Coin: can you bank on it?
A look at one of 2013's most hyped startups
Coin, in theory, sounds pretty damn cool. If you haven’t seen their slick demo, the hype, or already pre-ordered one, Coin is a new company promising to declutter your wallet; storing all your various cards’ information on a single device you can use in their stead and able to switch cards with a press of a button. The idea? Gold. The company bringing it into existence? Hovering somewhere between Zinc and Tin at the moment. Since the hype seems to have died down for the moment, I think it’s a good time to see where we last left our brave entrepreneurs, and what the future holds for what was one of the most interesting startup stories of 2013.
What does a hardware startup need to do to be successful? An eye-catching concept rendering? A beautiful site? A slick demo video? A big advertising budget? Really, none of these things- you need to solve a problem well, and then worry about the marketing (hopefully the value proposition is so appealing it will sell itself). One of the first orders of business is to speed up the prototyping/development/test cycle for the actual product/service to hopefully remedy initial holes in the design. Today, most consumers have no patience for half baked products and will move on without looking back, especially in the mobile space. This takes some serious capital, especially if you want to go down the industrial manufacturing route at scale.
Hardware, unlike a strictly software venture, requires a multitude of partnerships, supply chain savvy, manufacturing know-how, and an enormous amount of capital. Ask anyone working on hardware, even the big guys, and you’ll quickly understand what an immense undertaking it is. Whatever widget you end up designing will most likely be manufactured in another country (probably China) with different language, culture, and business practices. The innovation curve is so much longer and higher with hardware too, requiring huge amounts of capital at every stage. Because of this, mistakes can be costly and even the most trivial failure can be shattering. If you need examples, just look at all the Kickstarters that are funded and never come out with a device. The recent success of many new hardware startups like MakerBot, Jawbone, and Nest seem to illustrate how “easy” it can be, but there was a perfect alchemy of genius, sweat, luck, and a sizable stack of cash to get from idea to the industrial manufacturing level and into your home.
Coin’s co-founders secured backing from some big names in the venture capital space (K9 Ventures and Y Combinator), but initial venture capital still needed to be complemented with some more funding. Instead of Kickstarter, the Coin guys decided to launch a massive marketing campaign for the preorder, which is great for them, and not-so-great for the customer. Interestingly, however, I don’t entirely blame the tactics, although a big disingenuous, as the goal was still to round up some cold, hard cash.
Because Coin went this route, they were able to get real customers as their “investors”, understand the demand and requirements of this crowd a bit more, and drum up a helluva lot of hype. Unfortunately, these “investors” don’t see any equity, interest, or any return on their “investment” (not to mention have any real path for recourse if the company folds). In essence, the real investors potentially seeing a return funded the marketing of the preorder, and those who preordered did nothing more than a favor to Coin to actually produce the widget. On the flip-side, there is now enormous pressure to deliver a great product for not only the people who pre-ordered, but to make any future sales to those waiting (like myself).
Aside from a few videos produced by Coin and some chatter on their Twitter, not much is known about the current state of the device/software aside from the steadfast (albeit vague) promise to ship this summer. In this interview from a few months ago, as in the demo video for the preorder, we see what looks to be a functioning prototype and seem fairly similar to the concept. Apparently there is a beta test in progress right now, and until we hear from some of those folks, the jury is still out on whether it is living up to the hype (I’ll be curious to see if they will have found a workaround to use the card when your phone is dead, which to me seems to be a showstopper for most users). Unfortunately, judging from the still open preorder and lack of a definitive ship date, I’m guessing they are at least an entire revision behind schedule and probably haven’t worked through all of the manufacturing issues. While I have no evidence to support this, I’d be willing to bet “summer” isn’t going to be June.
The strategy to develop the hardware first and fill in any gaps with software may seem a bit reckless, but isn’t the worst plan. They have developed a well received Arduino iOS Bluetooth Low Energy (BLE) dev kit that sold out on their first run, and was picked up by these guys after Coin published the project on GitHub. This development gives me more hope than any of the other news out there for their intentions and effort they are putting into this project, but I’m still not confident yet as there has been a worrying lack of attention given to some of the most crucial issues facing their product/service.
Besides the obvious attention given to the industrial design and manufacturing piece, Coin has yet to address some fundamental issues facing all of the startups in this space: security and vendor acceptance. Security has been a work in progress, and they still haven’t made clear what they plan to actually implement aside from basic encryption and locking of the card itself (which could be seen as a negative outside of the “lost your card” use case). Clearly this a fundamental piece of their value proposition, and raises serious red flags for every stakeholder (users, merchants, banks, etc.).
There have also been a lot of assumptions made that the credit card companies will allow such a device to be used in the stead of their current tightly controlled magnetic strip cards, but at the end of the day are unfounded. Parashar acknowledges this saying,
“We’re a really small company, and these are really large banks…We will talk more when Coin is further along.”
Unfortunately, Coin is dependent on this kind of acceptance from the credit card companies and banks to even see them move further along. A lack of any partnerships so close to shipping is scary, at best. If Google had problems with the credit card companies when launching Wallet, what makes them think their unknown startup will skate by? On the other end of the spectrum, Coin also hasn’t vetted the service with merchants or POS manufacturers to ensure this will be universally accepted. Again, Parashar,
“We don’t plan to go out of our way to educate the merchant world about it, because we’re focused on the consumer side…And anyone who works on the merchant side is also a consumer anyway.”
Obviously these are all glaring concerns, but what’s almost more worrying from a customer perspective is their Terms of Service. Consumer protections have been severely limited (read: nonexistent) as they essentially absolved themselves from any responsibility, bluntly stating in the ToS:
“You are solely responsible for the use of the Service.”
Clearly someone over there understands the potential risk in the payment space, but this doesn’t leave the user feeling warm and fuzzy. It’s apparent such a small company cannot indemnify each customer, but I feel some concessions should be made for peace of mind, especially since they have already promised devices to those +1k folks who preordered.
Months later, I still have more questions than answers about the company and their product. The payment space is unforgiving, and even small snafus could be costly. If they fail to deliver devices, or there is a fundamental flaw with the first production run, I would not be surprised if this shutters the company. CEO Kanishk Parashar was beaming at meeting their $50,000 preorder goal in 40 minutes, but this level of capital quite frankly doesn’t seem to be in the right zip code to produce this kind of product in such a short time frame. Without a rock-solid approach to security, partnerships with credit institutions, any protections for the user, or even a viable physical device, I find it hard to not be skeptical. There are far too many other players in this space, and other startups (like Loop), while not perfect, have made strides in overcoming a lot of the issues Coin is still facing. While I find the concept interesting, it seems Coin has oversold a solution to a rarefied “problem” that ultimately leaves the user fully accountable. The jury is still out, and I wish the Coin team all the luck in the world, but from where I stand Coin is far from bankable right now.
