Corporate giants among BitLicense commenters: Western Union appears scared of bitcoin, Walmart and Amazon unfazed
Despite the obvious stress and uncertainty created by the still evolving BitLicense regulatory situation, one positive that has come out of the process has been the public dialogue throughout the lawmaking process. As we’ve covered previously, the New York Department of Financial Services (NYDFS) has taken an open approach to this lawmaking exercise, soliciting feedback and input from crypto-currency entrepreneurs and investors, large retailers, financial services companies, law enforcement, and other regulatory bodies.
Earlier today, the NYDFS published the more than 3,700 comments it received over the last four-and-a-half-months. Many, including those by prominent bitcoin organizations like the Bitcoin Foundation, BitPay, Circle, Coinbase, Xapo, Ripple Labs, BTC China, Boost VC and others, have already been published by the companies themselves. But today, for the first time, we get a look into the thoughts and concerns of a number of very large companies, including Walmart, Amazon, and Western Union, that seemingly have nothing to do with virtual currencies..
While each of the above corporate giants have concerns with the initial BitLicense proposal, they come at it from one of two very different perspectives.
Walmart and Amazon’s comments reflect a similar fear that their own captive financial products, like gift cards and closed-loop digital payment solutions, might be caught up in what Amazon describes as the "broad definition” of virtual currency under this proposal. Neither has much concern for the operations of bitcoin-focused startups, or for the risk that virtual currencies might introduce to the financial system. Walmart was explicit in its request, writing:
Walmart ideally would like to see something that clearly says gift cards aren’t included – like referencing state statute that defines gift cards – which I have included below:
-- N.Y. Abandoned Property Law §103
"Gift certificate" shall mean a written promise or electronic payment device that: (i) is usable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo, or is usable at multiple, unaffiliated merchants or service providers; and (ii) is issued in a specified amount; and (iii) may or may not be increased in value or reloaded; and (iv) is purchased and/or loaded on a prepaid basis for the future purchase or delivery of any goods or services; and (v) is honored upon presentation.
So maybe a simple statement that “gift certificates as that term is defined in NY Abandoned Property Law §103 are not considered to be Virtual Currency” tacked on to the part where they call out “affinity or rewards” programs would be perfect. Amazon echoes this request for clarity in the scope of virtual currencies, noting that the BitLicense proposal already contains exemptions for “virtual currency used solely within online gaming platforms and virtual currency used exclusively as part of a customer affinity or rewards program that can only be applied towards purchases from the issuer or designated merchants and cannot be converted into or redeemed for fiat currency.”
Western Union, on the other hand, very obviously fears direct competition from bitcoin and other virtual currencies in its core business of money transfer and remittance. Not surprisingly, then, in its comments – which are far and away the longest of the three – the company seeks to ensure that bitcoin businesses are regulated as stringently as possible. For example, it asks the NYDFS to include bitcoin ATM “kiosks” under its BitLicense umbrella, writing:
We believe that the types of activities that are conducted at Kiosks—for example, buying and selling virtual currency, including that which uses the Kiosk operator's own inventory of virtual currency—clearly fall within the definition of Virtual Currency Business Activity and should require a VC License. The regulatory regime should establish a level playing field between transactions conducted at Kiosks and other transactions conducted with a licensee. Accordingly, we request that the DFS clarify that only VC Licensees will be permitted to establish or operate Kiosks and, accordingly, that the operations of Kiosks will be subject to consumer protections and AML requirements.At the same time, Western Union would like to ensure that its business is exempt from any further regulation. (It seems the company is hoping the NYDFS ascribes to the “devil you know” school of risk management.) It writes:
We are concerned, however, that the approach suggested in the Notice does not clearly address the interaction of VC Licensees with New York money transmitter licensees (each, a "MT Licensee") or provide enough clarity regarding select requirements applicable to VC Licensees, including the AML [Anti Money Laundering] requirements. ...
We urge the DFS to expand this [BitLicense] exemption to include MT Licensees that accept virtual currency as a funding source for money transfers, as described in the following example, and that the DFS has determined have requisite policies and procedures in place to address the risks relating to the acceptance of virtual currency as a funding source for a money transfer ...
The DFS would not gain any additional useful information by requiring Western Union to apply for a VC License under proposed section 200.4 for the limited purpose of accepting virtual currency to fund and pay applicable fees for money transfers. Given the respective business interests of Western Union, Amazon, and Walmart, none of the above responses should be overly surprising. But it's an opportunity for the public to get a glimpse into the political jockeying and power dealing that typically occurs behind the scenes.
One thing that stands out in each of the letters is a sense of general entitlement and a matter of fact expectation that these requests will be headed. On the other hand, many of the bitcoin startup comments seem to have a respective sense of fear and uncertainty as to how this process will unfold and how the resulting BitLicense proposal will affect their business. Then again, Coinbase and Circle don’t generate tens of millions in tax revenue or donate hundreds of thousands to political campaigns.
Even in the bleeding edge world of virtual currencies, legacy institutions and power dynamics still die hard. The real test will be to see how the BitLicense changes from Version I to Version II. Sadly, the smart money is not on the scrappy startups.