Mobile payments are experiencing tremendous growth. The use of bitcoins has beeen limited so far, but services like Coinffeine can help make it much easier for users.
The mobile phone can be used as a means of payment, and operators have been trying make that happen for over 10 years.
There are countries with a failing economy where having a bank account is too expensive and inefficient, but nevertheless everyone has a mobile phone. In these countries, telephone operators have become part of the financial industry, enabling efficient payment systems that allow the transfer of mobile phone balance, known as Airtime, from person to person.
In Kenya it has become normal to pay for a coffee with Airtime using your mobile phone. This Airtime is later changed to local currency by the owner of the coffee shop. The most popular service that makes this possible is called M-Pesa and is provided by the operator Safaricom. It has over 15 million users and over 80,000 distributors in Kenya.
In developed countries like Spain electronic payments are much more efficient and the use of Airtime for this purpose is meaningless. Nevertheless, there are still some operators that allow you to send phone balance from person to person, like the popular service “Passme balance” from Telefónica Movistar.
Although it makes no sense to use phone balance to pay for a coffee in most developed countries, it can make sense for other unexplored purposes, such as the sale of digital goods.
Movistar Payments is an example of this service, allowing the purchase of digital goods with phone balance.
In Spain, the law does not allow operators to sell physical products such as cinema tickets with phone balance, but they are allowed to sell digital goods such as applications, games or even bitcoins. In fact, one of the first operators understanding the potential of the new market of digital goods is the operator T-Mobile in Poland, already offering their customers to buy bitcoins with phone balance.
But even if the sale of bitcoins in exchange for phone balance can be done in an easy way and potentially reach a large number of customers, there are several problems that would make it very difficult to offer this service.
First, if an operator wants to sell bitcoins charging the bill to the client´s phone balance, it must handle and dispose of bitcoins, and this is a problem. To maintain large deposits of cryptocurrencies is expensive, risky and it looks like it will undergo a regulation process similar to the famous New York Bitlicense, which raises the operating costs of the services with Bitcoin to the extent that it is not profitable in some cases. And to buy them on demand from a third party does not solve this problem neither.
Secondly, the latest report of the ECB on digital currency defines Bitcoin as a digital asset that can be used as money. In Spain this is exactly how Bitcoin fits into the regulation. When operators were banned to sell physical goods in exchange for phone balance, it was because it exists a need to provide certain guarantees, requesting and fulfilling a financial license. In the case of Spanish operators that decide to sell bitcoins in exchange for phone balance, it is likely that they will meet such restrictions in the future, which again would close the door of opportunity of selling this types of goods with phone balance.
Finally, and despite the fact that it already exists solutions such as Movistar Payments allowing micro purchases of digital goods such as games and apps, regulation is especially hard with operators such as Telefónica and do not allow their customers to spend more than €100 per month in this service.
Despite these problems, it is still very interesting for a telecom operator to become the main gateway to the new market of digital currencies and digital goods. And there are solutions, such as the one created by the Spanish startup Coinffeine: a P2P protocol that can be a way to explore this market.
Using the technology that Coinffeine has created, an operator that offers a similar service to the earlier mentioned “Passme balance” and that has an API, could become the largest gateway to the market of digital currencies and digital assets..
Coinffeine is an application similar to BitTorrent, which is using the money in your bank or payment processor such as PayPal, to make payments to other users automatically in exchange of bitcoins. The bitcoins are transferred from person to person, without the need to go through the banks. In this model, banks are used simply as means of payment.
What is really interesting about Coinffeine´s P2P model is that it turns the services offered by a service provider into contracts between individuals, a legal framework with many advantages for the exchange of digital goods and reducing most operative costs.
Instead of competing with banks and payment processors, Coinffeine offers them a privileged position to explore the new market of digital assets. A good proof of the interest banks have in the model that Coinffeine offers, is that a large Spanish bank already is among its partners: namely Bankinter.
The model created by Coinffeine allows banks and payment processors´ customers to buy bitcoins with their account balance, and it could work in the same way with phone operators. In this case they can enable a service that allows paying with Airtime from person to person.
Airtime is certainly a perfect means of electronic payment to purchase digital goods like Bitcoin between people or to make micro purchases, even in countries like Spain. Movistar Payments is a good example of that. But in countries like Kenya, combining Airtime and digital currencies could play an even more important role.
In Kenya, over 15 million M-Pesa clients have an inexpensive electronic means of payment in retails. But they still do not have a cheap means of payment to purchase global digital services via the Internet as an account in Spotify or Skype balance, and this is where digital currencies like Bitcoin play a key role.
Bitcoin is already accepted as payment in companies like Microsoft or Dell, and it is being made accessible to many others like Skype Credit through third party services. Bitcoin is the perfect means of electronic payment to pay and to offer digital services on the Internet in countries where Airtime is successfully used to pay in the streets.
In a country where there are more mobile phones than people, the use of Airtime as means of payment for digital goods makes sense, and it can make the telecom operators to be a key player in the new market of digital currencies.
Text originally published in Spanish at Telefónica’s Think Big blog.
Written by Alberto Gómez Toribio, CEO of Coinffeine.