Payment without borders: Why we’re backing BitPay
The reason why we’re so excited by Bitcoin is that it offers the solution we’ve long been searching for – a new digital way to pay which is emerging as the Internet’s payment method of choice.
At Index, we’ve been closely tracking this exciting phenomenon since its earliest days, particularly from a cryptography elegance point of view. However, since trading isn’t our forte, we have been watching the ecosystem expand and develop, while trying to figure out how, as investors, we invest in this fast emerging phenomenon. The view we hold is that, while Bitcoin’s value as an investment asset or a traded commodity– rather like the publicity surrounding it – may ebb and flow, the infrastructure that enables usage of the digital currency and allows these frictionless transactions to happen, is not only a necessary part of the ecosystem, but also fast becoming a critical part of the Internet’s own infrastructure.
The rise of Bitcoin is in many ways reminiscent of the early days of the Internet or computers. In fact, we see strong parallels with when we witnessed the emergence of VOIP as a new frontier. Just as we backed Skype as a wide-ranging communication channel built on top of the protocol, indirectly placing a bet on the underlying technology, here, too, we’re investing in the infrastructure and tools that will help drive Bitcoin into the mainstream. That’s why we are leading a $30m (€22m) Series A investment round in BitPay, the pure-play winner in Bitcoin payment acceptance and processing for merchants.
Of course, we understand the circularity between merchant acceptance and user adoption, but we have to start somewhere – and merchant adoption is demonstrably on the rise. An estimated 75,000 merchants worldwide now accept Bitcoin and the number is growing rapidly. Today you can use bitcoins to buy electronics (TigerDirect), play games (Zynga), find love (OkCupid) and order pizza (PizzaForCoins). And it may not be too long before some of the e-commerce giants – notably, eBay – follow suit.
With Adyen, we learned that the world likes to use both credit cards (which for many use cases work really well, although they were designed for the offline world) and alternative payment methods (which are typically linked to specific geographies and national payment habits) – and, as the latter, Bitcoin offers a host of new use cases. It’s the ideal system for micropayments (typically less than $1); it removes cross -border fees (i.e. when sending money abroad, whether to relatives or to pay suppliers); it’s also very useful for making payments in territories with underdeveloped or unstable monetary systems, which are poised to leapfrog entire technological stages; and for embedding payments acceptance into the architecture of the Internet itself.
As investors in successful merchant services business models, we recognised the BitPay team’s astonishing achievement in creating, with so few resources, a core building block of the future Internet economy. Unlike many of its competitors (who provide bitcoin wallets and exchanges, in addition to payment processing), BitPay makes merchant processing its sole focus, providing the tools to help businesses seamlessly adopt Bitcoin as a form of payment. As a result, the company already processes over $1m a day for its 30,000 merchants.
The market opportunity for BitPay is thus huge, as are the number of benefits its solution offers merchants -- which aren’t confined to the benefits of Bitcoin itself. As a highly-innovative category leader, BitPay has a number of other key differentiators. Among these is Bitcore, its open source project, which enables developers to build software which interfaces directly with the Bitcoin network.
The company also offers over 20 shopping cart plugins and several API formats for merchants to choose from to make setting up BitPay quick and painless. In addition, it provides an array of client feedback options, including a direct feed into QuickBooks for financial reporting, as well as a dedicated merchant support team on staff to answer questions and help with any issue that may arise.
Significantly, BitPay also ensures that merchants’ exposure to Bitcoin itself can be zero because a merchant can opt to take all the funds from a transaction in dollars (or another fiat currency) meaning that, they’re never involuntarily exposed to volatility in Bitcoin’s value.
Furthermore, as true pioneers, BitPay’s founders, Tony Gallippi and Stephen Pair, have taken a global approach to the building of their business from the get-go, which resonated with us at Index. Today 50% of BitPay’s clients are in the U.S., 30% in Europe and 20% across the rest of the world. The BitPay team plan to use the investment to triple staff numbers to over 100 at their base in Atlanta and across their offices in San Francisco, Buenos Aires and at their newly-opened European HQ in Amsterdam. Not only is the company doubling down on the U.S., but it’s also zeroing in on expansion in the European, South American, Asian and, ultimately, the African markets, too.
BitPay’s opportunity – like its ambition – is as global as the Internet itself.