CardFlight's Tech May Someday Give Lift to New Payment Systems

By Jon Matonis
PaymentsSource
Monday, May 13, 2013

http://www.paymentssource.com/news/cardflights-tech-may-someday-give-lift-to-new-payment-systems-3014106-1.html

Typically, I don't cover or analyze so-called payments innovations that merely embrace and extend the legacy infrastructure, but a new middleware startup, CardFlight, could actually operate as a payments "air traffic controller" because its code sits directly between the consumer and the processor.

CardFlight announced the availability of a private beta last week for the iOS and Android platforms. Its encrypted magnetic-stripe card reader and simple software development tools allow developers to handle swiped card payments within mobile apps without becoming payments experts. It focuses on card-present payments and charges 10 cents per transaction.

As the New York startup's technology makes its way into more mobile applications, the company could also begin to offer non-card payment choices as well, such as the new cryptocurrencies like Bitcoin circulating worldwide now. Just as mobile application developers don't want to worry about compliance with the Payment Card Industry (PCI) data security standard, they don't want to worry about alternate payment models either. A one-stop shop for payments integration can allow developers to support bitcoin processing for a global marketplace.

The existing merchant processor landscape offers either a 100%-card platform or a 100%-bitcoin platform, requiring developers to integrate each separately. Atlanta-based BitPay is the leader in bitcoin merchant processing and they offer exchange rate guarantees as part of their service.

If grabbing market share of placement within mobile applications is the name of the game, the payments functionality is an excellent place to start.

"We aim to be the leading enabler of mobile commerce for vertical industry software developers and our vision is not constrained to Visa, Mastercard, Amex, and Discover," says CardFlight founder and CEO Derek Webster. "As a lynchpin in the payments processing chain, if customers demand bitcoin or Ripple support, we could easily accommodate those processing solutions because CardFlight acts as a switchboard."

At just three months old and with only three employees, CardFlight has the potential to fill a void left by companies such as Apple.

While restricting payment options for digital goods, Apple has traditionally permitted payments for real-world goods to go through a variety of payment channels. However, the Apple App Store still restricts the send and receive functionality for Bitcoin wallet apps on iOS. Conversely, the Google Play store does not place the same restrictions on Android Bitcoin wallet apps.

As a development tool provider with an open platform, CardFlight suggests potential uses for its technology such as apps for event organizers that need to sell tickets at the door, CRM apps to enable field sales and medical-practice management apps to collect a copay while keeping the rest of the details available for insurance billing.

It's interesting that the company has recently partnered with Stripe, which offers similar application development tools for 'card not present' transactions, because together the two companies can present a combined offering that is essentially a customizable version of Square and PayPal. Online and offline, they have you covered.

"We're proud to be working with CardFlight, as they share our developer-friendly approach to payments," Stripe Business Development Manager Cristina Cordova said in a blog post. "CardFlight provides tools to any Stripe user looking to incorporate in-person payments into their mobile apps, while still taking advantage of Stripe's simple pricing and seamless setup."

Sure, Stripe could extend into CardFlight's space at some point or vice versa, but for now the partnership is valuable to both.

The Elephant In The Payments Room

By Jon Matonis
American Banker
Monday, April 29, 2013

http://www.americanbanker.com/bankthink/the-elephant-in-the-payments-room-bitcoin-1058703-1.html

The payments industry has been ripe for disruption for as long as I can remember. Historically conservative and non-experimental, banking and financial services always appear to be the laggard for any new technology. But none of that has stopped recent innovators from pursuing things like Square, Stripe, Dwolla, FaceCash, ZooZ, Affirm, MangoPay, and Balanced. The Internet and mobile payments gold rush is in full swing and venture capitalists are lapping it up.

The amount of money raised by a startup in the space can be staggering too, ranging from $3.4 million to as much as $200 million in the case of Square. But are venture capitalists truly funding disruptive "home runs" if licensed banks and legacy credit card networks are required for their so-called innovations? Also, most would agree that the states' money transmitter licensing infrastructure acts more like a barrier of entry protecting incumbents than providing any protection for consumers.

Doesn't anyone notice the elephant in the room? Growth rates of over 10,000% since inception, measured in transaction volume and amounts. Pervasive international market penetration with full digital and mobile platforms. A passionate and dedicated customer base.

Of course, I'm talking about the distributed payments network and cryptocurrency Bitcoin, which plays a dual role as a transaction confirmation network and independent floating unit of account.

It's easy to understand why certain venture capitalists might be timid about pulling the trigger on a Bitcoin-related investment. Regulatory risk (illustrated by the fallout from Fincen's recent guidelines in the U.S.), on top of typical execution risk demands a greater return from initial investment. While that return may ultimately be there, a skittish board or a wary risk-averse management team might be unable to navigate the onslaught of negative public relations and price volatility.

Any lesser technology with so many forces aligned against it would be unlikely to survive. Bitcoin's persistence demonstrates that we are witnessing something unique in money and payments. For those that do invest and successfully navigate the potential traps, the reward is a first-mover advantage for a new international monetary unit.

Here's the important part. Disruption in the unit of account is the way to disrupt the payments space.

National currency units come with many strings attached and they reek of favoritism and crony capitalism primarily benefiting the well-connected. With a nonpolitical monetary unit, many new possibilities become apparent structurally that would not have been contemplated before, such as: peer-to-peer mobile applications that don't require permission from legacy transaction carriers; global remittances that don't require high-fee currency conversion; merchant categories that are no longer disallowed due to fraud and chargeback risk; and merchant reach into countries that are not even on the map for Visa, MasterCard or PayPal.

It's very telling that, when WordPress announced its plan to begin accepting bitcoin, the blogging platform provider noted, "PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons."

Compared to conventional payments startups, the largest private equity raise by a Bitcoin-related company has been Atlanta-based BitPay Inc. which raised $510,000 in January to expand its lead in the bitcoin merchant processing space. Startup CoinLab also raised $500,000 in April 2012 and foreign exchange platform Coinsetter closed a $500,000 investment round this month. Coinbase, a provider of personal wallet storage and merchant processing services, raised $600,000, although almost half of that was through crowdfunding.

Those are just some of the Bitcoin initiatives with external funding. Many Bitcoin-related companies grow organically with a one- or two-person team, because the technology offers the most open platform for payments innovation in the world today.

The powerful Bitcoin open-source development funnel will begin to suck in greater and greater talent driving applications that will have the broadest overall impact in the payments sphere. Creative talent naturally gravitates toward the point where maximum societal impact intersects with maximum reward. This alignment of incentives for early adopters and a global "workforce army" cannot be matched with traditional employee stock option plans. Legacy and closed systems cannot compete.

Just ask Kevin McInturff, who recently left Global Payments – a processor of Visa and MasterCard transactions with thousands of employees – to join BitPay, where he is one of three full-timers. Bitcoin "offers the opportunity to change the way business is done," McInturff told PaymentsSource.

Email wasn't spawned by the post office as a way to drive efficiency for the U.S. Postal Service. File sharing technology didn't come out of a media headquarters' lab to test improvements for distribution. Disruptive innovation simply doesn't work that way.

Disruptive technology disrupts. That is its mission. It annihilates any substandard process or product in its path and it originates outside of the established paradigm. You don't see it coming. I get a chuckle out of all these investors trying desperately to attach themselves to something, anything, in the Internet and mobile payments space.

However, a payments startup that ignores Bitcoin in its strategic plan is like a publisher ignoring the Web in 1999. Certainly, innovators can design routes around Bitcoin and established players can dismiss it as insignificant, but that won't make the elephant go away. The savvy and true disruptors already know this.