NEW YORK—Halsey Minor has seen it all. He made millions founding CNET and funding tech legends like Salesforce.com. Then he had a very bad experience with banks, declared bankruptcy, and decided to change the consumer experience of money for good.
“Our mission is not to make the banking system free. Our mission is to create a better monetary system,” he said about his new venture Uphold (formerly Bitreserve), where he is currently chairman and chief visionary.
In his system, consumers will be able to transfer money instantly, for free, and to any of the 24 supported currencies.
If you don’t like paper money, you can also park your cash in four precious metals—physically stored in Switzerland—and bitcoin, and transfer that around instantly and for free as well.
Minor promises to take away all the billions in fees banks charge their consumers. “Even when they tell you that you have free checking it’s not free,” he said. In 2012, banks charged consumers $32 billion in bounced check fees. Not so with Uphold because transfers are always instant and come from fully funded accounts.
After banks froze some of his assets in the wake of the financial crisis, Minor was determined to create a product that was fully transparent and fully reserved.
“The greatest flaw in the banking system is taking people’s savings and then using that to do consumer loans. Uphold has a 100 percent reserve, actually over 100 percent reserve in liquid securities.”
As of this moment, Uphold has a bit less than $3 million in customer funds but $3.25 million in completely liquid reserves, according to Minor. And it’s not a bank. It’s a members only closed system that doesn’t need a banking charter.
Banks usually have less than 10 percent of their assets in cash with the rest being lent out across different timeframes and with different risks. In other words: Banks take your money and then lend it out to subprime borrowers without telling you—until after it’s too late.
Uphold wants to solve this problem by publicly providing a real-time record of all the transactions the company is undertaking and a current balance sheet. The real-time record will be supplemented by independent quarterly audits.
“If we went and we decided we wanted to make more money, as banks often do and say three months ago went and decided to buy Greek bonds because they were paying a very high yield … Well everybody would know literally in real time. We are an open book,” said Minor.
Well not quite yet. The transactions as well as the balance sheet are only accessible in raw data format, which makes them difficult to interpret for the layman.
The company says some of the assets are still invested in the banking system as deposits and some in Treasury bills. The independent audits are also not available on Uphold’s website.
When Uphold get’s bigger, it only wants to park its members’ money in the very safest and liquid securities.
“As people begin to focus more and more on our reserve it puts a lot of pressure on us to put it in things like U.S. government bonds or in German bonds or in assets where a country has to go under in order for its value to basically go away,” said Minor. He also believes there will be companies and people using the raw data Uphold provides to monitor its activities.
A Closed System
No fees, instant transfers, and currency conversions sound great, so how do you get money into the system? Until now, this was only possible using bitcoin. You had to fund a bitcoin wallet and then transfer bitcoin to fund your Uphold account.
As of Oct. 14, however, people living in 33 countries in Europe can use their bank accounts to transfer money to Uphold for free (and credit cards but with a cost). Customers in the United States and China will be able to do the same from November and other countries will follow.
“The beginning of the company is October 14th even though we’ve been around for a year. Because that’s when we can finally touch where all the money is: in the banking system. We can now compete with that system by being a part of that system. That’s a hard thing to do,” said Minor.
He said he had no idea how difficult it would be to get plugged into the banking system. He believes the current system is actually not looking for innovation but incumbents and regulators just want to protect their profits.
“Nobody is trying to help you get there. They’re trying to scare you: If you did this and you do this, well, you’re going to be in a lot of trouble. It’s very daunting,” Minor says.
That’s why Uphold got started using bitcoin as a conduit even though the other currencies in Uphold do not rely on bitcoin technology. “Bitcoin is the only thing on the block chain,” says Minor.
Ok, so you funded your Uphold account and you are transferring money around for free and you are happy because your money is safe and Uphold is transparent. At one point, you are going to want to spend the money though. Again, so far you could only use your Uphold account to pay people who accepted bitcoin.
Later this year “you’ll be able to buy coffee with gold on our system,” said Minor. The company is going to roll out major brand debit cards in the United States and Europe, which can then be used to pay for goods and services with anything you have in your Uphold account (dollar, euro, yen, gold, bitcoin)—no fees.
Eventually, merchants will want to go on the system because Uphold won’t charge them a fee either.
Halsey Minor wants to make the system so good and so secure nobody will want to take their money out again (Uphold will charge for withdrawals beyond a certain limit.)
“That’s been a very difficult thing to do. I had to hire the chief investment officer (CIO) of Barclay’s [Anthony Watson], he’s now our CEO. I hired the head of security for MasterCard and Nike [William Dennings]. So we have as good security as anybody, including probably the military when it comes to money,” said Minor.
How Does Uphold Make Money?
The answer here is low cost and large volumes. The real magic for cost reduction happens in Upholds cloud-based system of holding money.
The money in U.S. Treasury bills for example will just sit on Uphold’s balance sheet. If customer A transfers money to customer B, the money will not move. All that changes is an accounting entry in Uphold’s customer database. The same is true for gold or bitcoin.
This is different from banking, where it takes a lot of accounting effort and IT infrastructure to actually validate a transfer between banks.
It’s even worse for transfers between countries. Uphold built its system using cutting edge technology from the top-down, the reverse of the banking system. It started without any technology and then gradually got connected over the centuries.
The rest is similar to the banking system. Uphold parks the money in safe investments and collects the interest on it. With interest rates close to zero—and no interest at most bank accounts either—you don’t earn interest on the money you have in your Uphold account.
As rates rise, Uphold may pass on the earnings to the consumer and keep a spread, again competing with banks for customers.
“It’s what Facebook did to pictures. So the pictures don’t have to move anymore, they sit in the little picture database and when you and I look at the same picture, we look at the same one,” said Minor. And money in the form of bits on a hard-drive costs less to hold than a picture.