Digital currency usage in the developing world

[Note: a revised version of this interview appeared on CoinDesk.  I hold no equity in the company nor is this an endorsement to use the service.]

This past week I spoke with Ron Hose, co-founder and CEO of Coins.ph, the leading Bitcoin exchange in the Philippines. Hose is a graduate of Cornell, a founding partner at Innovation Endeavors and previously co-founded Tokbox which was acquired by Telefónica Digital in 2012.

While Coins.ph began trading late last year, the actual exchange launched publicly in February. According to Hose, “In terms of volume, we have been doing pretty well in growth so far – high double digit, triple digit growth which is a very encouraging sign.” The main reason he credits this success is that, “we focus on building trust with customers through fast customer service. They care about this when dealing with bitcoin – they care that the money is safe. And because emerging markets are more different than developed countries, we had to provide a positive customer service process to where they can trust turning bitcoins into cash and cash into bitcoins. As a consequence we built out a physical network and actually deliver cash through retail locations and even conduct do door-to-door deliveries too.”

Because the team has an active exchange they can now see what customers use it for and have begun building a second layer of applications on top of it creating banking services to those who do not have traditional banking services. “In contrast to developed countries,” noted Hose, “where bitcoins as a payment method are more of a novelty – here it is serving a real problem. For instance, credit card penetration in the Philippines is 3%. Only 3 out of 100 customers that land on an ecommerce site have an immediate way to pay for it. Others have to travel to a bank for 45 minutes on bus, wait in line and then return back on the bus. Before you know it, it takes 3 hours to pay for something online.”

According to Hose there is even a larger pain point: sending and receiving money abroad. With about $25 billion a year the Philippines is the 3rd largest recipient of remittances – roughly half the size of its gross domestic exports. And these funds are predominantly going to people who do not have bank accounts and thus have to pick money up at retail locations like Western Union and consequently pay an average of 9% in fees. “The reason they pay this 9%,” explained Hose, “is because they don’t have a bank account and likely will never have a bank account because they do not have enough savings. Banks have a cost structure (location, tellers, rent) and if you do not have sufficient savings on the first day when you open an account, the bank is already losing money. This pain point is an area where mobile banking and bitcoin can help out. For instance, if a relative abroad sends money to you and you have to pay a transaction fee to a retail location, then that is equivalent in 3-4 days of income that you paid just to pick up your money.”

And, in his view, what differentiates and sets his team apart from other local competition, “we have a well-seasoned Silicon Valley team. And even though Bitcoin is not yet regulated in the Philippines, as well as neighboring countries is that we treat it as if it was regulated. We work to comply with industry standard KYC/AML regulations; we are self-regulated and assume that we are being regulated.” As far as operating in an uncertain environment, “there are definitely a lot of very particular challenges related to working in an emerging markets (for example, there is no automated way for us to do bank-to-bank money transfers here, we actually have someone going to the bank, withdraw cash, and deposit it at another bank.”

So then, what is the most important issue in operating the exchange? In Hose’s view, “again, customer service is the most important area. For instance, they might see my profile or cofounder profile on the website yet there is a lot of trust involved. And so I tell my team, “we are only as good as our last transaction.” Thus we have to make sure the funds go in the right time window.”

According to Hose, virtually anyone can come to Coins.ph, cash out their bitcoin and in turn receive cash at 12 major banks, thousands of retail locations or even have it sent door-to-door by messenger. For its first market, the team launched in the Philippines. However they see themselves as a regional player, aiming towards providing similar services to other markets in the area – expanding into places like Thailand, Malaysia, Indonesia and Vietnam. In addition to a foot network (sneaker net), the team is still quite lean, roughly 10 people – half in engineering and the other half in operations.

To accomplish its goal domestically, the team has built a large physical network and the next step is opening up this network up with an API (a sneaker net API) providing Bitcoin ATM makers the ability to use this infrastructure to send money anywhere else in the Philippines. In terms of physical throughput, Hose noted, “users can put in who they want to receive the funds and when they want to receive it. Next day delivery. We have providers that can do same-date, however we only guarantee next day as it is important to not overcommit to our customers. Part of providing good service is giving people the proper understanding what will happen and standing up for it 100% of the time.”

Concluding, Hose mentioned he was recently on a panel in Singapore (Echelon 2014), and was asked what is going to drive Bitcoin adoption. In his view, “the thing that will drive digital currency adoption is the use-case. It must solve a real problem; there has to be something that is painful enough to convert, somewhere there is enough friction, the thing about emerging markets is that pain exists – you don’t have a bank account or you have to pay 9% to transfer money to your family – so it is much easier to make that leap. And if we can make it so their friend had a positive experience, then through word-of-mouth they have a reason to try and use it as well.”

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