Bitcoin Forum

I would like to get a feel for how much interest there would be in forming a Bitcoin Credit Union. Post your thoughts here.

Objective
Set up a Credit Union where Bitcoin users can set up direct deposit at work directly to a Bitcoin address. This will be the main function of the Credit Union initially with the ability to expand into other services down the road.

Approach
Credit Unions are not as difficult to get running as one might think. The main initial steps are setting up a business plan and getting signatures from those that might be willing to join. The goal will be to get 3,000 people to support the concept while less is still ok but makes things more difficult. 500 people will be the minimum. Focusing on a simple initial setup of direct deposit will allow us to apply for an Express Charter and will make it more likely that the Credit Union will be approved.

What we need to begin
There are 10 main steps to setting up a Credit Union:
1. Find something in common (Bitcoin users)
2. Get together. A "yes" vote by 500 members while 3000 will help the process.
3. Do the paperwork. There will be plenty of forms to be filled out and submitted.
4. Meet the membership requirement. We will need to get signatures and a survey from the potential members.
5. Find a financial expert. We need a CPA or someone good with accounting for the organizing committee.
6. Form a committee. A small amount of people to help organize with good financial history.
7. Set up a board of directors. We will vote on who we want for the initial board of directors.
8. Collect money. To help with the initial funding we will need funds to get the ball rolling whether through donations or initial membership fee.
9. Charter assistance. It would be useful to have the assistance of someone who has already set up a Credit Union to help review our submission.
10. Apply for status. Petition the National Credit Union Administration for official status.

Initial business plan
The goal is to make direct deposit to a Bitcoin address as simple as possible. A Bitcoin user will join the Bitcoin Credit Union with the same process as joining a bank or credit union. They will provide a deposit Bitcoin address. The Bitcoin Credit Union will provide an account address. The Bitcoin user will provide the direct deposit account to their employer and when they are paid the funds will be converted to bitcoins and deposited into their account. From the user this process will be transparent. The Bitcoin Credit Union will coordinate with a company/companies to provide the best exchange rate. The members will decide whether day to day operations are paid for via the initial membership fee or from a small percentage taken during the conversion. The goal will be to keep the cost down as low as possible using volunteers as much as possible for operations.

If you made it this far and are interested, sign up here to help move this forward.
http://www.bitpools.com/?Bitcoin%20Credit%20Union

arnt you already describing coinbase lol

many people already treat exchanges as a form of credit union (little shrimp, not whales)

although making it as a 'formal' credit union might be useful.

it can work as a little shrimp savings thing. but i would not aim it at large whales. that way its much easier to obtain liability insurance as each account can be secured against say $2k. much cheaper to insure rather than policies of $250k per account holder (banking world).

id never recommend storing bitcoin in third parties without proper insurance. thus small account limits and affordable insurance will win this project passing the feasibility tests.

While this can be done via coinbase by setting up some sort of automation, with a credit union people can skip the step of money flowing through their bank account and the problems that come with having a bank account.

This would be like BitPay but in reverse. The employee doesn't have to worry about fiat and gets bitcoins directly in their account.

It would also be the best way to associate a Direct Deposit account number to a Bitcoin address.


Any business or individual can give out that number for direct deposit to their Bitcoin address.

This concept is much bigger than a traditional CU. Private key management schemes can be secure and scalable to any size. I would like to see families learn to manage their own Bitcoin CU that is not under any jurisdiction. They would form the foundation of a Bitcoin economy. I think the Philippines is a good place to try it because families are quite large and close.

now your approaching the big hurdle!
account numbers.

for you to accept FIAT electronically needs a bank account. fine and dandy in normal credit union terms, but when it comes to direct deposits. thats a little harder.

here in the UK there is a credit union that has 1 bank account. and individual 'account' holders deposit with the same account number, but put a reference thats personal to them..

much like how deposits work in btc-e and bitstamp etc. where the reference is where a person puts their ID number.

having proper individual account numbers, means you would have to be part of the proper financial system ( a bank) not a layer above it (credit union/ payment processor). so be careful when talking about direct deposit numbers, just have individual account reference ID numbers instead.

Ahh, I see. That would make things difficult. I was focusing on the US, I guess I should have clarified that. I have a credit union account with an account number and checks and everything a bank has. I can do ACH transfers, etc. A credit union is member owned, is usually for a specific purpose and not as complicated as a bank.

In the US when you go to get paid they ask for your direct deposit routing number and account number. The routing number is the number for the financial institution and the account number references your account. If we can get a routing number we can set up the account numbers to point to a specific Bitcoin address.

I think if we could do like BitPay does where companies that want to accept Bitcoin with no desire to deal in Bitcoin can do so, but we can set it up so that people who are paid in fiat with no desire to deal in fiat can do so. A hybrid approach to people being paid in Bitcoin just like BitPay is a hybrid approach to merchants accepting Bitcoin.

No, there are already good solutions to act as transitional intermediaries like coinbase, circle, bitstamp, bitpay. We don't need more solutions. Lets focus on promoting how Bitcoins were meant to function by getting more users to adopt multisig and hardware wallets.

Employers should be paying directly to employee's stealth addresses.

The future is P2P banking with decentralized markets and exchanges, centralized banks and exchanges are merely speed bumps along the way.

I agree, but there are no options such as coinbase, bitpay, bitstamp, etc to do so.

Even if an employer wanted to do so they would have to jump through plenty of hoops to make it work.

I like what you are thinking. So these are physical locations ?

There are options, but do indeed need to be refined. Why don't we work on that directly as a community vs a brick and mortar institution that can be corrupted by the state. Isn't that what we are trying to get away from?

No, it would serve only one purpose. Direct deposit to your Bitcoin address. There is no need for any physical location other than what is required for a main office address.

Yes, interesting, but how is this different than https://bitpay.com/bitcoin-payroll-api  ?

That is exactly what this is for, getting away from brick and mortar institutions. Right now you need a bank account to get paid in fiat so you can send that fiat to an exchange.

What we need to move forward is for people to get paid in Bitcoin.

We have merchants accepting Bitcoin but they are paid in bitcoins and immediately convert it to fiat.

We need people who get paid in fiat to immediately convert to bitcoins. The other side of the chicken and egg.

So, what is the point?

Why do we need this, and how is this different from what we already have?

No, it would need to handle cash as we'll. I can't think of any user that can pay all of their bills in bitcoin. So in the ideal situation, one would set up an account, designate a percentage of their pay to be converted to bitcoins, while the rest remains as cash in their account, accessible via ATM or check.   

If you're not willing to go all the way and offer fiat banking services as well as bitcoin services, then there's really no advantage to this credit union idea compared to just getting paid as normal and having coo base make regular purchases from you linked bank account. If anything the later would be easier, since, again, people, do need a certain amount of fiat to survive. Having all their pay converted to bitcoi would just result in them needing to convert back to fiat immediately in order to pay their bills.

So do you want to go all the way? Set up a credo union that handles/accepts cash, check, ATM cards and bitcoin? Because otherwise there's just not a purpose IMO.

easiest thing to do rather than a credit union of bank account numbers, is for merchants (who know their employee's tax brackets) pay the 60-90% in bitcoin to employee's and the other 10-40% is converted to fiat for tax.

a push on merchants to not convert as much bitcoin and only do it when really needed. then employees wont even need 'union accounts' just bitcoin addresses. i think thats what inbitwetrust is trying to say.

YET thats the philosophy of a 100% world bitcoin takeover.. which can take decades, if at all.

i think a credit union to make employers lives easier so that employers that have not even adopted bitcoin and prefer fiat can just send funds to employee's 'accounts' in the current banking system. is the interim objective here.

but then we run into the hurdles of bitcoin usefulness. as bitcoin is still young and not everyone can successfully live 100% bitcoin lives (walmart/7-11/mcdonalds/starbucks/jcpenny) dont accept bitcoin.

so it summary,
elwar is planning and thinking about the goals of 2015-2020 and inbitwetrust is thinking about goals of 2020+

now the chicken and the egg:
1) we set up a credit union for the fiat loving merchants and those merchants still clinging onto fiat to pay staff who want bitcoin without merhants realising the payments are converted. (gives the 'unbanked' staff a method to get paid)
2) we get more merchants to accept bitcoin from customers
3) we get merchants suppliers to accept bitcoinso that merchants can pay direct without conversion
3) merchants that will help peoples daily 'survival' (minimal daily needs(food, clothing landlords, toiletries, home repair))
4) we get merchants to KEEP bitcoin, to then pay staff (as average joe adoption grows)
5) by this point alot of merchants will pay staff direct in bitcoin without need of credit union. but fiat still exists and a credit union still has usefulness

a credit union has purpose and passes the test of time of a 5 year lifespan. thus worth achieving. and it can be an integral part of bitcoin growth and adoption.

it does not need physical locations in every town. as bitcoin ATM's dotted around can fill that gap

id say once credit unions are set up, for those employees wanting bitcoin or even just wanting a 'account' to receive wages into. we then push for more merchants to accept bitcoin as a customer payment method. seriously concentrating on the 'home basics' of life, rather than luxuries.

then and only then is it ready to push the mass adoption of average joe to convert to bitcoin either directly from merchants accepting bitcoins or through merchants sending fiat to credit union.

this allows a period of time from starting the credit union and refining it, before mass adoption.
the merchant push inbetween is critical, and i hate people that simply think USER adoption in 2014 is key.

so in 2014-2015 i see the credit union being small and stable growth of existing userbase. which is good and practical. then once people can live on bitcoins we really push the mass adoption in 2015+

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another thing that would also help the community was if we pooled in all the bitcoin ATM people and instead of them individually paying for money transfer licences each. that thy work as 'agents' /franchisee's of the credit union. thus they still do what they do but instead of 20 people in one state paying 1 licence each. they payjust 5% and be still licenced, as they are under the umbrella of the credit union brand.

food for thought

Setting up a physical location and going through the legal process is a multiple year project and involves millions of dollars in lawyer and regulatory fees. I just don't see the advantage in replicated the antiquated way people bank as a justifiable cost.

If there is no physical location I do see it at a useful stepping stone. What has me confused is the fact that Bitpay is already doing it in a test market that is ready to expand:

https://bitpay.com/bitcoin-payroll-api

Perhaps you are suggesting something different than this, or simply want to replicate this as to create competition?

competition is good.. thats why coinbase works well alongside bitpay.. afterall we dont want just 1 company running the bitcoin planet. choice's options and decentralisation is key.

but i agree physical locations is not needed (after all bitcoin is digital) all that is needed physically is bitcoin ATM's which we can franchise out to others to manage for us.

Here are two more companies offering payroll services in addition to Bitpay  -

https://www.bitwage.co
http://wagepoint.com

But yes, the more competition the better.

I don't think there would be much demand for this. There is no real reason why you couldn't buy bitcoin yourself whenever you are paid. There is also a chance that you would not want to have your money automatically purchase bitcoin for a number of reasons and this would only make it harder to prevent this from happening

For a nationwide credit union a physical location makes no sense at all.

If there is another way that I can go to my employer right now and give them my direct deposit account number and get paid in bitcoins, I am all ears.

A simple credit union can be started for less than $100k. Focusing first solely on direct deposit would bring the price much lower.

The BitPay payroll is trying to get companies to sign up to pay their employees in Bitcoin. But matching companies that pay in Bitcoin and people who want to be paid in Bitcoin will be a small number.

The price may be as low as it is because so many people are clinging on to the fiat world so much that the concept of getting paid in Bitcoin and converting to fiat for those few things they need to pay for is a scary concept.

I, for one, get paid in dollars and live on euros in Germany. I wish I could drop my US bank account but I need it for direct deposit to convert to bitcoins.

Sorry, I finally get it. The 3 solutions I cited involve employers signing up which they probably won't do and what you are suggesting allows any employee to automatically receive direct deposits in a split between BTC and Fiat without the employer even knowing that is happening.

Couldn't this be accomplished simply with Coinbases tool to automatically buy BTC at set intervals or indirectly through their API with apps like Bitcoin Trader?
So if you want 30% in BTC and the rest in fiat you would merely make a recurring buy order for that percentage of your salary(most people have consistent salaries ) after the direct deposit went through/

Wouldn't that work?

Not necessarily a split between BTC and fiat because that would require the Credit Union to hold fiat deposits which would just turn it into yet another bank account and make it more difficult to get approved and more costly to run.

Some employers allow you to withdraw different percentages to different bank accounts. But if we got the exchange price as close to 0% as possible (contracting with companies that need fiat for bitcoins) then it would be just like being paid in bitcoins. Then you could convert what you need in fiat via CoinBase or use a bitcoin debit card or the many other ways of getting fiat for bitcoins.

You can set up Coinbase to do an automatic buy, it would have to be timed the day you get paid and if your pay goes up or down it would not be able to fluctuate. Plus it takes several days for the transfer to go through. And you need a bank account for this, which would be more likely to freeze your account with no legal recourse as opposed to the government shutting down a whole credit union without any legal recourse.

With direct deposits people actually are given the option of never having a bank account ever again. I have no bank account in germany, if I need cash I sell on localbitcoins (bought a car that way last month). But I still need my US account for funding CoinBase.

Coinbase has expanded to 13 countries in EU, just not Germany yet. :P
http://blog.coinbase.com/post/97170793362/coinbase-expands-internationally-now-available-in-14

I see what you are suggesting. The target demo would be people who want to get paid by direct deposit in BTC but without bank accounts. This is a very limited case scenario as most people who have a job also have a bank account. Since the focus of this service is for such a niche client and the profits would be so small if any I don't see how the investment (100k seems cheap, perhaps that germany? ) would make it worthwhile. 

Bitcoin Union in every country.

I live in Germany but get paid in the US so I use a US bank account for my CoinBase account.

The $100k was off the top of my head after reading the NCUA site. Here is their break down of a typical credit union:

Estimated Pre-Chartering (Start-Up) Costs

Pre-Chartering Consultant/Organizer Fees: 35,000
Electronic Data Processing Computer Hardware: 2,800
General Ledger/Share and Loan Accounting Software: 4,000
Computer Installation & Training: 1,485
Check Writing Software (Laser): 500
Loan Delinquency Notice Printing Software: 220
Statement Printing Software: 275
Direct Deposit - ACH Software: 1,670
Enhanced General Ledger Software (Fixed Assets,
Prepaid/Deferred Expenses, Accrued Expenses): 250
Credit Bureau Software: 795
Credit Bureau Reporting Software: 330
Total Estimated EDP Computer Costs: 9,905
Furniture & Equipment - Desks, Chairs, File Cabinets,
Security: 4,000
Marketing/Surveying: 1,000

Total Estimated Pre-Chartering Costs: 49,905

Another chart shows -
Total Estimated Annual Operating Expenses: 76,781

These are taken from the NCUA website:
http://www.ncua.gov/Resources/Documents/CUDev/AcrobatDocument6-26-09.pdf

We would actually have lower expenses as we would be focused mainly on Direct Deposit - ACH with no need for loans or holding account balances, etc.

Both banks and credit unions alike make their money off of loans. This is their primary source of income.

You may have lower costs but would still have costs which would need to be passed along.

One thing that you forgot to include as a cost is the 'cost of funds' as you would need to include the cost of the money that you invest while you are waiting to ROI on your investment, as if you did not invest in the CU then you could have invested it somewhere else and earned a return (potentially)

Credit Unions are member owned, most will charge a membership fee up front of around $25. If we are able to get 500 people who are interested, an up front fee of $100 each would cover the start up costs...the recommended initial users of 3000 would only require a $20 up front fee.

The price given for yearly expenses by the NCUA is around $75,000. Without handling cash or loans this price would likely be lower. Say around $50,000 for simplicity sake.

So we could either get 500 new people per year at $100 each or 2500 people per year at $20 each. Or we charge a small percentage for exchanging from dollars to bitcoins.

With 500 people making the average US salary of around $50,000 per year we could charge .2% per direct deposit to cover costs. With 1000 people we could get the rate down to .1%...quite negligible.

And being member owned, the members get to decide the best route.

And if it had enough support I am sure a few early adopters would be willing to put up the initial $50k to get this set up.

I would imagine for the $50k upfront costs we could get some sponsors to help with that. Maybe sponsor the first 500 people's membership fees.

some of the upfront costs are not needed.
credit bureau software..? honestly you dont need to run credit checks on people depositing fiat
cheque printing? again... not needed, well thats if i read the purpose of the credit buruea correctly
anything related to loads...? again not needed.

usually a credit union is very much in house, imagine it like a book club that people buy into where the funds are stored in the house owners personal safe (thats the most imaginative laymans version i can use, so dont judge). where no interaction happens with banks because most payments are cash in hand. many churches and schools have these 'savings clubs'.

in elwars links. the PDF only really explains that a credit union which wants a wider coverage and interaction with banks(for electronic direct deposit) are best suited to find debit card issuers, which would easily and cheaply allow customers to get a 'bank account' numbers branded to the credit union for employers to then direct deposit into.

maybe if elwar speaks to current bitcoin debit card businesses (obviously not the scam ones) and work with them to mitigate costs so that customers can easily get a card and have their employer deposit fiat into. which converts to bitcoin... and then the combined service of the bitcoin debit card who until now receives bitcoin to convert to FIAT. will mutually benefit each other. as 2 separate services under the same card issuer, so that swaps for bitcoin<->fiat can be done inhouse.

The reason people are willing to pay money to be a member of a credit union is because they offer higher rates on deposits and lower rates on loans. If these features are removed them the main incentive to join is removed.

Your .1 or .2% is quite high just to receive your money. These fees would need to be above what you would charge from exchange fees (that you would need to pass on). It would probably be cheaper to just get a free checking account from a large bank, get direct deposit, transfer money to bitstamp every two weeks (or however often you are paid) and buy on bitstamp "manually" the process would only take ~20 minutes each pay period and would save money over the long run.

Any time you add an additional middle man you are going to increase costs

I am interested in Bitcoin Credit Union, but how to operate. Who are the stakeholders?

Direct deposits use the FedACH system. If you accept fiat via FedACH then transfer it to Coinbase for conversion you will need to have all the headaches and licenses in place that banks have. If you're going to also deal in fiat you're going to need an experienced compliance officer for AML/KYC. I think Charlie's available if you need someone now. lol

Interested is a good work.

yep, trying to join the ACH network is a big hurdle. if it was as easy as a $50k investment, then EVERYONE would start their own bank brands, but there is only a few in reality, which shows its not easy or cheap.

however as mentioned in the last post, people having their own debit card to 'top up' give their employer the deposit details. and then elwar in partnership with a bitcoin debit card company working the other direction (bitcoin->fiat). can work together to swap fiat for coin internally rather than relying on fluctuating exchanges

I agree, it would not make sense to use an exchange. Working either with a bitcoin debit card company or directly with high volume miners would allow for getting exchange rates without the overhead of the exchange.

Considering the amount and time would be fairly consistent it would be easier to negotiate ("Our current fiat amount is $385,000 every Friday increasing at an average rate of 5% per month.."). Might even be able to negotiate a rate better than exchanges to cover the minimal costs of operation.

Working with debit card companies will make it much easier...most of a credit union's costs come from offering fiat services. Holding zero balances would cut out most of the cost.

Anything that would make bitcoin progress, I will support!

If you never intend to touch fiat at all you don't need to apply to be a credit union. Credit unions don't deal with commodities. You can just set that up as a club or non profit for tax purposes. Maybe apply for a 501c. Are you planning on being for profit or nonprofit?

The credit union is necessary to get a routing number to be used for direct deposit.

So you are planning on accepting deposits in fiat? I guess I got confused by franky1s post. A bank or credit unions routing number or numbers are used to identify a financial institution usually for the ACH and wire transfer system. The hurdles you will jump through to be a bank will require lots of employees and attorneys. If you are crossing state lines you will need to comply with interstate banking and branching laws which will add more employees. If you're going to deal with international customers too you may need to hire everyone on this forum to help. That's the reason these startups go out and secure big money investors first.

Seriously, I'm not sure you could ever accomplish that without being more expensive than Circle or Coinbase.

The main focus would be on the ACH to access the Electronic Payments Network which allows a "depository institution" as defined in § 19(b) of the Federal Reserve Act, 12 U.S.C. § 461(b), this includes "insured credit unions".

“Federal credit union” means a cooperative association organized in accordance with the provisions of this chapter for the purpose of promoting thrift among its members and creating a source of credit for provident or productive purposes;

The term “insured credit union” means any credit union the member accounts of which are insured in accordance with the provisions of subchapter II of the Federal Credit Union Act.

For a credit union maintaining less than $50 million in deposits it is not too difficult to maintain insurance on users accounts. Especially since the Bitcoin credit union would never hold any fiat in accounts. It would immediately transfer any funds into bitcoins or to another bank account for deposit.

Maybe that's your loophole. Since your not going to hold fiat for any great length of time. Credit unions still need to comply with banking laws and AML/KYC. You really need to get the advice of an attorney that specializes in banking law before going any further. That will save you money, headaches and jail time in the future.

One question though, why would you even consider opening a business like this in the fascist USA? You're not in the US, you don't need to bank here, the laws are meant to support the status quo, cripple new entry and innovation, the whole government is corrupt and the people are blind to it. Is Germany a worse place to have a financial institution?

you dont need to hire an expensive financial attorney in the early "idea" phase. just ask to have a meeting with a credit union organiser (its free) and they have gone through all the red tape and know what is needed and what is not. then once you know exactly how to best obtain a direct deposit number for individuals to use for their employers. then you can go into phase 2 of attorneys and paperwork.

i still think the fastest way to achieve individual account numbers is the prepaid visa card route or partner with an existant credit union

You would need insurance on the amount you have in customers' accounts until you use the money to buy the bitcoin.

You also need to understand that a direct deposit is little different then accepting a check (the fraud risk is reduced however) as direct deposits can be reversed for a number of reasons. A direct deposit can be charged back and can be "nsf". These are pretty rare, and really only happen with smaller businesses but even then they don't happen very often because most businesses make paying their employees a top priority.

The biggest risk is getting a direct deposit that is initiated by the customer. A few banks allow this, ING direct (which is now owned by capital one) was one of the first banks that started this, but others have jumped on the bankwaggon. I understand that there is no balance requirement for a direct deposit to be sent, but it will be reversed by the issuing bank in the event of NSF in the sending account.

I think we have Coinbase for that. But don't be fed up. This is the sort of initial thinking that might lead to the biggest community in the world. So keep on expressing your thoughts. :)

Another risk is that the employer overpays the employee. This is somewhat common and the employer can simply reverse the amount of the overpayment from the employee's account; this is something the employee agrees to when they sign up for direct deposit.

This sounds a lot like coinbase but with extra regulatory costs and risks. I would suggest creating a service similar to coinbase with similar risk controls and your service will take off.

If someone wanted to use their entire paycheck (or any other amount) to buy bitcoin they could simply setup an automatic purchase with coinbase

Without people being paid in Bitcoin we will forever be in the mindset of "buying bitcoins". At some point we will need to transition from buying bitcoins to buying fiat for the few things Bitcoin does not provide.

I am not, and would not think of, doing this alone as a business. I am in IT, just to apply yuo need someone with CPA or banking experience as the director and the members elect a board. I can help facilitate but cannot do it on my own, there would need to be community support of 500 to 3000 people showing an interest.

Why should you support something like this? It will surely create chaos anytime soon. :)

I personally love the idea however from a regulation standpoint I can see it being VERY difficult to pick up off the ground.

I don't think this will ever happen, especially in developed countries. In theory people could use bitcoin as their main currency in third world countries that have very unstable economies.

I think the costs are simply too high in order for a bitcoin CU to be a viable option. (and there are too many cheaper alternatives)

Exactly. If you were to setup some kind of service that automatically buys bitcoin when a person gets their paycheck then you would need to buy the corresponding bitcoin on an exchange somehow. You would need to pay exchange fees and would encounter slippage (just like coinbase does). A much better solution would be to compete with coinbase.

One disadvantage you would have over coinbase is that no one would be selling their bitcoin to you (which would allow you to save on slippage and exchange fees) so from the start you will have higher costs for providing the same service.

I'd very strongly suggest trying to get in touch with an exec from BancVue if serious. They can help you out a ton with start-up, logistics, and shared branching. Trying to get a sit-down around the time of a trade show would probably be your best bet. https://www.bancvue.com/about/upcoming-events.html