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Interviews, Virtual Currencies

“If Bitcoin Startups Don’t Self-Regulate, Government Regulation Could Get Insane and Hurt the Industry”

[Reading Time: 8 minutes]

Interview with Sebastián Serrano, founder and CEO of BitPagos

One of the highlights of this year for me has been to meet Sebastián Serrano, an unassuming yet deeply intelligent and highly confident young entrepreneur from Argentina who is determined to grab Latin America’s e-commerce and payments system by the horns.  And not let go until it’s completely upside down.  Read on for Sebastián’s insights on the big payments problem facing Latin America, his experience incubating BitPagos in Silicon Valley, and the challenges facing crypto-preneurs.

Juan: Please tell us about your background and how you got involved with Bitcoin.

Sebastián: I’m a software developer and entrepreneur.  Before BitPagos I ran devsAr, a software development company that provided services to technology ventures around the world.  I’ve known about Bitcoin for a few years now. I was initially intrigued by its amazing technology and started mining a little bit last year.  I bought bitcoins for the first time early this year when the price was at around $30, unfortunately not as many as I should have.  I grew up in Patagonia, southern Argentina, and have lived and worked near Buenos Aires for a long time.  I mention this because living in a country with high inflation like Argentina was another factor in my being attracted to Bitcoin.

“We have the opportunity to change how payments work, especially in emerging markets, where currencies are weak and the payments experience is so poor with the current systems.”

Juan: I understand. Something similar happened to me as well.  What was the eureka moment, the spark, that led you to found BitPagos?

Sebastián: I was initially drawn to Bitcoin from the technology perspective and started following it as I do with many other technologies.  This past February, however, I attended the second Bitcoin meet-up in Buenos Aires, which attracted a lot of people with a wide range of backgrounds.  When listening to these people asking all kinds of different questions, looking at Bitcoin from so many different vantage points, I had the gut feeling that it was going to be big, especially in countries like Argentina where (a) the economy is unstable and the currency loses its value at a very high rate, (b) financial institutions are traditionally pretty poor at providing payment services, and (c) there’s a considerable high degree of Internet penetration.  With BitPagos we are building merchant services that leverage Bitcoin to give merchants lower transaction fees, better exchange rates and faster payments.  Also, as we build our network, we will provide people with a means to pay online, thus filling a huge gap.  In Latin America only 10% of the population has credit cards, so there’s a massive opportunity for disrupting online payments.  Our team is working hard to combine its expertise in payments standards with its deep knowledge of the region.  We believe that’s going to give us an edge.

Juan: You spent the summer incubating your startup at Boost VC.  How did that come to be, and what was that experience like?

Sebastián: After founding my company in Argentina, I came to the US and met with some key players in the Bay area around the time of the Bitcoin Conference in San Jose last May.  Those contacts led me to Boost.  The experience was amazing!  Boost is run by a group of very high quality people who really care about the startups they accept and accelerate.  Being part of Boost helped us by increasing our network of mentors and contacts, and by teaching us many important topics relevant to running a technology startup.  What was even more interesting is that Boost had a focus on Bitcoin for the summer batch, which made the experience even more exciting, as we were working with many other Bitcoin companies trying to solve similar problems in a year that has been very interesting for Bitcoin.

Juan: What’s amazing to me is how fast you were able to develop the software and give shape to the venture. Tell us more about the experience, please.

Sebastián: Well, let’s say it was an intense summer!  Boost provides housing in a remodeled hotel across the street from a joint workspace on 3rd Avenue in San Mateo, CA, so during those three months there were very few distractions, as we were literally within walking distance from the office.  The program’s mentors are seasoned entrepreneurs or well-known investors who provide great insights.  The program also includes talks by amazing entrepreneurs such as Tony Hsieh of Zappos, and Logan Green of Lyft and many others.  The talks were very well timed to the development phase of the startups and covered key topics like tracking metrics, handling PR, legal, fundraising, pitching, etc.  The program ended with Demo Day, the day when all startups present their projects in front of a room full of Silicon Valley VCs and investors.  That helps a lot to kick-off the fundraising process.  If you’re interested to know more about Boost VC, my co-founder wrote about this experience in Quora.

“At some point banks will come to the realization that Bitcoin’s risks can be managed, and will start accepting crypto-companies or using it themselves.”

Juan: You mentioned the great opportunity for innovation in payments in Latin America.  Please tell us more about the opportunities you see for BitPagos, in particular, and for virtual currencies in general.

Sebastián: We have the opportunity to change how payments work, especially in emerging markets where currencies are weak and the payments experience is so poor with the current systems.  For example, when merchants in Argentina process an international payment, because of the fees, the exchange rate and slow technology, they end up losing between 25% and 50% of the value paid by the customer, which is astounding.  By using Bitcoin as the settlement currency, we can lower transaction fees, give better exchange rates and make payments faster for merchants.  With respect to consumers, when they pay with Bitcoin, they don’t expose their personal information to theft, so their identity is protected.  BitPagos gives customers the assurance that they are transacting with a legitimate business.  BitPagos (and Bitcoin in general) provides access to online payments to people anywhere in the world who would otherwise be unable to access the online economy.  As I said before, in Latin America, our primary market, only 10% of the population has credit cards, which is currently the primary means to pay online.  That means that 90% of people are unable to pay online.  E-commerce is poised to grow enormously with Bitcoin and payment processing services like BitPagos.

Juan: Let’s talk about the so-call ‘unbanking’ problem –the denial of banking services to money transmitters, as many crypto-currency operators have been designated by the US federal government.  For those still unaware, increasingly, financial institutions are denying access to their services to all kinds of virtual currency ventures.  Have you had trouble obtaining bank accounts?  What will it take to convince traditional financial institutions to partner with BitPagos?

Sebastián: As with any MSB (money services business), this is a difficult issue that is unfortunately more difficult for Bitcoin companies, given the emerging nature of the technology and its potentially disruptive power.  Banks are still learning about it and I think that the perceived risks are higher than the actual ones, so at some point they’ll come to the realization that Bitcoin’s risks can be managed, and will start accepting crypto-companies or using it themselves.  In fact, I would venture to say that when traditional financial institutions realize that Bitcoin’s risks are manageable, that will give Bitcoin a shot at success as a mainstream technology.  Also, I believe that Bitcoin startups need to self-regulate.  If they don’t, government regulation could get insane and hurt the industry’s potential.  For us, it has been helpful to have been backed by well-known investors, and to have been part of Boost.  But it’s also key to have good documentation explaining your business, how your processes work, and where you stand on regulation, which for payment processing companies like us is simpler than for exchanges.

“When traditional financial institutions realize that Bitcoin’s risks are manageable, that will give Bitcoin a shot at success as a mainstream technology.”

Juan: I don’t disagree with you that the risks are manageable.  The question is whether the banks get to understand it soon enough.  What is your approach or philosophy with respect to compliance and risk management (if you have any)?

Sebastián: With regards to compliance, we are working with lawyers and advisors to be compliant on every aspect of our business, and we work hard to keep abreast of changes as they occur, which we expect to be numerous in the coming months.  Risk management is key for our business and the entire industry’s long-term success.  We check and validate each of the merchant clients that utilize our platform, we have many systemic limits in place for transaction processing, and we assess the risk of every single transaction.  We are committed to ensuring that our platform is safe and secure and that everybody has a positive experience.  We invest a lot of time and resources on security, which sadly hasn’t been the norm for the industry.

Juan: What keeps you up at night or which are your top 3 priorities?  What challenges lie ahead for BitPagos and for virtual currencies in general?

Sebastián: What keeps me up at night is growing and growing and growing.  Seriously, as with any startup, listening to your customers and learning how to better serve them is always the top priority.  The rest falls from there.  Any technology startup has to be obsessed with the product-market fit, if it is to survive.  And this also applies to virtual currency ventures in general.  The more mainstream Bitcoin becomes, the better for all.  Just imagine how different the approach of Washington politicians would be if they all owned bitcoins and if the entire world used Bitcoin.  If Bitcoin has a few niche use cases and is hard to use, it will be an easy target. It’s very encouraging to see so many entrepreneurs like us working on startups that are making Bitcoin reach larger audiences, and so many good investors backing the industry.

“Just imagine how different the approach of Washington politicians would be if they all owned bitcoins and if the entire world used Bitcoin.”

Juan: I understand you’re going back to Argentina soon, and you’ll be participating of the First Latin American Bitcoin Conference in early December, where I’ll also be a speaker.

Sebastián: Yes, I’m speaking in the LatAm Startups panel, and am very involved with the conference, to the point BitPagos is processing payments for the tickets!  Is going to be a great conference with many international speakers and I hear it’s almost sold out.  I encourage everyone reading this to try to attend.  The conference website is http://www.labitconf.com/.

Sebastián can be reached at sebastian@bitpagos.net.

Empanadas en Times Square

Sebastián Serrano, JoAnn and Rodrigo, fellow crypto-preneurs, and the blog’s author enjoying empanadas in Times Square

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About Juan Llanos

Innovative compliance, operations and technology executive leveraging emerging technologies, management and leadership best practices (and, above all, common sense!) to empower businesses and compliance professionals for success.

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