Why payment providers need to embrace Bitcoin

By Sophie-Charlotte Moatti

Mobile monetization expert, Facebook entrepreneur

Industry analysts predict consumers will make $1 trillion in purchases via mobile devices in 2015 and yet the ecosystem to make that happen is far from being in place. Some innovators have experimented successfully to disrupt traditional swipe-based point-of-sale payment systems, but incumbents have yet to place their bet. This is stalling parts of our economy and creates disruptive opportunities for alternative currencies such as Bitcoin. Truth is, the alternative seems daunting.

Mobile costs outweigh benefits

Despite all the hype around m-payments, adoption in the United States has been slow and there are many good reasons why.

First and foremost, current mobile payment technologies such as NFC (Near Field Communication) or beacons/BLE (Bluetooth Low Energy,) do not offer a meaningful enough benefit to consumers, who are used to swiping their credit cards and find it easy enough. Merchants do not benefit either as they would still incur a two-to-three percent fee on non-cash transactions in addition to the high costs of switching to a new system.

Next, the ecosystem is extremely complex and suffers from the "tragedy of the commons." Stakes are high for banks, telecom providers, payment providers, phone manufacturers, and more. Sophisticated fraud schemes, unsorted business models, conflicting consumer ownership and stringent chargeback rules favor the status quo. No single player has an incentive big enough to move until and unless everyone moves in the same direction.

In such intricate situations, regulators often intervene to set public policy, standards and deadlines that act as forcing functions for every part to align. But in this case, there is no compelling reason for them to do so due to the lack of consumer benefit and hence the Federal Reserve is likely to stay on the sidelines (unless it is compelled to get involved as it was with debit card fees.)

Bitcoin could enable m-payments tech

The most successful m-payment systems have been built by startups like Square, Stripe and Braintree, which PayPal recently acquired. While they have received great traction monetizing new services such as AirBnb and Uber, and have been slowed down by the recent banking crisis, they will have a hard time making a compelling case to replace payment systems of more traditional marketplaces considering the unfavorable cost/benefit analysis.

On the other hand, retailers are seeing prices squished by e-commerce giants like Amazon and could increase, and in some cases even double, their margins by cutting payment transaction fees. Enter Bitcoin, a safe and secure payment system which charges a minimal processing/miner fee. Bitcoins can be transferred anywhere in the world in minutes instead of days or sometimes weeks with the current payment systems, so merchants could receive their money much faster. Bitcoin is a disruptive technology with the potential to shatter the existing ecosystem, but many aspects of its own ecosystem still need to be ironed out, as the last few months of issues have shown. So what is the alternative for incumbents?

Bitcoin vs. m-wallet? Bitcoin wins

Offering retailers and e-commerce marketplaces a set of value-added services in a comprehensive m-wallet could help them retain consumers. These services would include:

• Payment acquisition, which lets consumers pay with any form of payment, anytime and anywhere. From credit card to prepaid, direct debit, checks or loyalty points.
• Loyalty, which provides coupons and offers to the right segment at the right time in the right place. 
• Multitouch attribution, which allows merchant to optimize their marketing across platform.
• Securitization, which banks will value because it reduces individual risk. 
• Fast settlement, which would significantly speed order-to-cash process and let money be transferred in hours instead of days or weeks.

An m-wallet offering in the U.S. will likely leverage the beacon/BLE technology over NFC because it has the potential to create very light-touch and personalized consumer experiences and because technologies such as Apple’s iBeacon could be more affordable to deploy than NFC readers.

The increased consumer value of an m-wallet over current m-payment solutions may be enough to make the benefit of an upgrade outweigh the cost in the eyes of retailers, but so much needs to be worked out to get there, that the Bitcoin alternative needs to be prioritized and seriously considered by all players in the payment value chain.

Sophie-Charlotte Moatti (SC) is a general manager who builds and leads teams that transform technology companies into mobile-first organizations. The mobile services she created are used by billions of people and have won industry awards such as Emmy nominations. Prior to joining Facebook, SC successfully sold the mobile company she founded and was general manager of a top 1 percent mobile commerce/search app at Nokia. She has a Stanford MBA and an MS in electrical engineering and frequently speaks and writes on mobile, social networks, innovation and leadership (CTIA, Fast Company, Stanford, Commerce World, Watermark) Connect: linkedin.com/in/scmoatti, @scmoatti, facebook.com/scmoatti.

Photo courtesy of BTC Keychain.