That might have been a reason. But ads were a known way of monetization. Long before the internet. And in the early days, before it grew to become its own thing old models were just done in the new medium.

Like newspapers. They had ads. So also had their digital versions. And hey. It was a fad. It would pass. A lot of execs did not take it seriously.

Why invest in a payment system for these few strange people online.

Maybe. If you look at the mobile app industry, which emerged when it was easier to pay for services, you still have a glut of demand for free or $0.99 apps.