Kroger Drops Visa

Quote from Cointelegraph, a daily cryptocurrency news feed:

“On Friday, Mar. 1, Kroger officially announced that its Smith's Food & Drug stores will not accept Visa cards starting Apr. 3 due to the high fees that company imposes on major retailers. "Visa has been misusing its position and charging retailers excessive fees for a long time," Kroger's chief financial officer Mike Schlotman said, explaining the decision.”

Link to the original online statement:

https://www.marketwatch.com/story/krogers-smiths-stores-to-stop-accepting-visa-credit-cards-citing-excessive-fees-2019-03-01

It stands to reason that a grocery chain such as Kroger’s would find it necessary to restrict the use of VISA cards in their stores.  You would think the small fees merchants are required to pay to accept VISA cards is well worth the attraction to customers. But grocery stores work with extremely small margins.  While a typical suburban store may hold a million dollars in inventory on its shelves and turn over that merchanize several times per year, the markups are so slight that added VISA costs could tip the economics in the wrong direction.  

The equivalent ‘fees’ cryptocurrencies charge are miniscule by comparison.  Mining fees are usually just pennies compared with VISA and MASTERCARD fees which are a small fraction of the total spent.  A $6.00 item might cost the merchant $0.45 in fees. Grocery stores are particularly hard hit by the VISA costs since fees are comprised of a flat fee for every transaction, around $0.15, and a percentage of the gross amount.  Higher percentages are charged for smaller ticket items. An expensive item might have a 1.5% VISA fee, while an item selling for under $2.00 might have a 4% fee. Groceries are usually under $10.00 per item.

A merchant, therefore, must compare VISA fees of $0.45 or more and cryptocurrency fees of just pennies.  What merchant wouldn’t want to save an extra $0.30 per transaction?

To make matters worse, VISA and MASTERCARD formulae include extra premiums on smaller merchants, out-of-the-way sales locations, and sole-proprietorships.  In other words, the smaller, less secure the merchant’s situation, the higher the fees. Some Etsy-type merchants selling from their homes are being charged a 10% processing fee.

Cryptocurrency is going to attract merchants facing these excessive plastic card charges.

Cashlessness

count-back-change cashier

Say goodbye to cash.  You might want to frame a few crisp new one dollar bills.  They are about to become history.

Have you noticed how few occasions we have left to use cash? The decline started years ago when credit cards were introduced.  However, as banks were earning windfall profits as we all went into massive debt, we     learned to temper our enthusiasm for the new ‘currency.’  Banks then introduced debit cards to earn fees in another way.  Cash was really beginning to take a backseat.  In 2011, with changing regulations and fees to merchants limited, the banks wavered for a moment, while they tried to decide if debit cards were still good business. Banks are getting people to use debit and credit cards in greater and greater numbers, earning more and more fees.

Mastercard and Visa once charged merchants a flat $0.15 fee plus a percentage of the billed amount. When the item was very small, $1 to $5, the $0.15 plus 2 1/2% or more fees became a hefty portion of the overall transaction.  This caused merchants to discourage card use for small items.  Merchants posted signs “Minimum $10 purchase to use credit cards”.  Those signs are all but a thing of the past when regulations made the fees for all purchases big and small the same. The days of cash for small items were numbered.

People don’t carry much cash anymore.  Now, there are just a few cash holdouts left.  Using cash for tips became more difficult as the check amounts got larger and people paid the bill with a card.  It was just easier to add the tip to the amount.  EZPASS made cash for tolls a thing of the past.    There’s a small “cash only” Italian restaurant in Brooklyn that we frequent and cash only sidewalk food carts.  You can still buy a “BEER HERE!” at the ballpark with cash.  The babysitter still requests cash.   Taxis have had to accept cards when the bills got too damn big.  I’m still in the habit of going to the atm and withdrawing cash the day before long trips.  I’m used to cash-intensive taxi/hotel/airport travel days.  But even those days have become cashless.  It seems like the only thing my wallet is good for now is to hold my bank cards and thousands of receipts.

Take a selfie with a dollar bill. They are soon to go the way of the subway token.

Bitcoin (Smartmoney) Is Here To Stay

Screen Shot 2018-01-08 at 1.36.16 AMCryptocurrencies are not a bubble, not a Ponzi scheme, and not a flash-in-the-pan, here-today-gone-tomorrow phenomenon.  Cryptocurrencies (think Bitcoin) are here to stay.  They are the next generation of money.  As fiat currency (paper money) disappears, we use checks less and less, we use debit and credit cards more and more, and we send and receive money via all sorts of electronic methodologies, it is quite apparent to me that we are moving towards virtual currencies.  In fact, we’re moving not just to replace dollars with virtual dollars but we’re moving towards a state where we have many different currencies to handle many different situations, many different circumstances that we will use throughout the day, throughout our lives (think Airmiles).

Have you ever wondered why we bother to purchase Metrocards to use in the subway?  Why don’t we swipe our credit or debit cards through the turnstiles directly just as we swipe our Metrocards?  The answer is because the Metrocard is doing something a Mastercard or Visa card can’t do.  The Metrocard has an ID number embedded in the magnetic strip that tells the system who is using the card or under what conditions the card is to be used.  If you purchased a monthly MetroCard, the card might look the same as any other MetroCard but the ID number lets the system know that you have paid for the right to travel in the system for a period of one month.  You are free to use the system as much as you want during that time.  Your debit or Visa card doesn’t have that kind of ID number nor can it hold that kind of information.  The ‘contract’ you have with the system is unknown by the transit system.

In a future world, that sort of unintelligent ‘money’ is unacceptable.  We are living in a world that is and will continue to be more and more dependent on ‘intelligent’ interactions between the systems we use. The transit systems, including buses, subways, taxis, airlines, water taxies, highways, tunnels, and bridges, will be smart systems which will allow us to establish ‘contracts’ with them.  These ‘contracts’ will be like the Metrocard ‘contracts’ for different rates at different times, for different periods of time, for different numbers of people, at different rates depending on the age of the user, to what use it is being put, and for what duration it is to be used.  The money will have to keep pace with these types of contracts.

We have EZPASS in the Northeastern United States for paying highway, bridge and tunnel tolls.  The system automatically replenishes our accounts without our direct involvement.  When our automobile passes through one of the EZPASS readers, the system knows what our ID number is and what ‘contract’ we have with the system.  Similar systems will appear in the coming years for other systems that we use.  There might be one for parking your car, buying and delivering food, taking taxis, using music, downloading information, buying online, vacationing, renting hotels, renting sporting equipment, online gaming, online gambling, education, going to the movies, renting furniture, renting art to hang on the wall, taking singing lessons, learning to skydive, and ordering a babysitter.  The list is endless.  Are you getting the idea?  The way we will conduct our lives in the future will be systematic, without currency, by a computer, online and by a ‘contract’ which is a set of guidelines agreed upon by both the party ordering the goods or service and the system or party delivering the goods or services.  To facilitate those transactions will be virtual currencies.

Airmiles

Screen Shot 2017-10-03 at 9.52.26 AMDon’t understand cryptocurrency? Think ‘airmiles’.  You know, the premiums given out by various airlines, credit cards and other players as a reward for flying or shopping referred to as airmiles.  Almost every airline gives out some form of airmiles.  Airmiles are virtual.  There’s nothing physical thing you can point to called an airmile.  They exist in computer programs.  For each airline’s airmile program there exists a formula by which you earn and use airmiles.  You might have to spend a dollar on a participating credit card to earn an airmile, for example.  Or, you might have to accumulate 30,000 airmiles to use airmiles to fly from New York to Chicago at no additional cost.  You know the drill.  Cryptocurrencies are similar.  Each cryptocurrency has a specific function and value proposition.

How can something virtual have value?  How do airmiles equal a trip to Chicago worth $250?  Because that is its value proposition.  That’s how it was set up.  That’s what you get if you take the necessary actions.  That is the social contract that has been set up for each individual airmile program.

Cryptocurrencies are the same.  There is a cryptocurrency that is used for online gambling, one for online gaming, and even one for sports betting.  There’s one which is the currency of international money transfers, one for healthcare and one for real estate.  Before we’re done you will see thousands of different cryptocurrencies.  We’re just getting started.  Some will be valuable and worthwhile acquiring.  Some will not be worthwhile at all.  We, as a society, are just now learning how to use cryptocurrencies.  It is only now that they are even being considered a new asset class, a new form of wealth.  There are bound to be missteps and mistakes.

171130 Conditional Payments

ezpassOne area to which cryptocurrency will undoubtedly be the frontrunner is conditional payments.  In a conditional payment, the amount owed varies based upon conditions that are part of the sales agreement.  There is a system in the Northeastern United States called EZPASS to pay for toll roads on highways.  For example, EZPASS allows the highway authority to charge a varying amount based on the distance traveled.  In downtown congested areas, EZPASS could be set to charge more based on the amount of traffic or time of day.

When the automobile passes through the tollbooth, the highway authority scanner registers the EZPASS account.  When that same automobile passes through the tollbooth again, the amount of the transaction is computed and the account is charged.  That is a conditional payment.  The reason we can’t use credit cards directly for these transactions is credit cards were not designed to accommodate those two-step transactions, log-in to check-out.  A cryptocurrency could be designed to do just that.

For the same reasons, the New York City subway system cannot accept credit cards as payment directly.  Passengers must purchase a Metrocard with a credit card or cash and then swipe that card when they go through the turnstile.  Different passengers make different kinds of subway purchases, e.g. monthly passes, single rides.  The credit card would not know that the charge was anything other than a single fare.  A cryptocurrency could be designed to understand that the passenger purchases might be more beneficial when purchases as a monthly pass and charge the difference under certain circumstances.

Ohio Governor Turnpike

171106 Trusted Distributed Networks

trusted bridgeYou’re walking along the street, minding your own business, when a stranger comes up to you and says, “I’ll give you $10,000 for your hat.”  You know the hat is worth at best $25.  In fact, there is no love lost were you to part with this hat which you’ve been meaning to replace for months.  But this man’s proposal is crazy.  Who would pay $10,000 for a cheap hat? And, were you to agree how would he pay you?

If he gave you $10,000 in cash, chances are much more likely the bills would be counterfeit than real. Besides, who wants to walk around with $10,000 in cash on them? A check wouldn’t be worth the paper it was written on.  By the time you cashed it this guy would be long gone.  You can accept Mastercard or Visa with your smartphone.  The fee, though, is 6% or $600.00 in this case.  His phone allows him to make a Paypal payment.   But you don’t have a Paypal account.  What do you do?

You use Bitcoin, of course. You flash your Bitcoin wallet address barcode which his Bitcoin wallet reads and sends you the $10,000 in Bitcoin.  You give him the hat.  An instantaneous, no-fee, anonymous transaction.  You don’t have to pay a processing fee, the transaction happens in the wink of an eye, he doesn’t have to know your name, you don’t have to know his, and it is completely trustworthy.  That’s the value of Bitcoin’s trusted, distributed network.

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.

 

171102 EZ-ier PASS

pay toll.pngIt was a coup to have the entire Northeast quadrant of the U.S. use Mastercard/Visa based EZ PASS.  Imagine the windfall when every one of those states began to pay a percentage of their toll-road collections to processors.

Yet, the states do it gladly because consumers love the convenience, faster transaction times and less traffic.  The states love fewer employee salaries and benefits to payout and EZ PASS reduces the cost of collecting, counting and converting cash.

Note to self: Create a company which creates consumer-funded accounts which make payments in Bitcoin in an automated way, e.g., wherever payments must be made with a credit card, Bitcoin is used instead.  (Banks aren’t going to like that.)

In the New York-New Jersey region alone nearly one-third of all of the tolls in the United States are collected; some 4 billion dollars annually.  We are paying about $100 million a year in processing credit cards to pay those tolls.  Drivers could save that much money by using Bitcoin.

171021 Why Bitcoin?

Until I purchased something with OpenBazaar, an application whose raison d’etre is to make it easy for merchants to accept bitcoin payments, I didn’t realize how much overhead exists in a credit or debit card transaction.  You forget that after your full name, sixteen digit card number, expiration day and month, 3-digit security code on the back of the card you are often asked addition information such as address or billing zip code.  You forget that even after all that information, as soon as you enter an amount, another set of criteria appear making the transaction subject to rejection.  Did you spend over your limit?  Did you have sufficient amount of cash to cover the transaction in your account?  Did you make one too many purchases in rapid succession, therefore making your account subject to further scrutiny, looking like someone had stolen your identity?  I’ve had my credit and debit card transactions stopped, blocked or reversed for so many different reasons.  I’m sure most of my readers have, too.

None of that happens with Bitcoin transactions.  You enter an address and an amount and click send.  The end.

 

171002 Here’s the Problem

Let’s say you own a website that sells bicycles.  Someone seeing your page decides that’s the perfect bicycle for me and decides to order one.  At your website, a variety of methods for customers to pay for their orders is provided.  All of the usual methods such as credit/debit card, PayPal or check are there.  If the customer chooses to pay by check, instructions include the proviso that the order does not ship until the check has cleared. The reason for that is obvious.  How will you know the check is any good unless you try to cash it.

The card companies have vetted the customers well enough that they are willing to risk the few bad apples that will thwart careful scrutiny.  If a card is stolen, it has not yet been reported.  Or, if the customer doesn’t have enough credit and they are unable to stop the transaction, the banks have enough information to successfully pursue payment. In that case, they do not have to assign a waiting period.  But, with all of these procedures and devices for ensuring payment, there is still a huge fraud rate in the credit/debit card industry.  The recent proliferation of cards with chips has improved the situation somewhat.  There is also the enormous expense to the merchant by the banks for this money handling.  Rates vary from 2.35% to 6%.  There are also fees to the customers, though those might be hidden.  After all, the merchant fees paid to banks must come from somewhere.

Bitcoin does away with all of that. If your site accepted Bitcoin, the customer would read you address into his Bitcoin Wallet and send you Bitcoin.  The Bitcoin would arrive instantly.  The transaction would be complete. It’s that simple.  Done.  Over. Finished.  No fees. No waiting period. No risk of non-payment. No lack of credit. No bounced checks. That’s the beauty of Bitcoin.