Finance Monthly November 2019 Edition

A good starting point is to recognise that money is not what it was, quite literally. Cryptos such as Bitcoin, Ethereum, Bitcoin Cash and Gemini Dollar are quickly changing the paradigm for payment. They are also now on a pathway to mainstream use. This process is being driven by the development of apps and platforms to make it easy for people to pay instantly in digital currencies. So how far should a business go in what is still an evolving, volatile world where valuations fluctuate and conversion processes are tricky? It seems wise to set boundaries: not to invoice in crypto or manage conversion into fiat currency, for example. This means finding a reputable intermediary. Despite the lack of regulation, some benchmarking is possible, such as discovering what regulations different potential intermediaries submit themselves to. There is regulation in New York, for instance. There are also wider questions, given the digital nature of cryptos. How do those handling transactions protect data? What volumes of money do they move and where? How does their cost model fit into your own system for payments? It is also important to assess potential partners for their own stability and standing, including their relationships with banks and institutions that are in that world. This is all necessary because cryptos remain created, held and traded without any underpinning by governments. They exist without the regulation and transparency typical of a state-backed fiat currency. There are also tax issues. Although cryptos can be a currency, they are treated by most tax authorities as securities and should be declared accordingly. This means potential capital gains liabilities for those who hold and trade in them, and VAT issues if the crypto token is attached to an underlying service. Beyond that broad definition, there is regulatory fog. Rather than wait for that fog to clear, it makes sense to apply some common-sense standards now, including anti-money laundering and customer ID requirements, to help avoid problems later. Is it worth getting involved with cryptos at all at this stage? The answer to that will depend on what the business does. For example, the instant, borderless payments enabled by cryptocurrency can be an advantage for businesses that trade globally, particularly those with an e-commerce platform. Cryptos are also not bound by a single country’s exchange rate or even location, making it easier for companies entering a global market to accept payments from anywhere in the world. They also avoid banking transaction charges. It is perfectly possible to set up digital wallets and accept crypto payments directly. But that means also accepting all the associated risk and technical know- how required. Few businesses will want to get that involved in the infrastructure associated with holding the coins, let alone working out what they are worth at the crucial moment an invoice is raised. Fortunately, there are now a number of well-regarded exchanges. These largely absorb the risk of accepting digital payments and make the necessary transfers, including translating the crypto into the fiat amount billed. BitPay, for example, is a payment processing provider that converts a traditional fiat currency fee into a bitcoin equivalent as soon as it is issued. The bitcoin price is then fixed for 15 minutes before being automatically renewed using the same process, something necessary because of value fluctuations. The invoicing firm then receives its payment electronically through BitPay, but as fiat money. The advantages for the invoicing business from using a reputable provider are reduced risk and the likelihood of prompt payments as clients respond to the 15-minute conversion windows. Is it all worth the trouble? Just as the way we transact money is changing rapidly, so is the nature of it. For some firms it just makes sense to engage with the future of money now, building knowledge and expertise carefully and organically through experience. My firm is proud to be among them. 45 www.finance-monthly.com FINANCIAL INNOVATION & FINTECH - CRYPTOCURRENCIES