Why Cash will Remain King and the Huge Opportunity for Bitcoin

[ArticMine]

The first question is why do people still use cash, and more importantly who uses it and why? There are two very important surveys in the United States .

The first is that “some 29 percent of poll respondents reported that they do not have a credit card, according to the scientific poll, conducted Feb. 5-7, 2010, for CreditCards.com. That was a sharp increase -- more than 10 percentage points -- from the number of respondents who reported having no credit cards in June 2009 (19 percent)” This is from:   http://www.creditcards.com/credit-card-news/poll-1-in-10-americans-gives-up-loses-credit-cards-1276.php


The second is The 2009 FDIC National Survey of Unbanked and Underbanked Households http://www.economicinclusion.gov/household_survey.html
 The results are again telling “
 “An estimated 7.7 percent of U.S. households, approximately 9 million, are unbanked. At least 17 million adults reside in these unbanked households. In addition, unbanked adults may also reside in other households”
“In addition to the unbanked households, an estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked. The number of adults that reside in these underbanked households is about 43 million”

The simple reality is that close to 30% of adult US residents do not have a credit card and a sizable percentage of those do not even have a bank account!. These results are for the United States one of the wealthiest countries in the world. Just imagine for example what the results would be if similar surveys for example were conducted in parts of Africa. What do these people do? Simple they will use cash and will likely continue to use cash so until either the electronic payments industry figures out a way to issue merchant accounts to the poor, destitute, and homeless or poverty is completely eliminated worldwide.

So where is the real opportunity for Bitcoin? If one considers in person transactions it is a very tough sell. Bitcoin is competing with Cash, Credit Cards, Debit Cards, and in some cases Cheques, Traveller's Cheques etc. The reality is that a briks and mortar merchant is not going to attract that many new customers by accepting Bitcoin. The really huge opportunity for Bitcoin here is in eCommerce where the only practical competition is Credit Cards. Try buying products or service on-line without a Credit Card. In the United States alone that means close to 30%of the adult population cannot in most cases purchase on-line. For the on-line merchant accepting Bitcoin is a no brainier. Furthermore the customer without a Credit Card will figure out a way to get Bitcoin if that is their only option to purchase the product or service. There is also huge opportunity for some bricks and mortar business in selling Bitcoin for Cash as close to 30% of the population will want to obtain Bitcoin to purchase on-line.

The challenge for the Bitcoin community is to first go after the low hanging fruit left behind by the Banks and Credit Card Companies, that in the United States very likely has just lost lost a home to foreclosure and has a FICO score of 350.

[notme]

The first question is why do people still use cash, and more importantly who uses it and why? There are two very important surveys in the United States .

The first is that “some 29 percent of poll respondents reported that they do not have a credit card, according to the scientific poll, conducted Feb. 5-7, 2010, for CreditCards.com. That was a sharp increase -- more than 10 percentage points -- from the number of respondents who reported having no credit cards in June 2009 (19 percent)” This is from:   http://www.creditcards.com/credit-card-news/poll-1-in-10-americans-gives-up-loses-credit-cards-1276.php


The second is The 2009 FDIC National Survey of Unbanked and Underbanked Households http://www.economicinclusion.gov/household_survey.html
 The results are again telling “
 “An estimated 7.7 percent of U.S. households, approximately 9 million, are unbanked. At least 17 million adults reside in these unbanked households. In addition, unbanked adults may also reside in other households”
“In addition to the unbanked households, an estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked. The number of adults that reside in these underbanked households is about 43 million”

The simple reality is that close to 30% of adult US residents do not have a credit card and a sizable percentage of those do not even have a bank account!. These results are for the United States one of the wealthiest countries in the world. Just imagine for example what the results would be if similar surveys for example were conducted in parts of Africa. What do these people do? Simple they will use cash and will likely continue to use cash so until either the electronic payments industry figures out a way to issue merchant accounts to the poor, destitute, and homeless or poverty is completely eliminated worldwide.

So where is the real opportunity for Bitcoin? If one considers in person transactions it is a very tough sell. Bitcoin is competing with Cash, Credit Cards, Debit Cards, and in some cases Cheques, Traveller's Cheques etc. The reality is that a briks and mortar merchant is not going to attract that many new customers by accepting Bitcoin. The really huge opportunity for Bitcoin here is in eCommerce where the only practical competition is Credit Cards. Try buying products or service on-line without a Credit Card. In the United States alone that means close to 30%of the adult population cannot in most cases purchase on-line. For the on-line merchant accepting Bitcoin is a no brainier. Furthermore the customer without a Credit Card will figure out a way to get Bitcoin if that is their only option to purchase the product or service. There is also huge opportunity for some bricks and mortar business in selling Bitcoin for Cash as close to 30% of the population will want to obtain Bitcoin to purchase on-line.

The challenge for the Bitcoin community is to first go after the low hanging fruit left behind by the Banks and Credit Card Companies, that in the United States very likely has just lost lost a home to foreclosure and has a FICO score of 350.

You're forgetting debit cards.  Sure, there's still the 7.7% without bank accounts, but the majority with accounts have these cards, and they work great for online purchases when you don't have a credit card.

[ArticMine]

Pre-paid debit cards are an expensive option because of the fees. I have seen person spend $50 on a debit card to purchase a $20 item online for example. It is not like a Credit Card where one gets 1% cash back. Also because on the security systems there are many sites where a pre-paid debit card does not work.

[notme]

Pre-paid debit cards are an expensive option because of the fees. I have seen person spend $50 on a debit card to purchase a $20 item online for example. It is not like a Credit Card where one gets 1% cash back. Also because on the security systems there are many sites where a pre-paid debit card does not work.

I have never paid a fee to use mine, and have never had it declined online.  It has the VISA logo and is processed through their network, same as any other VISA card, credit or not.

[rjk]

Pre-paid debit cards are an expensive option because of the fees. I have seen person spend $50 on a debit card to purchase a $20 item online for example. It is not like a Credit Card where one gets 1% cash back. Also because on the security systems there are many sites where a pre-paid debit card does not work.

Run your debit card as a credit transaction. Then you will not be charged a fee (but the merchant will).

[ArticMine]

I am very familiar with the Visa and Master Card Branded Debit Cards in the United States, and they are an option for some people; however there is still the 17.9% under banked in addition to the 7.7% unbanked so it is still 25.6%. In many countries for example here in Canada bank accounts do not come with Visa and Master Card Branded Debit Cards.

When I mention fees for pre-paid cards it is the card issue fees, maintenance fees, reload fees etc that add up fast.  

[cbeast]

Pre-paid debit cards are an expensive option because of the fees. I have seen person spend $50 on a debit card to purchase a $20 item online for example. It is not like a Credit Card where one gets 1% cash back. Also because on the security systems there are many sites where a pre-paid debit card does not work.

I have never paid a fee to use mine, and have never had it declined online.  It has the VISA logo and is processed through their network, same as any other VISA card, credit or not.

The BIN number on your debit or gift card can prevent its use online because of chargeback risks. Bitcoin based cards will eliminate the worry of chargebacks.

[notme]

I am very familiar with the Visa and Master Card Branded Debit Cards in the United States, and they are an option for some people; however there is still the 17.9% under banked in addition to the 7.7% unbanked so it is still 25.6%. In many countries for example here in Canada bank accounts do not come with Visa and Master Card Branded Debit Cards.

When in mention fees for pre-paid cards it is the card issue fees, maintenance fees, reload fees etc that add up fast.  

Again, no fees on my card, not for issue, not for maintenance, and not for reload.

Also, WTF is "underbanked"?  I'm not convinced that non of those people have checking accounts with debit cards.  I'll give you the 7.7%, but I think you're skewing the numbers in favor of your point.

[notme]

Pre-paid debit cards are an expensive option because of the fees. I have seen person spend $50 on a debit card to purchase a $20 item online for example. It is not like a Credit Card where one gets 1% cash back. Also because on the security systems there are many sites where a pre-paid debit card does not work.

I have never paid a fee to use mine, and have never had it declined online.  It has the VISA logo and is processed through their network, same as any other VISA card, credit or not.

The BIN number on your debit or gift card can prevent its use online because of chargeback risks. Bitcoin based cards will eliminate the worry of chargebacks.

Emphasis added.  Maybe there is a problem elsewhere, but here in the US (the country the articles are discussing), I have never met someone who couldn't use their bank card online.  Independent, reloadable cards are a different story, but if there is a bank behind it, there isn't a problem.

[ArticMine]

I am very familiar with the Visa and Master Card Branded Debit Cards in the United States, and they are an option for some people; however there is still the 17.9% under banked in addition to the 7.7% unbanked so it is still 25.6%. In many countries for example here in Canada bank accounts do not come with Visa and Master Card Branded Debit Cards.

When in mention fees for pre-paid cards it is the card issue fees, maintenance fees, reload fees etc that add up fast.  

Again, no fees on my card, not for issue, not for maintenance, and not for reload.

Also, WTF is "underbanked"?  I'm not convinced that non of those people have checking accounts with debit cards.  I'll give you the 7.7%, but I think you're skewing the numbers in favor of your point.

It is explained in the FIDC Survey. Seriously when I see debates on payment systems on the merit or lack of merit of Bitcoin one thing that strikes me the most is the complete lack of understanding on both sides on the challenges faced by many that do not have access to the electronic payment systems we all take for granted.

[ArticMine]

The Fed is obviously going to try to eliminate cash in coming decade or two.  Only terrorists and drug dealers use it anyway.  Just force Bernakie Visa Credit Cards to peoples cell phone and outlaw purchases over $1k in cash like they do in Europe now.

Actually the poorest 30% of the population are heavy users of cash. Are we going to criminalize the poor?

[notme]

I am very familiar with the Visa and Master Card Branded Debit Cards in the United States, and they are an option for some people; however there is still the 17.9% under banked in addition to the 7.7% unbanked so it is still 25.6%. In many countries for example here in Canada bank accounts do not come with Visa and Master Card Branded Debit Cards.

When in mention fees for pre-paid cards it is the card issue fees, maintenance fees, reload fees etc that add up fast. 

Again, no fees on my card, not for issue, not for maintenance, and not for reload.

Also, WTF is "underbanked"?  I'm not convinced that non of those people have checking accounts with debit cards.  I'll give you the 7.7%, but I think you're skewing the numbers in favor of your point.

It is explained in the FIDC Survey. Seriously when I see debates on payment systems on the merit or lack of merit of Bitcoin one thing that strikes me the most is the complete lack of understanding on both sides on the challenges faced by many that do not have access to the electronic payment systems we all take for granted.

FWIW I agree with your conclusions... just trying to bring a little balance to your biased figuring.

[notme]

From the document:
Underbanked households are defined as those that have a checking or
savings account but rely on alternative financial services. Specifically,
underbanked households have used non-bank money orders, non-bank
check-cashing services, payday loans, rent-to-own agreements, or pawn
shops at least once or twice a year or refund anticipation loans at least
once in the past five years.

By that definition, I'm underbanked since I occasionally get money orders from the post office.

You could probably even construe all bitcoin users as "relying on alternative financial services".

[ArticMine]

From the document:
Underbanked households are defined as those that have a checking or
savings account but rely on alternative financial services. Specifically,
underbanked households have used non-bank money orders, non-bank
check-cashing services, payday loans, rent-to-own agreements, or pawn
shops at least once or twice a year or refund anticipation loans at least
once in the past five years.

By that definition, I'm underbanked since I occasionally get money orders from the post office.

You could probably even construe all bitcoin users as "relying on alternative financial services".

I also have on the odd occasion purchased a Money Order at the Post Office, but I do not consider myself "under banked" and prefer to use my 1% cash back Credit Card as much as possible in order to use the 1% rebate to purchase Bitcoins. One can debate if 7% or 30% in United States is the most accurate figure, but regardless this is a huge eCommerce market for Bitcoin. Worldwide 30% is very conservative.

[kjlimo]

I think you have a gold idea.  Brick & Mortar stores selling bitcoins.

One way to make this idea very lucrative is by combining it with pay-day loans.  You could offer cheaper interest rates on bitcoin loans.

This would get bitcoins into the hands of people who are going to spend them as well as give the option for repayment in either USD or bitcoin.

Granted pay-day loans make me feel icky inside, but it's another way to integrate bitcoins into another business model.

[Stephen Gornick]

one thing that strikes me the most is the complete lack of understanding [...] on the challenges faced by many that do not have access to the electronic payment systems we all take for granted.

One thing that is becoming interesting is how some prepaid debit cards are becoming like bank accounts.  You can do a direct deposit transaction to the card (e.g., using Dwolla) for example.

Here's some excerpts of an excellent article:

73 percent of banks acknowledge that there are many un-banked and under-banked consumers in their local communities, but only 18 percent reported that finding a way to serve them is a priority.

94 percent of banks ran credit prior to granting a checking account. About half said that they required a minimum score.

The top reason for using the cards is the fear of an overdraft. Going to prepaid is driven by a distaste for checking accounts.

 - http://banktalk.org/2012/03/20/five-more-facts-about-prepaid

Here's one interesting development.  BTC-Pak now sells MoneyPaks (which can be used for reloading on many brands of reloadable debit cards).  BTC-Pak sells denominations of $100, $250 and $500:
 - http://btcpak.com

[Herodes]

Those people not having a bank account and/or not a credit card, isn't they also less likely to use the internet and less likely to have a smart phone with an internet plan ? I would think many of them lack education as well, so how do we sell bitcoin to them ? Seems like a hard sell to me.

To me it seems bitcoin is best used for online business for now.

[Nicolai Larsen]

Luckily the world ain't the US

[Phinnaeus Gage]

Those people not having a bank account and/or not a credit card, isn't they also less likely to use the internet and less likely to have a smart phone with an internet plan ? I would think many of them lack education as well, so how do we sell bitcoin to them ? Seems like a hard sell to me.

To me it seems bitcoin is best used for online business for now.

It's an easy sell, once you figure out what these people you so describe are actually doing. Do you think these low-lives (my term of choice) sit around doing nothing? They are active! It's with one specific activity, I believe, lies an answer for getting Bitcoin into the mainstream via catering to these low-lying-fruitcakes--gaming. http://www.youtube.com/watch?v=Yn9fTc_WMbo

~Bruno~

[kjlimo]

Those people not having a bank account and/or not a credit card, isn't they also less likely to use the internet and less likely to have a smart phone with an internet plan ? I would think many of them lack education as well, so how do we sell bitcoin to them ? Seems like a hard sell to me.

To me it seems bitcoin is best used for online business for now.

Why do you assume that underbanked have no smart phone with internet?  I'm guessing people find a way of how to get a smart phone before they find a way to get a bank account IMO...