A small company in France plans to make bitcoin easier to handle early next year by issuing debit cards linked to payment accounts that can accept the alternative currency.
The Paris-based company, Paymium, has operated a website called Bitcoin-Central since 2010 where people can purchase bitcoins, an electronic currency that uses peer-to-peer networking and cryptography to securely transfer funds around the world within an hour.
Bitcoin enthusiasts gush on forums about the potential for it to replace government-issued money. But Paymium's "ultimate goal is to offer banking services at a lower cost than the traditional banking system," said CEO and co-founder, Pierre Noizat, in an interview by phone on Monday.
Transferring bitcoins to someone is as easy as sending an email using a compatible software client, such as Bitcoin-QT. A bitcoin is essentially just a secret number, which is protected from unauthorised transfers by public key cryptography. The bitcoin is associated with an 34-character alphanumeric "address" that a user holds. Transactions are verified by the peer-to-peer system.
But the processes around buying bitcoins and then converting bitcoins in usable currency through exchanges are cumbersome.
New partnership with Aqoba
Last week, Paymium announced a partnership with Aqoba, a payment services provider (PSP), that will make it easier for people to handle bitcoins with respect to traditional banking systems while also utilising bitcoin's cheaper transaction fees.
Entities that handle third-party deposits and payments are required to be registered PSPs in most countries, Noizat said. Paymium was handling Euro deposits for bitcoin purchases, but was not a PSP and didn't have an agreement with one.
Without a partnership with a PSP, Paymium was "basically in uncharted territory, and you don't know when the regulator is going to hit you," Noizat said. Paymium is a technology company, not a bank, he said. A widespread concern with bitcoin is how governments may eventually intervene or regulate its trade.
Aqoba will administer accounts for people who want to buy bitcoins through Paymium. The accounts are classified as "payment accounts" rather than bank accounts, but have an international bank account number (IBAN). Account funds qualify for insurance from the French government, similar to the FDIC in the US, Noizat said.
Aqoba is linked to the traditional banking system through its partner, Crédit Mutuel Arkéa bank, which provides Aquoba with its financial infrastructure in order to operate as a PSP, Noizat said.
Early next year, Noizat said Paymium is planning to offer debit cards, which would make it easier for people to withdraw funds. Bitcoins could be sold through the Bitcoin-Central exchange, with funds deposited in the Aqoba payment account and withdrawn through a debit card. Noizat said Paymium is still investigating whether non-French citizens can legally open accounts.
Paymium's announcement marks an incremental progression in making bitcoin easier to use. Noizat said his company is focused on bitcoin from a transactional standpoint since it is faster and cheaper than the banks for overseas wire transfers.
Much cheaper transfer fees
Banks often charge flat fees for overseas wire transfers, regardless of the value. For example, a bank may charge €15 (US$19) for the transfer fee and €15 to send funds in a different currency. Recipients may also be charged to receive the money. To send just €100 out of a country in a different currency, it could cost the sender around €30.
Bitcoin offers a cheaper alternative. Bitcoin-Central, for example, charges a .498 percent transactional fee to buy bitcoins. The bitcoin network charges a fraction of a cent to the sender for processing the transaction, but receiving bitcoin is free.
The recipient can then use a local exchange to covert their bitcoins to cash. In-country wire transfers from the exchange to the recipient's account are usually low cost or free. In this example, the sender would pay around €0.50 rather than €30 to send €100.
"The smaller the amount, the more bitcoin makes sense," Noizat said.
Since bitcoin launched in 2009, people have become very passionate and political when talking about it, Noizat said. But the technical innovations of bitcoin have the potential to introduce competition to traditional banking systems, which have lacked innovation, he alleged.
Bitcoin is "not the next currency. It first has to prove itself as a high-performance, reliable transaction network first," Noizat said.