ORLANDO, Fla. — Virtual currencies such as Bitcoin are largely viewed skeptically by credit unions as a potential threat, but at least one person sees some opportunities for revenue.
Todd Erickson, COO at First Flight FCU in Cary, N.C., forecast at least 10 revenue streams that could develop for credit unions and CUSOs in the years ahead. But those opportunities will need to wait for clarification on numerous questions related to virtual currencies, not the least of which are regulatory concerns.
One of the first questions many CU execs continue to have: What, exactly, is Bitcoin? Erickson, who is a member of the Regulatory Affairs Committee of the Bitcoin Foundation, told the NACUSO Annual Meeting here that Bitcoin is a "purely peer-to-peer version of electronic cash that allows online payments to be sent directly from one party to another without going through a financial institution." But that's "Bitcoin," which isn't to be confused with "bitcoin," with a lower case "b," which is a "digital currency unit."
The Bitcoin payment network is based on open source code and is considered "fully transparent," in that every single Bitcoin transaction is available online, although it's anonymous.
But that transparency has not meant no problems, the biggest of which is bitcoins are nothing more than software code, and software has bugs and can be hacked. In the biggest problem to date, 550,00 bitcoins owned by the bitcoin exchange Mt. Gox, remain missing, representing an estimated $473 million. Other problems with bitcoins include the lack of any recognition by any government as legal tender and the fact the currency can fluctuate widely in value.
Nevertheless, those obstacles haven't kept Bitcoin from surpassing Western Union in funds volume or from nipping at the heels of Discover and Paypal, according to Erickson.
For merchants, currencies such as Bitcoin appeal because there is no interchange expense. Overstock.com, for instance, estimated that in the first 50 days it began accepting bitcoins it saved $22,000 in interchange, a process that removes credit unions from the picture.
"Bitcoin allows the publicly verifiable transfer of the ownership of an asset or fractional portion without requiring a trusted third party," Erickson said.
As credit unions are the "trusted third party" in the equation, how do they prosper if they're no longer part of the equation? While much is still to be worked out, Erickson encouraged credit unions and CUSOs to begin preparing now to offer related compliance services (AML, KYC), ATMs and support services, digital current consulting and education, exchanges and currency services (a strong option for CUSOs), digital payments services, digital currency technology consulting, vault services (backing up the e-currencies), core banking integration, mobile wallet/web wallet services, and remittances services.
Erickson pointed credit unions to the Federal Reserve, FINCEN, the IRS, and the GAO for early guidance on e-currencies.
