Roy Sebag and Josh Crumb never dreamed of all the ways customers would use their gold payment and savings platform.
There’s the guy who bought a car using gold. There’s the guy saving for his wedding in gold. There’s the Argentinian kid using gold as his savings account because his family has been devastated by currency crashes. There’s the Canadian who transfers funds to his college-age children offshore using gold, thereby avoiding foreign exchange conversion fees and actually making a profit because gold prices rose after his initial deposit.
Sebag describes the platform called BitGold as a “canvas” where everyone paints their own picture.
“Gold is a currency,” said Sebag, chief executive of Toronto-based GoldMoney Inc. “And once you start letting it behave like a currency, different people will have different utility for it at different times. That’s what we’re seeing.”
Gold is one of the oldest and most antiquated mediums of exchange in the world. Perhaps for that reason, no one thought to incorporate it into the digital finance universe before BitGold. But now that it’s here, people are beginning to realize gold has untapped potential that they never thought about.
Sebag and Crumb launched BitGold roughly a year ago. There were naysayers early on who thought it was just another type of gold exchange-traded fund or trendy fintech software that would never catch on (the Bitcoin allusion in the name might have added fuel to the fire).
Then they took it public, and the stock price promptly went berserk because of a giant short squeeze. That overshadowed the actual business for a while.
But a year later, it is clear they were onto something.
The BitGold platform had 812,500 users signed up as of March 31, with more than 100,000 of them using it actively. The transaction volume is worth roughly $20 million a month and has trended higher regardless of the moves in gold prices.
GoldMoney, BitGold’s parent company, is worth nearly $300 million and it graduated to the Toronto Stock Exchange from the Venture in April. Sebag, 30, and Crumb, 36, are now planning to open up physical branches in major cities around the world.
Of course, BitGold remains a tiny competitor in the online payments universe. PayPal Holdings Inc., the undisputed king of the industry, hosts about US$80 billion of transaction volume per quarter. It is unclear whether BitGold can become more than a niche player in this sector. But analysts are nonetheless impressed at how quickly the company’s user base and deal volume are expanding.
“They’ve had significant growth, and they’ve done it while decreasing their marketing expenditure,” said Noel Atkinson, an analyst at Clarus Securities. “It’s increasingly a network effect.”
Gold bugs always say gold is money, and BitGold evolved out of that concept by putting gold to work as a currency instead of something you store in a vault.
Put simply, it is an online financial services platform that allows users to buy and store gold, and instantly pay for goods and services in gold. Users can even get a prepaid BitGold MasterCard that allows them to buy everyday goods using gold. They can also redeem physical gold, which gets delivered in 10-gram cubes.
The Brink’s Co. acts as a clearinghouse for trades, transferring gold between parties. BitGold collects a fee of one per cent on transactions.
Naturally, gold bugs have embraced the concept. But the founders claim they only make up about a quarter of the user base. Most users have never owned gold before and simply see the value of building savings and doing business on the platform, which works as a closed-end loop and allows them to bypass the traditional banking system.
The founders have taken plenty of inspiration from their users after seeing all the creative ways people have used their platform and it’s helping them come up with new products. One of their biggest challenges will be to keep coming up with fresh offerings in the months and years ahead.
They hope the next leg of growth is in business solutions. In April, BitGold launched a technology that includes payroll, invoicing, and checkout options, allowing businesses to do transactions around the world without getting slapped with cross-border or foreign-exchange fees.
Businesses can even choose to pay a portion of their payroll to employees in gold. Not surprisingly, mining companies are interested in this option.
One notable opportunity for BitGold is micropayments, the tiny online payments often tied to music or gaming. PayPal charges sellers a five-per-cent fee on such transactions, plus a fixed fee of five cents, according to its website. By comparison, Atkinson noted that BitGold’s one-per-cent flat fee looks attractive.
Although BitGold operates outside the traditional financial system, Atkinson still sees opportunities to partner with banks and mobile operators to provide the service to their clients.
Sebag said he isn’t worried about competitors breaking into this business. BitGold has gobbled up intellectual property related to gold and payments, and he said banks are constrained by rules and regulations that preclude them from aping the BitGold model.
In the early days of the company, BitGold’s founders thought their concept and brand was so clever and cool that it had to be the key driver of the business. But now they are convinced that gold is the driving force. Gold has been money for thousands of years — it just took a long time for consumers in the digital age to put it to work in new and useful ways.
“The real magic sauce is the gold. It’s all the gold,” Sebag said. “Gold married with this technology is allowing people to think about finance and banking in a much different way than they ever have.”