Forum Moderators: buckworks
Here's the general idea....1000 people join together to form an independent network of agents which stretches across the country. All have an internet connection and there's at least one agent in every major city and town. Each agent deposits $500.00 as a surety bond into a trust fund account managed by a single FDIC insured bank. Only the bank, acting as the trust agent, has access to the account. Each $500.00 deposit still belongs to each depositor and can be withdrawn by him/her it at any time. Once 1000 agents have made their deposit, the trust fund will contain $500,000.00...(half a million dollars)....but the 1000 agents still own every penny of it.
The trust fund money will earn no interest. The interest will instead, be given to the bank for managing the fund. For that compensation, the bank agrees to move funds back and forth between the accounts of the various agent members. In other words, the bank can easily move $100.00 from agent account #14 and place it into agent account #547. Just how that would work, I'm not sure, but banks do handle trust accounts every day. Maybe someone in the banking industry could comment on that.
Once the trust fund is set up containing 1000 micro accounts, agent #14 (located in California) can instantly send $100.00 to agent #547 (located in New York)...The bank receives a simple Email from #14 instructing the bank trustee to move that amount from his account, into account #547....The Email naturally contains a secret code to identify #14...and presto...Account #14 now contains only $400.00 and account #547 now contains $600.00. A cash transaction has occurred. Under the terms and conditions of the trust fund, the transaction is irreversible unless both parties agree to the reversal (such as a typo or accident)....Once sent, its as secure as a cash transaction, and its backed up by the original cash bond posted by each agent.
The transaction is guaranteed because both agents belong to a fabulous family of 1000 agents who work together to make the system secure. They've also posted $500.00 surety bonds to keep it that way. What did it cost to send $100.00 from #14 in California to #547 in New York? Nothing! Agent members can send or receive money between each other FREE. However, non-members have to pay a 4% transaction fee. The transaction fees from non-members are divided equally between sending agent and receiving agent and represent a small $2.00 profit for each. That isn't much of a profit, but read on. It gets better.
How would non-members use the system?....A California non-member in the home town of agent #14 wants to send $100.00 to a friend or a business in the New York home town of agent #547...He walks into the office of agent #14 and plops down $100.00 cash plus a $4.00 transaction fee. #14 sends the usual coded Email to the trustee bank with instructions to move $102.00 out of his account and into the account of #547....#547 can check his account online and see that the $102 is now in his account. In fact, every agent within the network can view his own account online to be sure that a specific transaction has actually occurred. At that point, agent #547 would call or Email the non-member receiver and tell him/her to come by and pick up the $100.00.....The money is handed over to the proper non-member receiver in New York (with proper I.D. of course) and both member agents have made $2.00 each. Its like wiring money by telegraph, but it costs users far less.
Now, why would agent #547 want to participate in this network, considering the low profit margin involved? Because it isn't about making huge profits on transaction fees. Its about safety and security and being able to use the system himself at a very low cost. Assume that #547 is also an internet merchant selling products on the web. Yes, he's agent #547 of the payment network, but he's first and foremost, a merchant who wants to receive safe payments for his products. He can now receive guaranteed payments from 1000 cities across the country and he's going to be protected by the other 999 family members of that payment network.
Lets pretend that a non-member customer in California wants to buy a $100.00 cell phone from #547 in New York. Yep, he sells cell phones and DVD players, among other things. The potential customer is instructed to take $104.00 cash to agent #14 (or any other nearby member agent) who then sends $102.00 of the payment through the system. #547 sees the funds go into his account and ships the phone to the customer. #547 might choose to give back part or all of the $4.00 fee to his customer, but that would be entirely up to #547. Either way, #547 has used the system free or at a very low cost. If he decides to keep his $2.00 portion of the fee, he has actually made money on the transaction. If he gives back half of the original fee ($2.00) he has used the system free. If he gives back the entire fee ($4.00) his use of the system has cost him only 2%....He received guaranteed funds for far less than the cost of a credit card transaction. Agent #14 has of course, made $2.00 and gets to keep it. My crystal ball says that agent #14 will make a nice $200.00 sale to an Ohio non-member customer tomorrow. One of the Ohio member agents (#841) will handle it beautifully for him. Since #14 is also a member agent, he too will use the system free or at a very low cost.
This question will surely arise....How will each member place the original $500.00 surety bond into the trust fund, or withdraw funds as needed? Money will be initially deposited by U.S. postal money order directly into the bank trust fund. Once deposited, all or any part can be withdrawn at any time. The bank would simply mail a check upon request. Of course, you can only withdraw the amount presently sitting in your own micro account. If you withdraw a major portion, you won't have enough left to conduct online transactions. Likewise, if you withdraw all of it, you'll no longer be a member of the payment network and can't participate in the benefits of same.
Would the 1000 agents become wealthy from the transaction fees? No, most agents would probably earn very little from fees alone. Some might earn nothing at all, especially in the beginning. The real benefits would come from being able to use the payment system at little or no cost. User benefits and savings could be enormous, especially for high volume merchants. Calculate all of your current payment processing costs, including fraud and lost sales due to customers not wanting to reveal their credit card numbers. Would you like to cut those costs in half?...or eliminate them altogether? With a good payment system, it could be done. Maybe then, we could all become high-volume internet dealers.
My questions to the readers of this board are these...Could a system like this work? Could it save money for the users? Would it be safe? Do you think customers would actually be willing to use it? Can you think of needed improvements? Have you ever heard of a similar system? Would you feel comfortable using it? Would it be subject to any unusual governmental regulations that I might not be unaware of? Would it be vulnerable to con artists? If so, where? Do you believe that the internet needs a good, solid, safe payment system? Am I just whistling into the wind with no real hope of ever putting this thing together? Why can't a family of dedicated agents do it and have it operational in the next 30 days?
For what its worth, here's my personal opinion....I've been in business for a long, long time and customers have sent me millions of dollars by mail (and electronically online). It hasn't made me rich, but I've at least been able to earn an honest living. My own customers have often paid ungodly prices to send me payments by telegraph, wire transfer or by overnight express. In every such instance, I felt that the transaction costs amounted to unfair gouging of my customers. In most cases, I tried to pass some of those ridiculous costs back to the customers. Let's face it. The hidden expenses associated with fraud and payment transactions have always cost customers and dealers far too much. Such costs drive prices up and profits down like a double-edged sword. I think its time to create a better system. Perhaps it would look like mine. If such a system existed right now, I would be first in line to sign up. I don't pretend to have all of the answers. I'm just a businessman...But I do have decades of merchandising experience. That experience tells me that the internet could blossom like a flower if we had a fast, safe, meaningful, inexpensive, nationwide payment system. Unfortunately, we don't yet have one. Until that day comes, real business success on the web will probably remain little more than an elusive daydream for most merchants...and for dreamers like me. Nevertheless, perhaps my post can bring forth some interesting conversation and some good ideas....Hey, maybe we could call our payment system WEBMASTERCASH....hmmm, maybe not.......Opinions and comments please.....Thanks for reading.....DREAMCASTER
1. I, as a customer, would rather use my credit card. Place your order, enter your cc info, submit and wait. Maybe it's just plain lazyness! but hey it saves me a trip to that agent office and who nows, maybe I'll stumble upon a store selling the same widget on my way there!
2. Not everybody has a credit card or want to use theirs online, so you could cover those people with that option.
Finally, I guess it all boils down to how many people falls under option 2 and would they use that system? I can't answer that.
mavherick
That's a great first post - should generate some good discussion I think. My only reservation about the system is the 'physical' requirement of giving/receiving money to/from the agents.
I think the general public finds credit cards too convenient for your idea to replace them (but I may be wrong ;)). In a big city like New York or Sydney you would need many more agents to geographically satisfy everyone. The world is a big place and you would need a lot of agents to make full use of the opportunities.
The other problem is the agents end up handling a lot of physical cash, so their costs of withdrawing and depositing funds have to be considered. Bank fees being what they are (in Australia at least) makes me think the only ones that would get rich would be the banks!
>> The transaction is guaranteed because both agents belong to a fabulous family of 1000 agents who work together to make the system secure.
Thats the point of attack. A single con man in the system here has an enormous potential to cause havoc. Imagine, you sign up, and pay your $500. You, and possibly a buddy or two tour the offices of as many of the other agents as you can get to (many major cities are going to require many, maybe tens of agents) and generate several transactions using c/cards or cheques at the other offices (because you are going to have to accept those payment methods, or no-one will use the system for substantial transactions).
The rogue agent can then "legimately" withdraw the lot and disappear. I bet you the bank will deny all responsibility (all transactions generated according to the rules), and the system as a whole is way down. The problem is that the system has a large element of trust in it, and you may like to consider the fact the words "trust" and "betrayal" both stem from the same Latin root
A fair chunk of the overhead you pay to transfer funds via the "usual" channels does occur due to things like anti-fraud measures, and fruad insurance/set aside to cover compensation costs. For instance, if you buy a DVD player with a c/card, and get mugged on the way home, some c/card companies will cover that in the insurance on the card. How do you factor that into a system like this? What happens if some one legitimately transfers funds, and gives the funds to a fraudulent trader? What comeback does the customer have then? On a c/card, you can chargeback
On the face of it, I like the concept, but practically, I doubt I could find 999 people I could trust sufficiently, and who would trust me
The payment system that I have in mind might have some basic similarities to the hawala model of old. However, my modern day model would be overseen and managed by a bank. It would be subject to all banking laws and government regulations, with built-in safeguards for users. It would maintain a record of every transaction, allowing the money flow to be traced and tracked. The 1000 various agents could never cheat it because they could never withdraw more from the system than they have in their own individual payment account.
Your replies have opened my eyes to an important point though. Users do love their credit cards. They love the convenience of them, and the fact that they can, if they wish, spend more money than they actually have. Yes, I love mine too. Its great for emergencies. The only thing that I don't like is the potential fraud risk that goes with it. If the card companies could make them totally safe, I'd be a strong supporter.
As for my online payment system idea, you've helped me come to a simple understanding. My cash system, if proven totally safe, could at best become a handy, secondary payment system. It would be great for those who have no credit card and for those who are afraid of using their card on the internet. It would also be useful to online merchants who need protection from the bad guys. It could never replace the credit card system though. I would certainly use it on my web site, because I'm a seller. I would therefore, feel safer with a cash payment system of any kind. As it stands right now, I'm terrified every time I receive a large credit card order. I never know whether or not the payment will be snatched away later, long after I've shipped the order. A big sale on the internet should be a joyous occasion for a merchant. For me, Its not. Its just another worry. There's something wrong with that picture.
Thanks again for the wonderful responses. Post more if you have comments or input. I'll read all of them and comment as necessary. In the meantime, I'll keep dreaming..........DREAMCASTER
i think most of your princible is like what a bank office is - you're only creating your own bank network for this. i'm wondering if a bigger bank would be so kind and give away free transactions for a new network.
and: why do you call it online payment. you've to do it physically. if i want to by something as a customer i have to pay it cash on my cities office. then i could directly go to my bank and pay the merchandiser by transaction. isn't that the same?
I believe the Knights of the Templar (and most likely Fremasons these days) used a similar system to access currency around Europe centuries ago.
I agree with Talltroll though - the system would be open to abuse, but as you said it would be carefully regulated.
Good thinking to let banks have a cut of the cash too - otherwise they would stamp down on such a system because of the money they would lose! ;)
Scott
