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Maneuvering the Mobile and Online Payment Landscape 3 Things Potential Investors Need to Know

May 16, 2016

On a recent business trip, I packed the typical things someone would need for a few days, also taking enough cash to cover expenses. Yet while boarding my flight home, I was surprised to learn that I still had most of my cash. However, if you think about it, in this day and age it shouldn’t have been surprising. I used the airline’s app for my boarding pass, my phone to schedule the ride-sharing service, and my hotel app to pay for incidentals. For everything else, I used a credit card or could have just as easily created an e-wallet account and used my phone for everything.

Mobile and online payment platforms are increasingly displacing traditional banking services. They’re changing the way people pay their bills, perform person-to-person transactions, and convert their money into foreign currency.

The recent growth in consumer demand for mobile and online payment platforms has not escaped the eyes of entrepreneurs and investors. But before dipping your toe in this pool, you need to understand that while these start-ups may look and feel like other software and social media companies, they are very different. They require significantly more capital to build the appropriate infrastructure than traditional technology companies.

Here are 3 characteristics of emerging mobile and online payment platforms and how they can differ from other technology companies.


Whether facilitating bill payment or person-to-person transactions, e-payment companies need to physically move money between two parties or rely on someone else to transfer the funds. These companies often operate like a bank that is embedded in a software company, which means they are subject to the same regulations as banks.

When transferring the funds themselves, e-payment companies generally must have a money transmitter license from each state in which they wish to do business. Regulations under these licenses include minimum annual net worth requirements, audited financial statements, and restrictions on license transfer and control. In addition to state regulations, e-payment companies are subject to federal regulations, including anti-money-laundering rules.

International Presence

Many online payment start-ups focus on international money transfers and currency exchanges. They can electronically provide these services at significantly less cost than bricks-and-mortar banks.

In an online payment platform, money is paid to the platform in exchange for e-money units, which are then added to a customer’s digital account or e-wallet. The customer can then transfer those units to any other party that has an account on the platform, and the recipient can redeem those e-money units for the desired currency.

The enterprise must ensure that it has sufficient capital in order to scale the business. Start-ups looking to enter this market will need to (a) establish legal entities in each jurisdiction in which it would like to operate; (b) allocate the necessary resources to manage such a global enterprise; (c) create a system to properly record the electronic transfers in each company’s ledger; and (d) reconcile the cash received or remitted by each affiliated company.

Internal Controls and IT Security

Mobile and online payment companies are processing thousands, if not millions, of transactions annually. They require sophisticated systems to handle this volume and controls to ensure the transactions are properly processed. These systems must also accurately calculate transaction fees and track customers’ funds so that they can be segregated from company assets. Building such an infrastructure early in the process will facilitate a more robust accounting system, not to mention the ability to scale.

Mobile and online payment companies often work with Personally Identifiable Information (PII). This requires the companies to have stringent safeguards in place or face significant penalties for data breaches. Similar to the money transmitter licenses, data breach and cyber liability regulations vary from state to state. Thus, monitoring developments can be challenging and costly.

Global Mobile Payment Transactions
(in billions of dollars)
2012      $171.5
2013 $243.5
2014 $345.7
2015 $490.9


The mobile and online payments sector has grown significantly this decade. Given continued growth, it represents an attractive area for investors and entrepreneurs. But first understanding the financial, regulatory and data security requirements is paramount to success. 

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Richard A. Cleaveland

Richard A. Cleaveland CPA is an Audit Partner within the firm's Technology and Life Sciences Group,

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