Why is the payments ecosystem so complicated?

Great Question!

There are so many elements.

Before I delve into the answer, I do want to cite. Payments is not that complex, though it can be.

Reasonably well-versed people if boxed into a room, forced to stare at a problem on the white-board long enough, will come out with some payment solution.

There are still 1,000s of payment problems out there.

Some I am aware of, 1000s of them I am not aware of. Some cater to a small market. Some to a very large market. Pick a problem. Any one problem and in 1-2 days you can probably hack out a solution on a white-board. It is really that simple at times. To crack the payments space problem for a horizontally wide market, one needs to be proficient on many levels. As an architect of a solution (someone has to think about the problem right?) you need to be multi-talented. Herein lies the problem for many.

To give you a 100,000 feet overview as to why payments are so difficult, see some of the points below (in no particular order):

• Traction: One of the biggest challenges is and will always be traction. How many people you can get to use your payment system/solution. Will you be competing with the big boys or not? Will you face resistance? Is it time for your product/service to be in the market. This is a tough one to have a definitive control over.
• Geography: What specific geography are you planning to operate in? Is it saturated? Is there no competition? If so, why not? Why hasn't the vacuum been filled up by someone else? What are the numbers on the ground like? What are the adoption rates? What are the numbers being offered by adjacent products/services?
• Licensing: Would you need to be licensed? If so, which one? Are the licenses open for application? What is the average time period before a license is granted? What are the capital requirements for obtaining a license? What are the surety bond requirements? What are the financial requirements? How does it affect you going from a no-license period to a licensed period? How many people would you have to hire, as per the licensing requirements? How will this affect your budget?
• Regulatory Compliance: What does it entail to be compliant in a market? Does a regulator(s) have oversight on your industry? Would compliance alter the roadmap or functionality or your product/service? What will it cost to be compliant? What are the pitfalls of not being complaint? How much risk is there in your system? How will you reduce fraud? What parameters will yield a lower risk status for your? How will this affect your overall product/service delivery and usability? Do you have the adequate systems in place to make you compliant? How much will these systems cost? What about the HR and Hardware/Software required to have such a system in place to make you compliant?
• Interconnects / Integrations: What networks and/or interconnect partners would you be connecting with? Would they allow you to connect? What if they don't? What sort of integration is required with your partners? How long will such an integration take? What if your party does not allow outside vendors or partners to connect to their systems? What is the alternative approach then? What if the integration costs exceed your original budget? What if integration and interconnects increase the cost of a transaction being executed on your system? What backup do you have?
• Banking, Processing and Insurance Coverage: Does your product/service require banking facilities? payment processing facilities? insurance coverage (as required by the regulator?) Are you able to find all these facilities? At what cost or limits? What if you cannot find a bank to work with? What are the minimum capital requirements for obtaining a guaranteed banking facility? What if the banking / processing / insurance fees jolts your original model? What if the banks refuse to work with you - citing risk? As an example if you are a start-up in Australia or even UK wanting to enter the domain of Money Transfers - it is almost impossible for you to find a bank to work with. Somewhat similar situation exists in the US.
• Technology: Who develops the technology? Are you going to be leasing or licensing technology? Would there be any royalty or licensing fees associated with it? What about development? Where will you find talent? What will this talent cost? What will a delayed launch cost you? What if a competing or near-competing product is launched - how will your technology stack adopt to such a change (if at all)? Are you allowed to do whatever it is you are doing (from a technology perspective)?
• Legal Costs and Legal Ramifications: Legally, where does your product/service stand? What are the costs associated in making agreements and arrangements with your financial, network, OEM (hardware/software), processing partners? What are the legal terms under which the product/service is being provided for? What about agreements with say VISA or Pulse, or a worldwide payment connector - how would you deal with that? What if one grey clause in such an agreement would make your product a competitor and grounds for annulling the agreement. How ill you handle this? How would you, as the company be affected by a lawsuit? If you're a start-up - who pays the legal fees? Will you be able to execute an agreement with a party that is crucial to your business? What if talks break down?
• The Differentiator: What makes your product/service do different? What problem is it solving? Why would people flock towards it? Why can't the big boys do it? What prevents your bank from providing the same service? What stops the card schemes to oust you and do this themselves? What about the vultures who will copy your idea? How vulnerable is your idea to a status quo element being changed? How confident are you that the value proposition you have on the table now - will still have an edge 2 years or 5 years down the road? Is it a disruptor? If so, how? and what makes it so (such that no one else is hammering away at this)?
• The Flat World: Is your product / solution going to be country specific? multiple countries? global? Where will you be incorporated? Are you allowed to on-board or off-load transactions to another country? Yes? How yes? Do you have any okay from the regulator? Do you have a legal opinion on it? Do you need to be cross-licensed in other territories? Can you onboard sub-merchants? or sub-clients? Can you have affiliates? Are they legally allowed? What about agents? Can you onboard them? Does the law provide a provision for this? How does cross-border settlement occur? What are the time-motion diagrams for net settlement like? What is the FX gain/loss like? Are you allowed to repatriate profits? Are they taxable? Will it have dual-tax implications? Do you require additional permits? Will you bank or processing partner allow you to operate in different countries and/or territories? Can you setup so as not to commingle funds from business done in one country with another?
• Partners: Who do you have to partner up with? What if they don't want to partner up with you? What if your potential key/core partner does not want to enter into this business? What if your competition midway manages to break the relationship you have with your partner? What does it mean - partnering up? What will it cost you? In the short term? and in the long term?
• Finance / Financing / Financials (aka Money): How much money do you have? How much money in this game? How much money will you make? How much money will you need? How can you get that money? What if you don't get that money? then what? What if a competitor forces you to change your revenue model, (lowering your price) how much money will you make then? Who is going to finance this? Where will you raise money from? How soon can you do it? Midway if more funding is required what are your plans? What if you cannot get that funding? Then what?
• Transaction Monitoring & Transaction Reporting: What sort of a TMS / TRS would you require? How would you handle the KYC, AML, Terrorist Financing issues and checks from other POI lists? What is your flagging and reporting mechanism? How confident are you of your monitoring? What would it mean for your company if a person on the OFAC list, gets to successfully transact? If you are operating in multiple territories what are the laws in each territory for monitoring and reporting? What kind of information can be reported in geographic area and how different is it from the reporting in another country? (US vs Europe for example)? What is the cost (equipment, training, HR, on-going) for implementing such a system? Is your product/service even providing the necessary data-points to monitor? Are you breaking any laws, by reporting what you are?