So You Want To Start a Payments Company?
Ubiquitous broadband, mobile computing technology, content galore, VC money everywhere …let’s
develop a new payment system! Visa, MasterCard, American Express, Discover – so old school, stodgy,
and card centric. Banks, not to mention PayPal, Amazon, Google and Yahoo, are looking for new
payments models to differentiate themselves, so why not start up a new payments company and wait for a
buyout? A couple of hundred thousand dollars for software and some marketing and you’re on your way,
right? Well, no. You have actually picked one of the most heavily regulated small businesses around.
Why is that? Well, think about your established competitors. They include banks and other financial
institutions, and these are regulated. Now think about why that is. Well, one reason is that they handle
other peoples’ money (and presumably yours too), either by taking deposits, or selling payment instruments
that substitute for cash to consumers. But, you say, the beauty of my business is that I do not take deposits,
or sell payment instruments. I just provide a mechanism for consumers to move value from their existing
accounts with banks or other regulated financial institutions. I am merely a financial intermediary, moving
data. Surely that is not regulated activity? Yes, no and maybe.
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