The Evolution of Platform Payments: Insights from an Industry Pioneer

The landscape of platform payments has undergone a dramatic transformation over the past decade. While companies like Stripe and FinEx now offer robust solutions for platform payments, just ten years ago this infrastructure didn’t exist – even major platforms like eBay, Amazon, and Uber had to build everything in-house. Through a conversation with Jero Wode, Chief Growth Officer of FinEx and co-founder of Balance Payments, we gain unique insights into the evolution of platform payments and the challenges of building financial infrastructure.

The Early Days of Platform Payments

In 2010, when Wode and his co-founders started Balance (initially called PoundPay), the payments landscape was vastly different. PayPal dominated the space, but their APIs were lacking, and the concept of developer-friendly payment experiences was still novel. Balance began as a Venmo competitor focused on peer-to-peer payments but pivoted to building API infrastructure for platform payments after identifying a significant market gap.

The company operated from a house in Palo Alto, where three founders and a dog worked to create technology that would later become commonplace in the industry. Notably, they developed capabilities similar to what Plaid would later build, including bank account authentication through direct bank login.

Pioneering Innovation in Platform Payments

Balance introduced several innovations that are now industry standards:

1. White-label merchant onboarding as a PayFac (Payment Facilitator)
2. Idempotency parameters in API calls for transaction safety
3. In-message payments (predating similar features in WhatsApp and Facebook Messenger)
4. Novel PCI architecture that minimized compliance scope

The company faced unique challenges in pitching to investors, who often struggled to understand the market opportunity. Many assumed PayPal could handle all payment needs, and the concept of developer-friendly payment infrastructure wasn’t widely appreciated. Additionally, investors often didn’t grasp the transformative potential of digital payment tools for the majority of people, particularly those from low-income backgrounds or immigrant communities.

Regulatory Challenges and Compliance

Building a payments company required navigating complex regulatory requirements and earning the trust of financial institutions. Balance had to explain novel concepts like “for benefit of” (FBO) accounts to regulators and demonstrate their compliance with various rules and regulations. The company received inquiry letters from state regulators and had to produce detailed fund flow diagrams to explain their operations.

The team also had to be creative in scaling their processing capabilities. They initially used a series of merchant accounts through various ISOs (Independent Sales Organizations) and even set up a fake website selling pound cakes (playing off their original name, PoundPay) to process payments until they could secure relationships with major processors like Chase Payment Tech.

Fraud and Security Challenges

Operating a payment platform brought numerous security challenges and interesting fraud scenarios:

• High-value legitimate transactions that appeared fraudulent (such as royal family purchases)
• Micro-deposit exploitation where fraudsters accumulated small amounts over time
• Crypto-related fraud through disguised marketplace transactions
• Complex chargeback scenarios involving multiple payment flows

The Modern Platform Payments Landscape

Today, FinEx continues the work of making platform payments accessible and efficient. The company processes billions in transaction volume and settles funds to over 12,000 active merchants, ranging from small businesses to places of worship. The platform payments space has evolved significantly, with multiple providers offering specialized solutions for different use cases.

Lessons for Building Payment Companies

For those building payment companies today, several key lessons emerge:

1. Balance risk and innovation thoughtfully – don’t be overly binary in risk assessment
2. Consider different types of risk (financial, compliance, reputational) separately
3. Build modular and extensible infrastructure to accommodate different provider requirements
4. Invest in strong compliance and security measures from the start
5. Focus on underserved market needs and unique value propositions

The history of platform payments demonstrates how rapidly financial technology can evolve and the ongoing opportunity to innovate in this space. As commerce continues to move online and platform business models proliferate, the need for sophisticated payment infrastructure will only grow.