Ask HN: Why don't we hear about startups going against Visa and Mastercard? | Hacker News Reader

Ask HN: Why don't we hear about startups going against Visa and Mastercard?

6 pointsyalogin12 comments

With network connectivity almost every where and cheap now and the proliferation of smartphones why are there no attempts (if any) to go directly against Visa and MC? Is there really a need for the intermediate parties (payment processing systems) to exist? Visa will not let go off that model as it built that ecosystem over many years. So it really cannot compete on price if some one really cut all the middle men and comes up with a payment system + processing system. I am surprised that even the highly successful Paypal just feeds off of Visa and MC. I know the existing hardware installed at all the stores is a big barrier to entry but still.

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There's a chicken and egg problem. You can't get buyers to use it till merchants accept it, and vice versa.

This could be a good end goal of a startup, but it can't be what they do initially.

Any ideas for a starting point that could lead to that end?

There are two ways to get a giant pool of people using your payment system: start with payments and then get giant, or start with a giant pool of users and then add payments.

In the first case you'd have to start with a tiny, specialized payments market that you could then expand. The second case would be Facebook creating their own credit card system. Which they could probably do.

I'd recommend starting with a specialized payments market. That's how credit cards themselves got started. And you can't create Facebooks for the asking.

Do you think Square could take on Visa & MasterCard if they get enough traction?

Square was my first thought, too. Yes, they could most certainly take on MC/Visa/Amex/etc. Maybe that is why Visa invested in Square? You have to get the POS units into retailer's hands. Then, at the same time, you have to get consumers using it. Where square differentiates themselves from the competition is that they make it very easy for anyone to become a POS node.

Now, the difference between Square and the CC companies is that square is really a gateway to those CC systems and not a credit provider themsleves... BUT once they have traction with POS merchants and acceptance by consumers could they start their own credit department? Sure. Would they want to? That is another debate. I'd wager it's much easier and still very profitable to be a gateway taking a small slice off each transaction than it is to be the credit provider.

Would a company such as Facebook even want to go solo in being a credit provider? I don't see it. I do see them partnering with one of the big credit providers to create a FBCard. Then they could say that to use or purchase FBCredits you must use the FBCard which would also be a normal Visa/MC which could be used in any regular bricks and mortar place (with FBCredit rewards?) Imagine the data mining they could do on that! Now you have a FB user buying FBCredits for games/whatever AND they know what restaurants you frequent, what groceries you buy, if you smoke or not, etc., etc. And they would be able to do it all without the hassle of setting up their own credit department and collections issues. And they could probably do it so that a parent could sign up their under 18 kids for the card so the CC companies would love to get in to that market!

Besides the issue pg mentioned, this space is highly regulated (and perhaps likely to become more regulated), so regulatory compliance as much as meeting technical requirements is a big part of the problem for any new startup.

https://www.dwolla.com/

I know the guys who put Dwolla together. It shows a lot of promise, and is a huge boon to merchants because of the extremely low transaction fees (flat $0.25 per transaction vs Paypal's 2.9% + $0.30 per transaction).

However, as pg said, it is hard to encourage adoption when buyers only use it if merchants support it and vice versa.

Paypal is one of the few that is in a position to do it. With direct bank account debit they do have one option. As paypal gets used more and more online, paypal will be able to get retail merchants to accept paypal payments. The timeline to effect change like this is extraordinarily long. Think about how hard it is for AMEX to be accepted everywhere and the merchants already have the hardware.

Given that paypal already has their own credit card, they probably have decent relationships with the current leaders. Seems much more likely to me that they would simply join the credit card cabal, rather than challenging it.

Also, mobile payments show a great deal of promise.

I believe one strike against AMEX is their higher merchant fees, as compared to the other card vendors.

I recall when I was young that sears started discover card, and it wasn't terribly long from the first time I heard of it to the first time I saw logos on windows and people accepting it.

At the time discover had no annual fees, and 'cash back' which I recall both being novel at the time (I was young though, so I don't recall too specifically). I think consumer demand helped push the vendor market, as well as Sears itself.

The closest example I can think of is Square and look how long it took them.

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