Major Credit Card Companies Weighing the Pros and Cons of Bitcoin

Bitcoin Magazine
Major Credit Card Companies Weighing the Pros and Cons of Bitcoin
visa

The major credit card companies – American Express, MasterCard and Visa – are exploring uses of Bitcoin and the blockchain technology, International Business Times reports. They can see the threat from blockchain fintech, and are considering ways to integrate selected aspects into their own operations.

“We are not currently working actively on any bitcoin-based solutions, but we watch the cryptocurrency market closely,” said Andrew Buckley, head of MasterCard products for Europe. “We find them interesting from a technology perspective, but currently don’t see them as a viable solution for mainstream commerce.”

“Our focus is on these hundreds of millions of people with a bit of plastic in their wallets,” he added. “How do we get them into this new digital world? Once we have sorted that out, and the two billion people that haven’t got a card, then we may start worrying about other things.”

Recently, MasterCard replied to the U.K. government call for information with a put-down of bitcoin and other digital currencies. MasterCard claimed that digital currency transaction costs are lower than credit cards only because providers of digital currency services do not bear any compliance costs, and that, while digital currency payments are not faster than the MasterCard network, credit card transactions are intrinsically more secure.

That should be interpreted in view of the recent announcement of MasterCard Send, a personal payments service that enables funds to be sent quickly and securely to consumers domestically and internationally. Barb King, a group head in the MasterCard Payment Systems Integrity Group, described the service to PYMNTS as “a breakthrough platform in the industry.”

“The distributed ledger is really useful for peer-to-peer transfers,” said Neal Sample, president of Enterprise Growth at American Express. “So the work that Amex does, while it could be supported by distributed ledger, goes far beyond peer-to-peer. It involves creating a set of guarantees and a set of services for both consumers and merchants that they wouldn’t get if they were just trying to transact with one another.”

According to Sample, payment is just one of many stages in the commerce cycles, and companies such as American Express provide a complete infrastructure for consumer protection. While bitcoin transactions are intrinsically irreversible, with no consumer protection against fraud, American Express will actively help its customers.

“There are two elements here: the blockchain technology itself, which is very interesting for transactions, then there is bitcoin the currency,” said Jonathan Vaux, executive director of innovation partnerships at Visa Europe. “We are certainly looking at applications involving blockchain. What can you do with this? We know there’s a peer-to-peer transaction network happening, but we don’t see it scaling unless there is trust in the system. Certainly we are looking at it in a lab environment, and as quick way of routing it’s exciting. We have a team in London looking at specific use cases.”

Like American Express and MasterCard, Visa is closely following other aspects of fintech innovation as well.  “Visa is facilitating Apple Pay with tokenization, but the card holders won’t know about – I mean it makes them safer but they won’t know about that, and as far as they are concerned it will operate like a contactless transaction,” Vaux said.

Photo PE-Commerce Visa (Test tamron 17-50 2.8) / Photopin

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Bitso Secures Investment and Launches Initiative with the Mexican Government
mexico

Mexican bitcoin exchange Bitso has secured a seed-funding round led by Barry Silbert’s Digital Currency group which was participated in by Mexico-based angel investors.

With the new financing, Bitso plans to expand its team in Mexico and aggressively push its project to use bitcoin for cross-border payments across South America. Since the majority of the population has no access to bank accounts or credit cards, Bitso aims to provide the nation with a cheaper yet robust mobile payment platform by connecting its bitcoin exchange with Transfer.

Transfer is a lightweight banking initiative developed by the Mexican government as a collaboration with Mexican banks and corporations including Banamex, Inbursa, Telcel and Oxxo.

Similar to M-Pesa, the popular mobile payment service launched by Vodafone in Kenya, the joint project of Transfer and Bitso allows users to send pesos using bitcoin to more than 100 million cell phones in Mexico. The receivers can withdraw cash at Banamex or Inbursa ATMs, creating a nationwide network of bitcoin withdrawal locations, thus increasing national bitcoin adoption.

“Whether you are talking about new payments services that help facilitate faster and cheaper money transfers across the world’s most active remittance corridor, or mobile money and microfinance opportunities for Mexico’s underbanked consumers, bitcoin and blockchain technology is poised to transform financial services in Mexico and all of Latin America,” said Silbert. “Bitso is well-positioned to emerge as the region’s leader in bitcoin exchange and payments, and we are thrilled to partner with them to help build a big, important company in this emerging industry.”

Bitso to Emerge as Leading Mexican Bitcoin Exchange

Launched in April 2014, Bitso is one of the most prominent bitcoin exchanges in Mexico, with top-tier security standards and strong focus on regulatory compliance. To compete against Mexico’s leading exchanges like Volabit and meXBT, Bitso recently acquired Unisend Mexico, a bitcoin exchange which operates in both Argentina and Mexico.

“Through Bitso, we have enabled an efficient and low-cost backbone for cross-border transactions,” explained Bitso founder and CEO Pablo Gonzalez. “We believe this will be a powerful rail to streamline international B2B payments, and remittances to the millions of unbanked and underbanked Mexican citizens.”

Founder talks Bitcoin Adoption in Mexico

“The most exciting aspect we are seeing firsthand is all the cross-border payment applications that are just beginning to happen: remittances, B2B payments, etc. Mexico is a hotbed for global payments,” Gonzalez told Bitcoin Magazine. The US-Mexico corridor is the largest in the world with $24 billion USD-a-year flow. International trade and commerce is even larger. $360 billion USD a year, and it is bi-directonal ($761 billion total.) Several partners, including traditional remittance companies, bitcoin remittance startups and cross-border payment businesses, have been running tests and pilot programs for the past few months.”

Gonzalez said that Bitcoin adoption has been growing steadily month-on-month in Mexico, as more businesses have begun to accept bitcoin payments.

“We talk to the regulators on a regular basis,” he said. “It is positive overall. They are very excited about the potential … However, they feel it is premature to regulate,” he said, a view similar “to some of the conclusions taken by the Canadian Senate recently.”

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Greece Closes Banks and Stock Markets, Introduces Capital Controls
greek-euro

Greece has closed its banks and imposed capital controls to prevent financial chaos after the breakdown of bailout talks with its international creditors, The Financial Times reports. The decision comes at the end of a weekend that brought Greece closer to “Grexit” – the potential exit from the Eurozone and perhaps the European Union (EU) itself – and confronted Europe with a serious crisis.

The banks in Greece and the Athene Stock Exchange will remain closed until at least July 6, the day after the referendum on the austerity measures demanded by the country’s creditors. In the meantime, cash withdrawals at ATMs will be limited to 60 euros ($66) and transfers abroad will be forbidden. Greece is the second Eurozone country, after Cyprus in 2013, to impose capital controls.

The move is evidently aimed at preventing panicked Greek investors and savers from taking their money out of the nation’s banks and moving it elsewhere. In the days before the predictable stall of the negotiations with Europe, many Greeks rushed to withdraw their money. The Financial Times reports that many more Greeks are trying to withdraw their money now, but they are turned away by security guards.

“In the coming days, what’s needed is patience and composure,” Greek Prime Minister Alexis Tsipras said on television. “The bank deposits of the Greek people are fully secure. The same applies to the payment of wages and pensions – they are also guaranteed.” He added that the European authorities, seeking to stifle the will of the Greek people, are to be blamed. “They will not succeed,” he said.

William Dudley, the president of the Reserve Bank of New York, said that Grexit risk was a “huge wild card.” He warned in an interview with the Financial Times that the financial market implications of a Greek exit from the euro could be graver than many investors seemed to believe, because it would set a “huge precedent” indicating that euro membership was reversible. “My personal view is if this goes badly the market reaction may be bigger than what we realize,” he said.

Even if Greece and the EU find a way to avoid Grexit, it seems likely that the introduction of capital controls will push people, not only wealthy investors but also ordinary people, to the conclusion that governments and banks couldn’t be trusted with their hard-earned savings. They may then start looking for alternative ways to store value, out of reach of predatory central banks.

When capital controls were introduced in Cyprus, Bitcoin came to the rescue, and many people took money out of their saving accounts at the first opportunity, and bought bitcoin instead. The recent rise in the exchange rate of bitcoin seems to indicate that the same is happening now as a consequence of the Greek crisis. Actually, there are indications that pessimist – or savvy – Greeks have been buying bitcoin for some time now.

One thing is certain – when people start to lose confidence in the ability of their government and central bank to ensure a healthy economy and a stable currency, they start looking for alternative ways to store value. Today, crypto-currencies are replacing gold and other traditional alternatives.

Another possibility, which would have been dismissed as science-fiction only one year ago but is beginning to appear more and more plausible, is that governments could tolerate – or even adopt – parallel currencies including crypto-currencies.

German Finance Minister Wolfgang Schaeuble said that Greece may need a parallel currency if talks with creditors fail, according to sources familiar with Schaeuble’s views. And Greece’s Finance Minister Yanis Varoufakis wrote a blog post in February proposing a similar IOU-based currency, which he dubbed Future Tax Coin (FT-Coin). Varoufakis is not impressed by bitcoin as a currency, but he is persuaded that its underlying technology could be put to effective use in troubled economies.

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Blythe Masters’ Digital Asset Holdings Acquires Hyperledger and Bits of Proof
hyperledger

In March, Bitcoin Magazine covered the digital economy startup Digital Asset Holdings, headed by the financial superstar Blythe Masters, a former JPMorgan Chase & Co. executive.

Digital Asset Holdings uses distributed ledgers to track and settle both digital and mainstream financial assets in a cryptographically secure environment where counterparty risk is minimized, and settlement times are drastically reduced.

Now, Digital Asset Holdings LLC announced two acquisitions, Bloomberg Business reports. The company bought San Francisco-based Hyperledger and Budapest-based Bits of Proof for undisclosed amounts.

“Hyperledger and Bits of Proof add valuable new dimensions to our product offering and great talent to our team,” said Masters. “We build tools to help clients harness the power of distributed ledgers to serve their own customers. We integrate financial infrastructure with a variety of innovative new technologies inspired by the blockchain. Different ledger technologies serve different purposes and all of those we integrate with are additive.”

Hyperledger, a finalist in the SWIFT Innotribe startup challenge, developed an innovative distributed ledger to allow banks and other financial institutions to clear and settle transactions in realtime. The company’s technology enables financial institutions to create multiple private blockchains across a known group of participants. Unlike other distributed ledgers, Hyperledger does not have an inbuilt cryptocurrency and uses a proven consensus algorithm capable of thousands of transactions per second.

Bits of Proof developed and deployed an enterprise level server to integrate blockchain technology into financial applications.

Hyperledger CEO, Dan O’Prey, will become Chief Marketing Officer of Digital Asset, and CTO Daniel Feichtinger will join the senior engineering team. Támas Blummer, founder and CEO of Bits of Proof, has joined Digital Asset Holdings as Chief Ledger Architect.

According to information disclosed to Bloomberg Business by a person familiar with the matter, several large investors have expressed an interest in funding Digital Asset Holdings and entered private negotiations. A deal could be announced in the third quarter.

In related news, Digital Asset Holdings and other leading-edge fintech companies demonstrated their products and services to dozens of top bank, venture-capital and technology executives at the fifth annual New York FinTech Innovation Lab Demo Day organized by Accenture and the Partnership Fund for New York City.

“[Digital Assets Holdings] is building next-generation, cryptographically secure distributed settlement and ledger services,” states the Innovation Lab press release. “The company will provide safe and efficient settlement of conventional and digital assets that eliminate counterparty risk and can reduce trade- processing time from T+3 to same-day settlement.”

At the recent Exponential Finance 2015 conference in New York, Masters said that Bitcoin’s underlying technology has the opportunity to improve settlement latency and system security for firms, and, therefore, the market for financial blockchain applications will ultimately be measured in the trillions. Digital Asset Holdings “bridges the gap between the blockchain development world and financial services,” she added.

“How seriously should you take [the blockchain]?” Masters asked. “About as seriously as you should have taken the concept of the Internet in the early 1990s. It’s a big deal.”

Image via Hyperledger

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