Jewellers and artisan educators Annie Collins and Vaune Mason have been successfully making, selling and teaching jewellery making for over 20 years.
With Workspace Studios workshops in Christchurch and Wellington and a gallery and online store, Mason & Collins selling jewellery, it's a thriving, creative business. But success has come with an unpleasant side effect.
Annie gets to the end of the month and says, 'I'm just sick of eating all these fees’, says her husband, Dr Simon Collins, a Christchurch based entrepreneur who runs Stackr, a Bitcoin mining operation, and who is the co-founder of Lightning Pay.
That latter business is setting out to disrupt the high-fee credit card and contactless payments industry, using the bitcoin-based layer 2 Lightning Network to facilitate retail transactions.
In a two month trial that has just kicked off, Lightning Pay is partnering with Workspace and Mason & Collins, inviting customers to make purchases using bitcoin and a simple Lightning wallet.
At the end of the trial, Annie and Vaune will share their transaction details with Lightning Pay – both traditional payments and payments in bitcoin, offering a real-world examination of the costs for customers and vendors of using Lightning Pay versus traditional payment options.
Simon and Annie Collins with their Lightning wallets for instant transactions.
Q&A interview with Simon Collins:
What is the problem you are trying to address with this trial?
“In New Zealand, Australia, and throughout Asia, consumers and vendors pay pretty exorbitant rates to send and receive their own money.
“35,000 physical retailers in New Zealand and 10,000 more e-commerce retailers pay an average of 2.5% per contactless credit card transaction.
“Government tried to legislate out some of these fees. That’s offered an average reduction per transaction of 0.2% by regulating the interchange fee. But it didn’t address the scheme fees or any of the bank fees and it certainly didn’t completely eliminate interchange fees.
“So Lightning Pay is going to offer contactless payments in person or online that settle instantly and are virtually free.”
What do you mean by virtually free? What sort of costs are involved for consumers and vendors?
“Lightning network fees are about $0.00005 per transaction. So to send/spend via Lightning Pay is so cheap to be effectively free. There is a small (0.5%) fee to convert to NZD – which is really the transaction fees charged by banks that we have to pass on.
“Bitcoin second layers are a revolutionary extension of an already revolutionary financial network. The Bitcoin base layer can settle practically any amount of money, with exceptional security in 10 minutes or less. However, there’s a cost for those transactions that can be a bit hard to predict.
“The fact is, for most payments, people don’t need that level of security and finality. That’s where L2s are perfect. They’re cheap, fast and designed for micropayments. Growth of these networks has been massive in the last 12 months with record numbers of transactions occurring on Lightning and Liquid.”
How will the Lightning Pay trial with Workspace and Mason & Collins work?
“They will take bitcoin (BTC) over the counter and online for payments for their products and services. They will produce regular accounts for us for the duration of the programme so that we can collect and create our findings from the simulation.
“The idea here is to create a case study backed by real evidence. Our key challenge is going to be driving enough Bitcoiners to go and spend Bitcoin there in order to gather data on that end.
We’ll run the trial for two months. Christmas is a great time to run it because jewellery makes a great gift. People may want to gift a jewellery class as well. We will collect data on what it actually looked like – what funds end up with the vendor and what gets skimmed off the top by payments operators.”
What technology are you using for the trial?
“Lightning Pay uses the Bitcoin layer 2 Lightning Network. These payment rails and infrastructure are developed and maintained by the global Bitcoin and Lightning developer community, and being open source, we don't have to invest in the creation of new payment rails. We can simply use the Lightning network, and focus on user experience.
“The Bitcoin network is distributed globally. We're talking about millions of computers around the world that run this software. Lightning is also a distributed system. Anybody can start a node, anybody can open a channel to a node and you can build extremely, extremely strong resilience into the system.
“Any Lightning bitcoin wallet is compatible for the trial. You could spend bitcoin, online or in person and we will put it through. Currently we're using BTC pay server which is open source software to issue invoices and to and to distribute those funds to wallets. Our next iteration will be our own bespoke system that integrates the findings of the trial.
“As a vendor, you could simply use a smartphone to issue a Lightning invoice, and send and receive bitcoin. The newer Eftpos machines are really just an Android tablet with a printer attached. You just install an app on it. So running alongside Pay with Visa, and Eftpos, you have Lightning Pay. Rob Clarkson, another co-founder in this business, also develops solutions for Bolt Card, which is a bitcoin payment card compatible with NFC for contactless payments.
Why would this appeal to the average New Zealand retailer?
“There is obviously the savings on transaction fees, which could amount to hundreds or thousands of dollars per month.
“Retailers that are doing hundreds of thousands of dollars per terminal per day don’t have so much of an issue with these costs. But 90% of businesses are not really big businesses and they are looking at their payment fees at the end of the month and going, ‘ouch’. They have to make the decision to pass those fees on or absorb them. It seems unfair to make people have to decide.”
“Another key benefit is the settlement times. Currently payments infrastructure can take weeks to settle payments. Lightning Pay settles bitcoin payments instantly and NZD payments the same day. Imagine the value to retailers – and to the economy – of increasing the velocity of money by these orders of magnitude. It’s supposed to be YOUR money.”
How complicated is it for retailers and their customers to use Lightning Pay?
“It is very simple. If you want your level of exposure to be zero, you never have to see the bitcoin. New Zealanders will be able to spend New Zealand dollars over bitcoin rails and businesses will be able to receive New Zealand dollars and never even realise they were using bitcoin.
“We will convert your bitcoin to dollars at the time of sale and we will give you only New Zealand dollars if that's what you want.”
“We also offer you a slider that allows you to say well, I'd like to take 5% in bitcoin because I've got a little bit of margin to play with and Bitcoin is a good asset to have sitting in the background appreciating over time. Or you can slide it right down so you only want, say, 20% in cash and the rest in bitcoin.
“As such, if you're a business and you want to access low cost fees, with instant settlement, you don't have to also worry about the volatility of bitcoin’s price.
“That's a current downside of Bitcoin. Price volatility it's obviously a thing. You may not want
to sit on it for a month and then exchange it all in one go. By the time you go to sell it, it may be worth 5% less. Of course, it could also be worth a lot more…”
Why are you launching the Lightning Pay trial now?
“This is an idea that’s been incubated through the doldrums of the bear market in the crypto cycle. It’s timed to capture as much of the recent increase in sentiment and interest as possible. It looks like we are moving into another classic Bitcoin bull market cycle. We think this business based on Lightning Pay is very well timed.”
Could vendors or their customers run into trouble with their banks using Lightning Pay for transactions?
“Outflows are not New Zealand dollars into Bitcoin, they will be New Zealand dollars into New Zealand Dollar products. We have done the due diligence and spent the money and done the risk and compliance work which we're able to submit at the time we apply for bank accounts.
“We know that crypto exchanges go through these little cycles where different banks will start flagging transactions from them. I also know that a sort of blanket ban on the ‘bitcoin’ word at certain banks has given some Web3 companies a lot of trouble.
“We have managed to get a bank account. We are planning for a world where either the banks will let up on these types of companies, or we create an ecosystem that exists outside of banking. It would be much better to build a stablecoin online, which we have plans to do, which you can do with the new Taproot assets framework.
“That has to be in tandem with an ecosystem of users that goes beyond just the customer or the vendor. It needs to include friends and family on your side, and suppliers on the vendor’s side. A stable coin and bitcoin economy works far better than a bitcoin and bank economy. The banks’ infrastructure for real time payments is terrible.”
Have you considered incorporating Easy Crypto’s NZDD stablecoin?
“Absolutely. So we've been talking to Easy Crypto about exactly this use case. NZDD is an ERC-20 coin, based on Ethereum. Lightning Pay is built on Lightning Bitcoin because it’s consistently the cheapest, most reliable, and fastest growing next-generation payments network.
“But Easy Crypto is chain agnostic. There are different ways it could work. It could be a federated mint, an e-cash Cashu minted coin, or it could be a Taproot asset. We could use NZDD in the same way that Tether uses the US dollar.
“We could take a balance of NZDD, mint our own version on Lightning, and people could spend NZDD across Lightning. We could avoid setting up another entity that requires financial markets regulation, its own compliance and risk planning and onboarding processes for customers.”
What are the next steps in 2024 once the trial data comes in?
“Waiting in the wings is a closed beta involving a small group of customers and businesses who will commit to using our own backend for Lightning Pay, so we can broaden that test case from one to 10, then 10 to 20, then 20 to 100.
“We want to really understand how it’s working, that everyone gets their money on time and in the right amounts. These are people’s businesses. We’ve thought very hard about the issue of debanking.
“We should be a value-add to businesses, not adding another strand of risk to somebody's business. We want to give businesses back control of their own money – money that they have earnt. We will settle more of it, faster, so they can get on with being in business - not worrying about fees.”