The Transactional Friction Problem
Transactional friction has been a driving force in economics since the inception of trade. Transactional friction is simply the sum of all the direct and indirect costs of performing a transfer. The thing is, transactions are by their very nature work. Some entity has to move whatever asset is in question, physical or digital, from one place to another, whether real or virtual. Because there is work involved, and work requires compensation, there is almost always a cost.
FRICTION COSTS
The three major costs are: Search and information costs, bargaining costs and policing/enforcement costs. For instance, let’s say John wants to buy a used car from Tom. In this scenario the research John does and the time it takes is the search and information cost. The bargaining cost is all of the communication and time required as well as travel required to actually make a deal. Finally, the policing and enforcement costs are mostly legal in this case, relating to the paperwork that has to be done for the transaction.
THE FRICTION OF HORSES
In the past, transactional friction would have included everything from courier and mail fees to actual transfer fees from banks. In fact, without the internet, search and information cost was a significant expense and policing was much more difficult. Today, most of the “work” of transactions is done electronically. In fact, banks like Wells Fargo and Capital One handle billions of dollars in transactions every day, completely digitally. Modern banks have come a long, long way since the days of the Wells Fargo logo (a horse-drawn carriage), but blockchain is just as big a leap.
BANK TRANSFERS ARE EXPENSIVE AND INEFFICIENT
Bank wire transfers still take 3–5 business days to clear and can cost the consumer from $25-$50 even for a transfer of $500, and the failure rates can be as high as 5%. This doesn’t make any sense. You can send an email to anyone, anywhere on earth, for free and they will receive it in seconds for sure. What’s the difference?
BANKS LIKE TO CHARGE FEES
Well, it’s not as though the banks are moving physical bars of gold when you transfer funds! In fact, almost every bank transfer is a simple digital transaction that could be completed in seconds on a blockchain. Unfortunately for consumers, banks charge fees, and the current infrastructure allows for unconscionably high fees given the low amount of work needed for the service performed. Now, this is not to say that banks shouldn’t charge any fees. Banks provide highly valuable services they don’t directly charge for and also have many expenses, so fees are an important aspect of their business. Many consumers are in fact happy to pay these fees, considering the services they receive in return, but with the advent of blockchain comes the potential for freedom.
HOW TO BE YOUR OWN BANK
The best way to avoid all of this hassle and friction is to simply be your own bank. If you know crypto, you know that’s the whole idea behind it. As long as you’re managing your own private keys, the only fees you need to pay are network fees, and with currencies like XRP, LTC and Bitcoin Cash, the cost is so low as to be negligible even for microtransactions. That’s not to say there’s never going to be transactional friction. If you take it far enough you can include the cost of your hardware wallet and even the pen you used to make a paper backup in your transactional friction calculations, but the point is that most of these costs come from middlemen.
THERE’S ALWAYS A MIDDLEMAN
Intermediaries are ubiquitous in every industry. From Hollywood agents to stockbrokers, middlemen provide important services that most members of the public can’t access on their own. At the same time, technology is evolving to provide the same services very quickly and we see things like Rocket Mortgage which is entirely online to cut out the human salespeople and even middlemen replacing middlemen, like how online trading platforms have connected investors directly to markets without human brokers. Blockchain technology is a mix between removing and automating middlemen.
THE GIFT CARDS
Smart contracts built on top of blockchains allow for simple applications like the Zeex Protocol. Rather than finding convoluted ways to pay a retailer with cryptocurrency, we knew it would be easier for them to accept a method of payment they already work with, and what payment method do retailers like better than their own gift cards? Retailers love gift cards, because they receive money for them up front, and then they may or may not end up exchanging the gift cards for products. Let me explain a little bit better. Almost everyone has received a gift card and very few people have spent every dollar on the gift cards they received. Whether it’s the last couple of bucks on the card that never gets used, a lost card, or just a lazy consumer, there’s a significant amount of breakage in the industry.
THE ZEEX PROTOCOL
Zeek took advantage of this to create Europe’s leading gift card marketplace, and now Zeex is leveraging that success and aiming directly at the cryptocurrency market. By making cryptocurrency and virtual gift cards easily interchangeable, we make it simple for users to instantly access products and services. This also enables retailers to accept more payments from more people with no added effort on their end. By the end of our token sale, you as a consumer will be able to buy a gift voucher (let’s say Sainsbury’s for instance) while waiting in the queue and by the time you’ve reached the register you could have a scannable code waiting for the cashier on your phone.
CONCLUSION
The best way to reduce transactional friction is to avoid it, sometimes a complex solution is ot the best one. Instead of worrying about adding more moving parts, through Zeex both parties reduce the number of steps in the payment process and improve their experience. We are solving the crypto industry’s biggest problem — liquidity. With Zeex, you can quickly and easily convert your crypto to products, with no fiat and no fees. That actually is the bottom line.
