A process that shouldn’t exist, propped up by tech: Startup stories from San Fran, part four

payments technology

Security Colony was one of six cybersecurity companies selected by Austrade & AustCyber to take part in the Federal Government’s Landing Pad program in San Francisco. In this exclusive series for Dynamic Business, Nick Ellsmore, co-founder of Security Colony shares his journey as he builds his second business (the first sold to BAE Systems) and introduces an Australian-built cybersecurity solution into the global market against the backdrop of the Californian startup and investment scene.

Diary Entry four

America has a strange relationship with payments technology… actually, America has a strange relationship with money, period.

Looking at who has it, the mythology surrounding those who have earned it, and the unique manner of tipping (which one could argue is the original form of “crowdfunding”), it’s clear that money changes hands differently here.

Where much of the rest of the world seems to have long-ago dispensed with cheques (“checks” to our US counterparts), they’ve survived as a pretty common payment form here. Reasonably frequently, we receive invoices with no payment details other than an address to which we need to send our cheque. It’s also worth noting that significant investment and infrastructure has gone into improving the efficiency of cheque processing – for example through introducing the ability to deposit a cheque via a mobile banking application.

That’s right: take a photo of the cheque, and you can deposit it, without ever needing to go into an actual branch. This ability is largely non-existent in Australia, but as cheques are largely non-existent themselves, that’s hardly surprising.

Taking this to its logical conclusion though, it’s a bizarre set up. If you write a cheque, mail it to me, then I scan it and deposit it via my mobile banking app, why wouldn’t I just get you to send me a photo/scan of the cheque in the first place, rather than wasting a dollar and a few days on the mail?

And then, if you’ve got the scan of the cheque in the first place, why wouldn’t you just deposit it for me? Of course, that’s basically just a wire transfer with a weird “hand write the target account, scan it and submit it” process inserted in the middle.

No matter which way you cut it, technology appears to be propping up a business process that simply has no reason to exist.

Credit card processing in the US is no less schizophrenic. Tap and go (i.e. PayWave / PayPass) are virtually non-existent. Credit cards are generally either swiped, or inserted for the chip, but either way the transaction is confirmed with a signature, rather than a PIN – signatures which never seem to be verified against anything.

Despite this, credit cards are used for seemingly everything. In fact, some businesses you might anticipate would be “cash only” – such as a food truck – are often “no cash allowed”, accepting only credit card payments for safety reasons.

Which brings us neatly to cash and the peculiar case of marijuana dispensaries. Marijuana has been decriminalized for recreational use in California since January 2018. At a federal level, it remains illegal, one significant impact of which is that it is nearly impossible for dispensaries (or growers) to open bank accounts.

They also can’t accept credit cards or other payment methods that would require a clearing institution. As a result, they are left with cash. Lots and lots of cash. It doesn’t take a genius to figure out that when virtually all your business’ assets are in the form of either (a) drugs or (b) cash, this introduces some challenges related to security and safety.

This presents a painfully obvious use-case for cryptocurrencies, and some dispensaries are attempting to accept payments via Bitcoin or other variants. However, it is far from a perfect solution, particularly given the instability of cryptocurrency valuations and the inability to convert them back to cash easily without a bank account for it to land in. Ultimately a dispensary participating in the market in that way is intentionally or unintentionally primarily operating as a cryptocurrency speculator.

All that being said, the fact that if I so chose, I could walk into a store and buy some weed with Bitcoin, only reinforces that Silicon Valley is the Blade Runner-esque future fantasy world I imagined it would be.


About the author

Nick Ellsmore is the co-founder of free-to-join cybersecurity resource Security Colony. He is also the co-founder of cybersecurity consulting firm Hivint, the winner of the 2017 Telstra Business Award “Business of the Year” in Victoria.