In the fintech industry, the concept of an app that allows anyone in the world to transfer money directly to someone else’s smartphone at the click of a button has been viewed as a sort of holy grail. In a recent interview with Reason’s Jim Epstein, Abra CEO Bill Barhydt claimed that this vision is now a reality thanks to his company’s global P2P payments app, which is built on top of Bitcoin.
According to Barhydt, Bitcoin has enabled Abra to build a Venmo-esque application that works at global scale with any local currency. The company has avoided heavy financial regulation by not taking custody of user funds, and it’s unclear how governments will be able to legislate around this new payments innovation.
What Enables Abra to Work Legally at Global Scale?
During the opening portion of the Reason interview, Barhydt explained in simple terms how Bitcoin enables Abra to work globally.
“Usually, with a mobile money service like a Venmo the money is held at a bank,” said Barhydt. “In the case of Venmo, it’s held at Wells Fargo. In the case of M-Pesa in Kenya, there’s a Kenyan bank that holds the money. With Abra there is no bank. We actually turn your phone into its own bank using Bitcoin blockchain technology in the background in a way that’s very transparent to the consumer. So, the user experience is very Venmo-like or very PayPal-like, but what’s happening behind the scenes is totally different. And this is really important because it’s what enables Abra to work legally at global scale.”
“The money is actually on the phone,” added Barhydt.
Abra hedges bitcoin to traditional currencies in the background of the app, which means anyone in the world can use their local currency of choice. Since Abra is not holding any customer funds, they don’t care where their users are located.
“The Abra app works the same for you as a consumer whether you’re in Turkey, Germany, Russia, New Jersey, or Toronto,” said Barhydt.
Not Taking Custody of Funds Avoids Heavy Regulation
According to Barhydt, the fact that Abra does not take hold of users’ funds allows them to avoid costly regulations that have prevented this sort of app from existing in the past. Before Abra, Barhydt was the founder and CEO of Boom Financial, which had goals similar to that of his current company.
“[I] realized that I was fighting a multi-billion dollar, decades-long battle to get this live globally, which was simply not tenable for a startup,” said Barhydt about his previous startup. “It probably wouldn’t be tenable for Citibank.”
“Even if they relaxed regulations a lot, it still wouldn’t prevent me — in the old model — from having to have licenses all over the place, having to have banking relationships all over the place, [and] having to have heavyweight AML and Know Your Customer requirements all over the place,” Barhydt added. “And it’s just too much friction to get a global banking system to work like that.”
According to Barhydt, Bitcoin allows Abra to avoid all of these complexities because they don’t have to take custody of their users’ funds and they’re not in the middle of any transactions. The basic concept is that regulating Abra is like regulating the cash in one’s pocket. The only difference here is that the cash is on a smartphone.
How Will Governments Regulate This?
There are still some aspects of the Abra app that can be subjected to regulations. For example, the app blocks IP addresses in Iran due to sanctions. Much like bitcoin, most of the regulations around Abra may happen around the entry and exit points.
“The government can’t stop you from holding ones and zeroes on a phone,” said Barhydt. “What the government can interfere with is the means by which you got those ones and zeroes on or off the phone in the first place.”
There are three options for getting money into the Abra app: bank transfer, bitcoin deposit, or through an Abra teller. Bank transfers will usually involve some form of compliance with Know Your Customer regulations through Abra’s exchange partners, but bitcoin and Abra teller deposits and withdrawals won’t require the user to provide any personal information to a third party.
“Think of an Abra teller as a human ATM machine,” explained Barhydt. “This human ATM machine can process a deposit and a withdrawal for you into or out of your Abra app anywhere in the world for any currency. But these people are not acting on behalf of Abra, they’re acting on behalf of themselves. They’re actually buying and selling the money on and off their own phone.”
It’s unclear how regulators will deal with Abra tellers over the long term, but according to Barhydt, most jurisdictions to not regulate these sorts of P2P transactions at this time.
“It’s early enough where very, very few people are even thinking about regulating those kinds of transactions,” said Barhydt.