In keeping with our core value of transparency, I’d like to shed some light on the overall strategy we’re pursuing at Verify.
While the competition are busy building crypto-payment solutions, we took a few weeks to validate some initial assumptions — so we can then build something we know our customers will use.
I’d like to share some of those findings in this post.
Does anyone even want crypto payments?
It’s such an obvious question, but most seem to take it as a given. “Build it and they will come”, they say.
To find out for ourselves, we spoke to both sides of the transaction.
Sellers
After speaking to over a hundred sellers, it became apparent that most sellers simply did not care about crypto for cryptos sake. There are two things they’re interested in: how much more money do I keep per transaction, and how many more customers do I get through crypto? The former is trivial to calculate, whereas the latter would require at least a small scale experiment.
Market research puts the size of the crypto-commerce market globally at $50m[1]. That’s pathetically small. Some may attribute this to the relatively early phase the crypto market is in, but consider the trajectory crypto is taking:
There are fewer merchants accepting cryptocurrencies today than a year ago.
Many companies that had previously accepted crypto are actually pulling out citing increase transaction fees and weak adoption. These are established companies like Expedia, Dell[2] and most recently Stripe — all deciding that Bitcoin just wasn’t worth accepting.
Buyers
Most crypto holders are holding for a reason: they expect the value of their coins to increase[3]. This alone should be proof enough that buyers have very little economic interest in parting with their coins for the sake of buying things. The buyers we spoke to reflected this sentiment — in the absence of a strong incentive to behave otherwise, buyers would not pay with crypto given the choice.
These findings make one thing pretty clear: it’s going to be an uphill challenge getting buyers and sellers to use crypto for payments[4]. Building a marketplace solution is tough enough — doing so while fighting established consumer behaviors is going to to be one hell of an undertaking.
Back to the drawing board
In a matter of just a few weeks, we were able to establish that crypto-commerce today had pretty bleak prospects. But we weren’t done yet.
The core question we started with is how can you transfer value (“money”) from a buyer to a seller. Crypto is just one form of “money”. We need to transfer money without using crypto (or at least, not accepting crypto primarily).
Naturally, the answer would lie in accepting a mode of payment that most people actually possess: fiat.
Accepting Fiat
Several of our USPs rely on features not currently supported by credit cards: low fees, no chargebacks and immediate payouts. You simply cannot do all of these things with credit cards today. This means you need yet another way of accepting money.
There are 2 primary options:
- Cash
- Bank accounts (and the various derivative local payment methods that depend on banks)
Other options we considered but that are not suitable:
- Credit cards (high fees at ~3%, chargebacks)
- Direct Carrier Billing through mobile phones (incredibly high fees, to the tune of 30%+)
- Cheques (physical, not digital)
- eChecks (limited distribution, take ~1 week to settle)
Cash
Obviously, cash is available everywhere. The question is how you transfer it (from a buyer to a seller). Once more, let’s take stock of our options:
- Vouchers: sell physical voucher cards, similar to phone scratch cards, and used as credit on the platform. One example is CashU.
- Kiosks: use devices distributed in various popular locations to pay for things. In Bahrain, SADAD is the primary method for doing this, whereas Fawry is popular in Egypt. BitAccess has been able to sell Bitcoins through their Bitcoin ATMs.
Needless to say, while these options get you access to practically everyone, they come at great capital expense on infrastructure; convenience is another casualty.
Bank Accounts
Bank Accounts and the various solutions that rely on transferring funds residing in bank accounts are the next-best option to cash in terms of availability. They have high distribution in many areas of the developing world where online commerce is growing the fastest. They are also digital.
Several options exist when it comes to getting funds from your customers bank account to you:
- Wire transfers: display your bank details on the checkout page, along with a reference number that uniquely identifies the transaction. The customer would then have to manually transfer the funds to you through their bank (or online banking account). Once the transaction is received (typically a few days later), the transaction can be processed.
- Internet banking: a variant of the wire transfer option that involves all the banks in a country integrating with a provider that enables movement of funds between banks for the purpose of online payment. Examples include SADAD in Saudi Arabia and netBanking in India.This is still a “push” process, that requires that customers send funds to you.
- “Pull” bank payments: like internet banking, but involves a 3rd party that actually asks the user for their online banking (or mobile-banking) credentials. It then enables you to automatically process a payment on behalf of the user, turning this into a “pull” transaction. One company that does this well is Plaid; Yodlee and Quovo too. Open Banking and PSD2, both currently being introduced in Europe, should make this easier to do. However, very few such solutions exist outside the US and Europe.
- Local payment methods: various options exist here and they obviously vary by region. The core offering revolves around bolting a user experience above the bank account that enables access to the funds without turning over account credentials. Examples include AliPay, Sofort.
What’s Next?
This post takes a ground-up approach at describing the various alternatives to crypto that exist for facilitating the transfer of value from one person or entity to another. It will provide you with context for the strategy that we’re taking
Of all the options described above, we’ve already selected one for our upcoming alpha product release. This option would enable cheap, fast and scalable transfer of value while remaining widely available to the majority of customers.
In our next post, we’ll discuss this option along with an explanation about how this solution will enable us to solve previously intractable issues with online payments — through the novel application of blockchain solutions. We’ll also discuss the role the CRED token will play in this solution.
I’ll conclude the post with this: We’re incredibly excited about the opportunities that lie ahead. By using crypto, not for it’s own sake, but to solve a real problem, I’m confident in our ability to impact the financial status quo.
References
[1] ESTICAST Research (2017, October 21) Blockchain Market By type, By provider, By organization size, By End User, Industry Trends, Estimation & Forecast. Retrieved from: https://www.esticast- research.com/market-reports/blockchain-market
[2] Though Dell & Expedia haven’t officially announced this, they have removed the option to pay with Bitcoin from their storefronts.
[3] GmbH, f. (2018). Bitcoin speculators are ‘getting burned’ and companies that recently pivoted to blockchain are going down with them. [online] markets.businessinsider.com. Available at: http://markets.businessinsider.com/currencies/news/bitcoin-price-and-blockchain-companies-stocks-plunge-2017-12-1011821400 [Accessed 26 Jan. 2018].
[4] I’m almost certain that this would change in the future, with wider adoption of some foundational components not least of which is a reliable, transparent stable-coin.
