Pando

Braintree CEO: We want to offer the best payment experiences, and bitcoin is part of that

By Michael Carney , written on September 9, 2014

From The News Desk

After months of speculation and rumor, yesterday Braintree announced that it will begin accepting bitcoin payments through a partnership with Coinbase. The PayPal-owned mobile payments platform works with companies like Uber, AirBnB, TaskRabbit, and HotelTonight, meaning consumers could soon transact on these platforms using bitcoin. And thanks to Braintree’s recently launched “future proof” V.Zero SDK, which includes PayPal integration, this new functionality is effectively aimed at PayPal’s millions of global merchants as well.

But beyond this high level announcement, there are a number of questions that remain unanswered. For example, why did Braintree elect to partner with an outside platform in Coinbase, rather than build out its own proprietary bitcoin experience? And, given the low-fee nature of bitcoin transactions, what will this decision mean for Braintree’s (and PayPal’s) bottom line? – a particularly important question as bitcoin transaction volume increases and discussions continue about spinning PayPal out of eBay as a standalone public company. And, lastly, after a lengthy period of non-commitment from management, why did Braintree decide to finally pull the trigger on this now?

I caught up with Braintree CEO (and the internal favorite to take over as PayPal CEO) Bill Ready yesterday following the announcement. Below is a Q&A from that conversation, lightly edited for clarity:

Pando: Tell me a bit about the strategy behind this announcement. Why did you decide to go the partnership route and why was now the time to roll this out?

Ready: The thing we’re most interested in is being the platform to give developers and merchants access to the most sophisticated payment tools available. That doesn’t mean just enabling payment experiences internationally and through our own wallet, but also through third parties where appropriate. I have been following bitcoin for quite a long time. It’s still very early, but it seems like over the last six months a lot of the regulatory and compliance issues have started to be sorted out.

Coinbase has a lot of philosophical alignment with Braintree and PayPal. They are the only player offering a great payment experience on both the consumer and the merchant sides of things. They’ve handled all the complex compliance issues well. We just felt that this partnership would allow us to deliver the kind of buying experience that we believe is important. Also, there are other good companies in the space but Coinbase seems to have the most traction of anyone.

Pando: Was there ever a conversation about building out a bitcoin product internally?

Ready: Braintree is an open platform. We care less about building it ourselves, than we do just about giving people access to the best payment experiences. For example, we don’t really care if merchants accept Visa or Mastercard or AMEX. We’re happy to enable them all. We think of bitcoin like another payment network and the best way for us to offer our merchants access was to work with a partner like Coinbase. Thanks to the V.Zero SDK, merchants and their developers only need to do one integration, which involves just a few lines of code, and they can opt to accept bitcoin. [Editor’s note: Merchants also need to sign up for a Coinbase wallet account (as do consumers) but don’t need to do any additional technical integration beyond configuring Braintree’s V.Zero SDK.]

Pando: What is the financial impact of your decision to partner rather than build? I assume you’ll be sharing fees in some fashion with Coinbase, but bitcoin fees are already much smaller than credit card processing fees. Is that accurate?

Ready: First of all, from a merchant perspective, pricing here won't change from what Coinbase has offered previous, which is a fee of 1 percent of the value of each transaction. We made it so that the merchant sees one price, and only needs to do one integration.

On the back end, we worked with Coinbase and figured out how to deal with sharing these fees, and sharing the fraud protection and compliance expenses. I can't disclose any more than that.

Pando: Will Braintree or PayPal earn any more or less on bitcoin transactions than it does on traditional credit card transactions? And by that token, if bitcoin transaction volume explodes in the future, what impact will that have on PayPal’s business?

Ready: Our public pricing has always been 2.7 percent plus $0.30, but most of that goes out to interchange and legacy payment platforms. [Editor’s note: There can be upwards of ten such participants in each transaction, making margins on payment processing surprisingly thin.] We looked at this market closely and we think, yes, bitcoin's in its early days, but there's a viable business model around this as well.

It’s still very early. We’ve been on the record as saying that we believe mobile will be the dominant platform for commerce in the next few years. I don’t think bitcoin is moving that fast. In ten years? Sure, maybe. But like I said, we think there’s a viable business here.

Pando: There seemed to be some mixed messages coming out of eBay, PayPal, and Braintree over the last year plus about whether bitcoin would eventually be adopted. In particular, eBay CEO John Donahoe and former PayPal CEO David Marcus often seemed to contradict one another. How much of a fight was this internally and how long has it been clear that this project would move forward?

Ready: I spent a ton of time with John before the deal to sell Braintree to PayPal, and during that time, we talked a lot about what the next decade of commerce would look. There was a lot of alignment there. I think you’re seeing things move fast now externally, because we talked about this stuff a year ago before the deal happened. We’ve always had a very good line on this. I think bitcoin falls within the Braintree bailiwick of giving merchants and developers access to the most sophisticated payment tools. John has been on the record in the past expressing the same belief.

Like we said when we announced our new V.Zero SDK this summer, we view this as future-proof. I think today’s announcement, like One Touch a few weeks ago, are the first tangible examples of that. You’ll see a lot more from us in this regard as we continue to focus on delivering the best payment experience possible.

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Braintree’s decision to adopt bitcoin could be a major inflection point for the crypto-currency and for the payments world at large. The company follows prominent merchants in Expedia, Overstock, Tiger Direct, and Dell in accepting bitcoin through Coinbase. But save for Coinbase itself, Braintree together with PayPal could quickly become the world’s largest enabler of bitcoin commerce. Braintree competitor Stripe is currently beta testing its own bitcoin support.

Surprisingly, the announcement had little effect on bitcoin prices, which are mired in a mini-slump, having fallen from a period of stability between $600 and $650 in June to sub-$500 levels for much of the last month. The Coinbase Bitcoin Price Index was at $472 when Ready announced the Braintree integration yesterday around 1pm PST, and subsequently dipped as low as $464 overnight before rallying to current levels of $469 as of this writing.

With every merchant that begins accepting bitcoin, a bit more selling pressure is added to the marketplace, as most choose to instantly convert any bitcoin received to fiat currency. The only thing that will reverse this trend and stabilize or even increase the bitcoin price will be a commensurate increase in buying and trading activity. The visibility and credibility added by Braintree’s involvement, along with the potential adoption of bitcoin by Uber and its other clients, should go a long way toward driving this activity.

eBay shares, on the other hand, seem to be responding positively to the news. After closing trading yesterday up nearly 1 percent at $54.24, the stock gapped up in early morning trading today and currently sits up 0.68 percent on the day at $54.60.

As Ready said above, it’s still early days for bitcoin, and likewise we’re in the early stages of this Braintree integration. It will likely be several months before any Braintree merchants roll out their bitcoin adoption publicly. Until then, the impact of this announcement will be largely rooted in perception.

Braintree, and by extension PayPal, come out of today looking hip and progressive, something that is crucial in the highly-competitive and increasingly developer-driven world of payments. Bitcoin, on the other hand, looks slightly less risky and anti-establishment than it did coming into the day, which will be a welcome outcome for everyone hoping that this virtual currency experiment will soon go mainstream.

Bitcoin has long been hailed as a simple and inexpensive alternative to traditional payment options. If Braintree views itself as the enabler of the future of payments, something Ready has expressed throughout the life of his company, then it makes sense that bitcoin would be a part of that solution. And if we’re to take him at his word that the business case for this adoption makes sense, this could be the kind of win-win that is rarely seen when new disruptive technologies bump up against established players.