New payment "heroes" get hyped up a lot these days, hailed as the "saviors" or "the next best thing". The banks and the card networks get routinely thrashed.
However, if you scratch the surface, you often see... "delusions of grandeur".
Let's look at the facts.
1. Following the money trail
It doesn't take much to create some unique identifiers within a system and offer "payments". Finextra, if they wanted to, could do that in a day and let me pay any of its members. That's not payment rails, however - primarily because we don't store our money
at Finextra. Or PayPal (with some exceptions). Or iTunes. We keep the money in the bank (for a good reason). [Well, there is no money in the bank as such, but that's a different matter altogether.] It's a bank account where the money is coming from and ending
up in, whether you pay with iTunes, PayPal, Gmail or pigeon post. Banks and the card networks have a firm grip on that, as PayPal
recently learnt the hard way.
2. Closed loop
Non-cash payments began as closed loop payments (stores'
charge plates). Visa, MC, Amex et al made such payments ubiquitous. Globally. For everyone. In an easy and efficient way. (Not for P2P, but that's not where the main payments market is). PayPal, iTunes, PayPal and, especially, the likes of Dwolla are nothing
but glorified closed loop systems. Large ones, with some multi-country footprint, but not ubiquitous. But even within the closed loop ecosystem, can Dwolla, for example, compete with VocaLink? I don't think so (at all), no matter how much fresh funding and
hype the former gets.
If Dwolla operated a global ubiquitous system with 8bn users and all the settlement and fraud risk, would they still not charge for their service?.. If interchange fee didn't exist, would PayPal still bother offer payment services outside eBay?..
Compare practicality, core nature and protection offered by Barclays Pingit with that of PayPal for P2P. Does PayPal offer any truly tangible advantage? If something goes wrong with my PayPal payment, can I call someone or see someone face-to-face to discuss
I agree with Tom: 99% of payment startups solve a problem that doesn't exist (or isn't as big as we are made believe). They are the
Naked King, even though it could take some time for the King's court to admit that.
Having said that, there are indeed several issues within the payments industry, and whoever solves them well will be crowned (and clothed).