By Jon Matonis
Saturday, March 24, 2012
Square has always relied on a dongle and now PayPal
is sporting a fancy triangle-shaped dongle, nicknamed the 'Blue
Dorito'. Both of these dongles equip your mobile phone to accept and
process credit cards securely by inserting the device into the
smartphone's 3.5mm audio input jack. Apparently, this passes for
financial innovation in mobile payments but I file it under the
'not-disruptive-enough' category. Truly-disruptive financial innovation
is already here with decentralized bitcoin. And, bitcoin doesn't need a
Bitcoin bypasses the need for an external dongle because it bypasses
the existing railroad tracks of the entrenched legacy players like VISA
and Mastercard. Just as the newly-funded VC favorites of Boku, Jumio,
and CardSpring layer on top of the legacy network, Square and PayPal
repeat the strategy of keeping the banks and credit card processors in
the transaction loop, and the lion's share of the revenue loop as well.
This might be a good short-term bridge but the real action is taking
place with solutions that route around the legacy networks by replacing
the unit of account, or numéraire.
The easiest way to circumvent the high-fee transaction networks is to
utilize a different currency unit since it does not come with the same
handicaps and legacy restrictions of a political currency unit. Erik
Voorhees states that we need to advocate "the separation of money and
"The volume of all types of mobile payments will top $200 billion by 2015, up from $16 billion in 2010," according to research and advisory firm Aite Group.
With massive new opportunity like this coming into the mobile payments
arena, why not harness it into meaningful paradigm shifts rather than
expand and enrich the existing processors and centralized networks?
The mobile payment landscape for lightweight bitcoin android apps includes Bitcoin Wallet, Bitcoin Android, and BitcoinSpinner, with Paytunia on the horizon. With the more difficult to obtain approval from Apple, the App Store offers BitPak
as the first bitcoin wallet for the iPhone -- that is if you're willing
to wait for the entire block chain to download. Amazingly, these
functioning wallets allow you to send and receive bitcoin from your
smartphone today. For instance with Bitcoin Wallet, you can send bitcoin
between phones just by scanning the QR code that is displayed, by
invoking the application, or via NFC (Near Field Communication).
So, what is a typical bitcoin transaction flow without involving
banks or credit card networks at the point of sale? As a merchant
solution provider, U.S.-based Bit-Pay bills itself as the world leader
in bitcoin payment processing and they have produced a simple mobile
checkout demonstration video. Merchants enjoy no risk of chargebacks, no costly PCI compliance, global acceptance from any country, and low .99% pricing compared to 2.75% and 2.7%, for Square and PayPal respectively. Of course, the .99% pricing applies only if merchant maintains the balance in bitcoin rather than instantly converting out to US Dollars. Bitcoin 24/7 is an alternative merchant services provider based in Ireland.
A bitcoin processor can be beneficial for a number of reasons
including overall risk mitigation and managing the process for adequate
block chain confirmations. Some third-party innovators
are even making advancements in "green address" techniques that enable
secure, zero-confirmation transactions. However, without a third-party
processor, which is entirely possible because no special hardware is
required other than a smartphone or merchant deposit card, transaction
fees can be at or near zero.
Mobile wallet security in general is constantly improving and it is already
more secure than a physical wallet due to the nature of passwords and
remote back-ups. Bitcoin certainly has a slot in the digital mobile
wallet of the future. Frictionless mobile phone remittances to a
worker's home country, such as Africa, may just be the killer app for
bitcoin. I'm sorry but fancier buggy whips and dongles are not