Post on 12-Jul-2015
© Bitnet 2014
Speaker
Akif Khan
10 years experience at CyberSource and Visa Inc (sales engineering, professional services, operational fraud
management, product management, strategic projects, evangelism)
Previous roles at JPMorgan and PwC Consulting
Former Merchant Risk Council European Advisory Board member
Joined Bitnet in May 2014
© Bitnet 2014
Startup founded in Jan 2014 with seed capital of $2.5M based in Belfast and San Francisco
Team of 28 payments professionals - all ex-CyberSource and ex-Visa
Payments platform focussed on digital currencies, initially Bitcoin
Enable merchants to accept payments in Bitcoin with no risk
Proven experience of running a secure, reliable and scalable platform for enterprise merchants
Launching in Q4 2014
!
Introducing Bitnet
© Bitnet 2014
Payments system introduced in 2008 by anonymous individual called Satoshi Nakamoto
Protocol for set of standards for communication - open source, so strength in transparency
Based on a decentralised, peer-to-peer network - no issuing authority, no central control or manipulation
Every Bitcoin transaction ever made is recorded and transparently available within the public ledger called the blockchain
Entities that validate transactions and add entries to the blockchain are rewarded by the creation of new Bitcoin via a process called mining
What is Bitcoin?
© Bitnet 2014
Miners No central authority issues bitcoins. They are instead created by
miners who carry out the work to validate transactions - this
provides an incentive to run nodes in the network.
A number of implementations : bitcoind, bitcoinj
Bitcoin ecosystem
Wallets Application and service providers that allow people to store,
access and transfer their coins between addresses on the
network.
Blockchain.info, Coinbase, Xapo, Hive, Circle
Exchanges Analogous to traditional forex exchanges, they provide market
liquidity, order books and a way for individuals or companies to
buy and sell coins in exchange for fiat currency.
Kraken, Bitstamp, BitFinex, itBit,
Payment Providers Service providers that connect merchants to the Bitcoin network
making it possible for them to transact with their customers.
Bitnet
© Bitnet 2014
Why would a merchant accept Bitcoin?Cost Savings
Take a typical merchant with100,000 transactions per month with average value of €50
< €0.50~€2.50
© Bitnet 2014
Why would a merchant accept Bitcoin?Elimination of Risk
Consumer provides card number Merchant ‘pulls’ funds Consumer can dispute
Merchant provides wallet address Consumer ‘pushes’ funds Consumer cannot dispute
1 2014 Merchant Risk Council / CyberSource Global Fraud Benchmarking Study
0.5% - accepted card orders that turn out to be fraudulent1 20% - orders manually reviewed by merchants to assess for fraud1
2.3% - orders rejected due to the suspicion of fraud1
© Bitnet 2014
Why would a merchant accept Bitcoin?Global Reach
Take a payment from anyone anywhere
Cross-border interchange Local acquirer relationships
Payment gateway connectivity Card penetration low in some markets
Accept Bitcoin from anyone globally with internet access
All transactions are equal
© Bitnet 2014
Why would a merchant accept Bitcoin?Marketing, Innovation, Buzz
Pent up demand from Bitcoin holders wanting to spend !
High interest from media, technology and payments ecosystem !
Attract new customers
“It’s like a global marketing campaign, without having to pay for a global marketing campaign”
© Bitnet 2014
Case study - overstock.com (US retailer, annual revenue > $1.3B)
$1M in sales in first two months
Averaging $30k-$50k per day in Bitcoin sales
$15-20M in Bitcoin sales projected in first year
Bitcoin users spend 34% more on orders vs. credit card users
60% of Bitcoin users are first-time customers
Retaining 5-10% of Bitcoins received in reserve as hedging strategy
© Bitnet 2014
How big is Bitcoin?
On November 26, 2013 (Black Friday), total Bitcoin transaction volume exceeded $487 million, placing Bitcoin as the 5th largest
payment network on that day behind Visa, MC, Amex and China UnionPay, and ahead of Discover and PayPal.
Typical daily volume is in region of $50-75M
~5M Bitcoin wallets | 7x year-on-year increase ~8M forecast by end of 2014
© Bitnet 2014
Exchanges
(eg. Coinfloor, BitStamp, Kraken)
Trade EUR/GBP/USD for BTC
Typically accept and payout via SEPA bank transfers or international wire
transfers
Typical fees <0.5%
Conduct business in a regulated manner, customers go through KYC
process
Where do consumers get Bitcoin?
LocalBitcoins.com
Marketplace for buying/selling Bitcoins in your local area
Active in 6426 cities in 231 countries
Offer escrow services
Fees range from free to 1%
Emerging Markets
Examples of schemes in emerging markets to enable unbanked to purchase Bitcoin:
Indonesia • 10000 Indomaret convenience stores • Obtain code online from local Bitcoin exchange • Use code to pay with cash over the counter in
Indomaret stores !
Argentina • 8000 convenience stores • Partnership between local Bitcoin exchange
and local pre-paid mobile phone top-up provider
• Can buy Bitcoin with cash when topping up phone
Circle.com
Well funded US start-up
Aim to ‘demystify’ Bitcoin with consumer banking services
© Bitnet 2014
Merchant processing • US bank fees alone generate $250 billon a year • Global payment networks revenues exceed $300 billion
annually • Global credit, debit and pre-paid card fraud over $11 billion
Cost savings and disruption of existing scheme/acquirer/issuer ecosystem
Bitcoin has the potential to disrupt the payments ecosystem
Charitable donations • 1-2% of donation amount typically lost in
payments services fees Greater share of donated amounts retained by charity
+ new modes of interaction with donors
Emerging markets • 2.5 billion adults do not use formal financial
services Enable unbanked population in emerging markets to
access global ecommerce
Cross-border remittance • Over $500 billion in cross-border remittance annually • Average fees applied of 8-12%
Cost savings and disruption of existing money transmittance ecosystem
© Bitnet 2014
Typical merchant implementation
Use of third party processor to interface to Bitcoin network !
Merchant prices in local currency, consumer pays with Bitcoin, merchant is funded in local currency
!
Majority of merchants do not get funded in Bitcoin so do not hold Bitcoin
© Bitnet 2014
Merchant transaction flow
Bitcoin Network Merchant’s Bank
Bitcoin Exchange Bitnet’s Bank
Bitnet
MerchantWallet
Consumer
Underwriter
1
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5
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7a$
$
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Merchants price goods & services in their local currency, but allow customers to pay with Bitcoin.
Checkout process
© Bitnet 2014
The consumer can see the Bitcoin price and has a time window within which to pay. !
They have multiple ways to launch their Bitcoin wallet.
Checkout process
© Bitnet 2014
Once the consumer has paid, the processor confirms the transaction with the merchant and they can begin fulfilment.
Checkout process