Is The Old Guard About To Get Disintermediated By UltraCoin? Ask Carl Icahn & PayPal

Reggie Middleton's picture

thumb Fortune Front Cover thumb Fortune Front Cover 

A few days ago I was waxing poetic over the abilty of David Z. Morris' ability to grasp rather complex, intangible concepts and loquaciously lay them forth in the written word via the pages of Fortune magazine. After all, what creative destruction advocate wouldn't get all mushy after reading "Reggie Middleton, currently building a client called BTC Swap. Middleton, gravelly voiced, dapper, and businesslike, doesn't fit the stereotype of woolly young bitcoin developers. But he slyly describes himself as "not quite an anarchist," and BTC Swap is a shot directly across the bow of the financial industry"...

Or "Middleton sounds a bit like an 18th-century pirate striking back against the Empire when he declares that "what I'm doing right now is a direct threat to fiat merchant banking." For him, excitement over value fluctuations in the bitcoin currency is missing the point: "It's not a threat as people sit there and ponder whether bitcoin is a bubble or not. But if people go through the protocol and use their imagination, the existing system is threatened."

Alas, nothing lasts forever. Fastforward 72 hours and Fortune publishes... 

thumb Icahn on PayPal

As exerpted:

FORTUNE -- Carl Icahn, the billionaire activist investor, has been interested in technology lately. Wednesday, he made several TV appearances to reiterate his call for tech giant Apple (AAPL) to engage in a massive $150 billion share buyback. As usual, he demonstrated that he was willing to put his money where his mouth was, revealing that he had upped his stake in the company by $500 million to $3 billion, causing Apple's stock to jump 1%.

Well, my subscribers (click here to subscribeknow where I stand on Apple, reference:

Then, after the bell, eBay (EBAY) revealed that Icahn had built up a stake in the online auction retailer and was pushing for some radical changes. But in this case, though, Icahn wasn't interested in buybacks -- he was looking for a breakup. Ebay said Icahn wanted the company to spin off its online payment arm, Paypal, and had requested two seats on eBay's board. eBay rejected both of Mr. Icahn's proposals.

... Paypal has grown from its roots as a small payment processor helping buyers and sellers of Beanie Babies feel safe to do business on eBay, to a full-on payment alternative for thousands of merchants with millions of members. Its advantage in many cases is simply speed and convenience -- how many times have you clicked the Paypal button while checking out of an e-commerce store just because you didn't want to get off the couch to grab your credit card?

Does the author mean like this?

thumb bitpay websitethumb bitpay website

...eBay is also lagging when it comes to valuation. The company as a whole trades on a multiple of nine times next year's enterprise value divided by earnings (or ev/ebitida), which measures a company's return on investment. Meanwhile, the payment operators, like Visa and Mastercard (MA), trade roughly at 15 to 17 times next year's ev/ebitda, or around 40% higher than eBay. E-commerce sites also trump eBay's numbers with Amazon trading at around 33 times next year's ev/ebitida and Groupon (GRPN) trading at around 17 times.

But Visa and Mastercard are about to face the same double whammy that PayPal is staying at. Let me show you with video...

or pretty pictures...

You see, the payment processors are very soon to be subject to...

DisintermediationDisintermediation 

Why? Because P2P solutions such as UltraCoin easily allow for such, and at dramatically lower prices to boot...

  send payment costssend payment costs 

If we were to look at this graphically, it would be comical to compare...

  send payment costs visualsend payment costs visual

On the commercial macro payments side...

macropaymentsmacropayments

So, what happens when your competitors offer a competitive product for between 1/1000th and 1/3rd the price? 

margin compressionmargin compression

Now, back to the Fortune article and the apparent strawman argument...

... As a part of eBay, Paypal is run by people who know tech and know retail, not by people who necessarily know payment networks. As such, Paypal's growth beyond the web may not be as successful as it could be if it was led by people who worked at a credit card company like American Express (AXP) or a global payment provider like First Data Resources.

Again this seems to ignore the coming wave, alas... I digress...

... eBay's aggressive international expansion is helping to grow PayPal's global presence, especially in countries like Brazil and Russia, where eBay is taking off. If the cord is cut too early the fear is that PayPal's international growth may stall.

Stall or stagnate? 

As my readers recall, I've developed a cross currency swap system that allows holders of BTC to dance around two dozen or so sovereign fiat currencies with ease. Combine this with dramatically lower costs and ease of transmission and I see either a material change in business model or... Margin Compression!!!

 This really makes one think... Is eBay a short play in and of itself? I know Carl Icahn would likely get a large bang for his investment buck backing UltraCoin than he would calling for a PayPal spinoff. Then again, what do I know? Those who wish to discuss the merits of an UltraCoin investment by Icahn can feel free to ping me at reggie at ultra-coin.com.