Venture capitalists are starting to avoid payments start-ups, in part because of the regulatory complexity of the business, according to Payments Cards and Mobile.
Despite a slew of funding rounds for payment industry start-ups over the last few years, venture capital providers are backing away, according to data from CrunchBase. The research firm found that the number of venture-backed payments companies has declined from a high of 59 start-ups in the third quarter of 2013 to just 41 in the second quarter of 2014.
Regulation is the big hurdle for many good ideas in the realm of payments innovation. Many technically-inclined people are able to create software that can offer interesting financial tools. But most of those tools rely on one of the most heavily regulated entities: financial institutions. Because of the regulation that they face, banks and credit unions must be cautious and cannot just rapidly adopt any new thing that comes along. In addition, because payments innovation involves people’s money, it can have a much bigger effect on someone’s life than an app that lets you know when the next bus will be along, for example.
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