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What Bitcoin Central's move REALLY means

This article originally appeared on the ModPay blog on 14 December 2012.

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You may have read week commencing 8 December 2012 about the announcement by Bitcoin Central, or rather the company behind the Bitcoin exchange, Paymium. Their partnership with Aqoba, a French PSP, was reported to give them the ability to hold full bank accounts. This is not the case. They will be able to hold funds in payment accounts for consumers.

The main difference is that the funds are dedicated to facilitating regular payments and can’t be used for investments and don’t incur interest. Furthermore these accounts don’t have an overdraft facility. The payment accounts are perhaps more akin to prepaid card accounts than they are to bank account, but in fact they are neither.

What Paymium can do with them is nonetheless most important. For any virtual currency, the main issue is always its connectivity with the traditional means of payment. These means are so entrenched in the economy that it is difficult to wedge in there.

Firstly there is the issue of funds acceptance in the real world. Paymium now have the ability to link a debit card to the payment account to solve this problem.

Secondly, and perhaps more importantly, is the issuance of funds from the real world. For a currency to be truly meaningful eventually, people must have easy access to it (and/or no alternative). For this to happen there are normally two ways, best described by way of the prepaid card account parallel.

Prepaid card accounts have proven to be a great platform for new and innovative services. In some cases the prepaid card account is the secondary balance of users, helping them to e.g. manage their monthly free spending budget. In other cases, such as with migrant workers in the UAE and other countries, the prepaid card accounts are the primary balance of the user and are used as their salary account. So let’s presume the virtual currency had a direct link with the primary balance of the user  that they use to receive their income. This way the touch-point would be close enough to avoid unnecessary friction for using the virtual currency.

Paymium confirmed that the payment accounts will get real IBAN numbers associated with them. This means of course that they CAN be used by employees to receive their wages into them if they wanted to. Provided they retained the ability to move the funds into their savings & investment accounts with other institutions, and set up direct debits for paying utilities etc., nothing would inhibit the user from moving to a Paymium payment account.

This step by Paymium has immense potential and has elevated the status of Bitcoin as a whole. Now let’s just hope that all Bitcoin exchanges take the security of their systems seriously enough to prevent any further intrusions …

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.


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