In case you’ve missed it, the bitcoin ATM business is exploding.
From South Korea to South Boston, bitcoin ATMs (BTC ATMs) are rapidly gaining traction in an industry that is looking to provide consumers with simple interactions that separate the notorious digital currency from its media mystique.
To this end, BTC ATMs are already succeeding, providing users with their first taste of buying (and sometimes selling) bitcoins. So far, hundreds of customers have used the machines to create their own digital wallets and make bitcoin purchases, but the real goal is imparting this experience to millions more.
This potentially lucrative mission has, in turn, given rise to new players along the value chain, namely ATM suppliers like Genesis Coin, Lamassu and Robocoin, as well as a greater number of local operators seeking to build expansive networks of machines in high-traffic locations.
Depending on the operator (and how far they’re willing to go for publicity), this can mean partnering with shopping malls or even housing BTC ATMs in mobile trailers. But more commonly, it will mean striking up partnerships with bitcoin-friendly merchants – established businesses with loyal customer bases – like Imbibe, the New Mexico cigar bar that won the race to host the first US bitcoin ATM.
Robocoin CEO Jordan Kelley said he has already seen a surge in demand from small merchants who are clamouring to be introduced to ATM operators, some even offering to pay for such a meeting, and concisely explained why:
“We’re bringing in 1,500 high-paying customers [a month] in that coveted 18-40 demographic. Those are real numbers for any business.”
The figures are just as compelling for BTC ATM providers.
To date, Lamassu says it has shipped more than 200 of its $5,000 one-way bitcoin vending machines. Robocoin has likewise launched a lucrative incentive program to enlist bitcoin evangelists as unpaid sales reps for its larger, $20,000 two-way currency exchange kiosks, offering $10,000 in BTC for every new customer its reps enroll.
Manufacturers and operators
Though the exact specifications of each manufacturer differs, the responsibilities of their operators remains the same. BTC ATM manufacturers design, produce and sell the machines, while operators handle the local marketing and compliance.
“Our operators have three jobs. One, make sure that they’re fully complying with all anti-money laundering and ‘know your customer’ laws in their specific jurisdiction. Two, make their customers happy [by] finding a kickass location and educating the customers and people in their community. Three, make sure [owners] never run out of inventory, so that people never go wanting for bitcoin.”
But, winning hearts and minds is no easy challenge, especially as bitcoin faces continued bad press, with the now-bankrupt bitcoin exchange Mt. Gox and the now-defunct online black market Silk Road being the most obvious culprits.
Such reports were top-of-mind for Cambridge, Massachusetts-based restauranteur Kathy Turner, when she received an email from the founders of CoinShovel, a Maine-based bitcoin mining business, this January with the subject line “Opportunity – Bitcoin ATM”.
The time had come for execs Steve Govoni and Briton Callahan to think about scaling up their company, and they were in need of a local business partner for their first ATM. Veggie Galaxy, Turner’s vegetarian diner that regularly hosts local bitcoin meetups, seemed a logical first choice.
Yet, despite the promise of a partnership, Turner and her co-owner Adam Penn had their reservations. Turner was unsure of liabilities and compliance costs, as well as the potential dangers of attracting unsavory customers.
“I [was] really worried about shady people coming into Veggie Galaxy with tons of cash that they want to anonymously turn into untraceable bitcoin.”
Ultimately, Turner and Penn needed an hour-long conversation with CoinShovel to feel comfortable about considering the deal. The resulting discussion provides an overview of the seven major points merchants should consider as they seek to make their own determinations:
It may seem ironic, but ATMs face a security threat from the high volumes of fiat currency they need to hold to service users. Robocoin ATMs, which allow both cash-to-bitcoin and bitcoin-to-cash transactions, house up to 2,200 bills.
The Lamassu unit being considered for Veggie Galaxy is one directional, accepting only cash for bitcoin, but it still holds between $5,000 and $10,000, according to CoinShovel.
Kelly recognizes this risk, and drove home the idea that security will be paramount to increasing consumer adoption.
“You have customers walking up to these machines with thousands of dollars. [Operators] have to make sure [their] customers are feeling really comfortable, and that means [they’re] going into a really safe and secure environment.”
To assuage Turner’s concern, CoinShovel suggested setting a firm figure for the levels of cash it could keep in Veggie Galaxy, opting against setting regular pickups until spending data is known.
One of the more sensational stories from the BTC ATM boom has been the tale of a Canadian man who was able to cut a machine’s profit simply by sitting next to it with a wallet app, siphoning off customers for trades at a reduced fee.
While this is an extreme example, BTC ATMs do require some oversight, owners acknowledge.
Anthony Di Iorio, who operates a BTC ATM in Bitcoin Decentral, a 5,500 square-foot working space for bitcoin projects in Toronto, told CoinDesk his Robocoin machine wasn’t perfect. He reported issues with his BTC ATM’s receipt printer that led him to stop using this functionality.
Still, Di Iorio is willing to give the machine his patience, suggesting others should to do the same:
“We understand that this is their first unit, and that they’re working on their second generation.”
Zurich-based Lamassu owner Marián Jančuška affirmed that his ATM does benefit from assistance. Said Jančuška:
“It doesn’t take much of my time to manage the ATM, but this is thanks to a guy who rents the passageway, is nearby most of the day, and is able to restart the machine if necessary.”
3. Customer support
For a busy merchant where employee resources are scarce, customer support remains an understandable concern, as providing this function could detract from the business’s main revenue stream.
In particular, Veggie Galaxy’s owners were worried about their liability for dealing with customer issues and disputes.
Di Iorio said he has only had one dispute, which he was able to resolve quickly, but indicates merchants would likely need a support service, even to answer simple questions about the machine’s use:
“It’s not as simple as a regular ATM. There is some handholding you have to do with some people.”
CoinShovel said it would be willing to provide phone support services to customers so that Veggie Galaxy staff would not need to directly field questions from BTC ATM users.
Simply getting the machine into the store is another concern.
Robocoin kiosks weigh more than 750 pounds, and require special installation to increase their security. For example, the official Robocoin website advises that owners “bolt [their] kiosk into the ground with the included mounting blocks”.
Still, obstacles aren’t necessarily removed with Lamassu units, which weigh in at roughly 100 pounds.
Jančuška said his own Lamassu set-up would have benefitted from forethought, adding that his installation process took more than two weeks:
“I didn’t start designing the stand until the machine arrived. It took me about a week to design and another week to manufacture. The manufacturer also mounted the stand to the wall and the floor. It needed 24 hours to dry and solidify. Then it was just a question of tightening a few screws and turning on the power.”
CoinShovel noted it was considering a similar protective enclosure for its Lamassu machine, though it downplayed the ability of thieves to simply snatch up the unit even if this protection was breached.
To further assuage this fear, the company offered to install additional surveillance for the unit that could help guard against theft, a tactic Kelley agrees should be encouraged.
Still, such security measures are optional. Di Iorio chose to not protect his machine at all.
“Our ATM just needed to be plugged in. It’s in my building, so we didn’t feel the need to bolt it down,” he explained.
For Veggie Galaxy, much of the discussion was centered on visibility, or more broadly, how the ATM could be installed in a way that established a synergy with the existing store and its traffic.
Owners Kathy and Adam Penn maintained that keeping the BTC ATM too close to the front window may inspire smash-and-grab attacks, whereas putting it too far in the back of the restaurant may not give it proper attention.
Ultimately, both parties decided that the goal was to “promote awareness” and that it was perhaps best stored near the main cash register, even though – due to transaction clearing times – customers won’t yet be able to buy bitcoin and quickly make a purchase.
6. Criminal deterrents
As for Turner’s concern about criminals using the machine, BTC ATM manufacturers say they already comply with know your customer (KYC) regulations so as to ensure that machines are used in accordance with the law.
Evan Rose, president and CEO of Bitcoin ATM, which produces Genesis ATMs, stressed that the enhanced security features his BTC ATMs offer, such as biometrics, help make them safer than traditional cash ATMs.
Likewise, Di Iorio suggested he was comfortable with his access to information from his customers, adding that he has imposed KYC-level security, even though bitcoin is not yet considered money in Canada.
“We have a maximum $2,000-per-day limit per customer, tracked through their phone number, that’s the maximum we allow every 24 hours. We take their phone numbers […] to ensure they’re not going over the limits we have on the machine.”
7. Service agreements
Of course, in addition to simply housing the machine, merchants will also need to pay for its power supply, and potentially cover the device under their insurance policies. Understanding these added costs, and bringing them to the attention of the operator is essential for both parties so that a rental agreement can be established.
While Veggie Galaxy is considering accepting a flat rental fee for housing the ATM, more complex arrangements that entail profit-sharing are not hard to imagine, given that CoinShovel plans to charge a 5% markup on transactions.
For example, Di Iorio is self-stocking his machine as opposed to integrating it into a bitcoin exchange, a move that reduced his costs. Now, however, Di Iorio needs to price his ATM competitively with other services, such as over-the-counter bitcoin exchanges like LocalBitcoins.com, which facilitate more inexpensive peer-to-peer transactions.
Understanding these potential added costs and dividing responsibilities between parties will likely be key to fostering a lasting agreement. In this instance, Veggie Galaxy and CoinShovel agreed informally to a trial, 30-day agreement so all concerns could be worked out.
CoinShovel is now in the process of registering with the required Massachusetts regulatory bodies to meet the compliance requirements
Ultimately, Turner suggested that while she is supportive of the bitcoin community, it’s a business decision, and she’ll be watching is how much business the ATM brings in over the trial before she moves forward with the deal.