For payment technology developers, the stakes couldn't be higher as the FCC develops new rules that could support or eliminate net neutrality, a system in which Web access is equal for most users, regardless of size.
The battle over Internet speed got a fresh shot this week when President Obama threw his support behind net neutrality, but the FCC is still months away from issuing new rules. Any regulation that slows Internet traffic for startups could weaken an emerging payment system that relies on a connection to the Web.
"There will be less new payment products if net neutrality ends," said Gil Luria, an analyst at Wedbush Securities. "There would still be some new products, but far less innovation."
FCC Chairman Tom Wheeler, an Obama appointee, has proposed rules that could allow broadband providers to offer different levels of access to certain users. Under Obama's suggestion, by contrast, broadband providers would be regulated similar to utilities, and likely would not be able to offer different "lanes" of internet traffic to parties that could pay broadband providers for faster content delivery. This week, Wheeler "thanked" the president for his input, which he said would be an important part of the agency's deliberations.
A large portion of payments innovation now comes from relatively small companies that offer application programming interfaces to local e-commerce communities and online retailers. These retailers use the APIs and Web access to build interfaces to accept payments. The lure is the low cost for the same level of Web access available to large companies.
That business model would be imperiled if larger companies could command a fee for access, Luria said.
"With payments the speed is incredibly important. And that speed is measured in fractions of seconds. Consumers aren't going to tolerate waiting for transactions to happen," he said, adding the end of net neutrality would give the larger payment companies a substantial advantage over startups.
Even the incubators and hackathons, venues that larger companies use to find talented developers and new ideas, could suffer, Luria said.
"The impact could be worse," he said. "The incubator has to find companies that already have a workable idea, and that would be hurt."
The end of net neutrality would benefit telecom-led mobile payment initiatives, which could charge higher prices to competitors, said Marvin Ammori, a lawyer that specializes in Internet law.
"The large carriers could offer exclusive deals with more rapid processing time or more reliable bandwidth, and all of the other providers are left with a small doorway they all have to fit through," Ammori said.
Dwolla has been actively supporting net neutrality for the past several months. The company welcomed Obama's declaration, but is still wary about the final outcome.
"We need rules that ensure the Internet that we all know stays the same," said Jordan Lampe, Dwolla's director of policy.
Stripe has also issued a statement in support of net neutrality.
Softcard, Apple and PayPal did not respond to requests for comment by deadline. The Internet Association, a trade group representing Silicon Valley Companies including PayPal, eBay and Amazon, has supported net neutrality, but has not weighed in on Obama's proposal.
The President has also been criticized by liberals for appointing Wheeler, a former cable and wireless industry lobbyist. Obama does not have direct power to regulate broadband access, though he can place political pressure on the FCC, Ammori said.
"Three of the five FCC board members are Democrats," Ammori said. "And Obama has come out in favor of net neutrality. It makes it hard for Wheeler to do anything else."