Why We Aren’t Using Debit Cards at Subway Turnstiles

MetroCard.SVGThe world of finance is changing.  When is the last time you wrote a check?  Could you find your checkbook if you had to?  When is the last time you used cash?  In Manhattan, where I live, the only time we use cash is when we leave the city or purchase something for under $5.  I get cash at an ATM once a month.  Remember when we were asked if it was a debit or credit card?  Not anymore.  I am seldom asked to sign receipts.  Swipe! The transaction is complete.

Paper and coin, what is referred to as fiat currency, is used less and less.  Most financial transactions are now virtual.  We store virtual currency in a virtual bank account which I inspect virtually, online.  I keep stocks and bonds in the same way.  If I want to pay someone from my virtual bank account I have the option of sending them a virtual check which they deposit in their virtual bank account.  If we ever need proof that the virtual money represents the ‘real’ thing, we go to the bank and ask to get paper and coin currency as proof.  But we seldom need to do that anymore, so comfortable are we with the concept of virtual money.

So why all the fuss over a new asset class, cryptocurrency, another form of virtual money?  “What is Bitcoin?” “What can you do with it?” “Bitcoin doesn’t represent anything.” These are the statements I’m hearing.  What is money? What can you do with it?  Buy things? What do you want to buy, a house? a car? You can do that with bitcoin now.  “What if it disappears?” “What if the government declares it to be illegal?” It won’t disappear.  It’s now a global phenomenon larger than General Motors or Walmart or Exxon Mobil.  Some countries did declare bitcoin illegal, at first.  Now most of them have changed their minds.  In fact, we will need this form of currency.  That’s the real story here.  Cryptocurrency works in a way that other currencies don’t.  It might be difficult to understand the differences, but understanding them is critical, and, explain why bitcoin isn’t a bubble or going away anytime soon.

Our culture uses computers more and more.  As we do, more and more programs have something to do with money.  Those automated computer programs working with money can do so in much more fluid, dynamic, and fast-paced ways than we can manually.  We can pay for renting milliseconds of machine-time.  We can make micropayments by the column inch.  If we drive through a congested area during peak traffic times, our EZPASS can pay a higher rate.  These are examples of dynamic financial transactions already in our daily lives.  There are others we NEED to be doing but our fiat currency won’t let us.

For example, why don’t we pay for the subway with our debit cards directly?  Why do we bother with Metrocards?  The answer is: credit and debit cards cannot understand the dynamic purchases that we make.  How can we pay for a monthly subway pass at the turnstile with a debit card?  Not possible.  The turnstile would not know the difference between a one-time purchase and a monthly purchase.  But with a Metrocard, the system can look up your account and determine the conditions of your card and purchase.  It is this type of dynamic purchasing that we will be doing for just about everything.  Driverless cars will be rented by the month.  Subscriptions will be based on the amount you watch, or read, or listen to.  Your computer is talking to mine.  Finance is becoming more dynamic and our currencies must change right along with it.

171101 Bitcoin Isn’t Doing Its Thing Yet

Bitcoin is the currency of the future. But the future isn’t here yet. Bitcoin should be the workhorse that facilitates trading.  It should be the currency to use for all online purchases, for transmitting value across borders and great distances, for storing value in troubled times, for making trusted trade between strangers possible, and growing one’s nest egg. However, it is at present, a speculative bubble.  Its skyrocketing valuation is breathtaking and not for the faint-hearted.  How can anyone looking to invest, purchase something that is 137% the price it was just four months ago?  A Bitcoin, in June, was $2450, and on November 1, 2017, is $6650. If tomorrow morning we woke up to Bitcoin prices at $5800, down $850 or -13% from today’s stratospheric prices would we still consider Bitcoin a good investment?  No. Yet, here we are.

For things to right themselves, more of bitcoin’s real potential must materialize.  People have to recognize that Bitcoin is here to stay, has no intrinsic worth but for its ability to facilitate trust, help accomplish the conveyance of wealth, and its ability to be converted to any other acceptable form of currency.  This morning there was an article about an Amazon subsidiary purchasing the domain names amazonethereum.com and amazonlitecoin.com.  Amazon already has owned amazonbitcoin.com since 2013.  If Amazon were to announce its acceptance of Bitcoin as a payment method option on its website, that would be huge and go a long way to improving Bitcoin’s worth.  The value of Bitcoin would grow as significantly as if JP Morgan Chase were to announce their acceptance of Bitcoin as a currency.

The marketing of Bitcoin would instantly see 2X growth.  Bitcoin going to $13,000.00 would happen immediately.  Visa and Mastercard would take a big hit as their fee-based transactions gave way in favor of feeless Bitcoin payments.  Businesses which work on tiny margins, such as the grocery business, would rush to become Amazon vendors.

There are laws on the books which prevent merchants from displaying two-tiered pricing.  Nowhere in the United States will you see merchandise displayed with two-tiered pricing: one price for cash purchases and another for purchases with credit cards except, of course, at the gas pump.  There are Merchant/credit card/bank agreements which prohibit that.  It’s a matter of semantics.  Purchases must not have a credit card surcharge.  However, it’s ok to have a cash discount, if that law is understood correctly.

3-tier pricingImagine three-tiered pricing: Bitcoin, cash, or credit.  Bitcoin would be cheapest.  Ask any merchant if they’d rather have their employees handling Bitcoin transactions or taking cash for 2% more.  Bitcoin means instant payments, no fraud, no theft, no loss, no credit card/debit card processing, no bank fees and no delays.

There is much to be done before we get from here to there, but we’d best begin.  Don’t get me wrong.  I love when my investments jump 15% overnight.  But I’d rest a whole lot better knowing Bitcoin’s price was based on its being used to facilitate trade and add trust, than as a speculative bubble.


171022 Hidden Bitcoin Opportunities for Banks

Banks are missing the huge opportunity Bitcoin and cryptocurrencies afford them.  Take a look at the following chart published in Cointelegraph:

Screen Shot 2017-10-22 at 11.26.44 PM

The most preferred payment method is debit card, followed by cash, followed by credit card.  Digital payments are fourth.  Checks are fifth.  The chart is NOT about which is the easiest or most secure payment method.  The chart is about PREFERRED payment methods.  Even though digital is the easiest payment method and perhaps the most secure, debit cards, cash, and credit cards still win out.  So what?

This presents a huge opportunity for banks to facilitate cryptocurrency accounts for clients, while enjoying the security, ease-of-use and low overhead cryptocurrencies provide.  People are frightened, a little bewildered and uneasy about cryptocurrencies, yet most are curious, if not downright desirous, to start a cryptocurrency account or investment.  Why not provide them with the assurance they need while benefiting from continuing to be their financial advisors.  Banks are missing out on a huge opportunity.  If the banks continue only to view cryptocurrencies as undermining their business, banks will be left high and dry which the rest of the world cruises on cryptocurrency’s many benefits.

Most people are terrified by the security steps most cryptocurrency exchanges employ today.  Remember, too, most people are still not comfortable making purchases using a credit card online. If a Goldman Sachs or a Wells Fargo were to offer a Bitcoin account for savings and trading, people would jump at the chance to open a cryptocurrency account, while the banks offer them the ability to trade, send and receive cryptocurrency securely.   Instead of trying to hide and make cryptocurrencies go away, banks should be prospering by embracing the inevitable and fostering cryptocurrency’s growth.