Existing payment schemes were created with the understanding that payments are going to be (and stay) domestic. That old school way of thinking doesn’t reflect today’s increasingly global business landscape. As an innovator in the B2B payments space, Serial Entrepreneur and founder of a stealthy alternative enterprise payments startup, CEO Marwan Forzley has a detailed understanding of Bitcoin’s limitations and equally impressive benefits, which he shared recently with MPD CEO Karen Webster.
KW: I’ve seen at least two instances in as many weeks of the players in the consumer payments space that have expressed their interest in getting into the B2B space. Why? What problem does Bitcoin and the Bitcoin protocol solve for B2B payments that existing infrastructure hasn’t solved or can’t?
MF: So first off, there are two different implementations of using Bitcoin in the B2B context. There’s the use of Bitcoin as a currency, so that’s the coin concept which is a storing value so the business in this instance is coins from another business. The original business needs to have a Bitcoin. That’s one method through which businesses can move money around. And there’s the second implementation of Bitcoin where we’re talking about using the “bit” the concept of using the technology underneath Bitcoin as a way to move funds. In this case you’re taking payment from the source, which is a traditional payment option, to the receiver on the other end. The receiver is receiving it in their own payment options, in their own currency and in this case Bitcoin acted as a medium of exchange. Through which you can move money from national currency to international currency in which Bitcoin was the carrying infrastructure. For that to work, the rail that carried the transaction needs to be secure, which Bitcoin is, and that’s based on cryptography and it needs to offer something different to the businesses that are using it whether it’s a different pricing structure or a more optimized speed. One of these or a combination of them becomes very important to the receiver of the payments, that’s where rail options offer benefits to both parties and is different than it exists today.
KW: We move money between businesses all over the place now. It’s probably not as efficient as it could be, but is Bitcoin and Bitcoin rails really the optimal solution?
MF: It depends on the context and the use cases. If you look at the various quadrants of money movement, whether that’s B2B or C2B, one area that causes a lot of friction and a lot of cost is cross border. Cross border is particularly painful for both payers and receivers and one interesting thing about Bitcoin is that it is designed from the ground up to be global in its construction. The existing payments schemes were created a long time ago with the understanding that the payments are going to be domestic. Bitcoin, on the other hand, was designed to be a global payments system or a global rail – there is no concept of a boundary or a country so it works really well for cross border settings and it’s designed in a way where you can move the money from point A to point B without that money necessarily needing to be domestic. So it works really well for that cross border setting and that’s a particularly painful use case for all participants in the value chain and I think that’s an area where simplification can be well suited and Bitcoin plays well for that use case.
KW: You talked about this notion of separating the currency from the container that moves the currency – but the rails have to be operated by someone. In the Bitcoin world, who operates those rails and who regulates them?
MF: It’s open source and it’s like any other technology that’s open source. It’s built by the community of people that are working on it. In the case of Bitcoin it’s a growing community – there’s been a significant amount of innovation with companies in this space taking part in VC (venture capitalist) funding who are building on this technology. But like any technology it takes time to harden it and as volume scales, hardening becomes particularly important. Just like with any other technology when you starting moving funds that scale, regulation becomes important and there have been efforts to regulate Bitcoin and we’re seeing other efforts around the world. It is something that will happen and the open source will become a lot more rugged as volume scales. It’s a process like new technology it takes time to get there.
KW: Do you think that sets up a bit chicken and egg problem? That in order for it to get scale and hardened, it really needs to have this notion of the benevolent dictator so that companies become confident using it?
MF: It has functioned so far. I think it’s like any other software that starts to scale. As scaling starts to happen it’s that infrastructure that’s underneath that is not reliable or rugged enough. It goes in that cycle where it takes things longer to mature. There are test causes for the value that it is going to bring – the value has to be economical and it has to be important for the businesses using the system. If that system is recognized and seems like it is going to bring something new to the table, I think you’ll find that the underlying infrastructure becomes a lot easier to organize around it because people understand the use cases and the problems and you start to see the underlying infrastructure start to meet the business needs and begins to get oriented for scale. Right now, the use cases are being defined and the system is experiencing some volume as the industry starts to mature and becomes a bigger industry you see those cycles of hardening that are going to make it better for everyone.
KW: You mentioned 3 benefits that would come out of this new way of sending money – it has to be secure, it has to have a pricing advantage and there has to be added functionality. Can you give us the top line on all 3 and how that’s better than what we have currently?
MF: I would say it’s complementary to what exists because what exists works, there’s just friction. Every time you move money from one country to another the number of players involved to move that transaction increases. Bitcoin is able to remove some of the humps in the middle of the payments process to lower the cost structure and in return you gain some timing advantages. In the end, you’re delivering a better cost structure and a faster transaction to the business receiving the payment. What’s so interesting about payments is that the software can be made aware of the application process. For example when a transaction happens you can know what this transaction is for so you’re able to pass information along with the payment which is something that is harder to do with existing schemes which can’t really manage bulk data. When you normalize data, you eliminate data instead of bringing more data into the equation. One of the things that’s nice about Bitcoin is it can help bring information into the system to know what this payment is for, so you would be able to trace the transaction. Bitcoin transactions are very traceable so you would be able to know what happened in the transaction from point A to point B.
KW: You mention that is this complementary to what we have to some degree but disruptive in others. Can you clarify some ways in which it’s disruptive and who it disrupts?
MF: I think it’s complementary to existing rails in some ways, if there are transactions that are easier to move over to Bitcoin it can be an alternative channel. So it becomes particularly interesting for small to mid-size businesses. It’s also become interesting for global banks in that here’s a new way to move funds around and provides an opportunity for them to participate in this new form of rail movement.
KW: The idea of coopetition all over again. This is something the payments industry is trying to figure out. I think people tend to find Bitcoin confusing because they associate it more commonly with the currency and not the rails.
MF: I think these are two very different concepts and I think the industry is beginning to talk about it in different contexts. So the use of Bitcoin as a medium of exchange so they currency is what the industry is focused on. I think Bitcoin has the opportunity to simplify how money moves on the web.
To debate the role of Bitcoin and its place (or not) in the enterprise payments ecosystem, join us on October 15th in New York City to discuss “What’s Next in B2B Payments?” Register today!