A Finextra member 18 July, 2014, 11:42 0 likes

"Consumers want trust and ubiquity in payments. Merchants want to know there are large numbers of consumers. For a startup none of these is usually true. The chicken and egg problem in payments is one of the hardest to break through."

That's true. Another way of getting around this problem is if new entrants were to engage with Merchant Acquirers to help them launch the solution. The acquirers could then present it to their merchant base as a new payment type with little to no integration work. So long as the cost of the new payment type was in the right area it could (potentially) facilitate getting wider adoption.

A Finextra member 18 July, 2014, 11:58 0 likes

Little surprise there... I think even Apple will struggle to make it work (see this article), let alone a start-up.

Payments is a tough Universe to make a dent in... There are too many vested and conflicting interests, too many mouths to feed.

Physical retail is even harder: everyone is talking mobile, yet there is no consensus on interface - QR, NFC, BLE (my long-term bet is on the latter...)

Peter made a good suggestion re engaging acquirers, but even the likes of WorldPay cannot easily solve the problems of (a) POS integration (dealing with companies like Micros is not easy at all...), (b) "cardholder not present" situation (despite the talk of tokenization aiming to address that) and, most importantly, (c) Catch 22 - consumer are not likely to even download an app, let alone register for a payment method without wide acceptance, whilst merchants are not likely to adopt a new payment method unless they can see existing user base... We are trying "zero Capex" approach to solve the latter part of that "chicken and egg" conundrum.

Nick Ogden - RTGS.global - London 18 July, 2014, 14:48 0 likes

Most new entrants require "partnerships" and often that is the first hurdle. Be that for card acquiring for an e-money service where fickle risk staff are not known for their consistency of approach, and a change of mind in their business can have a devastating effect on a start up, to access to core banking services. In this area remittance is an obvious example of challenge, where costs for end user customers are now being driven up and competition (read servicing the underbanked) is being "closed down". 

In reality post the crash of 07/08 and with the arrival in the EU of the PSD in 09, and 2EMD,the legal framework for change existed but the “old industry fudge and handcuffs” remained firmly in place. In the UK at least the Competition Authorities are going to start a review, and I really believe, address some of the wider issues, in tandem apparently with an alternative practical solution that has already started to wind its way through the regulatory processes. 

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 July, 2014, 17:33 1 like

20/20 as it is, why does it take hindsight to realize "Payments ... is very hard to break through because not only do you have to get consumers, you also need merchants and often times… third parties like associations behind you to be successful...". IMHO, anyone with merely 3 months of exposure to the retail payments business would have enough foresight to know all this.

A Finextra member 18 July, 2014, 23:36 1 like

The most surprising thing here is that it took the investors so long to work this out. There are EMV terminals in almost every retailer (unless you're in the US which may explain the lack of foresight here).

It's been a boring (and sometimes lonely) mantra to keep promoting the use of existing infrastructure but we do seem to be getting there.

Perhaps it's no coincidence that the funding started to dry up very quickly after Google's HCE KitKat announcement. Suddently there's a way forward for the issuers that doesn't require replacement terminals, beacons, dongles or deals with MNO's..

Now we just need to get to the point where there's a consensus that it must be a "card like" experience to get fast ubiquitous adoption. That means (outside of the US) a tap on a contactless terminal. No opening apps and going online, entering codes or any other input, no face recognition, barcodes (QR or not) or PINs (for low value).

In short: NFC over the EMV rails (almost certainly using HCE).

A Finextra member 19 July, 2014, 00:16 0 likes

Absolutely no surprise to those that understand the paments universe:)

Simply throwing money at payments innovation is not the route to success.

A sustainable payments initiative usually requires, among others: open systems, ubiquity, simplicity for consumers, universal acceptance and cooperation between issuers, acquirers and other stakeholders. 

A Finextra member 22 July, 2014, 08:20 0 likes

I've been amazed these last 5 years at the sheer volume of new payment company start-ups, investors have indeed been throwing money at them, without understanding the payments landscape in many cases. Some are selling services that do not function, are untested or rely on shaky foundations. A few are reselling services of other existing payment co's. The truth is no matter how much technology and hype you have, you still have to plug into the traditional banking system, which means compromises, sluggish performance- a "ball and chain" effect. There is definately a sweet spot though, that can take time to find, if found at all, working in harmony with the legacy payment systems controlled by the banks.

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 July, 2014, 11:48 0 likes

@BrianW: You're absolutely right but the notion of working with "legacy systems controlled by banks" would invoke a response of "aaaaarghhhhh" from an archetype startup! After all, that's exactly who they set out to disintermediate :)

A Finextra member 22 July, 2014, 12:14 0 likes

The banks, especially in the UK, are not a problem per se, from a payments startup point of view. There are several options how funds can be moved out and into the system. 

It's more to do with inertia. Ask yourself this simple question: why isn't PayPal accepted by every online merchant out there?.. And how likely are they to consider a startup alternative to PP?..

Also, VCs are always funding way too many copycats. That leads to a confusion. How do I, as a merchant, choose between Square, Stripe, Braintree and a dozen of meetoos?..

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 July, 2014, 13:00 0 likes

@AlexanderP:

Apart from inertia, there are many other reasons why online merchants decline PayPal. As I’ve highlighted in Cash in Hand Is Worth More Than Card In Bush, PayPal shares the blame for some of them. 

It's in the DNA of the VC industry to fund many copycats in the same industry. Unlike other VC-funded industries where one "winner takes all", the alternative payments industry hasn't produced any clear winner.

Choosing from a range of undifferentiated competitors is an old problem that can be solved as long as all players provide some "compelling reason to buy". Maybe few payment startups do that, which explains the status quo.