21 September 2014

B2B Payments

Andrew Owens - SunGard AvantGard

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What Bitcoin means for corporate payments

14 April 2014  |  1116 views  |  0

There’s barely a day goes by without a story on bitcoin somewhere on the news.  Much misunderstood and very much hyped, could this digital currency ever play a role in corporate payments and cash management?

For those who have heard of bitcoin but don’t really know what it is, here’s some basics:

  • It was introduced in 2009
  • It’s a digital cryptocurrency.  It is virtual by its very nature
  • It’s also a peer to peer payment system
  • Bitcoins are created by a process called mining, using cryptography to both protect the creation and transfer of money

Who uses bitcoin today?  As I write this blog 1 bitcoin is worth $613.  A year ago it was worth $65.  But, a month ago it dropped from $910 to about $260.  So, it’s no surprise that currency speculators probably make up the most active participants in bitcoin trading.  I would say that active trading in bitcoin has been going on for 18 months.  And now we are starting to see an increasing (albeit still small) usage of bitcoin for buying products and services online..  If you ignore all of the issues / risks for a second, there’s certainly an incentive for Merchants to accept the currency as the transaction fees are lower than the current 2-3% charged by credit card companies.  There are no mainstream ecommerce companies like Amazon accepting the currency yet though, which probably tells you all you need to know about its perceived stability and security.

So, what of the main issues with the currency?  The EBA have highlighted lack of consumer protection.  There is a lack of transparency and traceability in the payment system and so it’s no surprise that there are widespread concerns that the currency has been used for money laundering.  In February the Mt. Gox exchange was suspended and in the time it was offline, the value of bitcoins halved.  Ouch.  Why do I pick out this example?  Mt. Gox is an acronym for Magic: The Gathering Online Exchange.  That probably tells you everything you need to know.  And finally, it seems that bitcoins have been stolen in huge quantities as well!

Given the above, what business does a corporate have going anywhere near bitcoins?  OK, so it’s a bit early, bitcoins are not ready for corporate adoption.  But, let’s look at some positive facts:

  • It’s a currency that can be traded globally
  • Transaction fees are low
  • You don’t need a bank with a vault to store your bitcoins
  • Settlement in about 10 minutes, wherever you are paying from and to
  • Built in multi signature / approval mechanism

In essence, the promise of bitcoins for corporates is a potential reduction in its FX requirements, giving them an ability to pay and receive money in countries where no ‘traditional’ accounts are held, immediate settlement globally and low transaction fees.  Ignoring all the current problems and legal / regulatory hurdles, there’s some potential there.

So, when will bitcoin or another, similar digital currency be corporate ready?  Lets wait for the currency speculators to move on before taking a second look…

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Andrew Owens

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SVP - Enterprise Payments

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SunGard AvantGard

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