale can either set the ceiling or the floor about compensation in a company
  14.  From the outside, everyone in your company should be different in the same way but from the inside every individual must be sharply distinguished by their work
  15. Poor sales rather than bad products is the most common cause of failure. If one can get just one distribution channel to work, it’s a great business 
  16. The fundamental question we need to answer is how can computers or technology help humans solve hard problems
  17. Every business must answer these seven questions a. Can you create breakthrough tech instead of incremental improvements? b. Is now the right time to start your particular business? c. Are you starting with a big share of a small market? d. Do you have the right team? e. Do you have a way to not just create but deliver your product? f. Will your market position be defensible 10 years down the future? g. Have you identified a unique opportunity that others don’t see?
  18. Founders are important because a great founder can bring out the best work from everybody at his company. We need unusual individuals to lead companies beyond mere incrementalism hence we should be more tolerant of founders who seem eccentric!
  19. Our task today is to find singular ways to create new things that will make the future not just different but better – to go from zero to one!

The book has been vicariously referenced in so many business articles, press and books that one would have come across the core concepts anyway. However, I am delighted that I finally read the book and would definitely recommend it to everyone in the start-up or technology world! It can be ordered from Amazon here

Book Review: “Payments Systems in the US: A Guide for the Payments Professional” by Russ Jones, Carol Coye Benson and Scott Loftesness

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How does one get started in a deeper and complex domain like FinTech? This book “Payments Systems in the US: A Guide for the Payments Professional” by Russ Jones, Carol Coye Benson and Scott Loftesness stays true to its title and provides a fundamental understanding of payments systems in the United States. However, the basic principles can be applied for other nations also, with certain allowance for regulatory and historical context specific to a country

The book starts with an overview of the payments system, salient features of open and closed loop payments models – which operate without any intermediaries. Scalability and effective means for allocation of liabilities for the former, simplicity for the latter. Also in an open loop network, it’s always a bank which is responsible for a transaction to the network

Without assuming any background from the reader, authors describe that any payment system must provide for 3 basic functions – processing (switching and settlement), operating rules and Brand (communication with each other on how they will pay). Simple concepts around push and pull transactions are explained including why push payments are fundamentally less risky. Managing risk (credit, fraud and liquidity) and float concepts (money earned over period of time) are also explained lucidly

There are fundamentally five types of payments systems – cash, checking system, card system, automatic clearing house (ACH) and wire transfer system. A network system OTOH writes rules for its network e.g. Mastercard card network

A. Checks 

  • The bank of the first deposit is under no legal or regulatory obligation to clear the check in a specific way
  • Check guarantee service can make economics of check poorer for a retailer

B. ACH

  • Only payment system that can handle both push and pull transactions
  • A business receiving an unauthorized ACH debit does not have the same regulatory protection as a consumer has
  • There is no interchange in the ACH system, no float and no lending revenue 

C. Cards

  • Card issuing bank (serving consumers) often have more power than card acquiring (serving merchants) banks 
  • Most card networks offer credit and debit cards with the exception of AmEx (a closed loop network) which doesn’t offer a debit card
  • Interchange is the mechanism by which value-receiving merchants compensate the cost -incurring issuers for expenses on each transaction and tries to restore balance. It’s part of a larger merchant discount rate imposed by the acquiring bank on the merchant. OTOH closed loop networks don’t have an interchange fee
  • Chargeback happens when a card issuer reverses a merchant credit transaction. Can be of 3 types – fraud, service (no product received) and technical
  • Gateway is a specialized processor that serves needs of a specific merchant group
  • Payments facilitators are sometimes called as aggregators since they aggregate a number of merchants to be processed by a single acquirer

D. Cash

  • Merchants are not required by law to accept cash. Legal tender actually means settlement of a debt using cash

E. Wire Transfer

  • Open loop system, a wire transfer cannot be repudiated without consent of the receiver
  • SWIFT is not a payment system but a global financial service messaging platform which is secure and structured

Some insights from the book that stood out for me

  1. Ad valorem fees are better than flat fees
  2. Businesses pay to be paid, banked customers don’t pay for payment while unbanked ones do
  3. There are two ways to effect change in consumer behavior: increase in convenience or financial gain
  4. Extra security doesn’t lead to extra adoption 
  5. Solutions that help merchants reduce costs are relatively less important to merchants than those that increase revenue 
  6. For banks, payments business is more stable and less risky than lending business 
  7. Payments innovation can happen in any of the 3 steps – payment initiation, funding and completion 
  8. It’s easier to drive adoption if only one party between consumer and merchant is required to change

Excellent book, must read if you are interested in knowing what goes on the wire when you swipe your card, scan that QR code at a merchant or when you order stuff online! You can order the book on Amazon

PS: Thanks to Mohsen, our co-founder at Tamara for suggesting the book. It’s been a terrific find 🙂