Feature Friday: Instant Exchange
Our portfolio company Coinbase launched a new feature this week, that when combined with their local currency wallets, basically creates a global Venmo or Mpesa.
It is called Instant Exchange and here is how it works:
Coinbase offers US Dollar, Euro, or Pound accounts. You can keep your funds in your local currency on Coinbase. They have had this feature for some time.
So let’s say that I owe a friend in Berlin money for dinner last night.
I could go to my US Dollar Coinbase account, do an Instant Exchange Send which takes dollars out of my account and sends bitcoins to my friend, he does an Instant Exchange Receive in his Coinbase account which instantly converts them to euros and then keeps those funds in his Coinbase Euro account or transfers them out to his bank account. Coinbase will apply its standard exchange fees to the Instant Exchange transactions.
I believe this kind of thing will be incredibly useful, especially in the Coinbase mobile app. Sending money to and receiving money from friends around the world using Bitcoin as the “rails” for money transfer no longer needs to expose either side to exchange rate risk.
As Coinbase expands its business around the world, and offers Instant Exchange and local currency accounts in every part of the world, it can build a global Venmo or Mpesa using Bitcoin as the underlying money transfer protocol.
Seems like it would have been easier to just have whipped out your credit card last night and told the waitress to split the bill.
only if you believe your credit card company is giving you the best exchange rate.
but most importantly for the average paycheck to paycheck user it’s a “credit” card.
This has legs potentially.Not fixing a problem as much as adding a global capability to everyone and possibly a reflex that crosses place and time.I’m more a believer in global behaviors as a platform than unique vertical responses as a winning strategy.
What is “a reflex that crosses place and time?”. I don’t understand what that means.
Perhaps an action which becomes a behavior across the world, something like “Googling”
Correct me if I’m wrong, but that’s true only if speed or convenience is more important to you than fees. Very neat in that case though.
mmm, but do I understand correctly that Coinbase charges 1% for the USD->BTC conversion, and then another 1% for the BTC->Euro conversion? And then I’d need to understand what more fees are on top of that.I wonder how the total fees for this usage case compete with Transferwise or Ozforex (USforex).I am a total target customer for this sort of thing, as an American living in Europe, and use those 2 services now but constantly seek to find (or help create??) a better way.BTW: apart from fees, this product offering seems a very smart strategy, trying to appeal to a wider audience who doesn’t (yet?) care about Bitcoin but could at least respect it as plumbing.
OK hang on: you did word this as an alt to venmo or mpesa, not nec xferwise/ozforex, so maybe I don’t have the correct target use in mind.A customer like me is looking for the latter, not former, for personal and for business use (larger limits, volumes, frequencies).I just looked deeper into the Coinbase detail pages. They do indeed take at least 2% here, which seems to rule my usage out, competitively. I’d love to hear of any future ideas to serve the market I’m talking about, as it’s a big one if measured in total money terms if not potential client #’s.
Checkout Midpoint P2P, http://www.midpoint.com. Fees are much better than the alternatives you mentioned.
thanks. From reading their notes, I don’t immediately know what to expect re the fees being better than the others mentioned. Of course the fees are 1 thing and the actual exchange rate applied can easily exceed them- that’s how many banks tend to stick you– huge spreads.Transferwise does publish the rate you get; I didn’t immediately see it for Midpoint.Actually, even with those quotes, sometimes it’s tough for one to really know unless you were to make say a payment of $10k on each of the 3 services and buy Euros at the same exact moment and compare the totals collected on the other end.But if you have further insight, proof or analysis, I would *love* to hear it!
Unfortunately, I don’t have much further insight. I have only talked to the Midpoint team a few times, but haven’t actually executed a transaction with them. We have more needs to get money to people in locations they don’t yet serve such as countries in Africa. Although we are contemplating using them with an oversees investment to compare it with our typical wire through the bank process.However, I had a friend talk with them and one of the alternatives above and he stated, “Midpoint is definitely more attractive.” I think they are best optimized for transaction with the EU (coming from a US based citizen). BTW, I have no dog in the fight on these, just wanted to throw it out there as an alternative option to look into.
The instant exchange using Bitcoin to lower transaction costs is huge. Not just international exchange…I am an investor in some sandwich franchises, and the amount we send to Visa each month kills me…Now imagine a major franchise in the U.S. adopting coinbase as part of their loyalty program… No one really needs to know it is powered by Bitcoin…. All the consumer knows is that they save by linking their checking account to their loyalty card and processing payments. The system is powered by coinbsse, and loyalty is rewarded… People can accumulate value on their cards, and the franchise saves on traditional cc fees.
I have to explain this every time we talk about bitcoin. Credit card fees all in are between 2.3%-3%, with 1.7-2% coming from interchange fees that only exist because of a visa / mastercard/ and to some extenet amex monopoly on the space from a transaction side. Interchange fees can (and I believe will) eventually be competed away, and you are now down to <1%, which is less than coinbase’s take i believe. And lots of other credit card advantages (help from shady merchants, ability to get charge back, travel insurance etc.)
Linking a checking account to any retailer or service is super risky. For many folks this IS there safety net.
Mike, I hear you. But think of it this way: My Visa card is my loyalty card. I get 2% back on everything I put on the card. Unfortunately, my loyalty is to Visa, not any store in particular, and certainly not to a store that declines credit cards…Therein lies the challenge for anyone who wants to replace my credit card.
There is exchange rate risk. Even if they say there isnt, there is. It may be that coin base is assuming this risk instead of passing it to their customers, and that they can do this with small positions comfortably — at least until the market has a shock that throws off risk management models and assumptions.
Let’s not forget counterparty risk, here coinbase is the counterparty.
Isn’t there exchange rate risk in the USD/Bitcoin vs EuroFx/Bitcoin exchange rate which is equal to the same risk of USD/EuroFx rate? But, the feature is efficient and lowers “all in” costs. Cheaper than a currency exchange, bank, or money transfer agent.
Not sure i get this. Is this not a classic “your solution is not my problem” situation.Don’t get me wrong – i have an extremely healthy dislike for the existing banking institutions….
Ant- money laundering visualisation which should help banks with origin issues.https://www.elliptic.co/ant…
Effectively another bitcoin application that could be equivalently performed using an excel spreadsheet and a couple of VB scripts. Moneygram charges 1.6% to send 1000 dollars anywhere, and a lot of their costs go to supporting customers that have neither computers nor bank accounts. Their charges seem high when transaction amounts are low, but they will be able to reduce those as the need for cash handling at either end goes down.
This could have also been called “Future Friday”.Fiat to cryptocurrency instant conversions and transfers will be the norm in the near future. At the end of the day, Bitcoin is just like another currency, and it needs to co-exist with the other global currencies, and be at par with them for doing transactions.This brings 2 innovative capabilities not available before:1/ Instant currency conversions2/ Instant transfersBut it has 3 limitations (which I’m sure will be remedied over time):1/ Only available for 3 currencies2/ Only available in a handful of countries where Coinbase operates.3/ It probably has a low limit on transaction value (I’m not sure what it is)Now, imagine if this kind of thing were available for 100 currencies and in 200 countries…and with higher value limits. Then, this will have a profound magical effect on the world.
Every time I talk about Bitcoin someone shoves “no fees!!!” Down my throat.Then I say “transaction fees have nothing to do with the actual transaction, and everything to do with the value-add of the middle man, which is real.”Then I am booed off the virtual stage.Then I read about a “Venmo” that converts everything to Bitcoin and back (why?) that charges 2% for a payment between friends.Wouldn’t it be 100x cheaper and easier to take Bitcoin out of this transaction? Send your friend USD and Venmo assigns it as euros on the other end 0.01 seconds later?Adding another currency only ADDS currency risk.
Well, in reality this is a convenience for Coinbase users. Think of it that way.Over time, the capabilities will probably equalize between Venmo, Transferwise and Coinbase.The innovations will then shift beyond the transfer or exchange parts which are the current “wow” factors.
So this is primarily aimed at building a network of users for bigger, future innovations?
That’s only my speculation.
The problem with Transferwise is they are building a P2P system AND still taking a ridiculous cut.They wont guarantee the exchange rate OR the time to do the transfer.As someone who sends money back to Australia for my mortgages there on a regular basis this isn’t acceptable.I haven’t looked at the rate but I suspect Coinbase is going to be doing the same…….Bitcoin is meant to be about efficiencies…….not a chance to “ticket clip”.
“and everything to do with the value-add of the middle man, which is real”I just ordered a set of soundproof windows for about $3500 from a company that I had never dealt with before that is located somewhere out west that are being shipped in by Fedex freight. I payed by credit card which probably charges the vendor 2.5%. I get 2% back as a bonus for using my credit card, but even if I didn’t paying $87.50 (3500*.025) as “insurance” (assumption is the vendor increases his price which isn’t even the case typically since he creates more demand) is well worth it. Vs. paying by check in advance or by something like bitcoin (essentially a free wire transfer) where I have no backstop against the wrong thing happening.Now of course there are transactions where the .025 is not well spent. Restaurants perhaps or small purchases from vendors that you know and trust. But given the cash back (unlimited I might add) the .005 isn’t really a factor. (Tax wise the .005 is wiped out anyway..)
.The credit card will also jump into the middle of a dispute and resolve it.JLMwww.themusingsofthebigredca…
the use case for bitcoin is definitely not buying goods from an american company. using a US credit card is better for that by far. The use case for bitcoin is in doing things that can’t be done very well right now, one of which Fred has identified (sending cash to someone across borders). Others will emerge further up the stack (services that ride on top of the blockchain).One that I’m bullish on is using a flavor of coin to to represent ownership shares in an enterprise, providing liquidity and pricing transparency without the expense of a public listing.
Does anyone else see a race to the transaction fees bottom
.Not with the kind of market share that Visa and Am Ex have.Also, remember that the extension of credit is the big value proposition of Visa and Am Ex.You can cut fees to zero and credit extension will still be playing trump.JLMwww.themusingsofthebigredca…
Yes!!! Transactions will only be an end to a larger means.See Square: only so much to be made at 25 bps on acquiring side. But, when you establish a portfolio of SMBs who you can lend to and ensure repayment by taking it out of future payments you process for them…well, then, you for yourself a business. That move has not received nearly enough attention.
Thanks for mentioning it as I didn’t know Square did that. That’s BRILLIANT use of their niche to mitigate the risk. Worth remembering for others attempting these things.
No, no no. Venmo can NOT do what Fred proposed. With Venmo you can send $ to someone that has a US bank account. Given US KYC regulations, that means you can send euros to an american. or at least an american resident. and that’s about it.What people don’t understand about payments is that each payment system is locally contained within its home country, because it rides on the backs of the banks that are members of that country’s regulatory system. Once you try to go cross-border with your transaction, that means your transaction has to bridge two distinct payments systems. And to that, good luck. Not impossible, but the options are expensive, inconvenient, and often very slow. I know you are skeptical hearing this, everyone is until they experience it, but trust me when I say that the problem to be solved here is huge.
People are working on this using existing debit networks as the rails. Should be interesting to see adoption when it comes out.
Agreed, ZenBanx a good example of a company working on that approach. Effectively it pulls the receiver into the US debit network. Like giving them a prepaid debit card. So they can spend the money at local retailers (in say brazil or zambia) that accept visa/mastercard. The inconvenience with this approach is if they want cash, or especially if they want to transfer the $ into their local bank account. For a “regular” person receiving normal amounts of money from their relatives in the US, there is no good option for this. The best option is probably paypal, but it’s limited.
The MPesa comparison helps to clarify potential benefits – it is mobile and instant. No bank account needed. Is that right? That is what made MPesa popular. More currencies needed desperately though. How does the usage of currency exchange rates tie into local banking regs? Are the existing currencies the only regions where bitcoin is regulated?
To follow on, banks took a piece of the MPesa pie which is the only reason it kept operating. And the only reason it hasnt succeeded in South Africa (as opposed to Kenya). Are deals with banks required for this app to succeed?
I think you need a bank account in order to open a Coinbase account
The whole point of bitcoin was to get third parties out of a two-party transaction. Once Coinbase becomes a third party to both sides of the transaction, then (a) they are just like any bank, (b) bitcoin isn’t even needed to run the ledger and (c) all of the third party risk, regulation and oversight is put right back into the transaction. Nevertheless, I can see how bitcoin performs the interchange role for transactions that include a fourth party. So, for four party transactions (e.g. (1) buyer using (2) coinbase with (3) seller using (4) some other wallet), the bitcoin rails provide a non-governmental interchange that has value and security beyond a possibly reversible standard interchange. In this four-party scenario, however, the currency risk is re-introduced. As we all know, the costs of that bitcoin currency risk can far exceed the fees of other systems, and the clearing latency can be a problem too.
Isn’t that the main Ripple value prop?
Great explanation and sweet feature added by Coinbase. Now how do you get Coinbase to be like Paypal where everyone has an account.
Sending money to and receiving money from friends around the world using Bitcoin as the “rails” for money transfer no longer needs to expose either side to exchange rate risk.”Send money to friends around the world..”How big is that market and how often do people actually do that type of transaction?I know there are many foreigners who send money overseas to family but I am not seeing that, on a repeat basis, there are many “regular” people that need to “send and receive money from friends around the world”.With respect to “regular”, the point being that if something isn’t done repeatedly then it doesn’t become a habit and you default to the way you have always done the activity which essentially is adequate.
Remittances is a HUGE market. Multiple times the total foreign aid. And many have no good option for sending money home without incurring huge (say 10÷ or more) costs. (To the benefit of western union and moneygram.) Yes, they are largely non-US citizens vs “regular” people. But I think this is one of bitcoin’s biggest opportunities. kudos to coinbase for taking the first step at addressing this need.
Fred – wouldn’t you say the success of this product comes down to how low are Coinbase’s “standard exchange fees”? I get how this product is likely quicker and more secure than a traditional wire bank transfer, but is it cheaper than sending money via Western Union, PayPal or TransferWise? In addition, it is important to note that Mpesa does not require a bank account, whereas I think one needs a bank account to open a Coinbase account?
Hi Fredhow cheaper is that say from doing a Paypal transfer?
I totally get blockchain. But I’m struggling with the point of Bitcoin. I’m all for disrupting banks but it sure feels like Bitcoin isn’t going to do it. I’m much more excited about other applications for the blockchain. ID and authentication, for example. I wish I can get rid of online passwords so there’s never any doubt that it’s really me logging into any online service. Does anyone know if such an initiative is in motion?
Pardon the cynic, but this seems ripe for money launderers to take advantage of. And I completely agree that the use of Bitcoin here is forced. There’s an existing universally compliant (albeit slightly inefficient) “rails” for exchanges: http://www.swift.com/index….
Because SWIFT isn’t cheap even in its cheapest  form. It’s also often “same or next day” delivery rather than some time after 15 minutes. That SWIFT is so heavyweight and expensive is why there are ongoing investments to reduce its usage. http://www.swift.com/dsp/re…
It seems there is a holeStep one – You “Instant” sendsome time passes ?Step Two – Friend “Instant” recievesIf both are “instant” then there is an interim period where bitcoins are held “on risk to volatility” is this sender risk ?If step one merely advance authorises and step two enacts – then this is a clumsy misnomersorry to be picky but details may be important to perception
If we each had an openBazaar client – could we not do this ourselves P2P without a middleman ?Is not Bitcoin itself entirely irrelevant to this blockchain enabled two party transfer of cash vs receipt of cash.Exchange rate details need not be explicit in the transfer of title to assets
“no longer needs to expose either side to exchange rate risk”It seems to me that there are two currency exchanges here instead of one (USD -> BTC and BTC-> EUR).Doesn’t that magnify, rather than eliminate, the exchange rate risk? What am I missing?
Bitcoin is designed to solve the currency issue ie digital currency (single currency & no need for exchange). For others and demands that prefer sovereign currency is a needed option for conversion. Also any currency has inherent risk in terms of value fluctuations. There is a reason why currency and forex is the biggest market being traded.
I feel like I’m missing something.I can do a currency transfer through a platform like Transferwise or WorldRemit. It’s one transaction and a minimal fee.Or with this I can do two transactions through Bitcoin with much higher fees.
What about instant litecoin – bitcoin? I would be more interested in that, and it would probably be easier to manage the FX as well!
You can check Shapeshift for anything to do with altcoins exchanging. https://shapeshift.io/
They are blocking NY DNS in protest of the bitlicense…
Oh no. They recently said they were leaving NY for that reason. Try it with Hola?
In addition to the fees, there is a huge risk in the exchange rates for BTC->Fiat (due to its volatility). Plus, it only works if there is an exchange that supports the local currency.
blinktrade powers white labeled, open-book exchanges in several countries. People who used one exchange could immediately use the network of brokers/exchanges to convert currency with BTC as the rails. They were in several countries but not yet US.Thought that was a pretty cool approach.
Monetago launched this feature on Monday and supports 20+ more currencies.
For sure, bitcoin will ease money transfer and remittance: http://techcrunch.com/2015/…