Editor’s note: Ken Miller is the COO of Gem. Previously he was VP of risk management at PayPal executive and adviser to Square.
In the late 90s, as personal computers and the Internet were increasingly finding their way into American homes, there were those who either didn’t recognize the disruptive power or potential they would have, or they felt threatened by their emergence (e.g “I’ll never quit reading the newspaper!”).
We saw this again in the early 2000s, as companies like PayPal emerged and forever changed our willingness to pay people over the Internet – including paying complete strangers. As PayPal quickly became ubiquitous and was changing the payments industry and commerce, most of the big banks and credit card associations stood pat and instead chose to fire off public lasers at PayPal, citing security, protections and regulatory hurdles as reasons PayPal would falter and was a risky proposition.
Unfortunately for them, what they should have been doing during that time was innovating and improving customers’ lives; doing so could have very likely eliminated the need for a PayPal to even exist.
Today we’re seeing this story again. Same movie, same suit-and-tie wardrobe, same dialogue, and what appears to be a fast track to the same ending. Western Union, which discontinued the use of telegrams in 2006, has fired several shots in recent weeks aimed squarely at bitcoin specifically and digital currency generally.
It started with its CIO saying that bitcoin wasn’t trustworthy and was ‘a solution looking for a problem to solve,’ and was soon followed by the filing of legal claims around copyright infringement after a spoof ad went viral on Facebook poking fun at the cost of remitting money through Western Union versus bitcoin.
Most recently, details of Western Union’s feedback on New York’s proposed BitLicense regulation were revealed, wherein Western Union insisted bitcoin be regulated more, while in the same breath requesting “could you please also leave us alone on some stuff?”
There are many problems for which bitcoin technology presents a solution, but one that quickly comes to mind is the over $5 billion annually that Western Union takes from individuals trying to send remittance funds to family members in need both at home and in other parts of the world. Fees charged to remit funds tend to be inconsistent and exploitive, ranging anywhere from 5-28 percent depending on the city/country pairing.
Given the inherent near-zero cost of bitcoin, if it never had any other application in the world other than to eliminate these double-digit fees and get most of that $5 billion in the hands of people whose lives would be dramatically improved, then that’s a problem worth eradicating with this solution.
But when you’re a publicly traded company, with flat growth and shareholder pressures, you often do and say things that are, at best, naïve in terms of where the world is heading, and, at worst, conflict with the best interest of your organization and customers. A great example of this is Blockbuster in the 2000s, which frequently liked to sound the alarm on why video streaming was a niche business, and even spurned the opportunity to acquire Netflix for $50 million.
Today, Netflix has a market cap of $21 billion and Blockbuster has gone out of business, trying to take the Dish Network to the bottom of the ocean with it. Blockbuster clearly overshot how much we would pine for the days of racing in the car at 11:56 p.m. in our pajamas to reach the drop-off bin and avoid late fees.
But much like Blockbuster’s (and banks’) short-sightedness and defensive posturing in the 2000s, Western Union runs the risk of soon evolving into nothing more than a Wikipedia entry. Bitcoin is a technology like video streaming, not a company like Netflix. It’s not trying to preserve revenue or please shareholders. And it won’t fall victim to leadership pulling it into odd markets on a whim.
Bitcoin is a technology that, other than Internet and mobile, could very well end up being the most important we’ve seen in the last several decades.
The drum beating that bitcoin is not safe or trustworthy is, again, an incomplete picture and self-serving. It’s analogousto a horse and buggy manufacturer shouting about safety issues when the car first showed up. “Yeah…but you could drive it really fast and crash it into a tree and die!” Well sure.
The reality is there is lots of innovative work still to be done around creating a completely secure bitcoin experience, but that work is progressing quickly and the world will soon be better for it. When Bank of America dropped tens of thousands of credit cards in the mailboxes of Fresno, Calif., residents in the late 50s, losses were initially extraordinarily high and executives gasped. But commerce and life as we knew it was forever changed.
A couple of years back, Congress introduced legislation, branded as the Durbin Amendment, that was designed to cap the amount of interchange fees that a merchant could be charged by a bank to process debit card transactions. The “intent” was to take some of the excess riches the banks were getting from debit card transactions and return it to the wallets of merchants and hopefully even consumers (in the form of lower pricing).
In practice, what happened is Walmart (which led the Senate lobbying on behalf of the Durbin changes) got massive reduced savings, small businesses missed out, and banks just made up for the lost revenue in other areas like increased checking account and ATM fees. Consumers and families lost out. In the meantime, the remittance market has gone completely unchecked, and that’s been the case for years.
The World Bank estimates that over $450 billion in remittance payments into developing countries will occur in 2015, which is three times larger than the amount of total direct foreign aid that will be sent to those countries. Unfortunately, $36 billion of those payments will never reach the individual or families they were intended to help because of fees that are charged.
The beauty of the advent of bitcoin is there is no need to hope that a centralized government authority tries to “fix” the issue with a faux solution that just shifts dollars around among giant corporations. Bitcoin’s low-cost structure and potential integration capability with all mobile devices eliminates the costs required to support the 80-year-old messenger with a cute hat, and renders the $36 billion in fees totally unnecessary — $36 billion that will do really well in the world.
As this payment revolution becomes the standard and truly improves people’s lives by returning their money back to them, there will be a real test to see what entrenched players learn from their historical brethren about how not only to stay relevant but survive. History has shown that waiting to see what happens or playing defensively will not change the world.