Live at Apex: The Digitization of Money
Movement, Remittance, and P2P
Welcome back to the
official
All Payments Expo Blog. We recently concluded the “Disruptive Technology Forum:
Digitizing of Money Movement, Remittance, & P2P.” The forum centered on the
many changes that are occurring in the movement of money, from new rules and
regulations to an influx of non-traditional, online players. I would like to
thank our panel, Tammi Shapiro (
Fiserv),
Ajay Hans (
Mobetize, Corp.), and Peter Kelly
(
ABRA), and our moderator, Robert
Courtneidge (
Locke Lord) for joining us
today. Their insight and expertise greatly simplified a very complicated and
rapidly changing ecosystem.
In an APEX
podcast, Rik
Willard (
MintCombine)
suggests that Bitcoin and other alternative financial services are potential
category killers in remittances. He gives the example of
Mpesa,
a service that allows people to transfer money throughout Kenya almost
instantaneously and inexpensively. For example, there is a 12% transaction fee
to transfer money from the U.K. to Kenya with conventional remittance
companies, whereas there is only a 3% fee with Mpesa. Seeing as 90% of Kenyans
are unbanked, but 80% of Kenyans have mobile phones, Mpesa and other similar
financial services are radically changing the remittance industry.
Still, services such
as Mpesa charge a 3% fee and Bitcoin, as well as other alternative financial
services offer means to transfer value at a near-zero cost. One such service is
Venmo, which allows two individuals to send money to one another, called
person-to-person (“P2P”) payments. There is no fee if the money originates from
the user’s bank account or debit card, but there is still a 3% fee for using a
credit card. Meanwhile, companies such as Circle Financial and Ripple Labs are
attempting to change this by developing platforms based on the Bitcoin system
that enable the transfer of money anywhere in the world for pennies, if not for
free. This is in contrast to Venmo, which is currently limited to people
residing in the U.S.
Seeing as Bitcoin and
other alternative financial services improve upon a number of deficiencies in how
we currently move money, it is not surprising that banks are studying Bitcoin
intensively. In fact, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs
and Wells Fargo have all published reports on Bitcoin for their customers. Bank
of America reported that Bitcoin may emerge as a serious competitor to
traditional money-transfer providers. Still, Bitcoin cannot be massively
adopted until there is further regulatory clarification. Barry Silbert (SecondMarket)
explains
that “banks are waiting for clearer guidance at the federal level on how
businesses are having interactions with bitcoin,” in addition to other state
regulatory concerns.
DISCLOSURE: What follows is a summary of important legal and regulatory
issues, but it does not cover every legal or regulatory issue. You should always
consult counsel. If you would like to find a certified digital currency
attorney, you can check the member directory at the
Digital Currency Council.
At the federal
level, the Financial Crimes Enforcement Network (“FinCEN”) imposes certain
requirements on money service businesses (“MSB”). A business may be considered
a MSB if it offers any of the following products and services: money orders,
traveler’s checks, money transmission, check cashing, currency exchange,
currency dealing, and prepaid access. The regulations require MSBs to ensure that
their services are not being used for nefarious activities and requires that these
companies: file Suspicious Activities Reports, implement an anti-money
laundering (“AML”) program, and check customers against OFAC’s Specially
Designated Nationals List, in addition to a number of other requirements.
Because Bitcoin is
pseudo-anonymous, it
is not known who the real-identities of the parties to the transaction are,
only their Bitcoin addresses. This is a major reason why banks were initially
hesitant to engage with Bitcoin: they are worried that they will be punished
for not getting sufficient information about their customers. Bitcoin companies
are beginning to find ways to obtain this information from customers, which has
led to banks beginning to partner with Bitcoin companies. There is still a long
way to go. For example, because of U.S. regulations, Bitcoin wallet, Xapo, is
unable to offer its debit card product in the U.S. until it can find a banking
partner.
This lack of clarity
also exists at the state level. Whereas states such as North Carolina and Texas
regulate Bitcoin Companies within their existing money transmitter laws, states
such as New York are attempting to create an entirely new type of license,
coined the “BitLicense.” The BitLicense is highly controversial as some welcome
clarity while others point out that Bitcoin is a technology and not something
that should be regulated. The proposed BitLicense is currently undergoing its
second iteration, with New York welcoming comments on the proposal until March
6, 2015. You can read the most recent proposed regulations
here.
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. If you have any questions, please tweet @magertler using, #APEXLV15, and
they may be included in a future post.
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