Speaker 1In the last three months, we've had this huge leap from agents being what I would call spectators to agents being actors, because they effectively have arms and legs, which are payment credentials.
Speaker 2Amazon recently blocked Muse, and there are many reasons for this. You can either be antagonistic to agentic commerce, or you can be highly receptive.
Speaker 1What's happened with the rise of, you know, Muse and Instinct is once they have access to payment credentials, their utility increases. So we sort of have kicked off what I kind of call the wallet wars, where every wallet is now rushing to connect to the agents. Everybody who's listening to this podcast, I almost guarantee you have a credential that's stored at VGS. The largest online merchants, the largest neobanks, and the largest frontier labs all use VGS to secure payment credentials.
Speaker 2It's a really formidable position to be in. Where do you think VGS is going to go?
Speaker 3I think we're AI agents. Are moving from recommending what you should buy to actually buying it for you. That creates a deceptively hard question. How do you safely give an AI access to your money? In this episode, Pay16z general partner Alex Rampell sits down with VGS chief strategy officer Terry Angelos to unpack the emergency payment infrastructure behind agentic commerce. They discuss the new wallet wars, how payment credentials could move safely between consumers, agents, and merchants, and why new agentic tokens could allow AI to transact without breaking the protections consumers already expect from credit cards. They also get into what happens when an agent buys the wrong thing, why some merchants may actively resist agentic commerce, and how the economics of everything from credit card rewards to subscriptions could change when an AI is constantly optimizing on the consumer's behalf. Because giving agents the ability to spend doesn't just make them more useful. It could reshape who controls the customer relationship itself.
Speaker 2Alex Rampell: Hi, everyone. I'm Alex Rampell, partner at Andreessen Horowitz, and I'm here joined by Terry Angelos. And I'm very excited about being joined by Terry, because Terry and I started a company called TrialPay in 2006, long, long time ago, 20 years ago. Terry Angelos: 20 years ago.
Speaker 1Alex looked very different.
Speaker 2Alex Rampell: Yes. You look the same. So I think you're insulting me and I'm complimenting you, and hopefully not the other way around. But today, this is the really cool part. One of my first investments here was a company called VGS, which stands for Very Good Security. And some people might not get that's actually a pun or a joke, because one of the most famous cryptography companies was called PGP, which is Pretty Good Privacy. And obviously it's very good privacy. It's not just pretty good privacy, it's incredible privacy. It's unbreakable privacy, because it's very hard to factor very large composite numbers into their primes, and Pretty Good Privacy is actually very good. So that was kind of the original name for Very Good Security. So I led this investment a long time ago. TrialPay got bought by Visa. Visa under your leadership. You invested in VGS, and now you're back, and you're the chief strategy officer and board member alongside me at VGS.
Speaker 1Alex Rampell: Yeah. It's been a very fun and incredible journey, and I think if you look at VGS today, it's a payment infrastructure business. We secure credentials for about a third of all e-commerce by GMV, and we have the largest online merchants, we have the largest neobanks, and the largest frontier labs all use VGS to secure payment credentials. And I think today, part of the reason why we want to talk about agentic commerce is because VGS is involved in helping agents get those credentials, helping wallets hand those credentials to agents, and also to merchants who have to receive these credentials. And so we're sort of in the middle of these really interesting conversations and handovers between credentials. But
Speaker 2maybe
Speaker 1we should dig into what
Speaker 2a credential is, I mean, credential is a fancy way of saying a credit card. It's really complicated. It's a little more complicated than that when you really dig into it. But you work with, I don't know which merchants I'm allowed to say that you work with, you work with all the big ones, but like, why don't we take an example merchant that you work with, kind of pre-AI, pre-agentic commerce, and just explain what you do, like, why do they use VGS, what do they use you for, and how pervasive is it?
Speaker 1Alex Rampell: Yeah. Let's assume we're working with a very large online ordering platform. And so that company effectively has to store your credit card every time that you, every time that a new customer comes into that site and hands over a credit card. That company doesn't necessarily want to be exposed to that card number. And so VGS is involved in capturing that card, securely vaulting it, and storing it. And every time that the online ordering service wants to transact with one of its processors, it goes to the vault and retrieves the information. In such a way that the online ordering company never actually has to touch the payment information. Now, one of the things that I think has made VGS a lot more interesting since the days that you first invested, it's been a decade of becoming sort of the most trusted vault online, is that the card networks have also introduced a form of tokenization. So that in our days back in TrialPay, we would actually store a 16 digit PAN and we would encrypt it. Steve McLaughlin: A PAN is a primary account number. A credit card number. Steve McLaughlin: It's the 16 digit number that you have on your card. We would encrypt it and vault it. And then when it came time to charge someone, we might unencrypt it and give it to, I think, Chase Payment Tech back in those days. Today that doesn't happen. Today instead what happens is rather than store that 16 digit card number and use that, you actually go to the network that issued it. So Visa, MasterCard, Amex, Discover, and you say, "I would like another version of this card that's actually domain bound just to my merchant domain." Which is safer because if there's ever a problem, the only number that I have only works on my merchant domain. And I am going to use this when I send it to Chase Payment Tech. So VGS as a company vaults all these credentials on behalf of the merchant, also gets all of the network tokens, which is the primary way that these credentials are passed to the payment processor and to the network. And that's what we do today. And so because of that complexity of interacting with the card networks and doing this across multiple processors. So actually, here's a question for you, Alex. If you're a merchant with over a billion dollars in GMV, how many payment processors do you have on the back end?
Speaker 2Well, it depends. There are plenty that just have one, but you are better, I mean, but this goes to the use case of VGS, which is rather than being locked into one payment processor, you'd rather unbundle that and you'd rather be able to pick and choose which payment processor you use. But also if you have kind of a shared infrastructure that is storing credentials, what if one credential goes bad? What if my, I just had a Capital One card, great example, Capital One bought Discover card, or Discover network. And then my fancy Capital One cashback rewards, 1.5% Visa card, it became a Discover card. And every week I get. Yep. Notifications from very sad merchants. We are unable to process your card. Why are they unable to process my card? Because that old card number doesn't exist anymore. Even though I still have a relationship with Capital One, I just got a new card number from them. Yeah. Granted, it's a little bit complicated. It's on a new network. There's also the possibility like merchants can't just say, oh, we know that this card became that card. Yeah. One merchant cannot do that. Yeah. But a large vault can do that. And then as the actual networks themselves like Visa and MasterCard. Yeah. And actually Discover too, they have these account updating tools. Yeah. So you could say, hey, I'm a merchant. I have all of these card numbers. And I think, what is it? Every year, like 10% of cards expire.
Speaker 1Yeah. So about a third of all cards get turned over every single year. No, even more. Like 25% mathematically, because it's a four year expiration. Right. And another 5% due to, in this case, Capital One buying Discover or Fraud or something else. So back to that question, by the way, for a merchant of a billion dollars, it's about three to five processors that merchant will have. So now. They don't have to. They don't have to, but they should. That's the point. But no, no. That is the average that we see across the ecosystem.
Speaker 2Yeah, yeah. But there's a reason for them to do that, because different costs, different approval rates, different regions, like you want to shard in kind of computer science terms. You have all of your cards, and if you just say, I use the same processor every single time, that's just not a good idea, or it's not as good of an idea as I can have multiple processors. But in order to do that, I have to be able to securely send the card number to the processor that I've chosen.
Speaker 1Yeah, that's right. And in fact, once you have multiple processors, then the job of vaulting and getting updates is multiplied by the number of processors. So maybe I have a hundred million cards as a merchant, but I have to store a hundred million with Chase and a hundred million with Stripe and a hundred million with Braintree, and each of those vaults have to be updated at their networks. And so what VGS does is serve as an independent vault. It's a vault, neutral infrastructure on behalf of the merchants for the vaulting and the updates such that the merchant can then send a Visa token to the merchant via Stripe. Back to your kind of annoying Capital One issue, if you're a VGS merchant, that should not happen. So there are mechanisms when Capital One is switching from Visa to Discover to get those updates, and certainly that's the case if there's fraud or something else, and that's That's the role that VGS is playing.
Speaker 2So hopefully everybody has a good understanding now of what very good security does, VGS does. So out of nowhere, and this was a good business years ago. I mean, I've been a believer for a long time. And then this whole thing called agentic commerce showed up. I guess, how does the world change? And you guys were at the center of this because, again, I don't know what companies that work with you have a lot to say or not. But let's just say like a lot of AI companies have decided to work with VGS. And for what reason? Well, the reason is you don't, if I say, hey, buy me flowers. If I go into my little chat tool and say, hey, I'd like to buy flowers for my wife. It's Mother's Day. She'll get mad at me if I don't buy them. And she'll be happy if I do buy them. Please buy them. I don't want to give my credit. Maybe I do want to give my credit card number to, we'll call it chat app. But they don't want to store it. And then even if they do store it, they have to communicate it to the merchant. And how do they do that? And like the better option is you have a third party that already knows how to do this. So you take out of scope. I mean, it's interesting. Like, I don't know if most of our audience knows what the PCI DSS rules are, but that's the Payment Card Initiative Digital Security System, if I remember correctly. Very good, Alex. Did I get that right? Yes. So if you've heard of PCI compliance, that says, well, if you're going to be a merchant and you accept credit cards, there is a document. I think last time I read it. It was over 100 pages of all of the rules that you have to do and maintain in order to be PCI compliant. And why is being PCI compliant very important? Because every bank demands it. You cannot process credit cards unless you are PCI compliant. You cannot issue credit cards unless you're PCI compliant. That's why it's this payment card initiative. It's all of the, you know, Visa and MasterCard might be enemies, but on this they agree. You have to be PCI compliant. One of the nice things that VGS takes PCI compliance out of scope. So you don't, you basically say, I can just run my business like a normal business. I don't have to follow these 100 pages of rules. VGS just focuses on that. Which kind of goes back to like, I want to buy flowers for my beloved wife. And I want to have my chat application do that for me. Turns out VGS is pretty well positioned here just by being the backend infrastructure, but now can take a pretty vital role in this whole process.
Speaker 1Yeah. I mean, I think, you know, in the last three months, we've had this huge leap. From agents being what I would call spectators to agents being actors. And how do they act on my behalf? Well, if you give them a payment credential in a safe way. Right. I can go from recommending the flowers for your wife to buying the flowers for your wife. So like, I'll give you an example. Just last night, my wife and I have been talking about getting a piano teacher for our seven-year-old son. And it's complicated because you have to know our scale. And he has soccer three days a week, and we want someone who can come to the house. We have to know the schedule of the piano teacher. And, you know, I asked ChatGPT about this a while ago and I got some recommendations, but just last night I asked an agent and it did the entire transaction task for me. It found a bunch of people, asked me a few questions, checked the schedule, and booked someone for, you know, for the very first lesson. So that is infinitely more useful than dumping yet another task on my doorstep. So agents have all of a sudden become significantly more helpful and useful because they effectively have arms and legs, which are payment credentials. And so what's happened with the rise of, you know, Muse and Instinct and Town and other AI agents is once they have access to payment credentials, their utility increases. And so we sort of have kicked off what I kind of call the wallet wars where every wallet is now rushing to connect. To the agents. And of course, as an agent, I want a wallet that has sort of two things. One, the most number of consumers that already have a credential at that wallet. And a wallet that has a very broad merchant reach. And so, you know, right now this is sort of companies like Stripe Link. They have about 300 million consumers that have an account at Link. About a million merchants use Link. You have Shopify with ShopPay, similarish, you know, consumer size. Probably more. Like 1.7 million merchants. Right. Then you have PayPal, which has got, you know, over 400 million accounts. Depends on how you kind of, you know, sort of, you know, how that's actually measured. But they have on the order of 30 million merchants. So these wallets are connecting to the agents and I think are providing a lot more utility. So it's interesting, though, because wallet wars
Speaker 2have been around for a while. So remember, not to speak ill of our old employer, remember Veeamie? Yes. Right? V.me. V.me. But it was something before that. I forgot they changed the name to Veeamie. But there have been many attempts. Like why were there wallet wars 10 or 15 years ago? Because it turns out that being the default stored credential for a consumer, right? Like if I can get trained in a Pavlovian way where it's like, oh, I see flowers, I use PayPal. Well, PayPal is better off for that. That's correct. Or one of the things that we worked on at TrialPay was how does a Visa, it's very good for Visa. It's very good for Visas issuing banks. If the default card in your Uber wallet, because Uber is a wallet too. Yeah. You can store eight different cards or credentials within Uber. Being the top of wallet is very, very important because when digital wallets came out, like I kind of like to think before digital wallets, you had what I like to call dead cow wallets, you know, an actual. I think I have one here. I'll give a demo to our audience. This is called a dead cow wallet. It has lots of credentials in there. But before Capital One would pay Samuel L. Jackson. To say what's in your wallet. Why would they do that? Because when you go to Chipotle, they want you to pull out your dead cow wallet and say like, I'm going to pay with my Capital One card. Yeah. Right. And that was the, whereas for when digital wallets emerged, it's like, I'm ShopPay, I'm PayPal. I want to be your default. And then actually what the interesting thing is like within that wallet, there were other credentials and those guys were competing to be the number one.
Speaker 1Like if you recall at Visa, when we were dealing with Uber and Airbnb, there was 10. Tens of millions of dollars paid by the issuers. So like Chase and Amex to prefer their cards on those platforms. So that's one war, which is like, this is my card. I want, you know, I want to sort of, you know, promote this to the, to the, to the top of wallet. You're talking about the actual network war where Visa and, and we helped Visa become a default card at, at, at Uber. And now you have this other layer, this abstraction layer of I am a wallet that actually. Processes the transaction, the ShopPays, the links and the, and the PayPals. And so we talked about how a checkout looks like a bit like NASCAR because you have multiple different buttons.
Speaker 2Pay with PayPal, pay with Google check, remember Google checkout came out along, they were yet another, but there were like, there are consumer wallets and then there are merchant, because the interesting thing is that I could, I kind of think of VGS as a merchant wallet to an extent. I mean, like it's, it's a strange metaphor to use because a merchant isn't paying for things. A merchant is receiving. Payments, but like once I receive the payment, like where, where do I put it, especially if I'm billing this customer again and again and again, and again, for PCI reasons and whatnot, I don't want to store scraps of paper with like your seat, that, that secret three digit code that of course is not secret because it's on the back of your card, but I need it to process it. I don't want to store your 16 digit, you know, credential and just keep it in scraps of paper and like my, my, my, uh, original, um, cash register. Like I need something to go. It's like, I don't want to remember, like what was the original purpose of a consumer wallet, it's that it's two o'clock in the morning, I want to buy flowers for my wife, my wallet's downstairs, like I don't know where my wallet is, I want to go pay on 1-800 flowers right now, and if I just enter my PayPal credentials, they were a wrapper and linked to all of my, my kind of, all the credentials in my dead cow wallet. Like that, that was the purpose back then, but what I find interesting with all of agentic commerce is it's kind of the same. It's like, you know, you're, you're, it's still two o'clock in the morning, you know, you, you still want to buy flowers for, for your wife or something bad that you did or, you know, Mother's Day or whatever. Something good, Alex. Something good, right? You know, I always, always time to buy flowers. I mean, make sure we're sponsored by 1-800 flowers, so make sure to buy there. Um, so you want to go buy and your agent doesn't have access, like it's the same problem, right? It's like the agent could say, hey, Terry, where's your credit card number? And that's more work and more friction versus it has access to it. Right. It's the same way that you just gave access to all of your cards, all of your bank accounts to PayPal to reduce the friction when you were doing things manually 15 years ago.
Speaker 1Yeah. And look, I think the word wallet is, is a bit overused. There's sort of different versions of it. One is the, the digital version of your, of your dead cow wallet, which is that it just stores the payment credential. And when it go to, when you go to a merchant, you hand that credential to the merchant, right? That's kind of what Apple Pay does, right? When, when I shop at Apple Pay. So when I shop at a store with Apple Pay, Apple is effectively giving my Capital One Visa card, effectively tokenized in the wallet to the merchant. The merchant receives this credential and it decides whether it processes it through Chase or Addion or Stripe or Braintree. Then you have wallets that actually take care of the transaction for you. So think about Shop Pay or Link or PayPal, where the wallet is in fact, transacting with me, collecting the money. money from me and remitting that back to the merchant. And what's happening with agentic commerce is we're sort of getting this sort of blend of the two. And it's such a new ecosystem that it actually has parallels for me back to the early days of the internet. And for those people who were around in the sort of AOL era, Stripe in many ways is like the AOL of agentic commerce. And I mean that as a compliment in the sense that they figured out how to make agentic commerce just work in a way that's a very kind of, you know, sort of, you know, walled garden approach. So, you know, a few examples here would be if I use Stripe Link, Link's only available at a million merchants. So it's great if in fact the item that I want is available at one of those million merchants. But very often it's available at some place where there isn't a Stripe Link connection. So a good example was I think two weeks ago I had this event at my house. I wanted to buy some outdoor lights and I asked Instinct to go and help me find these lights. And it found the lights at Walmart, which makes a ton of sense. Walmart has lots of inventory. And the agent went, loaded the cart, and when it came time to pay, Link didn't have a connection to Walmart. Link has my card, but it can't just give my card over to the agent and over to Walmart. So Stripe did something pretty interesting. They purchased the chandeliers on my behalf. They issued their own, actually this is like a Visa virtual card, one-time use card, made the purchase, and then they charged me, Terry, at a second transaction. This is a little bit how like DoorDash works today. You know, you like spend a hundred bucks at DoorDash and then the dasher goes in and pays the restaurant. But in the case of this Walmart transaction, this is the point about it sort of being the AOL, it worked just great. Like actually, like the item showed up, the transaction went through, I was charged the right amount. But if there's a problem with the chandelier, typically I call up my bank, Capital One, and I say, hey, I had this transaction with Walmart. Something, you know, went wrong. And they say, well, we don't see a Walmart transaction here. Right, we see a Stripe transaction. We just see a Stripe transaction. And in fact, you will find this pretty funny. I know someone who in the sort of testing phase did this exact flow. On their Amex card, called up Amex and said, hey, I, you know, this transaction with the merchant didn't go through, but Amex only saw Stripe. So they gave them a phone number to call whoever this link merchant is. The person called them, it went straight to the cell phone of a Stripe engineer. Because Stripe's not set up to run a chargeback, you know, sort of call center. Well, this is the main, like one of the reasons
Speaker 2why Visa and MasterCard have such impregnable positions is because they, they intermediate everything and they set the rules and chargebacks are very important, right? Like what if I paid for something? It's a trust mechanism. I pay you for something. I pay you for lights. You don't deliver the lights. Like, oh shoot, I don't have money anymore. What do I do? No, no, no. You actually have rules by which I can kind of lodge a complaint. And then there is a central intermediary that helps, you know, adjudicate those complaints in a way that is, you know, more or less fair that both parties agree on. I mean, it's part of the problem. Like this is why crypto, cool, but like it's kind of, it's a bearer instrument. I pay you with crypto. I'm never getting that back, which again can be a bug or a feature. But for your lights example, like what if the lights don't work? You want to have Visa and MasterCard in the middle. That's high, high utility, actually even for the merchant because now I am, I'm much more willing to buy with a merchant knowing that if they don't actually deliver a product that works, I can get my money back. So that trust mechanism is very important. But again, if you add all these kind of, interesting and very clever engineering steps, it just, the purpose, it doesn't work as well. -
Speaker 1Yeah, so in fact, this is like, I think the right sort of direction of travel from the AOL ecosystem to the open standards ecosystem. The card networks have actually come out with a new type of standard. They're called agentic tokens that will allow a wallet like a Stripe Link or a Sharpay or a PayPal to hand over a credential to the agent in a safe way. And then have the agent hand it to the merchant in such a way that when that Walmart transaction occurred, it's my card. In fact, like one sort of, you know, addendum to the Walmart transaction, after I bought the chandelier, everything was fine. I got an email from Walmart to say, "Hey, Terry, you paid for delivery." It was like 699. "Why don't you sign up to Walmart Plus?" And here's an offer. If you sign up today, we will credit the delivery toward your Walmart Plus subscription. So I said, "Great." I hit the button. And of course the transaction failed because the card that they had was the Stripe- - One-time use. - One-time use card. And part of the, you know, you mentioned like rules and norms. Part of the norms of e-commerce is that Walmart spends a lot of money to get me as a customer. And then they have the right to try to have a relationship with me, upsell me, cross-sell me. And in this case, because we were using the sort of AOL version, they weren't able to easily allow me to subscribe to this new service. With the new agentic standards, what should happen is if any of the wallets don't have a relationship with the merchant, but they have my card on file, my Capital One Visa card, that should be tokenized with the agent. There's a whole process by which the agent says, "I'm about to make a transaction. "I'm a verified agent. "I'm going to spend no more than "$100 that the token is nothing more "than a new 16-digit number." - Right. - We give that safely to the agent. Agent gives it to Walmart, and then Walmart runs the transaction, but it's my card that is being charged. And that preserves this ability to have a follow-on transaction. It preserves all of the rules around chargebacks. And so, you know, three months ago, this was at zero. It did not exist. VGS is by far the largest provisioner of these agentic tokens. We do it for the agents. We do it for the wallets. We do it for some of the merchants. And this was, you know, zero three months ago. Now we're doing a few million of these tokens per week. So I expect that as we make this transition from the walled garden to the sort of open standards, this will be the way that agentic commerce evolves. -
Speaker 2Yeah, I mean, it's one of the reasons why this like kind of long, I mean this as a positive, but like VGS has a very boring business. Of, why is it boring? Because we have a vault and anybody who was in a vaulting business is kind of, it's not an exciting business. Like your job is to be not exciting and be safe and be secure. And it's like, things go in the vault and then every now and then things go out of the vault. Right, it's not like a one-way door. 'Cause this is the way that I always thought about VGS is there are these credentials that you store. So it's like, you get these 15 digit Amex numbers or 16 digit, you know, Visa, MasterCard, Discover numbers. You store them, you give back like a, you know, a token. This is not a crypto token. This is just like, here, here's something that you can use. And then there are verbs that can be performed on those credentials. Right. So if I am, you know, a big burger chain or something, hypothetically, we don't know which one, but like you work with a big burger chain, right? Like I, I, I have a consumer app that has, you know, tens of millions of users. I know that whenever that user says, I want to buy a hamburger, like VGS plays a key role. It's a very boring role, but, I retrieve and charge, right? So I retrieve it with the purpose of sending that to a payment processor and saying charge Terry $9 right now. But I never have to touch that credential again. You know, very, very, very boring business, but you've gotten to, I mean, what, what percentage of cards do you think you've seen or touch or store? It's probably, what is it, 80% of cards in America?
Speaker 1We have like 10 billion credentials. A lot of credentials. I think you're touching on something really interesting, which is vaults are going from single player, to multiplayer, and that makes them a lot more valuable. So for example, put aside agents, the fact that merchants have multiple processors means that the vault at VGS is effectively the, the vault for each of those processors, right? Because the, the, the network tokens stored in that vault now have to be sent to Chase, Stripe, Adyen, Braintree, Razorpay, right? That's multiplayer. With agents, if you, you have a vault, let's assume you're like a large, you know, frontier model. I mean, here's a good example. You're a large frontier model. You're vaulting cards in order to charge for your subscription. But now the agent wants to use that same transact, that same credential to make a payment. And so the vault used to be single player. It used to be just to make sure that you could pay for the subscription. But now you can effectively give that credential according to these open standards to the agent. It's now multiplayer. And so I think, you know, any business that is going from single player to multiplayer inherently becomes more interesting. I mean, even 1Password, right? Like it's a, used to be a single player vault. And maybe I share my credentials with my wife on a few things, but now it's multiplayer. Cause I'm trying to give it access to multiple different parties.
Speaker 2Well, this, this is a really complicated thing. Going back to like the rules and procedures of what Visa and MasterCard have done, which is normally I just, you know, There are almost like three steps to a transaction. action, I kind of think of number one is, is this identity real, right? Like in general, like, is this a real card number, right? That's important. But wait a minute, I can have a real card number and you're a thief. It's still a real card number. So it kind of step two is once I validate it, because there are actually, there are two ways of validating a card number. There's one, there is a, there's like a cyclicality check, right? You kind of add up the, yeah, it's check sum, right? But it's this mod 10 check of the credit card number. Is it valid? But that doesn't mean it's a real card, but it means that it's like a valid, it's in the valid universe of cards, but I can go check with the bank. Is this an actual card? That's step one. Step two is, is the person that I'm interacting with the valid owner of this card? So like if you, if you went to a jewelry store 25 years ago and you wanted to buy something for $15,000, they'll take the credit card number and they'll take your credit card, your piece of plastic, but they'll do two things as well. Remember I used to be, I used to have to sign the signature of the back of the card. Like I thought the first card that I ever saw that just got rid of that altogether was Apple. So the Apple card, I mean, even though they want you to use Apple pay, if you get the physical Apple metal card, there's no place to sign on the back. None. But they would also say, can I see your ID? Like I remember I bought, I bought something very expensive one time. It might've been jewelry for my wife that I sometimes buy flowers for as well. This was probably 25 years ago. And they wanted to see my ID. They checked the signature. Why? Because they knew that the card was valid, but they want to make sure that I am the actual owner of the card. And then number three, and you probably only see this in Vegas. Um, but it's like, are you of sound mind to make this transaction? So like if you went to a, to a casino in Vegas and you pass, you know, number one cards valid. Number two, it's like, yep, here's your ID. Here's your signature. It matches entirely. But there's step three. It's like, if you've had 15 drinks and you can't even speak properly, they're probably going to not let you pay. Right. So this was kind of like the old world. And if you bring that metaphor to the new world, well, it's like, well, is the card valid? Yeah. Does the person or the agent? Well, but this is tricky, right? It's like the card is going to be valid. Like that, that part solved problem. But the second part, it's like, what does that mean? Right? Like it is the person that I am interacting with is my interlocutor. Um, I love that word is, is, is the person that I'm interacting with. Are they the valid owner of this card? It was always a hard problem to figure out on the internet because I can't like signature picture. Like, what does that mean? You're an IP address. And maybe I've seen it. I've seen you before and I've checked your login, but now I have an agent. And then that part three is pretty important as well from a liability perspective, because you do see these anecdotes on, on X and whatnot of people that are on instinct. They're like, what do you mean you spent $900? You idiot. And like, who, where does the chargeback come from?
Speaker 1So, so, I mean, this is exactly what these open standards are, are, are solving for. So let's, let's take an example where I instruct my agent. In fact, this is a real example. I was looking for uh, for a trip we're making for my daughter's gymnastics tournament. And I said, go and find, um, a hotel, uh, in San Diego and, and don't spend more than, you know, $500. So the first question when that, when that agent is provisioned is to your question is like, is this a real card? That's a sole problem. The second one is, is the request for the agent a valid request? And the way that this works with the networks is that agent actually has to be registered with the agent. Visa or MasterCard or Amex. And so there's a whole sort of mechanism there. The third question is like, is the agent of sound mind? Like, did it get it right? Right. And was it drunk? You know, exactly. Did it hallucinate? Um, and so, um, that part, I don't think we fully understand yet because if there's a mistake that the agent makes and the, the card network did everything right, they validated that this was your agent and your instruction. In fact, part of the way these agent, these new standards work is you give it context. You say, I'm buying a, this is a hotel reservation at this amount. It's hard for me to know the, if you've got the, if you've got the actual dates right. If there's an error there, then that dispute mechanism is sort of unresolved. But I think we will, we will get to that point and probably the agents will have to take on some
Speaker 2responsibility. Well, it's this idea of delegated authority. Yeah. Um, but it's how do you, how do you deal with that? I mean, I think it might be something where if two agents are competing for your business, like, Hey, Terry, please use me. I'm user. Please use me. I'm instinct. What is one of the value adds that I'm going to give you? I will take on because if, if the merchants are smart, they're not going to be like, I don't give a crap that like you got the wrong hotel room or you did this. It's like you told you gave your card, you delegated authority to either an AI agent or your human assistant or your wife or whatever. Like it, I don't care. I need to know if I'm going to be able to take on the value adds that I'm going to give you. I'm going to be able if I'm accepting payments for something that there's no excuse at the end. I mean, this was called for, uh, for, for those that know this term, friendly fraud, once upon a time, there's this concept of, I can buy something. We used to see this at trial pit. I spent $10,000 on virtual gems. My wife and I share the, I didn't actually do this just for disclosure, but let's just say I did. I spent $10,000 on virtual gems for some stupid game. The credit card bill comes due at the end of the month. I'm like, honey, I never spent $10,000 on, ah, that wasn't me. I don't know. Like, and you, you refuse the transaction, not because you didn't get the service that was offered, but because it's so embarrassingly terrible and merchants had to deal with this all the time. And in many cases, like the, the, the banks would say, well, if it's a $10 transaction, it's not even worth fighting it. We'll just give it to the consumer every time, which created moral hazard, but delegated authority gets really tricky here. I mean, maybe if I can ask a different question, because this is probably the more important one. Um, you saw that Amazon recently blocked Muse and there are many reasons for this. It's mainly that Amazon is an advertising company and they want you and your eyeballs going to their website. They don't want your agent is the agent. You can't monetize an agent's eyeballs because the agent doesn't have eyeballs. But I kind of think of it as you can either be antagonistic to agentic commerce, or you can be highly receptive to agentic commerce. And I don't actually think, I think it's an oversimplification to say anybody who's antagonistic is, is a light eyed and they're gone. It's like, well, Amazon has a reason, like a real financial reason to be antagonistic because advertising is, is so much more lucrative for them than just selling things. Like the highest value skew is when they, they get your eyeballs and they, they sell the eyeballs. But I guess, how do you think about this, this kind of playing out? Um, because it feels like being enabling technology for merchants to be receptive to AI commerce is highly, highly, highly valuable. And, but by the way, at the same time, the antagonistic ones filter out the agentic commerce is also highly valuable because again, sometimes they have a reason to do that. But if I can make it so that, you know, chat GPT services like, yeah, you should buy here. And I make that as simple as possible. It just, it goes without saying, like, I'm probably going to get a lot more transactions than somebody that inserts 15 captures and says in order to proceed with this. And then Muse is going to say, Hey, interrupt your, your nap. You got to go do these 15 things. No, no, no. You're going to go with the one that is receptive to AI commerce.
Speaker 1Yeah. I mean, I think this is one of the most fun, um, uh, sort of fronts to, to watch in, in agenting commerce. And I think we're going to get multiple different versions of this. We have Amazon, which I think has many reasons to, to, to block agents. As you said, they're effectively, you know, in the advertising business, you have Walmart, which is very similar right now. Hasn't, you know, hasn't taken that step. And in fact, you might argue that if you are one of the largest last mile delivery, that this is all good for you. And then you have the series of merchants that are sort of under the Shopify umbrella, which are a lot of small businesses that really, this is probably a new, like vital channel. So maybe there's like fear on the Amazon side, and maybe there's greed on the Walmart side, and maybe there's like, you know, no choice on the, on the SMB side. And each of these actors or each of these merchants are going to experiment with, with how they deal with agents. I think this reminds me a little bit, I know we sort of have a different view on this, of how open banking, you know, was rolled out, which is, do I have the right as an Amazon customer to delegate my login to an agent? And does Amazon have the right to say, no, this is what happened with Plaid and, you know, Chase and the banks. And in the end, what tended to happen was there was this like long negotiated settlement where the likes of Chase said, hey, you can access, you do have the right to this information. And so, you know, you can access, you can access, you can access information, but only on my APIs. And my APIs limit what information I give you. They tokenize the bank accounts. And I might charge you some money for it. So actually, I think the interesting question is, I think we may have plenty of opportunities or plenty of merchants who just welcome agents. We may also have merchants who have their own agents. And in fact, this is what happens if I go to a Best Buy and I want to buy a flat screen TV, I assume there'll be a salesperson there with an agenda. And he or she will say, let me show you some flat screen TVs. Now their job is to help me, but their job is also to get a commission. So we might have, in the case of Chase and open banking, it was much more a case of like security and control. In the case of Amazon, it might be, I am an opinionated API. I have an opinion on what you should buy, Alex, based on many, many different sort of, you know, data points about you. And then my agent may have an opinion about what I want. And so that's going to be a fascinating battle or, or, you know, I don't know, I don't know, I don't know. I don't communication and in the end I think consumers probably win But we don't know what that's going to look like going forward.
Speaker 2Right. Well, maybe on that, like, what do you think is overhyped versus underhyped in terms of everything that's happening? I mean, in general, my rule of thumb is that Silicon Valley overhypes things, but then the rest of the world underhypes things. So, you know, everything here, every conversation is AI. And it feels like you go to Iowa, nobody's talking about AI. But then you show it to them like, holy shit, how is this real? Because they tried it three years ago. And, like, you know, I just bought a new Tesla. And I remember I had an old Model 3. I think this is a good metaphor for what we're talking about. Like, I had an old Model 3 in 2017 with self-driving. Didn't work at all. It was a joke. Eventually got, you know, got a different car. And now it's like it actually works. But I was skeptical because I was used to the 2017 thing. Right? And I feel like a lot of that is playing out with AI right now, where if you would try ChatGPT with all the hallucinations and everything in 2022, you're like, oh, it's a cute toy for, like, writing poems. But we're doing my homework in English class or something. This is not going to actually buy things for me. This is not going to write. It does all these things right now. So I guess what do you think is underhyped versus overhyped in terms of everything that's going on?
Speaker 1Yeah. So maybe I'll start with overhyped. Like, I don't think we're going to get a bank run on savings deposits where agents are going to sort of maximize yield and move my money around between different accounts. I mean, a perfect example. I am a very happy. You know, Mercury personal account customer. I'm also a Chase customer. And, you know, ideally, I should put all my savings in Mercury where I get a very good savings rate. And then at the last moment when I have to make bills, sort of pay bills, I'll move over the cash to, you know, over to my existing bank, Chase. But their bill pay just works better. And it has more integrations and I have more kind of setup. So I think there's enough friction in the world. Where we won't see some of the crazy volatility in financial services. I think maybe what's underhyped, there is a lot of demand that is unmonetized. And this is both at the sort of part of the world where you could expect more GDP. An example of this is we actually have a group cycling WhatsApp group. And we have a person on that group who every, I don't know, it seems like every six. Months when, you know, our friend Seth comes up with a new recommendation for what tires to get because he looks at rolling resistance. And every time he does this, I'm like, oh, I should remember to buy those tires because they're safer. But I only buy it, you know, every sort of, you know, two years. If my agent was in that group chat, I would be buying tires every time Seth makes a new recommendation. You're dramatically under-monetized on your bike equipment, Alex. If the agent could find things that could help you with cycling and just. Bought them for you. There's more GDP coming out of Alex on cycling. Right. That is underhyped. At the same time, agents are going to save us money. So, like, you know, there's probably many places where I'm either, I have some subscription and it's just been a hassle to cancel or I did some trial and I forgot about it. So, I think agents will simultaneously save us money. Maybe use that, that savings to, to help us buy, you know, buy sort of, you know, new, new. So, I, I think we are, have yet to experience the always-on nature of these agents. And as far as I can tell, human desires and needs are infinite. So, there's always something else that I will want. And so, I, I think that is, that's underhyped.
Speaker 2Maybe on this kind of antagonistic versus conciliatory or whatever the opposite of antagonistic would be here. I mean, a lot of what people are very excited about with the agents is it gets something for you that is intentionally harmful. It's hard and it's not really subject to the laws of economics. The laws of economics are like, you know, the cure for high prices is high prices. If it's really hard to get a restaurant reservation because you have to call at 7 a.m., well, now everybody has a tool that calls at 7 a.m. And therefore, the first five people that have the tool, now they have an amazing tool. The last five people, like, no, no, no, like, it's, it's, you know, it's so crowded nobody goes here anymore kind of thing. So, how do you think the world works? How do you think the world changes? Because it feels like right now, this is the weird, this is the weird position that we're in is that a lot, a lot of the early wins, if you will, the consumer successes are around like, oh, it saved me money, it did this. It's because of the asymmetry. Right? Like, a very small number of people have the tool. The merchant or the counterparty has no idea what's going on. I can't wait. You know how, like, as a consumer, I've been trained to say, no, no, I want to talk to an agent or press zero. Or it's like, you can look up, how do you get out of the stupid phone tree? I can't wait for the other side. I can't wait to say, no, I have to talk to Terry. I ain't talking to Muse. Right? Like, wouldn't that be funny? You call Comcast. You're like, I hate you. You suck. Your service is terrible. You went down 10 times. This is, I do this all the time. And then, but I, of course, have, I actually did this with Codex because it turned out Comcast is blocking Muse. They know the IP addresses or something, so it won't let you log in. So, I just have chat GPT, you know, Codex, Astra, like, log in on my computer, does everything. But I'm waiting for the day when Comcast says, we know this ain't you. Right? Like, put it down. Put Alex on the line because I'm not giving something to his agent. And that's going to, because right now, again, that's what I mean by the asymmetry. It's like the small number of insiders have this tool. But, you know, it's not going to, you can't scale that infinitely because the world is going to adapt.
Speaker 1Although I do have news for Comcast. The GPT, Astra, and Alex are about the same sort of foe. So, be careful if you get them on the phone. Yeah, I mean, I think you're pointing out something that we have yet to appreciate, which is what happens when you actually read the terms and conditions and go to the edge of what is allowed and disallowed. So, you know, an example, the other day I was looking at flights. I wanted to buy a flight that was on the edge of the price that I could pay that would get me an upgrade. And that's the kind of hard thing to do. Sometimes I overshoot it. My agent did that perfectly. Or, you know, sort of any case where it's very difficult. It's very difficult to uncover the terms and conditions. A good example might be, what happens to rewards? Like, rewards on cards are only there because I get you this very sort of big headline reward on dining. But then you also spend it on fuel. And if agents are intermediating all of our transactions, and I'm only getting points on the card that gets me, I'm only using the card where I get points, the whole points reward ecosystem falls apart. So, many, many of these, these things could start, anything with a sort of breakage model in it is going to start to fall apart. And then we'll have to have new terms and conditions. So, maybe that's better. Maybe that's worse. I don't know, but it'll certainly be different.
Speaker 2And maybe, what are you, kind of with all of these themes, like, where do you think VGS is going to go? Because, again, I find it so interesting because it's the world's most boring business around, it's this giant vault that stores all of the payments, all the payment credentials for, like, most, like, everybody who's listening to this podcast, I almost guarantee you have a credential that's stored at VGS. Because you interact with the merchant that uses VGS for storage of credentials. So, that's a, it's a really formidable position to be in. And it's been growing remarkably just because, like, yeah, you need to, every merchant needs to store the credentials of the consumers that they work with. But, like, where do you think is the most exciting of everything that we've talked about for VGS' future?
Speaker 1Yeah. So, I think there's sort of three eras of VGS that are kind of overlapping and compounding. And you talked about the first area, which is the vault. This is 10 years as sort of becoming the most trusted store for credentials across the internet. A very hard business to execute on, but that's, you know, that's the sort of privileged position that the company's in. The second era has been what you talked about, sort of, you know, information going into and out of that vault. So, that's a third era. So, that's, you know, the first era has been what you talked about, sort of, you know, information going into and out of that vault. So, storing the information would be one thing, but you have to store it and get a series of tokens from the networks so that the data is effectively, you know, refreshed. Right. The third era is what we call the network era, which is this role of brokering the credentials among multiple parties in a way that makes sense according to the rules and that adds value to all of the ecosystem players. Right. So, if you're sort of starting to do that now with a Gentic commerce, there are other cases where VGS is actually working with the banks on the tokenization front. So, if you're tokenizing the cards and you're storing the cards, you're on both sides of this ecosystem, which allows you to do some of the information swaps that you, you know, that you sort of talked about earlier. So, and all of these combine, all of these combine, will continue to be a vault, will continue to add services. And as we add more services on more merchants and on more issuers, we continue to get this network effect where you can broker credentials, you know, among the parties. And I think a Gentic commerce is just fuel into that ecosystem.
Speaker 2Well, Terry, this is. This has been fun down memory lane. One of these days we should do. I think we actually did a history of TrialPay 1 a long time ago.
Speaker 1Yeah, I think we should redo it. It was one of the first podcasts that we did. The studio wasn't as nice. But I think what's consistent between that first podcast and this one is you should be buying more flowers for your wife. Yes, I think that's a great idea.
Speaker 2All right, well, thank you very much. Thank you for having me.
Speaker 3Thanks for listening to this episode of the A60Z Podcast. If you liked this episode, be sure to like, comment, subscribe, leave us a rating or review, and share it with your friends and family. For more episodes, go to YouTube, Apple Podcasts, and Spotify. Follow us on X, A16Z, and subscribe to our Substack at a16z.substack.com. Thanks again for listening, and I'll see you in the next episode. As a reminder, the content here is for informational purposes only. It should not be taken as legal, business, tax, or investment advice, or be used to evaluate evidence. Any investment or security and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see a16z.com forward slash disclosures.
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