We met the founders of Moneero, a mobile payment company, a while ago. They are currently working on a universal payment platform that reduces transaction costs dramatically, through internet and mobile phone, using new and open technologies like bitcoin and open transactions. Thanks to them, residents of Montevideo are already able to carry a whole wallet in various currencies (pesos, dollars, bitcoins) on their mobile. And not only smartphones, but also simple-featured devices.
Mauricio Betschart (COO), Vladimir Marchenko (CTO), and Steven Morell (CEO), founders of Moneero
Innovation is Everywhere: What do you wish to accomplish at Moneero?
Steven Morell (CEO): I recently read a quote: “hackers are like animals that can sense a earth cake long before it happens”.
Right now we are excited about two things: new payment technologies such as bitcoin, and 3D printing. I think that the dinosaurs -the old tech companies- are getting nervous too. Apple is creating a mobile payment system: ApplePay, that is doomed to fail because it’s only on one single platform. No system that is closed will ever survive. Remember what happened to some alternatives to the internet: AOL, Compusurf, or Minitel in France. These projects died because they were closed systems. Giants like Microsoft tried to establish their own internet system: Microsoft Networks (Steven used to be a Beta tester). It was a crazy idea: how can you think that you will serve all the world with only one company? They were all creating these closed networks and they all died because they behaved like dinosaurs. They are getting nervous while small animals are excited. We believe to be one of the small animals.
The two most popular payment methods are the credit card and cash, and we want to eat both the credit “card lunch”, and the “cash lunch”.
On the one hand, there is cash, a totally anachronistic way of paying for things: it’s a thousands of years old invention, Chineses already used paper bills back in the 7th century!
On the other hand we have credit card, a mere piece of plastic that gathers all the information you need to do payments. Devices are half the size of a cigaret box, you slip a card through -or even 5000 cards- and later connect it via USB and then plumb all these cards in one time. “Let’s put the data on a magnetic stripe. You can’t see it but it’s safe“. That’s how simple the system is!
Everything that happened after the invention of the credit card was trying to fix a broken system. For instance, financial institutions would invent the chargeback. There was no chargeback in payment history! A hundred years ago you would go to a merchant and give him some bold coins or whatever it was, and if something went wrong, there was no charge. All you could do was going there and either be pleasant… or beat him … but there was no chargeback!
There was no anti-fraud measurement either, nobody would ask you where you were coming from and what amount of money you’re usually spending. All this was not there, all these things, all these problems of the credit card tech.
Victor Hugo said “Nothing is as strong as an idea whose time has come”. There are plenty of examples in Human’s history. Paper was being invented in Egypt and in China at the same time. Many countries and people have claimed they had invented the phone. There are times when an invention or an innovation is just due to happen, and I believe that in the way we pay for things, the time has come. Five years from now, we will pay for things in a totally different way than we do this now. Just like email has replaced the paper mail.
Moneero offices in Montevideo, Uruguay.
They are also implemented in the USA, Hong Kong and Germany.
IEV: What is the most important issue you want to solve: making payment faster, safer, or cheaper ?
S. Morell: Cheaper of course, we want to reduce all the costs due to the use of a credit card. A merchant pays around 6% in credit card fees!
The reason-why is that fixing a broken system is expensive: chargebacks need to be handled, there’s the human direction base problem, process claims, anti-fraud checks, and so on. And yet, they still register losses! Credit card fraud is booming, and all these losses need to be accounted for, which makes the system unnecessarily expensive.
It also requires a level of surveillance on the user, that shouldn’t exist. You need to know which IP you’re doing a transaction with, because it needs to be revertible. With a real solution, you wouldn’t have to do these checks and this is one of the main arguments for Bitcoins.
There are 7.1 billions people on this planet. 6.8 billions of them have a phone. The number of smartphone is growing, we’re talking about 1.5 billions, and everyone with a smartphone has probably more computing power than the US had when they were flying to the moon. There should be a way of using this amount of computing power to provide a simple and relying way of paying for stuffs.
Soon that coffee will be paid through the system
IEV: And this is when you come in.
Yes, our solution works mainly on smartphone, but a legacy of features also works on simple featured phones, because we do not want to depend on a device. What we do is we have a system that is device agnostic and currency agnostic, and can adjust to any jurisdiction and regulation system.
IEV: On a simple featured phone, it cannot be used through an app. How does it work?
There is a technology called USSD, for UnStructured Service Data, part of the GSM protocol. Here’s how it goes for the user: the menu works on any phone, it’s really cheap and conversation based. We know we’re in contact with the user and most importantly, nothing of this conversation get stored on the phone, unlike SMS. Once the application is done, you close it and there is no trace of the conversation or the transaction on the phone.
IEV: But do YOU keep a trace of it?
No. Let me describe how our system works. We have something that we call Rocks. It’s a system that on one side is a currency agnostic banking system: it deals with any type of currency (USD, euros, pesos, Bitcoin). On the other side, it does all the banking stuff: user management, account management, transaction updates, paper trade and so on.
For us it was much of the learning process because we’re coming from the tech world, we are hackers. we were not bankers or traders.
IEV: You aim at being a central intermediary of a new ecosystem?
On the top of all this, we have an API. We haven’t made it public yet, but very soon we will invite the greater developer community to start developing applications. Back in the days when social media was the big hype, you could do something overnight. The financial industry just doesn’t work like this. If you hack something overnight, you will be hacked the next morning, and the Bitcoins will be gone. And even if this doesn’t happen, a week later the bank closes your account and two months later, you will be charged with fraud or any other of number of crimes – serious crime because running a financial service without a license is a fellony in most of the US and is not very friendly seen outside the US. The time you go to the jail is gonna be short.
For a group people with great ideas hackers, entrepreneurs, the entry level is tremendously high, because you need to understand all the legal part and the banking part. And this is not trivial. You need to comply and also great amounts of money to come up with the minimal capital requirements. You cannot start with 25K to develop an MVP (Minimum Viable Product), there is no MVP in the financial industry. You need to show the full product to the central bank and then have a permission for it.
We want to provide a platform to propose a project, for the MVP to come into the financial industry. We’re still under the regulatory obligations to look at it, but a startup could come to us and we could cover the project with our license. It’s legal: here’s our API, go play! And then they can develop and that’s how we think an ecosystem can rise on the top of this.
Montevideo’s Financial District
IEV: What are the most important issues you have to deal with?
We think it’s very early on this innovation, and somebody needs to do the plumbing. We believe we can provide the plumbing, and we can roll out a global money system. But we have to deal with 4 major issues.
The Bitcoin has a bad reputation. Every Bitcoin entrepreneur who has done something different before, will notice that for as long as he leaves Bitcoin out of the conversation people are listening. But as soon as he starts talking bitcoins, they will think something like “ow, one of those crazy”. Bitcoin has a bad reputation among the broader/wider population because it’s seen as something crazy, unreliable, related to drugs, fraud and hackers: it’s seen as toxic.
- Legal incertainty
I hear entrepreneurs telling me: “come to Denmark, it’s a Bitcoin friendly jurisdiction”. When I ask “what does that mean?” I’m answered “There is no regulation”.
This is not Bitcoin friendly, for two reasons. First because not having a regulation means there may be tomorrow one that’s not friendly. It just means total uncertainty! Second, no regulation means you’re offering a financial service which you cannot get a license for, which means you will never get a bank account.
- Price volatility
People say this is no problem, because it’s a free market. I agree, but put yourself in the situation of a family father who makes 3000 USD a month, he pays rent, insurance, school for the kids, leasing for his car, and he just makes month end. He cannot afford to have his salary in Bitcoin, if it’s worth 3000USD at the beginning of the month but 500 at the end. You cannot seriously expect somebody to take this risk. It’s like taking a salary and buying only lottery tickets.
Still there must be a way to introduce Bitcoin, the solution for us is: first, get a license as a e-money issuer, it exists in almost any country. If you go to the Central Bank and explain, if it’s crystal clear within their legal framework, they will give you the license. Second, offer a wallet in a currency that people understand, that people are used to, that doesn’t change and that can be trusted. And then give them next to it a wallet with Bitcoin.
Bitcoin price and volatility since late 2010.
- Bitcoin in itself is not solving any problem.
Meanly said: rich white kids can now buy an Intel computer using Bitcoin, which problem did we solve? Bitcoin is used in the wrong places. It’s an elite money.
It needs to get cheaper and that’s what we’re doing. Remember what Whatsapp did to the SMS business? We’re talking about 400 billions dollars of losses to the Mobile network industry because of Whatsapp and other so-called over the top services. We want to do to mobile payment what Whatsapp did to the SMS. There is a lot that we can do building an ecosystem of low cost services.
How being in Montevideo help you with these issues you mentioned?
In many ways, Uruguay is the perfect laboratory for us.
1- It’s a small country: 3.2 millions inhabitants. Only one significant city gathering half of the population. What you need to do is you need to capture the most important neighborhoods, there are 2 or 3. We happen to sit in the central one. Then automatically you conquer the city, and then the country as well. You can roll your MVP out of a 500.000 people neighborhood, see how it works and then you can grow it and you don’t have this monster of national spread.
2- There’s a pretty smart government. We have talked with really open-minded and enthusiastic people in the public offices. They like innovation, they’re happy that people come here and work on something.
3- It’s a stable country, very transparent, with low corruption, a very good working legal system, and a high level of education.
Pepe Mujica, former Uruguay’s president (2010-2014)
A number of pro-innovation policies have taken place under his mandate.