Digits.io CEO Ben Way discusses spending cryptocurrencies with your everyday credit and debit cards. They have been working on ways to easily spend cryptocurrencies in everyday retail situations without the need for merchants or vendors to actively participate in the crypto space. Their technology is currently in a testing beta phase.
James West: Hey, crypto kids, welcome back to Midas Letter Live! My guest in this segment is Ben Way, who’s the CEO of Digits.io. Ben, thank you very much for joining me today.
Ben Way: Good to be here.
James West: Ben, where are we talking to you from today?
Ben Way: I am in sunny Miami.
James West: Ah, beautiful. I love Miami! Ben, let’s start with an overview: What does Digits.io do?
Ben Way: So we’ve come up with a solution to really help people spend in crypto. So Digits is all about turning the existing debit and credit cards into crypto cards, so that simply means that you can come to our site, type in your credit card number, connect it to your, say, CoinBase account, and then when you swipe that card in a merchant, that transaction can actually be a crypto transaction. And then we have some magic on the back end that is very, very interesting, which turns that actually into a crypto loan, and does some pretty cool things like, you know, tax issues from a short-term taxable event into a long-term taxable event, saving you up to 30 percent of the transaction value, and also allowing you to pay off your transaction in FIAT a year down the line. So it allows you to actually hedge against the market.
James West: That’s very cool. So you can arbitrage your crypto while you’re at it?
Ben Way: Indeed, indeed. And you know, that part of it seems complex, but from a user’s point of view it’s very, very simple.
James West: What merchants currently allow the use of your card?
Ben Way: So we’re, I mean, our technology is in vitae right now, so we’ve done an internal test of the technology, but we’re not, we’re not fully launched yet.
James West: I see. Okay, then what is the cost to use the card, and how is that paid for?
Ben Way: So one of the really nice things about the way we’ve put the structure of Digits together is that we use the existing Visa or MasterCards, or they call it the rails of Visa and MasterCard, we use existing rails of Visa, MasterCard, Amex, which means that there’s actually quite a lot of transaction value that is actually pushed to the merchant. So we’re trying to keep – my ideal goal is that the cost of the card is actually zero and that all the transaction costs come from the merchant, eventually. But on our launch, we’re thinking around 1 percent transaction fee, which obviously is very low compared to getting it out of an exchange or transacting in set.
James West: Sure. What is the time it takes, let’s say, just for as an example, let’s say I buy a jeans on Lincoln Avenue there in Miami and I use my crypto card. What’s the latency between the time that the card actually transforms it into a crypto transaction, and the time that the transaction is actually, its crypto value is determined against the network upon which you were actually going to buy and sell the transaction?
Ben Way: That’s a very good question. So when we came up with this fundamental concept of being able to turn any credit or debit card in the world into a crypto card, we still were then left with the two largest problems in crypto payments, which is volatility and network transmission time, which basically means that a merchant wants to get paid the amount they’re expecting at the time they’re expecting it, and we had to solve that problem. And we actually solved this by coming up with a new financial instrument with a hedge network. And the hedge lending network basically solves those two problems for us. So we actually take the risk out of the transaction through the merchant and put it into the hedge lending network.
So when you swipe that card in that jeans store, from the merchant’s point of view, not only do they get exactly what they’re expecting in FIAT, in real time, but they also get it as a Visa or Mastercard transaction on their end. So from a merchant’s point of view, they actually never know you’re paying in crypto. We kind of process that before the transaction hits.
James West: I see. And so, in terms of compliance with, you know, banking rules and money transferring rules, are you envisioning this being able to be regulated by, say, FINRA or FINTRAC?
Ben Way: Yeah, certainly we are, and depending on the jurisdiction, we are required to comply with a number of regulatory and compliance issues etcetera, etcetera. However, we’re very lucky that we come from a payments background. We come from a traditional payments processor that already processes millions and millions of dollars on Visa and Mastercard networks, so we know that regulatory environment very well, and I think that’s kind of an important thing to note how we’re quite different, is that a lot of crypto companies are kind of, you know, basically saying “Screw Visa, Mastercard, crypto is going to replace them,” but we take a very different view: which is that Visa and Mastercard and Amex have, you know, these amazing networks that are used for the majority of transactions in the United States and the world. And we feel like we’re the bridge between the Visa and Mastercard networks and the new crypto feature.
So we play very nicely with Visa and Mastercard, and, you know, our team comes from Visa, ApplePay, PayPal, you know, we know this market very well, and on a finance level, you know, we’re pretty confident.
James West: Interesting. So then, how soon do you envision until this sort of platform is widely available, let’s say, starting in the United States?
Ben Way: Yeah, so we’re actually running six months ahead of where we thought we would be on the technology. We’ve now proven the end-to-end transaction of the technology, and we’ve also got the hedge lending network platform operational, which actually you can go and have a play with at hedgelendingnetwork.com. Obviously at the moment, you use demonstration data, but it’s an actual real functioning marketplace, and we believe it is the first real-time lending marketplace in the world. And so we’re pretty proud of that.
So, you know, in terms of timelines, we expect our launch with the technology around September, and then we expect early next year to really roll out the technology slowly.
James West: Interesting. And you’re financing all this through an ICO?
Ben Way: Indeed, indeed we are. The ICO for us has been an incredible journey. You know, I’ve been raising capital for almost, over 20 years; I’ve raised capital traditionally, friends and family, venture, late venture, crowdfunding, venture crowdfunding…so I see the ICO process as being a fascinating process. I think it is a model that will become a future way of raising capital for early-stage companies. I certainly wouldn’t say that it’s the easy way to raise capital, especially not now, because you know, you have to put your own time and effort and thought into everything you’re doing, especially on the legal compliance side. You know, we treat our ICO as a public company; I treat this company as a public company, because it is a publicly available security, and we treat all our takings (phon) as securities and, you know, we’re trying to do it properly, trying to build a really long-term valuable company, and that’s what we’re aiming for.
James West: So, is your ICO under the purview of the SEC at this point?
Ben Way: Well, I mean, certainly in the sense that it’s a security and the SEC regulate all securities. You know, we very much see ourselves as a security, as the SEC does. We have, you know, an incredible law firm, and our new lawyer is an SEC expert. Everything we’re doing is very transparent and open and traceable, and we’re like everyone, you know, explaining that investment is not without risk and that you should always be very careful before investing in anything and certainly never invest more than you can afford to lose without any impact on your life whatsoever.
I sometimes joke with investors that if they’re, you know, considering investing in anything, not just an ICO but an early stage company, you know, if you’re not prepared to go and put that cash in the middle of the garden and set a light to it, then you probably shouldn’t invest. You know, early stage companies are high risk. They fail, and you know, a lot of people talk about, you know, well, 80 percent of ICOs fail. And I’m like well, that’s quite incredible given that about 96, 97 percent of all small and medium sized businesses fail at some point. So you know, you’ve got to look at the wider picture in that sense.
But, you know, on the other side, if you have capital and you want to see outsize your talents, then ICOs are a good possible route to that outcome.
James West: Sure. Finally, Ben, I’d be interested in asking you: so, you’re raising capital to fund this venture through an ICO, which means that investors put up crypto, correct?
Ben Way: Crypto, or it can be FIAT. I mean actually, a lot of money does come in through FIAT, but yes, we get a lot of crypto as well.
James West: So, have you found the requirement to convert crypto into FIAT currency to fund operations, or are you getting a sufficient ratio of FIAT currency that that has not been an issue?
Ben Way: No, certainly that is an issue, and will become more of an issue. We’re in pre-ICO, so we’ve raised a good chunk of capital, but, you know, once we start raising tens of millions, then if we hold that in crypto, that is a significant risk that we will want to de-risk.
James West: Sure. Are you planning to do a listing as a publicly traded company in the United States?
Ben Way: As in terms of doing a IPO or –
James West: Well, like listing on NASDAQ. You can list without doing a public offering if you’ve already capitalized yourself.
Ben Way: Yeah, I mean, you know, depending on which side of the crypto argument you sit, I mean, a lot of people say that, you know, the reason why ICOs exist and the reason why the ICO market exists is because it is a more efficient version of the public markets. However, obviously there is a huge amount of capital in the public markets, which will probably transition slowly over the next decade or so. But yeah, I mean, we would take that on advisement at the time of the market, the market conditions, but you know, an IPO at this point would be five years out.
James West: Okay. So then, if I was interested in participating in your ICO potentially as an investor, what assurances, or what mechanisms are in place so that I am confident that you’re not just raising capital and squandering it?
Ben Way: Yeah, I mean, what I would say, quite frankly, is that you have to look at the project and you have to do your due diligence. Look at the team, look at the technology, look at, you know, whether you feel the investment and the team can deliver the product they’ve promised. That is the risk in any business, whether it be an ICO or non-ICO or early-stage startup; you have to take a risk, and that is why, you know, unless you are prepared to lose the money, you should not invest. It’s not because, you know, in the best world of the world, businesses fail for reasons outside of their control.
You know, I have helped probably 200 businesses get to product market fit over the last 20 years, and I would say 30 percent of it’s timing, 30 percent of it is luck and 40 percent of it is skill. And, pretty much all those things have to be right to get an amazing business, an outstanding business, off the ground. You know, it’s just part of the risk profile.
You know, from our ICO point of view, I think if you look at the team and you look at what we’ve built already – you know, we have a compelling proposition that, if successful, should deliver a lot of value to investors.
James West: Okay. If I’m an investor in a startup company that is regulated by public markets, in other words, that raises capital through the traditional market – and I’m only asking you this, I’m not trying to sort of pigeonhole you or corner you or anything, but I just want to know that – so, in that respect, I have the benefit of the financial reporting mechanism to follow the progress of the company I invest in on a quarterly basis. Will you provide financial reporting to your investors?
Ben Way: Yes, absolutely, and you know, what I think is really important to differentiate a public company, which is retail investors which I have much lower risk, incredibly low risk, and treated very differently by the SEC because it is public retail money. But what we’re talking about, whether you invest in an ICO or an early-stage startup, the risk is the same from a regulatory point of view. I have a fiduciary duty to every single shareholder or owner of value within my organization to do the best I can do for the company. That is true for any early-stage startup. But unless you’re investing in public companies which is, I think, a very different risk profile, the risk whether you invest in an ICO or an early-stage startup is exactly the same.
The challenge is that the ICO market, because it’s overheated recently, has created a lot of bad actors in the marketplace who have taken, you know, huge amounts of capital in the market.
James West: Well, Ben, that’s fascinating. We’re going to leave it there for now. I thank you very much for your participation. We will come back to you in due course and follow the development of Digits.io throughout the year. Thanks for joining me.
Ben Way: Thank you.
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