The Executive Interview Series provides readers with exclusive insights from movers and shakers in the payments industry. The Payments Industry is under continuous transformation, as such this series provides diverse perspectives on everything from strategy to payments technology and to the future of the industry.
In this interview, TSG’s Market Intelligence team-member Alex Ferguson and Director of Revenue and Growth Steve Vickers sat down with Stephen Pair, Co-Founder and CEO of BitPay, to discuss the origins and future of the cryptocurrency payment processor, as well as the anticipatory watershed of greater cryptocurrency merchant acceptance.
Background: Stephen has over 20 years of experience building software systems in the financial and telecommunications industries. He has held various roles including entrepreneur, architect, manager, team lead, and developer. He started programming at a young age on his dad’s TRS-80 Model 1 (circa 1978) and spent much of his early career focused on languages, compilers, operating systems and virtual machines. During the 1990s, he developed an interest in the mechanics of financial markets, economics, and monetary systems and the question of how they might evolve as the global Internet developed. He closely followed developments in cryptography along with attempts at creating new electronic money and accounting systems. This background led to the formation of BitPay.com with his business partner Tony. He holds two patents in the field of streaming analytics along with several additional filings, some of which are still pending.
Q. TSG’s Alex Ferguson
Tell me about yourself. How did you get your start in the payments industry?
Outside of a very brief stint, maybe about a year, working in banking software most of my career was spent in telecommunications, which I think is actually more relevant to the blockchain industry, and the crypto industry, then a traditional banking background or payments background. In the early 1990s, I became fascinated with something called DigiCash. It was what I would characterize as the world’s first cryptographic payment system. I was just a fan of it, I didn’t work at the company or anything, but they used cryptography to create a secure payment system. It wasn’t decentralized, like Bitcoin and modern-day cryptocurrencies are, but it used strong cryptography, and I just got fascinated by that subject.
That company went out of business and that payment system went away with it. I think it got a lot of people thinking about how you create a true Internet protocol for payments that doesn’t depend on there being a third party clearing every transaction. There wasn’t a lot of progress, or at least not any outwardly visible progress, through the late 90s and early 2000s. Sort of in parallel to my career in building telecommunications software, I just kind of kept my eye on projects that were trying to innovate in that area. So, I was very fortunate that by the time Bitcoin came around I had been thinking about this topic probably for a couple of decades and saw the computer science breakthrough that Bitcoin made and was at a point in my career where I was ready to get back into a small company or start a new company. And I sort of fell down the rabbit hole in late 2010 reading the Satoshi white paper and decided I wanted to do something around that.
Q. TSG’s Alex Ferguson
How has your prior work experience helped influence and benefit the creation of BitPay?
I would say the primary benefit would be just the formation of a company just doing the right things, not making common mistakes when you bootstrap a company. I think my co-founder Tony (Gallippi) and I both believed that if Bitcoin was going to be successful, and we thought it had a chance to be successful, that it was a matter of time until venture capital stepped in and wanted to make investments. So, we were careful in the early days of BitPay, not to make those common mistakes that you see with people that didn’t have prior experience with starting companies. Then there are more obvious things from our careers, with Tony more on the sales side and me more in the software development side, just knowing how to build software and market software.
Q. TSG’s Steve Vickers:
How did you and Tony first meet to begin with?
Tony and I met in college and we kind of fell out of touch until around the aftermath of 2008. We got reconnected over Facebook, and we were chatting about the state of markets and were doing some investing in the aftermath of the ‘08 financial crisis. We were just talking about ideas and things around investment thesis and then I guess a couple years later in early 2011 I told him about Bitcoin. He thought that was silly, and the first thing he told me was you better sell all that Bitcoin before the government shuts it down.
TSG’s Steve Vickers:
You would have been one of the guys buying pizzas with his Bitcoin wouldn’t you have?
Yeah, Laszlo! I think that was 2010. No, we were not buying pizza with Bitcoin. However, I will say the thing nobody ever talks about is he may very well have bought the Pizza with 10,000 Bitcoins and then bought 10,000 more Bitcoins right after it.
Q. TSG’s Alex Ferguson
Speaking of buying pizzas with Bitcoin, there are more merchants today who are interested in accepting cryptocurrency at their businesses than ever before. And with that demand, an ever-increasing amount of cryptocurrency processors. What differentiates BitPay from other competitors?
I would say what differentiates BitPay compared to other payment processors in the industry is I think we bring a more holistic view of payments to the table. A lot of the other companies doing cryptocurrency payments out there don’t look at it from the perspective of the entire workflow of a payment. And that goes far beyond just that initial transaction and includes how merchants deal with refunds and how you deal with exchange rate fluctuations, which of course we’re talking about cryptocurrency, so that’s a big deal. You’ve got a buyer that’s paying in one cryptocurrency, and you got a merchant that’s receiving either fiat currency into a bank account or a cryptocurrency and there’s an exchange rate involved in that transaction.
We focus really on the types of payments that have a heavy workflow component to it, where it’s not just a simple movement of money, but there’s a whole customer service element to it as well. I would say our platform is really good at that and good at helping our customers serve their customers. I would also say we partner with a lot of payment service providers out there, traditional credit card processors, which want to add cryptocurrency to their platform.
So, we do direct merchant acquiring, but we also partner with a lot of existing payment processors who have their customers wanting to enable crypto payments and we built our platform to facilitate that and make a great end user experience both on the consumer and on the business side of that. I don’t think any of our competitors are doing that at all. We also have a good business of direct acquiring, but as good as it is, we think there’s a much larger audience of businesses out there that are just going to go to their current payment processors and want to have them help figure out how to do crypto for them.
The other thing that BitPay does offer is a payout solution. So, companies that need to do disbursements of one kind or another, they can send us fiat currency into a bank account and tell us who to send that to. One good use case for that is payroll. Companies that want to let their employees get part of their paycheck in crypto, we can do that for them. Payroll is great, because first of all you are automatically dollar cost averaging as you get part of your paycheck in crypto, but you’re also getting crypto delivered into a wallet. And if you already have it available as part of your pay, then it makes it that much easier to use it to buy things.
Q. TSG’s Alex Ferguson
So, we’re already sort of speaking on it, but what kind of advantages does accepting cryptocurrency generally offer a merchant?
Well, first and foremost you can reach an audience anywhere in the world they may be as long as they have an Internet connection. Many of our customers like the ability to receive a payment from their customers from anywhere in the world and have just one payment integration.
Especially where cross border payments are concerned, it does end up saving a lot of costs and eliminating a lot of the issues that you see with fraud. If you’re a merchant taking a credit card payment from an international customer, the rates of fraud there are much, much higher than domestically. Even the rates of fraud domestically are high compared to nonexistent with a crypto payment.
Q. TSG’s Alex Ferguson
In your opinion, what do you feel is the biggest obstacle to widespread merchant acceptance of cryptocurrency?
You know, I get asked this question all the time. Sometimes I struggle, because from my perspective, there should be no obstacle. It’s easy, why not do it? At BitPay, our job is to make it easy on the merchant and we do. It can be as easy as just adding a button on your website and that can be done in a few minutes. On the flip side of that, if you’ve got a custom ecommerce platform you just need to tie into our API, and we’ve got libraries for most of the popular programming languages that do that. So even that is fairly easy.
I think some of the most complicated custom ecommerce platforms have done it in two to three weeks. So, it’s not difficult at all to get started. We settle in the currency that the customer wants, and usually we advise that should be whatever currency you use for your accounting system. That’s what we’ve been doing and know how to do and have been doing for more than a decade now.
I think the biggest barriers to mainstream merchant adoption may be the lack of awareness of how easy it is. Secondly, I think there’s still a number of merchants out there that don’t yet believe in it and don’t yet think that it’s worth their time. I think that you only solve that problem with time. As cryptocurrency continues year in and year out to be a thing as more and more merchants start accepting it and as more and more people start to use it as payments, we continue to prove again and again that merchants do see significant new revenue coming in. As new customers continue signing up when they adopt cryptocurrency, I think they’ll eventually get there.
I also do draw an analogy to the Internet itself and ask people: “well, when did the Internet become mainstream?” The thing is people can point to certain events like around ‘95 there was a big moment where there was a lot of mainstream interest in the web, but that had been invented a few years earlier and the Internet itself was decades old at that point. You can point to the timeframe when people started getting email addresses or when people started signing up for America Online, CompuServe, or Prodigy, but you can’t really pinpoint a specific date when it went mainstream. I think a similar thing is happening with crypto. You’re just going to wake up one day and realize, “oh yeah, everybody’s using this,” and you won’t be able to tell exactly when it happened.
Q. TSG’s Steve Vickers:
Do you think if more merchants accept crypto as a mainstream payment method it would spur consumers to use it more? Or is it the other way around, where more consumers need to get into crypto and demand it as a method of payment? Because I think a lot of times right now, people that are investing in crypto are doing so as an investment purpose and they’re holding on to it not looking at it as a method of payment.
So, number one, we, as a company aren’t out there telling people, “Hey, go buy crypto just so you can buy a new car or buy a computer off the web,” or whatever it may be. We’re really trying to make it easy for people that have crypto to use it to make purchases. With that in mind, you do have people investing and accumulating wealth, and as they accumulate wealth, as price goes up and whatnot, they’re going to want to tap into that and use it to buy things and our goal is just to make that process very simple. Rather than moving your crypto to an exchange, selling it, withdrawing it to the bank account, and then buying that car – just buy the car directly. We’re not trying to go out there and tell people to buy crypto just so that you can make a purchase.
But you’re right. A lot of people are thinking about it from an investment perspective today, but we see the patterns. Payments is still very small relative to the activity in the crypto world around trading and speculating, and so on. Maybe for every one person that’s buying something with crypto, there’s probably a hundred that are interested in holding it as an investment.
Eventually, they do make money with that investment. They do want to use it to buy things, and that’s where we come in. Although I will say we are more and more on the other end of that, which is enabling people to get crypto. I mentioned the payroll product previously, but also in our wallet, trying to make it very easy for people to buy crypto directly. For us being able to be more balanced in those flows between crypto coming into the platform and crypto going out, that improves the economics of what we do because we can fulfill those crypto purchases with crypto that comes in from people buying things with it.
Q. TSG’s Alex Ferguson
What are you most excited about for BitPay’s future? Where do you see BitPay, five years down the line?
I expect us to maintain our lead in crypto payments. I mentioned all the reasons why I feel like we’re well positioned for that especially being able to sell through channels and go partner with a lot of the legacy payments companies to let them offer crypto to their customers. It’s a new revenue stream for them. Five years down the line, I would like to say that we’re still in that position. I’d like to say that we’re a hundred times bigger in terms of volumes, and powering most of the crypto payments infrastructure in the world, and that will be largely through those channel partners.
Q. TSG’s Alex Ferguson
To close our Executive Interview with BitPay, there’s been a lot of recent media discussion of a “Crypto Winter” and the market has been volatile recently. What’s your take on the term “Crypto Winter” and what do you see as the short-term and long-term effects?
Well, short-term these downturns usually result in lower volumes across the industry. The volumes through our platform are also affected by price. It’s not so much the price itself, but the fact that people stopped talking about it as much. You see a lot of the companies in the industry scaling back, announcing layoffs, and things – we’re not. We’ve been through this a few times, and we’re hiring. I think the short-term effects are that a lot of companies got a little ahead of themselves and grew too quickly, and haven’t been through one of these cycles, or maybe didn’t learn the lessons from the previous cycles that they have been through. They have to scale back, or there might be some M&A, or companies that go out of business during this period.
Long-term, Bitcoin still functions just as well today at $20,000, as it did at $1, and as it did at $65,000. It still serves the same function. There are no Bitcoin quarterly earnings reports that affect the price. It still functions exactly as it did, the fundamentals haven’t changed. Once it finds its footing, and people realize the bottom is there, then they start to ease back in, and the next cycle begins. We’ve been through probably three, four, or five of these cycles in our history, and the downturns are actually kind of nice, because it allows us to just think about getting prepared for the next cycle and getting back to building.