CoinDesk spoke to Alan Safahi, CEO of cash-to-bitcoins service ZipZap, about its big entry into the Latin American market, bitcoin as a 'leapfrog technology' in the world's more volatile economies, and whether the company's recent issues with payment processor PayPoint would have any impact in future.
Alan Safahi has just come back from San Francisco's CoinSummit where he says he spent far too much time fending off questions about whether his company would continue operations, after recent media articles.
"Rumors of our death were exaggerated," he laughs, paraphrasing Mark Twain. "I was surprised at the power of the press."
On the contrary, ZipZap is looking to expand in many new areas, while maintaining existing ones. Last month's issue was simply one of a payment processor who expected a slow trickle of bitcoin-related business, but instead got a tsunami – too much of a good thing, if you will.
ZipZap is still working with PayPoint to address the processor's concerns about bitcoin's exact legal status in the UK, while at the same time diversifying its options both commercially and geographically.
ZipZap already operates in five countries, and has just quietly slipped into a sixth and major one: Brazil. Having run first a closed, and then open, beta there for a few weeks, the service went live last week, with a Portuguese language site inviting locals to try it out.
The company has also worked as a payment option supporting exchange partners in the country for about two years, including the now-defunct BitInstant.
All without doing much marketing to promote it – yet.
ZipZap decided to move out of the background and promote its services under its own name, doing its own KYC (know your customer) procedures and allowing consumers to buy bitcoin directly. Exchanges often just aren't in the business of new customer acquisition, Safahi indicates.
"We talked to exchanges and a lot of them really didn't want to go after Latin America," he said. "Everybody's focused on Europe and Asia."
"We have a very aggressive plan to educate and acquire new customers. We thought Brazil would be a good market for that, it's a huge powerhouse in Latin America," he added.
"Brazil has a bitcoin-friendly environment, with banking and so forth," Safahi continued. "And we think there's a lot of good potential use cases with remittances for Latin America that Brazil could help us get into."
As is often the case with bitcoin, much of the promise lies in weaknesses with current financial and economic structures: instability, poverty, and lack of access to banking services – including credit cards, even for large sections of the middle class.
"I see a lot more potential in Latin America," he said. "Eighty-five per cent in some countries are unbanked. In these unbanked economies, people will just jump over the existing payment options, like Visa and MasterCard, and just go to the next generation: digital currency."
There's no point talking about the risks of bitcoin's volatility to the people of Latin America, as most of them have experienced far worse with their own national currencies.
"We see a lot of pent-up demand for bitcoin in Argentina." said Safahi. "I was there a couple of months ago – people in the streets come up to you and try to convert your dollars into bitcoin. They say 'cambio, cambio'; they know how to do currency conversion with bitcoin."
"Taxi drivers there know about bitcoin," he added. "I've never seen a country where people are so in tune with financial services as they are in Argentina."
Then there are countries like Venezuela and Nicaragua, with their closed economies and strict financial controls that do nothing to encourage real commerce or small businesses.
"Those are the markets where bitcoin volatility actually looks really good!" said Safahi. "At the conference, people kept asking 'What can we do to manage the volatility of bitcoin?' and I said, 'just take bitcoin to markets where volatility doesn't look bad'."
The problem with developed countries is that there often doesn't seem to be any urgent need for a new payment system. The average consumer doesn't understand the economic case for sound, non-government controlled money and local fiat currencies have been stable enough to provide a sense of security.
It's difficult to get consumers in the developed world to switch to bitcoin, Safahi said, because they're not particularly inconvenienced now. People may complain sometimes, but they're generally satisfied with credit cards, both in-store and online.
Even merchants, who may gripe about chargeback fraud and processing fees, seem more comfortable in the current system and aren't rushing en masse to adopt or encourage bitcoin use. Few offer discounts for digital currency, treating it almost as a favor to enthusiasts or a gimmick to attract a bit more business and attention.
Remittances and micropayments
Safahi sees remittances and micropayments as being far more significant bitcoin use cases to consider than regular e-commerce in developed countries.
"While everyone here is into e-commerce and they get all excited about Overstock.com," he said, "we're looking at building railways that can get rid of Moneygram and Western Union."
Even though affordable remittances is one of the more obvious applications for digital currencies, and one that could help humanity, it too is riddled with regulatory pitfalls that have prevented several efforts so far, thanks to money laundering and terrorism financing concerns.
Then there is regular e-commerce on a smaller, yet international, scale. Bitcoin allows small amounts of money to be sent anywhere at almost no cost, which could be a boon for anyone in the developing world with something to sell – whether it's a manufactured product, creative work or service that can be arranged or delivered online. Even a few more dollars here and there could lift a lot of people out of poverty.
For payments like those above to work, especially remittances, there needs to be reliable on and off ramps at each end. ZipZap aims to be the facilitator for this, working not just with bitcoin, but also Ripple and other digital currencies.
"ZipZap is currently focused only on the on-ramp," said Safahi, "but in the next few months we have plans to offer cash-out options, in 90-plus countries."
There's also a need for education. Money-changers and taxi drivers on the streets of Buenos Aires might love bitcoin, but there's still a lot of curious people who need to be guided gently into what sometimes looks like a daunting new system.
"When I got into the Internet in the early '90s," Safahi said, "there was a saying that everyone needs a brother-in-law in the Internet business, someone you could go to, to ask all those kinds of beginner questions."
"Now everyone needs a brother-in-law in the bitcoin business, he continued. "We want to be that person, to educate and teach them. So we're not going after high-frequency traders, we're going after noobs, first-time buyers, making it really easy for them to buy their first $15-$20 worth of bitcoin."
ZipZap has tapped into an existing payment option that's very popular in Brazil known as Boleto Bancário or just Boleto – a payment ticket system allowing customers to print receipts and pay with cash at over 3000 convenient outlets like post offices, banks, even some stores. You can also transfer funds online from a bank account.
"Familiarity breeds trust, so if we tap into a system they're already used to, it's much easier to gain trust," Safahi said.
"Brazil's just our first stop in Latin America, in the next few weeks we're adding about eight more countries including Peru, Chile, Colombia, Mexico, and others," he went on. "Our goal is to really go deep and go heavy into Latin America.
"Our goal is to build a network and encourage people to use it for remittances. Even if we don't go after the remittance market directly, we want other people to build solutions for it on top of our railway."
Rest of the world
ZipZap is also active in other regions, and is talking to people in places like India and Southeast Asia, to name a few. Safahi says he doesn't subscribe to the notion that you should find one physical location and focus on it. Bitcoin's ever-changing regulatory environment makes it unwise for a company to put all its resources in one place.
"That's what you have to do to build this kind of thing," said Safahi. "The corridors have to be built on both sides and conditions can turn on a dime. You have to be ready to do business in multiple locations."
Funding and locations
This means the new international focus isn't going to divert ZipZap's attention away from the UK. On the contrary, it plans to announce a deal with a new payment processor in the coming week and is maintaining its relationship with PayPoint.
On top of that, it's already formed a new entity in nearby e-commerce and gambling haven, the Isle of Man.
"We're not down," said Safahi. "It's going to take a lot more than that to get us out of the UK. And Isle of Man is really interesting. They're very friendly with bitcoin."
The company looked at other small jurisdictions, from Gibraltar to Singapore, but settled on the Isle of Man due to its "progressive" approach to technology and banking, as well as its proximity to the UK and Ireland.
"We're doubling down on the UK. We're not going anywhere."
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