Live at Apex: The Benefit of Linking Bitcoin
Implementation to the Existing Payments Structure
Welcome to the
fourth and final installment of the “Live at APEX” series on the official
All Payments Expo Blog. The final session at this year’s conference addressed the
benefits of linking bitcoin implementation to the existing payments structure.
It focused on the market opportunities for Bitcoin in the under-served and
financial wellness categories. I would like to thank our panel, Ed Boyle (
Blade), Steve Beauregard (
GoCoin), Cathy Corby Iannuzzelli (
Corby & Company), and our
moderator, Tim Sloane (
Mercator
Advisory Group) for joining us today. It has been an amazing 3 days and I
hope you, the reader, enjoyed reading as much as I enjoyed writing.
Financial services
are costliest for the poorest individuals. In fact, “[t]he average underbanked
household has an annual income of only $25,500, yet
spends
10 percent of that on fees and interest charged by the alternative
financial service sector.” To make matters worse, the number of banks in the
U.S. reached its lowest total since 1934, in 2013 and this number is continuing
to decrease. Rural areas have been hit particularly hard by these bank closures
and considering that 85 percent of the poorest counties in the U.S. are rural,
the closures disproportionately affect low-income households.
Nearly all non-debt
financial services require an initial “cash-in” in order to use the services. Many
banks require a minimum balance to open and maintain a checking account, and
failure to do so results in a penalty, thereby making opening and maintaining a
bank account prohibitively expensive for low-income households. This forces
these individuals to turn to alternative financial services, many of which
charge “an arm and a leg” to use their services. The question is whether
Bitcoin can provide the unbanked and underbanked with improved access to
financial services. The answer is YES!
As previously
discussed in, “
Live
at APEX: Digitizing of Money Movement, Remittance, and P2P,” Bitcoin is
radically changing the remittance and P2P industries. This is because Bitcoin’s
cost structure fits very well within these industries. For example, traditional
remittance companies charge 8-12% per transaction, whereas a Bitcoin
transaction does not require a fee. It should be noted that to incentivize the Bitcoin
network to expedite the transaction, there is generally about a 4¢ fee. Nonetheless,
this cost savings is large enough to radically change the remittance industry.
Moreover, unlike
banks that require minimum balances, there is no minimum Bitcoin balance requirement.
In fact, the smallest amount a person can have is 0.00000001 BTC, called a
Satoshi, or approximately 0.00025 of a penny. Because a single bitcoin can be
broken down into such small amounts, it can be used to conduct transactions in
U.S. dollars, as well as in Tanzanian shilings. This has important implications
for remittances and P2P payments because anyone can send value to anywhere in
the world, without having to rely on a third party intermediary.
Cross-border
transactions can require up to seven intermediaries before they are completed;
Bitcoin requires zero. Not only do these intermediaries add to the cost that is
borne by customers, but the process is also very time-consuming. This is a
reason why companies such as Money Gram and Western Union are able to charge
such high fees for remittances; they speed up the process. Their services are
still slower, more expensive, and generally less convenient than Bitcoin. They
do however solve the “
last
mile problem,” which is something that Bitcoin has not yet solved. While it
is easy to send and receive Bitcoin, only a small number of merchants accept it
and it may be difficult to convert into fiat currency, but this is changing.
More than $100
million in venture capital was invested in Bitcoin companies this past year.
Companies, such as Ripple Labs and Circle Financial are designing solutions to
solve the last mile problem. There has also been significant investment in
Bitcoin ATM companies to make it easier to obtain bitcoin (
find one near you). Plenty
of other areas along the supply chain have also been invested in and are
currently being worked on.
Although we are not
there yet, by linking Bitcoin implementation to the existing payments structure
and decreasing costs, the lives of hundreds of millions of unbanked and
underbanked individuals around the world will be improved by giving them access
to inexpensive financial services. It does not however end with remittances and
P2P payments. E-mail was the first application of the Internet and services
such as Netflix were previously inconceivable. A digital currency is only the
first application of Bitcoin. The next one is just waiting to be conceived.
Matt Gertler is the Head of Strategy at the Digital Currency Council
(“DCC”) and is pursuing his JD/MBA at USC. He is experienced in FinTech, having
worked for Venmo, Braintree Payment Solutions, and Earnest before joining the
DCC.
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