Date
16 December 2017
The D Las Vegas casino accepts bitcoin payments through BitPay. Photo: AFP
The D Las Vegas casino accepts bitcoin payments through BitPay. Photo: AFP

Betting on BitPay to swipe business from credit card titans

Bitcoin is no doubt controversial but that doesn’t seem to be deterring sophisticated investors from the virtual currency business.

Big names are optimistic about bitcoin’s future, and they are lining up to pour money into players like BitPay, the leading bitcoin payment service provider. In the latest round of fundraising, BitPay scored US$30 million in total from moneymen like Virgin Group founder Richard Branson and Yahoo cofounder Jerry Yang, making it the top venture-funded bitcoin startup to date with a value of roughly US$160 million.

Even Hong Kong tycoon Li Ka-shing, who harvests most of his wealth from a cross-section of traditional businesses, has taken an interest, piling about US$2.7 million into the startup in December through his Horizon Ventures.

BitPay is described as the “PayPal of bitcoin” and enables bitcoin transactions between users. It reportedly did US$100 million in transactions last year, and provided payment processing services for more than 20,000 businesses as of January. Social gaming leader Zynga, popular blogging platform WordPress and commercial spaceflight company Virgin Galactic are among the clients.

BitPay has lured big names to join the bitcoin league, but most of the companies using BitPay to accept bitcoin are small businesses. BitPay helps them cut transaction fees, offer faster service, and guard against fraud.

David Gilson, a contributor to bitcoin-focused news site Coinbuzz, summed the benefits up nicely. He said a British bank transfer takes two hours but a bitcoin equivalent takes 10 minutes at most and no banks are involved. Also, bitcoin transaction fees are so low that “credit card fees and PayPal now look like daylight robbery”.

BitPay does make money through transaction fees but not in the same way as traditional credit card companies. BitPay’s transaction fee is calculated on a monthly basis, and the fees for smaller, medium-sized and enterprise clients vary, ranging from US$30 to US$300 per month. BitPay also provides a starter kit that charges 1 percent of all transactions; credit card companies typically charge as much as 2 percent of sales.

Visa and MasterCard rules have also long prohibited merchants from charging customers more for credit-card transactions; merchants are the ones who pay the fees. US merchants complain that they have limited power to negotiate fees, which cost them and their customers about US$30 billion a year, according to the National Retail Federation. They also accuse credit card companies of barring them from steering shoppers to cheaper forms of payment, which is why more merchants are choosing to go with BitPay.

The price of bitcoin has been volatile because the fallout from the failure of the Mt Gox platform and Beijing’s ban on bitcoin trading. But, BitPay’s latest round of fundraising indicates that interest among investors and professionals remains just as steady as ever.

– Contact the writer at [email protected]

SK

EJ Insight writer

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