Bitcoin is going mainstream in the sense that most people one meets on the street these days have some idea of what it is- a digitally backed currency that one aquires through purchased it with fiat currency or by mining it.
That, however, represents the beginning and the end of the average consumer or merchant’s understanding of bitcoin- with the caveat that if more is known past that point it is usually worrisome knowledge about bitcoin’s price volatility or the myriad thefts of bitcoin from exchanges that have plagued early 2014.
Whatever strides bitcoin as made as a topic of conversation and coverage, as a currency it has still yet to go mainstream. It has users—but they are an usually tech savvy digitally enthusiastic crowd as of yet; and it has merchants—but with the exception of Overstock.com, most larger retailers remain skeptical of accepting bitcoin as too risky a proposition.
This is the perception that Bitnet is hoping to change as it launches a platform to bring bitcoin to the mainstream. PYMNTS caught up with their CEO John McDonnell Monday about how his company plans to leverage their collective payments expertise against the problem of getting merchants and consumers into the habit of using bitcoin in online purchases.
When Bitnet sees a bitcoin, they don’t see a semi-controversial digitally backed currency of mysterious origins, they see digital cash and an opportunity to create a payment method custom built for web use. By essentially standing in between merchants and consumers as a middleman processor—Bitnet holds bitcoin payments in what an escrow account until both parties have verified that the terms of the agreement have been met, at which point they release funds.
Bitnet accepts the risk of the bitcoin dropping in price while the transaction processes, and charges a fee for processing the transaction. Bitnet also does the currency conversion for the merchant—the platform accepts the bitcoins as payment, but can turn them into fiat currency before releasing funds to the merchant.
While many services are trying to bring bitcoin to the mainstream, McDonnell says Bitnet brings their unique experience in building Cybersource—the world’s’ largest payment gateway that they sold to Visa three years ago.
(Jump to 1:20) “The top of the list in terms of differentiators is our main expertise, the fact that we’re bringing to the bitcoin ecosystem literally decades of payments processing experience and specifically trying to make legacy payment types like credit cards and bank transfers work on the internet. So we have a lot of experience in trying to make payments that we never designed to work over the Internet do so and then to manage a lot of the risk and fraud considerations that were attendant in that effort. We see with bitcoin a tectonic shift in that technology in the sense that the internet has now been turned into a secure payment system.”
Bitnet offers a suite of services that an be accessed through an API integration, much like they did in their previous business. By working with bitcoin and the esgrow system it allows Bitnet to build, it offers merchants an option of accepting a payment that is immune to fraud and chargebacks—much the way cash works in “real” world transactions.
And, according to McDonnell, it is a solution merchants are interested in, particularly when things like the risks of price volatility can be controlled for.
(Jump to 14:09) “There is still a missionary sale element to this in the sense that there is an educational curve often what we will engage in with retailers to help them become familiar with some of the nuances. Typical conversation might go as follow ‘You should take bitcoin’- ‘Okay, what about the volatility’ –‘Well we manage that.” “What if someone steals the bitcoin” – ‘We guarantee payment against that’ -“Okay, what about the processing costs’ “That’s the best part, it’s a third or less than what you’re paying with a card, and there’s no fraud.’
McDonnell says that they have been surprised to discover the amount of pent up demand to accept bitcoin, and feel they can really add value to the market by using their expertise to step in and secure the transaction.
On the consumer end, McDonnell says they are also seeing growing demand, though the reasons for that demand vary by location on the globe. Whereas first world consumers are tired of limitations posed by cards and bank transfers—both of which have some difficulty over the internet—and can be incented by a better option from a security perspective; developing world consumers are more immediately concerned with a storable but digitally mobile form of currency.
(Jump to 18:44) “Consumers have bitcoin, and they want to spend their bitcoin. So far it’s the early days but the advantages of using bitcoin vs other payment types is an open question…why would a consumer want to use bitcoin in lieu of a card. And I think the answer will be different in developed economies than in developing economies…where the population does not have the same level of access to cards. In the developed world there is a growing frustration to using cards online and exposing cared details online where they can be stolen and stored in places that can be hacked.”
To hear PYMNTS full discussion with John McDonell of Bitnet, click here
*If you have trouble with the audio player above, click here.
For more information on newsworthy startups this week, check out the Startup Roundup for May 20, 2014.