ZipZap, based in San Francisco, is a bitcoin services startup operation. On February 6th, an announcement was made about launching cash-for-bitcoin services at 28,000 retail locations in the United Kingdom. Spar and Tesco Express, the widespread convenience stores are included in this effort.
Buyers have to connect to a ZipZap account to their bitcoin wallet to buy bitcoins. After printing or loading a scan-able barconde on to their smartphone, they can take it to a ZipZap affiliated location. From there, a clerk will scan their barcode and accept their cash payment. Through one of ZipZap’s partner bitcoin exchanges, bitcoins arrive in the users’ wallet within minutes. Currently, there is an additional fee for the service pricing at about $6.50 with a $500 worth of bitcoin purchased.
Ultimately, ZipZap wants to provide cash-in and cash-out services globally. Joaquin Moreno, ZipZap’s Latin American regional manager, says
“We’re in the process of making our brand trustable, at least for the cash-in process, and then we will launch the cash-out process.”
Furthermore, ZipZap’s CEO Alan Safahi stated “Once [buyers] get the bitcoin, they can use them online, or they can send it to their family around the world.”
In a way, ZipZap is looking to become the counterpart of big money transfer systems like Western Union and Moneygram. Safahi comments “You help the poor get out of poverty by reducing their remittance cost.” More than a half a trillion dollars are annually transferred and the average fees are 9% and peaks at 25% or more.
The Other Side
Manuel Orozco is a senior member specializing in remittances at the Inter-American Dialogue and he says the opposite. “I know every single location where you can pay in Africa, and that’s nonsense. The cost of sending money to Africa is about 6%,” he said. Fees are higher through Western Union. The fee of sending $300 to Algeria from New York is $20, plus there is more than 3% exchange rate taken by Western Union. This adds up to about 10% in fees.
Josh Strauss, Portfolio Manager of the Appleseed Fund who is an advocate of Western Union, says “regulatory compliance is spiking… Compliance will squeeze [Western Union’s] 2014 profits by something like 8%.” Orozco and others use Anti Money Laundering (AML) and Know Your Customer (KYC) regulations as a huge part of stating that the cost of transferring payments is irreducible. Hence, Strauss states that once bitcoin becomes regulated and has to meet the same standards as other money transfer services, they too will have to deal with regulation fees. As a result, there will be no difference between using bitcoin or traditional money.
“There is an assumption that money transfers today are very expensive, and that a model like bitcoin will lower the cost. I think that assumption is inaccurate,”
Western Union vs. ZipZap
Bitcoin uses peer to peet networking to ensure security of transactions through the internet. Western Union, on the other hand, fully owns and controls a global system of wires dedicated for its purpose. David Thompson, CIO of Western Union, believes that people who have been around the longest in the business have compliance and security advantages. While Western Union has its own outlets, ZipZap’s goal is to establish partnerships with existing retail services. Joaquin Moreno believes that this will be an advantage for ZipZap as it will allow ZipZap to offers its services in more locations for lower costs. Thompson did say that if “customers are asking for this service [bitcoin remittance], we would look at it as enabling yet another currency.”
Complacency and Inefficiency
“I went to a Western Union place a year or so ago. I had to write the entire application by hand, and it took me 10 minutes, and it took the lady behind the counter another 10 minutes to type it up. Why wasn’t I doing that on my computer before I went there?”
Alan Safahi says. Moreover he asks after the basic compliance guidelines have been met, “why [don’t] Western Union or Moneygram offer you a discount after your first transaction?”
ZipZap is already in the market applying these procedures and all of its transactions meet the U.K guidelines and regulations. “Don’t let people fool you that this thing costs a lot of money,” says Safahi. “It’s just smoke and mirrors.” Oddly enough, the Internation Monetary Fund agrees with Safahi. They said in a report that “lack of transparency” is a key reason for high money transfer costs globally.
ZipZap’s Lower Fees
ZipZap hope to offer withdrawal fees similar to those for deposits making the fee at around 3%. Safahi expects that his services will more than likely operate on a “freemium” model. Meaning “where you provide free service to anyone anywhere who wants to buy and sell bitcoin, and you sell additional services that people are willing to pay for,” he says.
“There are 6 billion people who can benefit from bitcoin immediately,” he says. “We need to be focused on making sure bitcoin thrives, and helping it grow and be successful and bring people out of poverty.”
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