The Hurdle Rate

Yesterday I wrote about how the economic recession has allowed a new generation of Internet and mobile-based financial services organizations to gain a foothold and gain new customers. Although there is now an opportunity for these firms to fundamentally alter a stagnant industry, three large hurdles still remain:

1. Regulation. The FDIC, SEC, and other acronym-wielding regulatory institutions are keeping a close eye on emerging players. Prosper was required to stop operating for nearly a year while its legal status was established. Not only has regulation been stepped-up since the meltdown, but I also suspect that lobbyists representing the established corporations are hard at work trying to slow the progress of new entrants.
2. Security. Although the digital world may realistically be safer than the physical, negative perception of Internet security still poses a threat to new companies. News of data breaches and various new scams must be avoided through new protection methods and security measures.
3. Human Interaction. The Internet has minimized the need for physical infrastructure but it hasn't completely removed the need for actual human interaction - especially when negotiation and large transactions are involved. Companies like Scottrade have been successful because they continue to maintain a minimal live presence. Some level of face-to-face communication will continue to be necessary.

None of these hurdles are unbeatable. But they must be recognized and consciously tackled by new entrants that wish to grow and establish widespread trust.