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MoneyGram: Bitcoin Will Fail to Disrupt Remittances

(@pete_rizzo_) | Published on November 2, 2015 at 21:00 BST
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Peter Ohser, moneygramAbout halfway through the conversation at Money20/20, discussion turns to Kodak.

It’s not without merit. The photography giant once boasted more than 145,000 employees and $16bn in global revenues, but its empire all but crumbled due to rise of digital photography. To digital currency proponents, this shift has been held up as an example of what happens when incumbents fail to innovate when new technologies lead to the creation of new behaviors.

In the face of tech that enables value to be sent at a low cost across national borders, industry supporters have long argued remittances are the first and most obvious area for disruption, and that industry giants like MoneyGram and Western Union will be among the initial firms to see bottom lines impacted.

For all the capital deployed against this thesis, Peter Ohser’s level of incredulity when faced with this possibility is a bit surprising. The executive vice president of business development at global remittance giant MoneyGram has heard these arguments before, but feels digital currency doesn’t pose any threat or solve pressing problems.

“If you could actually leverage [bitcoin] the way people want, we’d be there,” he said.

At the end of the day, he argues, consumers want physical cash, something MoneyGram with its network of partners in 200 countries, is equipped to provide.

In response, I bring up traditional photos, how today's consumers don’t think anything of sending and receiving digital images, and that perhaps, a similar change, however unlikely, it may seem, could take place with cash. Ohser, however, fights against this narrative.

Cameras, he said, were expensive, heavy, prone to error and inconvenient. He throws around words like cumbersome before just calling the process “a real pain in the ass”.

Interestingly, Ohser doesn’t see remittances in the same light, telling CoinDesk that he believes existing payment behaviors are too entrenched, and that bitcoin is unlikely to offer enough utility:

“Payments are already digital and real time. I can send cash using the existing rails. It’s there and it’s real. [Digital currency] is not solving a problem … There’s also a trust factor. People trust paper more than they trust data and that behaviour is not going to change.”

Still, Ohser allows for a certain margin for error in his rationale, at times suggesting that MoneyGram might be inclined to leverage bitcoin if it solved what he believes are its key problems – acceptance and scale.

Last-mile challenge

From the onset, it’s clear that Ohser has been paying close attention to the industry. For example, he’s quick to bring up the so-called “last-mile challenge”, the theory that no matter how quickly money can be sent, getting physical funds into the hands of consumers is the greatest and most costly challenge.

In particular, Ohser cites a recent article by one of the founders of Rebit, a Philippines-based bitcoin remittance firm, who left the company over concerns about its business model and his company’s issues overcoming this challenge.

“We’re always paying attention to everything,” he says. “We don’t take anything lightly.”

However, Ohser does seem to dismiss bitcoin and digital currencies in many regards. For one, he is adamant that there’s only one way for bitcoin to solve that last-mile challenge – by becoming a widely accepted global currency, and he doesn’t believe that's very likely.

“We don’t see bitcoin in particular as a solution today to be able to one disrupt us or provide a better or different service,” he adds.

Ohser believes the blockchain, the digital currency’s open distributed ledger, holds more promise. For one, it’s not “tainted” by early challenges, but he still believes it doesn’t solve the problem of getting users money that can be converted into goods and services.

“You can send money to a phone, but these people need cash,” he continues. “They need to buy their food and pay medical bills. People are spending most of that money within 24 hours. They’re living hand to mouth.”

Regulatory hurdles

Throughout the conversation, Ohser seems to shift in his views, sometimes indicating that the problem with digital currency is one of technology, while other times blaming regulatory concerns as the main issue.

He’s quick to praise the technology, before listing it’s issues today, and always seems willing to add the caveat that these opinions are subject to change, however unlikely that may be.

“[Bitcoin] is still not an ecosystem that is clean, and so the banks won’t touch it,” he says before calling the promise of the technology equally “amazing” yet out of touch with the “practical reality” of how government and law enforcement want money to move.

In other instances, it’s clear the positioning of the technology in the public discourse bothers Osher, who goes so far as to call comparisons between bitcoin and email unfounded given that regulations never applied to email.

He’s also equally willing to suggest bitcoin just won’t be allowed to succeed, and that this is out of the power of anyone in the financial industry.

“There are two things, one you have regulators and two you have central banks, and they’re never going to give up control of their currency. It’s a very effective way to manage a global state. If you think bitcoin is rising up to become a global currency, the state is never going to let it happen,” he continues.

As evidence, Ohser cited the ongoing developments in Russia, where the state’s Ministry of Finance is seeking to ban bitcoin under a law pertaining to money substitutes, and Australia, where banks have seemingly closed the corporate accounts of industry firms.

Merging data and money

Still, the conversation isn’t without debate. Early on in the conversation, Ohser brings up how MoneyGram “moves data and money separately”, to which I ask if he believes bitcoin and blockchain-based systems have the potential to bridge what would seem like an inefficiency.

“If you’re sending money, I need to collect that money. That’s the model, we’re moving money and we have to move money through traditional banks, and the data flow is separate,” he explained.

Here, Ohser allows that a system that requires the management of two accounting units comes with costs and frictions, ones that mount given that everyday money and data move between its accounts and 65,000 partners in 300,000 locations.

However, he believes perception is the battle, and that today, this isn’t a perceived issue.

“[Consumers] don’t think of data as money, they think it’s real money being sent. It’s not, it’s trusted parties saying you’re authorized to pay this out,” he continues. “If you can move money and data in real time there’s value there.”

Soon, though Ohser adds another caveat, that he believes that because bitcoin must be converted into fiat currency, even a bitcoin or blockchain system will have added costs, ones that may be higher than those it pays today specifically because MoneyGram moves “so much money at scale”, and thus receives discounts.

Ultimately, he argues systems like Ripple, which aim to disrupt correspondent banking are “interesting” but don’t change MoneyGram’s cost structure.

“Until bitcoin can be a global currency, it’s not going to solve most of our problems,” he said. “The banking system works, it’s flawed for sure. Everyone in the room will agree on that. But there’s benefit to fixing flaws versus full disruption. Incremental improvements will benefit everyone, and slow the growth of true disruption.”

Emotion over technology

If Ohser was more restrained in his opinions at the beginning of the talk, he grows even bolder as the conversation progresses, saving his bluntest statements until last.

At one point, he grows animated when voicing his belief that MoneyGram is already “winning through innovation”, when compared to FinTech startups.

“Bitcoin will not be a significant player in the remittance industry,” he says flatly.

“It’s not happening. It’s not about technology. It’s about customers and behaviour, how they trust money, why they use cash.”

Ohser went on to critique attempts like Abra – which has so far raised $12m to take an Uber-like approach to remittances – as misguided for effectively attempting to sidestep traditional laws by having app users act as mobile money-exchange kiosks.

“Anyone who touches the funds, we do criminal background checks,” he explained. “It’s a massive expense. Regulators are not going to let anyone with a mobile phone be a money transmitter.”

By the end of the conversation, Ohser is still moving closer to some sort of certainty in his opinions, stating that I can expect to see him and MoneyGram at Money20/20 this year, the next and the next, no matter what advances bitcoin makes.

He concludes with a challenge, which I accept, stating:

“We can make this conversation an annual thing.”

Image credit: 360b / Shutterstock.com

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