It's a weekday morning as my favorite concert tickets go on sale online. I select my seats, enter my credit card details within the time provided, and hit 'submit'. Payment declined. Why? The credit card issuer cites fraud concerns because I'm visiting a new website. On the surface this appears to be a minor frustration, but this is a symptom of a larger, fundamental problem.
The online credit card payments industry is stuck in a difficult predicament. Because the system is easily exploited for fraud, a card issuer must be permissive and restrictive in precisely the correct proportions. Err on the side of being too permissive, and a card issuer is exposed to unnecessary fraud. Being too restrictive prevents consumers from spending their own money. Both have huge cost implications which are ultimately born by the consumer.
Put another way, this produces a hidden multi-billion dollar tax on a vital component of the American economy: the consumer.
The modern world economy is led by companies founded on rapid innovation and iteration. Low-friction business processes allow entrepreneurs to thrive. Now is a great time to start an Internet company: cloud infrastructure providers allow anyone with an idea to implement a startup with little overhead and on-demand scalability. A rich ecosystem exists for almost everything needed to bring a concept to market: low-cost networking, storage, and mobile services.
But something is missing.
Many startups assume that Web and mobile usage can eventually be monetized by serving highly targeted ads. But what about sites and services that accept payment directly from consumers? This includes not just e-commerce, but content distribution and new categories of sites that haven't even been conjured up yet. The conventional wisdom is that these companies must establish a merchant processing account to enable credit card payments. Unfortunately, the initial setup is difficult, requiring extensive documentation, rate negotiation and contracts. Still more significant is the ongoing transactional cost -- up to 6%, which is always passed on to the consumer in some form. Further, a company with any success will be required to bear accounting costs to investigate fraud inquiries.
Rather than trying to force a one-size-fits-all payment model on widely varying consumer behaviors, let's treat consumers as adults. Give consumers secure, zero-cost tools to spend their own money. Bitcoin fulfills these goals, so we at Foodler decided to give it a try. People throughout the U.S. use Foodler every day to order food delivery -- pizza, Chinese and sushi are popular. Now they can use Bitcoin to order food.
Our experience enabling Bitcoin payments has been overwhelmingly positive. We use a combination of open-source software with in-house software to receive and process payments. The existing open-source software is well-designed for integration, and has demonstrated excellent reliability. We are pleased to process an increasing number of Bitcoin-backed transactions every day.
Fluctuating valuations are a commonly cited concern. Exchange rates will stabilize as Bitcoin gains broader acceptance. In the meantime, merchants can exchange Bitcoin quickly according to their risk tolerance. If Bitcoins are exchanged immediately after being received, then the currency exposure is effectively eliminated.
Foodler supports credit card companies and the important role they play in enabling commerce. Forward-looking card companies can adapt by seizing this opportunity: why not facilitate commerce using a combination of Bitcoin and traditional means? Card companies can produce software on both the merchant and consumer side of the equation, which would secure and differentiate their positions. The reduced fraud profile of Bitcoin would allow them to offer lower rates while maintaining profitability.
These services will drive more great ideas, more startups, more commerce -- and we all win.
The next wave of innovation will be spurred by those who embrace low-friction payment systems. Bitcoin is well-positioned.
Christian Dumontet is co-founder and CEO of Foodler, the online food ordering service that connects consumers with the widest variety of restaurants for immediate delivery.