In Fifty Days, Payments Innovation Will Stop In Silicon Valley • Hacker News Board

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#51

Post by potatolicious » Wed, May 11, 2011, 10:42 AM UTC

jrockway wrote: post #48

Doesn't all regulation stifle innovation? If I wanted to sell a homes in a skyscraper made of papier-mâché, building codes would prevent me from doing that. But that's not necessarily a bad thing: the first time someone leaves their soldering iron on while they're not using it, the building burns down and we have five hundred dead families on our hands. "Innovators" tend to think about the good aspects of their ideas…

I wouldn't go as far as to say all regulation stifles innovation. A completely unregulated market may very well stifle innovation also - i.e., when consumer trust of that market is so low as to discourage economic activity. That is a rather extreme case, though.

I think the more relevant point is that all regulations have overhead - even ones that don't charge a $500K bond. This is something governments sometimes seem to forget. No matter how innocuous your regulation, every single one simply adds to the pile of overhead businesses must deal with, and every single regulation contributes towards preventing more businesses from competing in the market.

The balance of regulation is a tough line to walk, to be sure.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#52

Post by yoyar » Wed, May 11, 2011, 10:43 AM UTC

So, a new startup comes along, and things are going well. The have new, innovative ideas that satisfy the needs of consumers. They manage to get a few hundred thousand dollars from a VC so that they keep operating for another 6 months. This startup offers a service that is cheaper, safer, quicker and generally more efficient that what is currently available. All of a sudden they'll be breaking the law unless they hand over half a million to the government. They can't find the money. They're done. You never hear about it. Other new companies that might have added value in the marketplace come along, look at the regulatory hurdles, and don't even try.

They might have provided a service that would be beneficial to the consumer and they might have hired a bunch of programmers once they had established themselves. The established companies already in the market would have had to lower prices and become more efficient to compete. Instead, the competition is crushed, you never hear about it, never know about it.

This is what this law is designed to accomplish. Nothing to do with Paypal. Stop talking about Paypal.

Many regulations serve the interests of politically well connected powerful oligopolies in this way. This is just one example. The reason put forward is always that this is some way of protecting you. That, if this regulation didn't exist, these companies wouldn't have to be responsible. In reality, it strengthens the hold on the marketplace of the oligopoly already in place and makes you more vulnerable to them.

Keeping companies out of the marketplace stifles competition. This is not good for you, the consumer.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#53

Post by [deleted] » Wed, May 11, 2011, 10:51 AM UTC

robflynn wrote: post #14

daimyoyo wrote: post #11

So is paypal going to shut down after this goes into effect?

I don't think they'll go anywhere. I assume they can easily afford any cost involved. I wouldn't be surprised if they already have the licenses while existing as a non-bank.

[deleted]

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#54

Post by shimonamit » Wed, May 11, 2011, 10:57 AM UTC

kelnos wrote: post #42

wyuenho wrote: post #32

I wonder how BankSimple is doing now.

Probably just fine; I'm sure they had to apply for a regular banking license anyway, and banks are exempt from money-transmission regulations.

I'm not sure about that. From their website:

However, BankSimple is not a "bank." We partner with chartered banks who provide FDIC-insured products, leaving us free to concentrate on designing the complete consumer banking experience, via the web and your smartphone.

What implications this has on their regulatory requirements, whether banking or money transfering, would be interesting to discover.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#55

Post by Luff » Wed, May 11, 2011, 10:59 AM UTC

jrockway wrote: post #48

Doesn't all regulation stifle innovation? If I wanted to sell a homes in a skyscraper made of papier-mâché, building codes would prevent me from doing that. But that's not necessarily a bad thing: the first time someone leaves their soldering iron on while they're not using it, the building burns down and we have five hundred dead families on our hands. "Innovators" tend to think about the good aspects of their ideas…

Regulations can also be good for individual businesses, bad for their competitors and bad for society in aggregate.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#56

Post by gyardley » Wed, May 11, 2011, 11:02 AM UTC

Reminds me of mortgage lead generation.

If you want to take people's names and then pass them on to mortgage brokers, LowerMyBills style, you have to register as a mortgage broker in almost all fifty states. Requirements vary widely from state-to-state but included obnoxious things like high fees, local residency requirements, and annual written tests.

The end result - mortgage lead generation didn't stop, but it became something that was difficult to legally bootstrap. You needed one hell of a GC, and he needed to have experience. Venture-backed companies had a big advantage in the space.

As long as the rewards are high enough, I suspect the same will be true here. Nothing great, but not the apocalypse.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#57

Post by dpatru » Wed, May 11, 2011, 11:02 AM UTC

mattmanser wrote: post #43

tluyben2 wrote: post #39

Earlier quoted context omitted.

They are talking innovation; sure Paypal can get licenses like that, but a startup can't. Most (by far) startups don't have 500k to lock away. And most don't have the money to pay the license fees. So yes, it's an issue as far as innovation of payment services goes; now suddenly you NEED to get millions in investment and that all doesn't go into the product but instead into government crap.

And most startups don't go into banking. Seriously, if you're going into that kind of business you should have that kind of money behind you.

Why is banking (specifically money transfering) different than other kinds of business? Seems to me that money transfer is a particularly easy business for the market to regulate. A failed money transfer is a lot easier to spot than, say, a dangerously defective physical product.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#58

Post by rbanffy » Wed, May 11, 2011, 11:02 AM UTC

You know... If you look like a bank, walk like a bank and quack like a bank, you should obey the same regulations banks do.

Some laws exist to protect the establishment. Others exist to protect society from it. I am not sure where this one sits.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#59

Post by gyardley » Wed, May 11, 2011, 11:11 AM UTC

shimonamit wrote: post #54

kelnos wrote: post #42

Earlier quoted context omitted.

Probably just fine; I'm sure they had to apply for a regular banking license anyway, and banks are exempt from money-transmission regulations.

I'm not sure about that. From their website: However, BankSimple is not a "bank." We partner with chartered banks who provide FDIC-insured products, leaving us free to concentrate on designing the complete consumer banking experience, via the web and your smartphone. What implications this has on their regulatory requirements, whether banking or money transfering, would be interesting to discover.

Yep, BankSimple doesn't have to apply for a regular banking license because they don't hold the actual deposits. (See SmartyPig for an example of a startup in the market that uses the same 'we don't hold the deposits' strategy.)

Piggybacking off of someone else's banking license isn't trivial, but it beats the delays and capital requirements associated with starting a bank.

Of course, they still have to deal with all the internal industry regulations in order to offer things like ATM cards that work across ATM networks. Those aren't regulatory requirements, but when you're dealing with VISA-size entities they might as well be.

Re: In Fifty Days, Payments Innovation Will Stop In Silicon Valley

#60

Post by qntm » Wed, May 11, 2011, 11:28 AM UTC

cabalamat wrote: post #45

pilif wrote: post #38

Here in Europe, PayPal (which is acting like a bank) had to get a banking license (like any other bank). As far as I know they didn't go bankrupt yet, so it can't be a wholly bad thing. If I drive a vehicle that acts like a car, I need a drivers license. If I run a service that acts like a bank I need a banking license. I really don't see a problem here.

> I really don't see a problem here. I do: it prevents innovation. People should be allowed to run an unlicensed banking service, and customers should be allowed to accept the risks that go with it (by all means, require customers to sign a form saying they understand it's an unlicensed service and they could lose all their money.)

Well, losing all your customers' money is certainly an innovative way to run a bank.