Gaining Social Acceptance

Social acceptance leads to mainstream adoption

Bitcoin isn’t mainstream yet because it is confusing. People don’t understand it much less know how to use it. Like email, to get people to adopt Bitcoin, they don’t have to understand the underlying technology, they just need an easy interface through which they can use it. Coinbase has built such a product; it now needs to get the general public comfortable with transacting with bitcoin. Coinbase needs to get people comfortable with 1) transacting in digital payments, 2) linking up their credit or debit card to a mobile app (to transact in bitcoins), 3) understanding bitcoin.

Broaden appeal through Venmo

Image: Venmo

Venmo is the perfect conduit for Coinbase to build social acceptance for bitcoin, and ultimately, bring it mainstream. Venmo is the popular social and mobile payment tool that has a large, dedicated and young user base. Venmo allows users to transfer money to each other seamlessly and enables them to publicly broadcast a description of the payment, making the interaction social. In some ways, Venmo is similar to Bitcoin — peer to peer transfer of money with all transactions documented on a public ledger.

Image: Venmo

BrainTree’s CEO Bill Ready sees Venmo as an easy first step to get users accustomed to mobile payments. Venmo users have already 1) transferred payments digitally from peer to peer and 2) linked up their credit or debit card to their Venmo account. The next step is exposing them to bitcoin.

Coinbase complements Venmo’s and BrainTree’s current strategies

Venmo currently collects revenue from a 3% processing fee on credit card transfers; however, receiving money is free. Venmo reportedly processed over $700mm of transactions in Q3 2014, up from $141mm a year ago. This is just a small slice of the mobile payments industry. A 2013 Forrester Research report estimates Americans will spend $90bn in mobile payments by 2017, compared to $12.8bn in 2011.

However, Venmo has stated it will not implement ads into its social payment summaries stream and not seek to monetize its p2p transfer network. Instead, it charges merchants. BrainTree’s umbrella strategy seeks to design a system for startups to accept and process mobile and web payments through whichever payment tool most relevant and useful for them. By enabling bitcoin transactions, Coinbase opens another channel for merchants to join BrainTree’s ecosystem. Coinbase can also help Venmo monetize its asset base without interfering with its p2p network.

Image: BrainTree

Coinbase can further monetize Venmo users

Image: Bitcoin.IT

Venmo users already have money “stored” on Venmo. This is the amount in each users’s digital wallet and the locked up asset Coinbase needs to target. Coinbase can launch a campaign to onboard digital-payment-primed Venmo users to using bitcoin through Venmo’s social feeds, similar to WeChat’s Red Envelope campaign. Coinbase can allow users to convert money in their digital wallets to bitcoins to pay friends or make discounted purchases at in-network bitcoin merchant vendors. Through Venmo’s social scroll of payments, mentions of bitcoin could increase user engagement and exposure, drawing familiarity and broader social acceptance.

Merchants save on electronic transactions with bitcoin. BrainTree offers flexible payment tools to its merchants. With more users engaged with bitcoin payments, BrainTree can leverage this expanded user base to sign up more merchants to its platform.

A Coinbase-Venmo partnership not only broadens bitcoin exposure, it also monetizes Venmo’s “idle” user wallets and onbaords more merchants to BrainTree’s platform.

Simple proposed business structure

Venmo charges processing costs via a 3% fee for credit cards and non-major debit cards. Most credit cards charge around 2.5%, so Venmo makes at least a 0.5% spread. Assuming 10% of transfers are via credit card, $700mm transactions processed at 0.5% yields $350K in revenue.

For bitcoin conversions via Venmo, Coinbase will charge 1%, of which ~0.75% is profit margin. To gain bitcoin users, Coinbase can remit up to this amount to Venmo for all converted dollars, or use a sliding scale for determining payment to Venmo. Assuming 10% of the $700mm transacted remain in user wallets and if 10% is converted into bitcoins, Coinbase earns (.75% of the 1%) $52.5K; a full remittance to Venmo yields +15% in additional profit for Venmo. Key variables here are how much digital cash are in users’ wallets and conversion rate to bitcoin. Assuming 80% remain in user wallets, a 50% conversion to bitcoins, and a full remittance, Venmo earns $2.1mm, or an additional 600% vs. existing profits from processing credit card transactions. Regardless, a partnership with Coinbase on top of growing transactions processed yields greater user-monetization potential for Venmo.