Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Future Of Money: Startups - Be Careful

Posted by Tom Foremski - March 1, 2011

The Future of Money conference had an interesting panel on "Funding Financial Innovation."

Chris O'Brien - San Jose Mercury News (Moderator)
Maha Ibrahim - Canaan Partners
Kevin Hartz - Eventbrite
Lewis Gersh - Metamorhpic Ventures
Christin Herron - Intel Capital
Peter Lurie - American Express

Maha Ibrahim and Kevin Hartz were especially helpful and the rest of the panelists were good, with excellent moderating by Chris O'Brien.

Here are some notes from the panel:

- Credit cards became popular because they offered something that cash by itself was not able to do. That's what startups need to focus on.

- China is a very big market for alternative payments because of its large gaming industry.

- PayPal had to deal with massive amounts of fraud.

- Payment systems are very difficult to set up, it's a chicken and egg situation.

- The regulatory nightmare for payment companies is huge. Different states have different regulations and that applies to countries too. You need to file bonds in many states. Plus new financial regulations can greatly increase costs of business.

- Startups need to be aware of what they are getting into in the payments sector.

- The startups that will get funded have to have a very big idea.

- It is incredibly difficult for startups to succeed in this sector.

- Some of the breakthroughs will come from developing economies where there are few payment options.

- American Express is working on new pre-paid products.

- The cuts in interchange fees creates a massive revenue hole for banks this represents a good opportunity for startups to help fill that revenue hole.

- There is an issue on Facebook where companies pay Facebook for advertising and then also use Facebook's payments systems and pay Facebook 30%. There will be large companies trying to find a way around those payments. It's a bigger cut than Ticketmaster.

- Another problem with Facebook credits is that Facebook gives away some credits which can dilute the value of your products.

- Carriers will have problems handling payments because it is a big customer service issue. Customer chargebacks are an issue and on mobile payments it can be 3 times the normal number of chargebacks.


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