In Fifty Days, Payments Innovation Will Stop In Silicon Valley

http://www.quora.com/Aaron-Greenspan/In-Fifty-Days-Payments-Innovation-Will-Stop-In-Silicon-Valley

by thinkcomp • 15 years ago

406 208 15 years ago

robflynn3• 15 years ago

How does this affect SaaS billing companies such as Chargify, Spreedly, Recurly, et. al. since they're merely passing along information to a gateway? I assume not at all, if I understand what I am reading.

What about something like Stripe? It sounds like they may be affected?

This does not sound particularly fun or exciting.

thinkcomp4• 15 years ago

Credit and debit cards are issued by banks and banks are exempt from money transmission laws.

This is why you see most startups gravitating toward niche markets that revolve around the existing infrastructure, but those niches are becoming awfully narrow.

In contrast, I contend that the system itself is flawed and needs to be replaced.

robflynn3• 15 years ago

Ah, thank you for explaining that to me. I some how missed that from reading the link. Though, it was quite verbose and I am, admittedly, partially into a celebratory post-coding-session bottle of wine.

I agree. The system most definitely appears to be flawed.

Isn't Paypal forced to operate as a bank in Europe as opposed to the way they exist in the U.S.?

stephenr• 15 years ago

They want companies that operate like banks, such as PayPal, to be licensed. I'm not sure I see the downside. PayPal has a shocking record of abusing it's customers, and it can only do so because it isn't bound by the same laws as banks are.

Personally, I think if you rely on PayPal/etc for your business, you're asking to get financially raped.

thinkcomp4• 15 years ago

If they wanted companies to be licensed they could just require a license. Instead they require a license and a bond worth millions of dollars in some cases, nominally to protect consumers. Yet if you have a million consumers in a state and a $1,000,000 bond, that means that if the company defaults, each consumer gets back a dollar.

This doesn't sound like consumer protection to me. It sounds like an artificial barrier to entry.

Also, PayPal has had licenses in all states that require them since its IPO, and clearly there's no connection between this issue and customer service.

pyre2• 15 years ago

Well, there is a (flawed) line of reasoning that says that if you can come up with $1M then you must be more trustworthy than someone that can't.

hessenwolf6• 15 years ago

Yes... but you don't usually have 1 million customers and owe them all money at once. That's just daft.

eropple5• 15 years ago

Sounds to me like the bond needs to be a couple tens of millions, then.

If you want to get into banking, you had better have the chops to be able to treat your customers correctly. It's not a hard concept.

bluedanieru• 15 years ago

I would agree, but the price is steep for no reason other than apparently to keep new players out, and there isn't any indication that the license, if acquired by e.g. Paypal, would do anything to curtail Paypal's abuses (they are a shitty company I agree).

18pfsmt7• 15 years ago

This is the financial services industry cranking down regulations to prevent competition as the coming onslaught of digital payments is about to take place.

This is nothing but downside as it relates to innovation in the payments space. These companies like their business models and don't care for it to be disrupted. They love regulations at this point.

SwellJoe2• 15 years ago

This won't affect PayPal in any way. They have plenty of money to cover the licenses and bonds and whatever else. They're part of the status quo and are not considered a threat by Visa/Mastercard in any way, shape, or form. In fact, PayPal is one of their best customers.

If you have a bone to pick with PayPal, you ought to be wishing for more competition, not supporting barriers to entry for their competitors.

ataggart2• 15 years ago

>PayPal has a shocking record of abusing it's customers, and it can only do so because it isn't bound by the same laws as banks are.

Some might argue that they can only continue to do so due to a lack of competition, competition which is stifled by the very legislation ostensibly aimed at helping consumers.

foobarbazetc• 15 years ago

Boohoo, cry PayPal a river.

In most countries outside the US, PayPal is regulated like a bank. This means PayPal can't just lay claim to your money and never give it back to you.

hessenwolf6• 15 years ago

They can, however, (and arguably should) put a hold on your account if they suspect fraud.

rrc• 15 years ago

Actually, I wouldn't be surprised if PayPal supported the law. Many regulations protect large, established players by raising the cost of entry for new market participants. PayPal can afford to post this bond, but many bootstrapped start-ups probably can't. This is just one of the ways regulation _can_ increase the price of products and services; they decrease competition, allowing established players to raise prices.

SwellJoe2• 15 years ago

Boohoo, cry PayPal a river.

I don't understand what this has to do with PayPal. PayPal is large enough to easily jump through whatever hoops are required to keep doing business. This is a problem for new companies, that would compete with PayPal.

daimyoyo• 15 years ago

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

robflynn3• 15 years ago

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.

waterlesscloud• 15 years ago

What does this mean for systems like Facebook Credits?

technotony3• 15 years ago

Nothing. Facebook credits are not a money transfer system, it's whats known as a 'closed loop' system. If they opened it up so that anyone can take a payment with a facebook credit and receive dollars then they would start to fall under the money transfer arrangements and would require these restrictions.

I don't think $500k is much of a barrier to them getting into this business however...

_delirium• 15 years ago

Can't anyone build a Facebook app that takes payment in Facebook credits, and then cash out that payment into dollars?

vgurgov• 15 years ago

so what if my company uses paypal to process payments and send payouts to users? do i have to care about this stuff or its just paypal's headache now?

hristov• 15 years ago

In the interest of correctness I should point out that the half a million fee is not a fee but a bond. The state does not take it but it is kept in a trust for people that may be injured by the particular money transmission business that gets a license.

Thus, if a money transmission business steals someone's money you can sue them and when you win you can take your money from the 500,000 bond so you are sure they will not run out on you.

I am not sure whether it is a good law (I have not done enough research to figure that out), but I just wanted to clarify. The quora post made it look like the state was just greedy and taking all the money for themselves.

thinkcomp4• 15 years ago

It can be a bond or a cash payment, but either way, the money is locked up and not available to use for operations, or gone.

chalst• 15 years ago

It will feature on your balance sheet as an asset, though.

dgallagher• 15 years ago

Couldn't you buy insurance that covers the bond? Typically this is much less than a bonds face value.

tptacek20• 15 years ago

You can get a surety bond [see 1817(c) of this law], which functions somewhat like insurance --- you pay percentage point premiums to keep the amount on file. This seems to be how most people handle licensing bonds.

ra2• 15 years ago

Thanks for clarifying.

I'd like to add that this is a good practice in the financial industry, and isn't a bad thing at all. It's consumer protection.

And, $500k is actually a pretty low figure for this type of 'bond'.

For example, in Australia I believe you would need a banking license (or a guarantor with a banking license) which requires a deposit of at least $40M in to an escrow account which is managed by the central bank.

lhnn3• 15 years ago

I'd like to say this should not be legislated, and people should choose who to do business with on their own. If they offer the government a bond to cover losses, then people might go to that business instead of some startup. OTOH, perhaps I don't care when all I'm investing in my "Silicon Valley Facespacecash" bank is $20.

Another reason to use alternative currencies...

AntiVigilante4• 15 years ago

there are no consumers and vendors.

there's only traders.

this protects the criminal banking industry by keeping people out. you think these monkey bankers can't afford $1 million?

this is market entry barriers and you paranoid idiots are letting them get away with it.

hessenwolf6• 15 years ago

Can't I just live as a shareholder in silicon valley, basing my limited company and shill directors in Alabama, and leasing the limited company software produced by my other company in California?

Requirements:

2 limited companies.

Licensing agreement.

Alabama-based Non-executive directors (cousin Ed and Chuck).

tptacek20• 15 years ago

Then your other company in California have to post the bond. The software has nothing to do with it.

hessenwolf6• 15 years ago

The company in California produces software components. It is not involved in any financial transmissions whatsoever. That is my point.

gokka2• 15 years ago

Here goes one more reason to use Bitcoin, that's where the real innovation is.

technotony3• 15 years ago

Bitcoin is operating in a legally very grey area, you can bet your bottom-dollar that as soon as they get real traction laws like this are going to come down on the ecosystem extremely fast.

dublinclontarf2• 15 years ago

Im quite sure most of what Bitcoin is used for is already illegal, but that doesn't mean anything. It's just being used for what people have always done, this is the government outlawing perfectly normal things. Thanks to bitcoin (and it's growing network of services that operate from cypherspace) we nolonger have to dance to the governments tune.

eropple5• 15 years ago

Sure is! A great reason to use a rapidly inflationary currency with no promises of stability or reliability.

Oh, wait. Those are reasons not to use it. My bad.

natrius2• 15 years ago

You've mixed up deflation and inflation.

dublinclontarf2• 15 years ago

And so we have one more reason to use Bitcoin.

lutorm2• 15 years ago

... whose exchange rate against the dollar has gone up by a factor of 6 over the past weeks? If you had any debt nominated in Bitcoin, you'd be screwed.

endian• 15 years ago

...which is why you should define debts in terms of some weighted (USD, EUR, Gold, BTC, ...) currency basket and then pay in Bitcoin using its "exchange rate" at that time.

One option: a volume-adjusted average of MtGox.com trades over the last K hours

Another: use 0.001 of the amount to buy options to convert X Bitcoin into the agreed upon amount of (USD, ...). Market-making HFT bots will compete, making X the most fair amount.

All this complexity could be handled by user-friendly software...

jeffb• 15 years ago

You wouldn't be screwed if your business operates in Bitcoins, and your customers pay you in Bitcoins. If you take out a loan for 100 Bitcoins, you will still owe 100 Bitcoins, regardless of the USD exchange rate.

If you aren't dealing in USD, it doesn't matter how much value the USD loses.

Similarly, if you had debt denominated in USD, it wouldn't matter how much value the Zimbabwe Dollar or Weimar Republic Mark lost in hyperinflation. Your debt burden would be the same amount of USD. It just depends on your frame of reference.

18pfsmt7• 15 years ago

How much larger does the Bitcoin economy have to get ( I believe it's currently ~$30M) before the same money transfer companies will start pushing for them to be regulated.

Remember the cab companies going after UberCab?

How about the Louisiana Funeral Directors going after the monks for making caskets[1]?

[1]http://www.techdirt.com/articles/20100825/11152810773/funera...

joezydeco2• 15 years ago

I'm still new to the bitcoin thing but how can it be regulated?

wyuenho• 15 years ago

I wonder how BankSimple is doing now.

kelnos• 15 years ago

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

shimonamit• 15 years ago

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.

xnerdr• 15 years ago

If you run a node on Bitcoin, aren't you technically a payment processor?

I wouldn't be surprised if this is step 1 of a 3 step plan on Bitcoin takedown. Clever too I might add, so props to whoever came up with it.

pilif• 15 years ago

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.

tluyben2• 15 years ago

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.

mattmanser3• 15 years ago

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.

acabal• 15 years ago

If your revolutionary banking startup can't dredge up $500k in the land where Color managed to get away with $41 million, then your banking startup probably isn't such a good idea to begin with.

cabalamat• 15 years ago

> 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.)

qntm• 15 years ago

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

yock• 15 years ago

> I really don't see a problem here.

I tend to agree. Surety bonds have been effective for a long time to ensure completion of services in case of fraud or failure on the part of a contractor or service provider. States have been requiring surety bonds for many kinds of licensed professions for years, building contractors being a big one.

lutorm2• 15 years ago

I'm not saying the idea is totally pointless, but the $500k needed regardless of the scale of the business seems a bit excessive. Maybe there should be a sliding scale, so that if your transaction volume is $10k, you need a bond for $10k, etc, up to a ceiling? That would at least make it possible to start out testing whether it works without dumping a huge amount of cash.

tptacek20• 15 years ago

It does scale with transaction volume, but the floor is $500k. But it's explicitly payable via a surety bond, which works like insurance; applicants with good credit history might pay just a few thousand dollars to get one.

There is also a class of money transfer company ("A licensee that engages in receiving money for transmission") that only needs a $250k bond.

handrake• 15 years ago

I completely agree to this. PayPal somehow has been evading this problem for a decade but finally the government is stepping in to square away this mess. How many horror stories have we heard about PayPal locking up people's accounts for no good reasons?

Goronmon• 15 years ago

But does PayPal getting a license mean that their actions towards customers have to change? Or do they just have to pony up some dollar amount to continue screwing their customers in the same way they always have?

scscsc• 15 years ago

Here is the problem: PayPal was born in the US. Among other things, probably because it was easier for them to do business there. PayPal couldn't have been concieved in Europe.

Groxx3• 15 years ago

>Oh, and if you want to do business nationwide, you'll need 43 more of those licenses from almost every state.

Does this mean California is just another state in a long line of similar laws? Or is there something unique about California's situation in this aside from it containing Silicon Valley?

bad_user• 15 years ago

California is also the home of many tech-savvy people that buy stuff online ... if you can't get a license to operate in California and maybe New York, you may as well not exist.

jrockway• 15 years ago

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 rather than potential downsides, so the government has stepped in to prevent the downsides from being too bad.

In this case, the government is saying, "make any new innovative money transmission system you want, but keep $100,000 in an account so when you fuck up someone's paycheck, they can sue you and you can pay the damages you owe." Not too unreasonable.

Regulation is bad for businesses individually, but it's good for society in aggregate. Progress may be slowed, but it's still happening and happening with fewer horror stories along the way.

potatolicious• 15 years ago

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.

dpatru9• 15 years ago

An unregulated market will spawn entities that provide the services it needs. This includes security and trust. Insurance companies, for example, are entities that people trust to protect them against loss. Rating agencies are entities that people trust to provide risk assessment.

The difference between non-coercive (private) entities and government is that non-coercive entities adapt better. So, for example, if you're planning to transfer billions over many years with one bank, you'd want the bank to have all kinds of security. But if you just want a quick, cheap way to transfer 25 cents in a micro payment over the web, you probably don't care if the startup "bank" you use has a $500K bond.

Luff• 15 years ago

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

olalonde11• 15 years ago

No I don't think most regulations are good for society in aggregate, including building codes. What if we had software codes to make sure we write secure software, would that be a good or a bad thing?

Take this payments law for example. Its intended objectives are admirable but I don't believe it will accomplish them nor benefit consumers in the long run.

By artificially imposing a high barrier to entry (licensing fee), the consequence will be to encourage the formation of monopolies.

Furthermore, payment companies will have a lesser incentive to secure their service or build a reputation of trust since consumers will be led to believe that "all payment companies must be secure since they are all approved by the government". What was once an important competitive advantage will lose a lot of its importance.

There are probably other perverse effects I could think of but my point is that things are much more complex than they might seem.

tptacek20• 15 years ago

It doesn't impose a large fee. It requires a bond. The details matter.

tzs4• 15 years ago

> No I don't think most regulations are good for society in aggregate, including building codes.

Nearly every large earthquake proves you wrong on building codes. Compare deaths for a given magnitude quake in areas with strong building codes vs. areas with weak or no building codes.

dpatru9• 15 years ago

Government regulation is in just about every case either not needed at all or better provided through non-coercive institutions. Since government innovates more slowly than private industries, government regulation tends to become outdated, going from common-sense prudence to arbitrary burden on innovation. For example, right now the Mississippi River in the US is flooding, destroying many homes. This is a huge loss partly because homes are very expensive. Maybe it would make sense to have some housing constructed of paper-mâché, not try so hard to resist disaster, but instead concentrate on making it cheap to rebuild. Government building codes prevent this kind of innovation.

Regulation reflects a lack of creativity. It says, "There is no other way to do this." But maybe there is another way and the politicians just can't think of it. They shouldn't be allowed to limit other, more enlightened people.

The above assumes that regulations are honestly designed to promote the public good, a dubious assumption. Often I suspect that regulation is designed to protect influential but inefficient businesses against competition.

Retric3• 15 years ago

That's an interesting thesis, but can you name one good building material that you can't actually use to build a house? People talk about regulation in the US like it's hindering any form of innovation, but there is surprisingly little terrible regulation that's actually enforced. Which is not to say you can't point to regulation that harms individuals but rather it's much harder to find things that harm society over the long term.

PS: Not to side track to situation; we are talking about building materials and you can use a wide range of things including straw and dirt in the US so what's missing?

yequalsx2• 15 years ago

You wrote:

"Since government innovates more slowly than private industries, government regulation tends to become outdated, going from common-sense prudence to arbitrary burden on innovation. "

The space program spawned a tremendous amount of innovation. Public research universities throughout the nation innovate on a grand scale. The internet is an example of government innovation.

Regulation does not reflect a lack of creativity. It reflects an acknowledgment of a problem and steps to address the problem. Sometimes side effects occur and are bad and the regulation needs to be reanalyzed. Sometimes there is regulatory capture (by private entities).

Government had to mandate the use of seatbelts. This led to airbags because after the government made safety an issue innovations were made in this area. They probably would have been made without government intervention but government got the ball rolling and the innovations occurred sooner as a result of government.

Regulations can be good, bad, or neutral. But talking about "non-coercive institutions" makes your view look extreme.

Duff• 15 years ago

This is true -- the hardcore capitalist would argue that the plaster industry has been hamstrung by the quaint requirements from building code to use wood, steel and concrete in construction.

There's a give an take here... the government has a perceived duty to protect the citizenry against bad actors, that that introduces a bias against sudden change aka "innovation". "Innovation" isn't always good -- just like to some people, certain "freedom fighters" are "insurgents".

On the other hand, there are entrenched business interests like Western Union (and payday lenders in "red" states) who use their influence to keep the status quo around, even if it hurts consumers. (ie. the poor and ignorant who spend $10 to send $100 to someone)

hessenwolf6• 15 years ago

I think stifles competition is more concerning than stifling innovation per se.

daniel_solano2• 15 years ago

> Regulation is bad for businesses individually, but it's good for society in aggregate. Progress may be slowed, but it's still happening and happening with fewer horror stories along the way.

This is not necessarily the case. Often times, regulation is put in place to address some high-profile case, but ignores the consequences of the regulation.

Currently, infants less than two years of age can fly in an airplane without a separate ticket. Years ago, after some instances where such children were injured/killed in accidents, there was talk of forcing parents to buy separate tickets for infants and require them to use an approved child seat. However, had this regulation gone into effect, the extra cost of flying would have forced many families to drive instead of fly, resulting in a greater amount of injuries/deaths.

lhnn3• 15 years ago

People should have full information.. I should know if the building I move into is made from plaster of paris. However, if I still want to move into it... I shouldn't be passing on my genes.

VladRussian• 15 years ago

>Doesn't all regulation stifle innovation?

there are regulations and there are regulations.

>"make any new innovative money transmission system you want, but keep $100,000 in an account so when you fuck up someone's paycheck,

just for example, a reasonable regulation would just limit the per-transaction(or per-month per-person, etc, ...) amount to, lets say, $100 for unlicensed/unbonded companies.

On the other side, the regulation that have the same $500K bond for any company is just very favorable for big established players. The $500K is nothing for AMEX or PayPal, and provides virtually no coverage for the risks these companies presents to consumers. Ie. if any of these companies fucks up the paychecks in their system, the $500K would be just a drop in the bucket.

Even current banking regulation is designed way much better - basically it forces to keep reserves as percentage of the liability amount.

vacri• 15 years ago

Nope. Sometimes regulation spurs innovation, forcing businesses to go from "business as usual" to "how do we deal with this?". Air pollution regulations in California helped drive a lot of innovation around cleaning up car exhausts, for example. Without that restriction, movement in that area would have been very slow.

braindead_in• 15 years ago

What does this mean for freelancing sites? Or for services like AdSense where credit accumulates in a user's account till it's withdrawn? Do they have to get a license too?

yoyar3• 15 years ago

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.

daniel_solano2• 15 years ago

I generally agree. What most people often don't realise is that a lot of regulations that are allegedly in place to protect to consumer are actually there to prevent established interests.

This is particularly true of licensing. The standards for licensing and the like are often co-opted by the industry/profession being licensed. As such, they use licensing to raise the barrier to entry, effectively limiting competition.

One example that comes to mind is that the aestheticians in Texas at one point were fighting to require people that do threading to get a license. I believe said license would require thousands of dollars and hundreds of hours to obtain. Ultimately, there was absolutely nothing about threading the license at all. I am not sure if this law was ever passed, but it is merely on example of licensing works in practice to hurt competition, raise prices, and hurt the consumer.

aduric• 15 years ago

If said company was truly innovative and satisfies the interests of consumers, I'm sure it won't have much trouble raising the cash necessary to continue being a law-abiding citizen.

yoyar3• 15 years ago

The implication of what you are saying is that the half million for this startup company will present no extra hurdle and will have no impact on their ability to compete and get started (as you stated it "won't have much trouble").

This begs the question: what amount would be a barrier to entry into the market, 1 million, 10 million? Is there any amount of regulation and cost that you would consider a barrier to entry into the market? If as you imply a half million is not a barrier ("no trouble"), why is not a barrier, why is not a hurdle?

jonknee4• 15 years ago

> All of a sudden they'll be breaking the law unless they hand over half a million to the government.

Or put up a few coins for a surety bond. If you're a financial startup and your investors don't trust you enough to put up bond money, you should probably find a different niche (or investors).

yoyar3• 15 years ago

So, we assume they're going to commit some type of fraud or crime up front so they have to submit to posting bond, but the investors are supposed to trust them with another half million. Or, as you put it, a few coins. Wow, in your world a half million is a few coins. You live in a universe different than mine.

gyardley2• 15 years ago

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.

rbanffy• 15 years ago

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.

marknutter• 15 years ago

Who is John Galt?

eropple5• 15 years ago

Some obnoxious bint beloved by people who clamor to be his oppressed, destitute underclass.

(What's that? They all think that they'll be him? Statistics would like to have a word, folks.)

nextparadigms• 15 years ago

Can this affect Bitcoin, and if so, how?

hnsmurf2• 15 years ago

Every company in Silicon Valley is actually a Delaware corp anyway..

hnsmurf2• 15 years ago

I think it's a relevant distinction. Clearly the California company doesn't apply to all corporations in the world or even country. The point is there's likely a loophole that for an interstate or international software corporation will render the regulation toothless.

r00fus• 15 years ago

Every company doing business in California needs to have a license to operate here (and obey State laws). No easy loopholes here.

Companies mainly choose Delaware because Delaware is efficient and well-known for processing of paperwork and legal matters.

rglover• 15 years ago

A bit of a red scare here. All the time I was reading I was led to assume that companies like PayPal and Square (imperative mechanisms for freelance these days) were to be affected, ultimately though, this was dismissed toward the end. I can understand the frustration here, but like a lot of people are saying, those are the rules. Also, for the FaceCash folks, if you intend to disrupt the financial industry in any fashion (in this case circumventing traditional forms of cash transfer) you should be ready for a significant amount of red tape and "fuck you."

thinkcomp4• 15 years ago

We're ready for it, but that doesn't mean we have to take it.

adrianwaj• 15 years ago

What's the jurisdiction? Some freshly made illegal company can operate to California residents and be located outside of it (even the USA.) Are they going to block the website to California residents?

tzs4• 15 years ago

His argument makes no sense. He says that 43 other states have such regulations, so that if you want to do business nationally you have to get licensed in each, at costs ranging from less than California's new cost to more than California's new cost.

So what is the significance of California making it 44 states? I doubt a new payment system that only works in a handful of states has much of a chance, so if regulation kills payment innovation it would have have been killed long ago, when the majority of other states adopted regulation.

JoshTriplett• 15 years ago

The difference: if you start a business in California, you have to care about California law, and federal law, but not necessarily any other states' laws. Similarly, Internet businesses don't legally have to collect sales taxes for states other than their home state (and most don't make the mistake of putting their HQ in a state with sales taxes), though various states have attempted to (illegally) claim otherwise.

ChuckMcM2• 15 years ago

While I agree with other commentators that the prose is a bit over the top, its an interesting move on the part of financial interests. (there was a great report in the Murky News that special interests are writing the laws [1])

Clearly financial transactions have provided a means for the state to both detect and to a lesser degree mitigate criminal activity. The phrase 'follow the money' works because such activities are at their heart economic in nature (trying to enrich the criminals) and understanding the path to that enrichment often allows law enforcement to disassemble the criminal enterprise behind it.

That being said, I would not be the least bit surprised (although I did not read through any floor debate if there was any) if the people who voted for this law did so believing that they were addressing a great threat to society, which is the proliferation of payment processors which are not accountable to the state for tracking or even reporting their transactions in any form.

That does cut into 'innovation' as thinkcomp points out but it doesn't preclude it. It changes the conversation from 'build it and see what works' to something more along the lines of a slow plod from idea to implementation while bringing legislators and law enforement along. The bad news is that criminals are motivated to stay ahead of 'the system's abilty to track their money, consumers need a value proposition and a trial period before they switch so adoption rates are probably (not data driven, just intuition here) lower.

Perhaps the next innovation is a payment processing company that provides the regulatory shield for innovative sub companies.

[1] http://www.mercurynews.com/politics-government/ci_15517816

tptacek20• 15 years ago

Does contractor licensing and bonding cut down innovation in contracting? Aren't most contractors firms of less than 10 people? Are there not hundreds of them? How can you defend the argument that a yearly bond premium payment that is less than many companies pay for liability insurance is a serious drag on innovation?

ChuckMcM2• 15 years ago

Hmm, I'm curious how you equate building a contracting business is equivalent to building a new payments system?

I agreed that the article's portrayal of the fees as extortionate was hyperbole but agreed that raising the barrier to entry would slow down the creation of new payment systems. If you accept that the rate of innovation is related, at least linearly, to the creation of new companies in a product space, then reducing the creation rate would necessarily reduce the rate of innovation.

An alternative look at your question with contractors would be to ask "Has the licensing and bonding requirements cut down on innovation in contracting business models?"

I don't know how to answer that question without first removing the licensing and bonding requirement and then observing the resulting market. It certainly mitigates crime in the contracting market to some extent by making it more difficult for a criminal to pass themselves off as a bonafide contractor. But the current state of affairs don't say about whether or not the contracting market would be more innovative without those restrictions.

truthtechnician• 15 years ago

Today I learned Hacker News is filled with libertarian ideologues.

It's amazing that people who pride themselves in critical thinking and problem solving (hackers), can actually be so naive as to believe this nihilistic Ann Rand crap.

HN is starting to look more like Reddit every day.

evgen• 15 years ago

HN has always had its share of libertarian partisans, some who were reasonably cogent and some who drank the Randian kool-aid and did not notice when it dissolved their brain. The difference is that on HN you will see a lot more pushback from people who are not going to let the second class of ideologues get a free pass on their BS (e.g. the responses to various "just let the market sort it out" tropes being dragged out by the usual suspects.) On Reddit the moderates would be downvoted into oblivion and this discussion would have turned into a libertarian circle-jerk within fifteen minutes.

AntiVigilante4• 15 years ago

no bitcoins in CA

In Fifty Days, Payments Innovation Will Stop In Silicon Valley

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