Align Commerce Interview with Glenbrook – Bitcoin and Business to Business Remittance Payments

On March 29, 2015 Align Commerce CEO Marwan Forzley sat down with George Peadbody of Glenbrook Partners.

They met up to discuss the current state of the blockchain and business to business money transfers.

The transcript is as follows:

GP[Glenbrook Partners]: Payments On fire, episode 17. So welcome everyone to another Payments on Fire broadcast from Glenbrook Partners. I’m George Peabody with Glenbrook, and it’s my pleasure today to be speaking with Marwan Forzley of Align Commerce, and our discussion today is going to be around Bitcoin because that’s really the backbone of Align Commerce’s technology. So welcome Marwan, glad to have you here.

MF[Align Commerce]:Thank you, George, how is your day?

GP:Good Great. Glad to see, frankly, I’m glad to see winter going out of Boston area, but I know you’re in San Francisco, so, you don’t know what I’m talking about.

MF:Well, no I do. I was in Boston last week, and it was a lot of snow.

GP:Yeah, well, we’re glad to see it shrinking. So we chatted a little while ago, and I was really intrigued with, that your business because I’ve been saying for the better part of a couple years that a sign of success, for Bitcoin in particular, and virtual currencies in general is when someone can actually transcend money to another individual, from one currency to another, and doesn’t know that Bitcoin’s in the middle, and that’s in fact what Align Commerce is enabling. So I’d love to hear more about, your, about the business, and who your customers are, and how things are going.

MF:Great, thank you. Yeah, I mean, George as you mentioned, we are a global payment processing company where we enable across border payments to happen, and where we use the blockchain as a rail, as a transport layer that carries a transaction from point A to point B. As you likely know that in our implementation of the product, Bitcoin is totally invisible. I mean, we think of crypto, and the blockchain to be a way, a new rail in modern next generation transport layer, and so we’re actually transporting currencies on this platform, and we’re going after businesses that are collecting money from other businesses around the world, and so if you are a business in the US, for example, and you’re looking to accept or collect a payment from Europe, we are collecting Euro, and we are giving you here a current bank account, USD. The fact that we collected Euro, and gave you USD is simply a way to deliver the value to you. Underneath that, the protocol that managed to pick up the transaction on one end, and deposit on the other end, that’s where we use the blockchain. So another way to think of the blockchain essentially as an alternative rail, alternative transport, and that’s sort of the orientation of Align Commerce, to use it as a mechanism to move value.

GP:So baby step me through this. I, and to your example, I want to get paid by my European customer, how, and I operate in USD, and it’s in my bank account, how do I, what’s the flow here? Do I have to go to an exchange, and purchase Bitcoin from the?

MF:No, no, no, no, there’s actually a fairly simple procedure. You set up an account with Align Commerce. You go through all the necessary KYC, very similar to the way you would set up an account with any after payment providers to accept cards or to accept ACH. It’s the same procedure. It’s a relatively simple set up process. So once you’re set up, and you have money that you need to collect from Europe, you then, you log into the system, you say here’s my invoice, I’d like to collect payment from my European customers. A message is sent to the European entity with instructions for them on how to pay it. Typically they’re paying from their bank account. In Europe we’re picking up Euro, and all you know is you get USD in your bank account. The whole Bitcoin thing, in terms of how blockchain works, how exchanges works, all of that is invisible. What you do is you’re asking your partner, your customer, to pay you in Euro, and they’re paying from their bank account, you’re going to get USD paid to your bank account. All the other stuff is invisible, and plumbing details.

GP:So why do I need Bitcoin to do or a blockchain to do this, I mean, how is this superior, I guess is my question, over you’re going to my bank, and effecting the same payment?

MF:Yes. It’s mainly by using an alternative rail. You’re getting also benefits that are different from what you get today from existing products in the market. So with the online process, you’re essentially are picking up funds from Europe at half the price that you would typically pay when using a bank wire product in half the time, and so the time is another element because international wire takes anywhere from three business days to six, seven business days depending on the country and the banks, but here we can get you the funds at essentially half the time required or half the time compared to existing methods. The other thing that’s important is the experience itself. It’s a relatively simple experience. There’s no trips that you need to do to the bank to pay or to get paid. There’s no forms to fill. It’s all online. It’s a fairly modern KYC process. You can track the payment, very similar to the way you can watch your shipment on FedEx, or UPS, or any of these shipment services. It’s the same idea here. You actually can watch the payment come to you, and that’s another really interesting feature brought to you by a modern rail.

GP:Another thing that, certainly adds a lot of certainty compared to the international wire that doesn’t exist.

MF:Well that’s the thing. It’s like when you send a wire you actually don’t know what happened to the funds, and so you either have to call the receiver, and ask them, did you receive my money? Or the receiver has to call you, and say I haven’t received the money, did you send it to me? And so that goes back, and forth until the money somehow appears, and so in this process you actually have the opposite experience. You can sit, and watch the payment go through from one side to other, and it’s sort of the same way you have a tracking number that’s given to you for a shipment box, and you can go to the site, and see where the box is at. Same idea here, you can sit, and watch the transaction go through, and I think that has a lot of value, and actually provides a lot of assurance as to where is the money, and that’s value for both ends, the sender of the payment and the receiver of the payment.

GP:So you said, half the money, half the time a Bitcoin transaction is written into the blockchain on a, basically a 10 minute cycle. What’s going on at either end there in your system that injects some lag?

MF:Well, so the confirmations on the blockchains vary. You need anywhere from one to six confirmations. There are ways to improve the speed, and what we have done on our end is we found methodologies, and processes to optimize this process, and so we end up making that transaction, the crypto part, to be near real time. Now, the speed of the entire payment is a function of the speed of the end point payment systems. So whenever there is ACH in a transaction that becomes slower than other systems because the ACH partners are next day service, but if you’re, for example, collecting, let’s say you’re in Singapore, and you’re collecting a payment from Germany or UK, and these systems are faster systems, and so we pick up the funds, and deposit the funds at a much faster speed. You can do the entire transaction in the same day.

GP:So, if I’m in the UK, I could use faster payments to connect to Align Commerce, which is pretty much media, and then use Bitcoin rails to get it to your US operation, and then it’s just a lag to get it into ACH.
MF:Yes. So that’s on the, yes, that’s Europe, or UK to USD. The speed of the entire transaction is a function of the end point payment systems. The transmission in the middle is near real time.GP:And so you must be working with folks in country, different entities in country to support the multiple rails that exist in those countries or is it, you’re trying to pick one, and say, direct people to that particular method?

MF:No, we work with many partners in the market, sometimes it’s by currency, sometimes it’s by country, sometimes they are providers that cover a region, and essentially these are players that are exchanging funds into Bitcoin, and are able to receive, and send Bitcoins, and so what we do is we work with them, and they become, think of them as nodes on a network, and the network is the blockchain, and they’re, these guys are the nodes on that network, and so essentially we’re picking up from a node, handing off to another node, and we have a router that routes between the nodes. So it allows us for, at any given time to pick up transactions between different exchanges, and so at the end of the day, all that technology, all that process, this is all transparent, and behind the scenes invisible to the user. The key thing about the user is that they’re getting paid at a faster, cheaper rate than what they do today, and that’s really what they care about. I mean, a lot of the businesses we support, if you’re selling, if you’re in the business of shipping the clothes, or books, or barbecues or whatever it is, at the end of the day your key competency is to move products out, that’s really what they want. It’s your understanding how payments systems works, and the planning behind them. It’s not something that they’re that intrigued about. It’s actually just wanting to make sure

GP:Only us payments geeks really care, right? Yeah.

MF:Yeah, we deeply care, but the customer doesn’t really care at all. In fact, they are, what they want is faster, cheaper, more transparent, more trackable than what they have today, and as basic as it sounds, it does not exist or it exists, but it’s not as clean.

GP:Marwan how long have you been in market, and how’s it going? Is there particular corridors, is, you’re finding in success in, or?

MF:Yeah. Well, we’ve been in private beta. We started private beta in September last year. We are now operating or able to move funds in 35 countries. We are servicing very interesting segments of the market. We have had all kinds of customers from consultants to lawyers, accountants, BPOs, importers, exporters, freight forwarders, travel. So these are all segments that have users. We’ve, the customer is very happy with the service they found. They find that the entire experience is substantially different than using a bank wire product. They find the whole tracking to be, extra forward in their ability to see their payments. They like the certainty. They like the transparency of the foreign exchange rates as far as the things that businesses complain about. It’s hard for them to figure out what their effects cost is, and so they find that whole process to be fairly frustrating. Think of a business, for example, that’s in the US that invoiced a customer in Europe, and the invoice is in Euro, and 30 days later or whatever the due date, money hits their bank account in US Dollars, and so as simple as that sounds, it’s hard for some of these businesses to actually, to reconcile the payment.

GP:Sure, and never mind in the existing methods that the FIs in between will take a taste along the way, so that the amount that hits certainly doesn’t match what was billed

MF:That’s correct. That’s exactly correct, and so they don’t know how that money that’s hitting the bank account, belongs to what invoice. They don’t know how to match it all up, especially in the foreign exchange market, it gets more difficult because you know the market shifted over a period of time, and so when the payment is decoupled from the invoice, these are two different events at two different points of time, and so something that’s completely different that we’ve done is that we get the payment to follow the invoice, and therefore they come coupled together so you know that this payment belongs to that invoice. You can export that into Quickbooks or whatever accounting packages you use on the back end.

GP:How are you going to market? How’s your start up, you’re trying to get attention in 35 different countries?

MF:Yeah, we’ve seen, some of it has been direct sales, some of it has been online acquisitions, some of it businesses have come to us, and probably the most fascinating so far has been the word of mouth. Businesses that have used the system, that found a totally different experience compared to what they have today, and so they told other businesses, hey I use the thing, Align Commerce, it’s really interesting, it’s different, and so you will see, we’ll see other businesses sign up from that word of mouth.

GP:That’s great. Let’s take a quick break for a moment, and I just want to let you know about our upcoming boot camps. April 14th and 15th in New York City, Payments Boot Camp, and another to follow, if you’re more West Coast oriented, May 19th and 20th in Menlo Park, for our two day Payments Boot Camp. Also coming up, we have in New York City, on April 16th, a Faster Payments Insight Workshop, that’s one day in the city, and in May, on the 21st of May, a New Point of Sale Insight Workshop. Lots happening there tablets are having a big impact, obviously the EMV and NFC transitions are well underway, and having an impact in the merchant choices, and the connectivity that’s required for processors, so, as well as a rich new source of tools, and opportunity for independent software vendors. So interesting session. OK, let’s get back to our discussion with Marwan regarding Align commerce. So Marwan, what about regulation? What do you, first of all as, your headquarters in the US, is that right?

MF:Correct San Francisco, yes.

GP:OK, so what kind of regulatory rules are you operating under, and what are you finding as you go to other countries?

MF:Well, so there’s multiple ways to look at this. We are a payment service provider. So we follow all the requirements are typically applicable to a PSP environment. The Bitcoin part because we’re using Bitcoin for transmission, different countries have had different views on Bitcoin. A Bit License, for example, is the first effort that’s underway to regulate Bitcoin, and that is far reaching not only for Bitcoin, but digital currencies in general.

GP:Now you’re talking about the New York Bit License, right?

MF:The New York Bit License, yeah, that’s going to be the first regulatory framework around Bitcoin, and I think we’re starting to see other states in the US looking at that. We’re starting to see other countries, like UK, for example, they’re going through their process right now, looking at what to do in that, from that perspective. All these are, the regulatory environment is changing, and it’s becoming more mature, and there’s more governments now looking at putting some framework around that too, to make sure that all the activities are monitored, and regulated.

GP:So, and I know we’re expecting the New York Bit License final rules to come out anytime, and a part of that effort is to try to resolve this tension between innovation and regulation. How do you think the Bit License model is going to play out in that respect?

MF:First of all, Bit License is an extremely important step for the industry. It’s the right thing to do, and it makes the industry more mature. It provides a framework for the banks, and the institutional players to participate, and to help build, and to help grow the industry. There’s a number of things that are also interesting in that Bit License. In particular, one of the things that I find to be extremely helpful especially for the startup community is the concept of transitional Bit License, which essentially allows for startups to operate within thresholds or time periods where they can test the business module without going through full licensing. This type of work is fairly helpful for everyone involved, for the startups are trying to validate their business module for the venture capitalists that are going to be allocating money, to help build up the company to the regulators themselves because it’s difficult to spend all this time on something that may not go somewhere. So I think it’s a really good way to get the industry started. So I think it’s a first, it’s an important first step. It’s a very healthy first step, and it’s a process. This is not going to be final text, as it rolls out there will be feedback from the market. There has been already on round one in terms of commentary, and round two, but once you also roll it out, and you start implementing it, there will be further refinement required, and the key thing is to keep the dialogue going, and to make sure that the various states are open to making changes along the way.

GP:Now, that part’s going to be very interesting, to see the adoption by other states of the art Bit License approach, but this challenge of regulation is, I think, you’re absolutely right. This is just the first step, and from regulatory point of view because to me, the next evolution of Bitcoin could well be away from certainly its role as a currency, and far more focused on its function as rails, but also really as an asset register, and…

MF:That’s how we review it, yes, we review it as a transportation of value or assets, of which one of the first application of that is an important asset that we all are, touch on a daily basis which is money.

GP:Right. So, but there have been, lots of, there’s lots of thinking about how do we use a blockchain technology to support other forms of value exchange, and asset transfer. We’ve gotten outfits like Ripple, and it’s follow on Stellar, and there’s Ethereum, and a number of others who are looking at sidechain kind of implementations, and all that’s for another discussion, these alternative approaches, but I also understand that there is a really active work on, for lack of a better word, the Bitcoin 2.0 version of the protocol, to address more the use cases that the current iteration doesn’t address that well, it really expand its capabilities. Could you say some about this Bitcoin 2.0 notion? I’m fascinated by it, and I, it strikes me that there are going to be some challenges in getting there.

MF:So, the thing that’s important to understand is that any new technology that comes to market, it starts with one particular use case unless the market matures, and you start to see new requirements, new ways to use the protocol. It starts to put stress on the system, not only from a scale perspective, but also new functionality, and new features, and so what we’re seeing are two things. One, there’s alternative protocols as you mentioned in the market like Ripple, and Ethereum, and Stellar, and these are all sort of different types of crypto. One of the things about the Bitcoin in general is that it’s a multi-sided market. There’s the consumers, and the merchants, and the world providers, and the exchangers, and the minotaurs, and so because of that multi-sided market, and because of the amount of investment that has gone in, and the amount of developers are working on it, there is networking effects that are also in place that makes it right now, the dominant crypto. So alternatives essentially need to have all these things lined up, including a composition structure that works for all the various participants, for that alternative crypto to have a role in the market.Now, that’s one track that’s going on. The other track is enhancements to the Bitcoin protocol itself, and so I think as the market matures, as you see more use cases emerge, as you see more scale, we’re going to have different types of issues. In particular, how many transactions can we handle per second, and variations on enhancements to the product, to the protocol to support these new use cases, and that’s part of the evolution of this protocol. It’s a healthy step, and all the existing protocols that operate the market today, any network, they all started at small scale, and got enhanced along the way, and so it’s not really the right comparison to say, well, Bitcoin today, for example, can handle the blockchain, can handle seven concurrent transactions a second, and another network can handle two thousand. That other network that we’re referring to has been around for ages, and has matured over time, while, the blockchain is a new technology. So you have to think about these things in steps, and so as the market matures, the applications are that more robust, more developed, the use cases are more understood. Some of the technology underneath it, you will see rapid changes to add to, for the market.

GP:Just from a technical point of view, I mean, I get that what you just said, I understand it quite well, but Bitcoin sort of has the disadvantage of being in the incumbent in these Crypto currencies, and the mining infrastructure is all working off the same version, and to be actually, to be able to address this more advanced use cases, the miners have to be running, be willing to run software that does more than the current version. So it’s going to have to be, well, an almost instantaneous upgrade to the Bitcoin network for us to take it, for them, for anybody to take advantage of advanced features in the Bitcoin protocol.

MF:Yeah, and so to make sure, I mean, just to also level set, miners are businesses, and they’re deeply interested in growth, and revenue, and PNLs, and as much as there is money to be made from minting new coin, there’s also an understanding that over time, they are also processing payments, and they need to see that volume, that part of it to be, to increase, and so they’re also incented to see more transactions on the network, and the more use cases, the better everybody is, the entire ecosystem, and so they are interested like everybody else, in supporting new use cases and new features because they need to see the revenue, and serve every purpose.

GP:Sure, well, I’ve looked, looking at the way the incentives are built right now, that down the line, some years from now, because the reward of Bitcoin will be dropping precipitously over time, the incentives will be upside down.

MF:They’re going to need better compensation for the transaction processing function than they’re getting, so, what I mean, yeah, I mean, they will end up being payment processors. I mean now, they’re issuing coins, and they’re making money from the minting part, but over time their real growth, and then transactions will come from payment processing, and so they are all incentive to do, to see used cases that bring real value to the table.

GP:Well, this is ought to be interesting to watch because hurting groups of competitors is always challenging, and obviously in the Bitcoin, miners are significant competitors with significant investments already in their gear. So, did you, any guess on your part as to when we might see more proposals regarding the fork, and when it might happen, where the upgrade rather?

MF:I don’t have any particular dates. I know there’s been work. There’s continuous work on enhancements to the protocol, and I do believe that a number of these efforts are being socialized, and run by miners in parallel to make sure that there’s sort of constant in back and forth between the development arm, and the mining groups.

GP:Well, Marwan, thanks so much. It’s been really fascinating, wish you a lot of success with your business, and thank you on behalf of those who are listening to your, for your thoughts.

MF:Thank you George, thanks for having me.

GP:Alright. We’ll look forward to catching up later on, bye now.

MF:Bye now, thank you.

GP: Thanks for joining us today for this conversation with Marwan Forzely of Align Commerce. Look forward to you coming back for another lesson. If there are topics you’d like us to cover in the Payments on Fire broadcast by all means let me know. Reach out to me at george@glenbrook.com. Always glad to hear from you. So in the mean time, I hope all’s well, do good work, and we’ll see you next time.