Exciting articles several times a month
16 March 2018
Payment services ecosystem seems to have no unbeaten areas or technologies to amaze consumers, and every now and then appearing solutions look like a natural product of previously existent inventions and developments. Today we are talking to a startup offering simple solutions to the entire industry, which have a great potential to disrupt the markets, while they are based on absolutely known things. We post this interesting story kindly provided by Alexander Drozdov from Crypto Payment System, an innovative fintech company that has their own vision of how electronic payments may look like.
Could you, please, provide us a general idea of what is Crypto Payment System all about?
It’s a payment system that will simplify and reduce fees of non-cash payments by removing unnecessary intermediaries. It is like VISA for the future payments and allows you to make secured blockchain-based purchases directly with your smartphone, using the currency you are familiar with, like rubles, dollars, etc.
You talk about the key problems in the payment systems market of Russia, so your major target audience is in Russia? Do you plan any expansion to other markets?
The problem is more or less the same in the whole world, especially in the e-commerce segment, where you could very rarely find fees less than 3%. The reason to start in the CIS is just that we have a more extensive network here, because we’ve worked with financial and telco industries in the CIS for last 10 years. But the CIS is just about 1% of world market share, and we are actively seeking for partnership outside of the region to be able to scale our business model.
You seem to believe that current payment methods are outdated and inefficient. Why do you think that cryptocurrency-based payment technologies would be more advantageous?
Not really. Current payment methods are trusted and widespread, they are just too expensive. They were built in the 20th century and their business model involves a lot of intermediates: acquiring bank, issuing bank, payment gateway, payment provider, payment processor etc., and support of this business model and all parties involved in the payment process have to be covered by merchants fees.
However, as technology evolves, you could explore new ways of getting the same services cheaper and more convenient. For example, in the 20th century I had to pay huge fees to call abroad and that technology wasn’t outdated or inefficient. Today I’m just using my Messengers to get free of charge calls.
It is the same with Crypto Payment System. We are using one of Blockchain technology competitive advantages which could let us remove intermediates of current payment process.
Could you, please, elaborate on the role of every variable in your ‘Recipe of success’ CPS = V + A – C? How fiat currencies could be used? What is the role of cryptocurrency in your vision?
Our vision is that CPS will unite traditional and crypto payment universes, bringing the best from both of them.
So CPS’ “recipe of success” is combination of VALUE from traditional payments: Merchants and Customers will pay and receive money in traditional fiat currency. It is very important, because it means no barrier in adoption of new technology, and no changes in the Customer behavior is needed.
After that we add ADVANTAGES of crypto payments, such as avoiding intermediates and, thus, significantly reducing transaction costs, a possibility for Customers not only to pay, but also to receive all financial services with smartphone, without bank card or even bank account and a possibility for Merchants to accept payments without special equipment.
Finally, we are removing all COMPLEXITY related to crypto currency. There is no need either for Customers, or for Merchants to buy or sell crypto, pay exchange fees, bear volatility risks or wait transaction confirmation in minutes and sometime hours. Moreover, neither Customers, nor Merchants need to know that our native token is used for internal settlements on blockchain to provide immediate confirmation for Merchants.
What allows you to cut the costs from 6% to 1%?
We will just use another business model, which will not need to serve 5-6 intermediates, every time you swipe your card. We have just 2 parties for process transaction: telecom operator for charging an amount to the Customer’s account, and CPS to process the transaction.
For example, main part of the fee is paid to a bank, which has issued you a bank card. In addition, your bank has a lot of branches where you typically have to go, and people who will serve you to obtain this card. So this entire infrastructure has to be covered also from transaction fees. On top of that, typical profitability of card business in banks in some countries is more than 50%.
In our model we don’t have cards or banks at all, so we don’t need to cover their huge expenses and will not ask huge commissions from our Merchants.
You accentuate the significance of mobile carriers in your payment model. What, in your opinion, network providers should do to be successful in this new architecture? Should they make any changes and modify their equipment to be more efficient?
We met with several Telco operators in the CIS and heard pretty same story. Main business is in stagnation: fewer people pay for voice calls and they understand that in nearest future they will get most revenue from financial services, not from connectivity services.
They see growth rate of payments market, where eCommerce would be $4 trln, and half of that will be mCommerce. They see the dynamics of contactless payments made by phone growing from 0 to almost 1 billion in just few years. And there is no doubt that in a few years we would pay with a phone, but not with a plastic card. The question is: “Which technology would be underlying?”
Will it be Apple Pay and Sumsung Pay with current value chain with banks, traditional payment processors etc and Telco will lose this competition, or Telcos would be ready to provide their subscribers affordable mobile financial services? All Telcos whom we discussed our project with, assure us that they will compete for the second scenario case.
So the main idea, which Telco has to be driven by at all levels, is that their main growth factor is financial services for their customer base and it is their future business if they’d like to survive. I hope it wouldn’t be very difficult, because implementation of this idea doesn’t need huge infrastructure investments like launching 5G, as an example. With partners like CPS, a network operator just needs to provide typical operation of debiting the subscriber’s balance.
Tell us, please, more about micro-loan and P2P loan capability you mention on your website.
From one point of view your network operator has much more information about you, than you can imagine. It is not only about how much you spend on mobile services or how often you go abroad, but also if you have full-time employment (whether you permanently move from home to office), how often you sleep at home or even which web sites you prefer to surf with your phone.
At the same time not many people hold sufficient amounts of money on mobile accounts, which can be a barrier for increasing average spending with CPS. So we are going to provide instant micro loans at the moment of purchase if there is not enough money on subscribers account. Thus, using Telco’s information for scoring, we will significantly decrease loss rate when compared to typical micro-loan providers.
Growth area for this service is P2P loans where we will provide ability for CPS users to earn if they have free funds. If they prefer higher risk and profitability they could choose categories of borrowers depending on their rate scores or they can just make a deposit with CPS with fixed income. Taking into account cross-border nature of our project it opens attractive opportunities to propose competitive deposit rates in developed countries, where typical interest rate is near 0% and loan in developing countries, where short term micro loan rates are rarely less than few percent per day.
Do you believe that the parties of the payment infrastructure should forgo conventional payment networks like Visa and Mastercard? You think that smartphones could pave the way for the future of payments. Why smartphone-based networks could be better than traditional payment gateways?
Typically parties of current payment infrastructure are part of payment networks infrastructure and simple couldn’t forgo, because couldn’t operate without VISA or Mastercard. In our example with banks, cards are not needed, they are just obsolete for new generation processing service. I don’t have any illusions and traditional payments will continue operate for many years and startups like ours would try to get a smaller part of this huge $50 trln market by proposing competitive services starting at niche segments. We’ve never set a goal to become the next “slayer of VISA”.
Still, smartphone-based payments are just a way more convenient. Moreover, traditional payment networks also understand it and work with Apple Pay or Samsung Pay. In some countries payment with a phone is already a standard operation, for example, in China 50% of smartphone owners already use them for payments. So it is no doubt that we will go on the way of simplifying the Customer journey on payments and smartphones supplanting the cards.
Where do you see your company and the entire cryptocurrency industry in the longer term?
We are just in the beginning of our long journey, which could disrupt current payment industry and in longer term I hope that we could really save billions for our Merchants, and our Customers will get the most competitive financial services with their smartphones. We have to unite Telco operators and convince them to join CPS in order to get “network effect” and start serving hundreds of millions subscribers and millions of Merchants.
Cryptocurrency hype will pass; most of projects will not deliver their products. Leftovers will deliver, but they will struggle to find competitive business model, the most successful will find business model, but won’t be able to scale it. Hence, just few of them will survive and become next Google or Amazon of 2020th. Crypto Payment System has all chances to become one of the leaders in emerging crypto industry.
Exciting articles several times a month