by Aaron Williams
The bigger they are, the harder they… KYC.
Bitcoin ATMs have gotten a bad rap thanks to terrible user experiences, intrusive biometrics/KYC requirements, and high exchange rates. In reality, there was one manufacturer responsible for two thirds of that while the other ATM manufacturer (There were just two at first) was praised by the community for having a fantastic user experience and virtually no KYC protocols. As time went on, more manufactures came along and at first, there was no KYC supported by any of them. As a result, the community latched onto the idea that KYC requirements were imposed by the manufacturer. That assumption lead to premature praise and subsequent criticism of the various manufacturers. Add to that the perception that ATM operators are price gouging their customers and vilification of the Bitcoin ATM is complete.
Of course, most of the ATM manufacturers have implemented some form of AML capability, but the exact KYC requirements are defined by the ATM operator via their written AML program. For those new to this, a regulated money transmitter is required to maintain a written AML program. This is essentially a document of rules and policies that define how the operator will comply with the Bank Secrecy Act (BSA). The BSA calls for a risk based AML program which means, as the risk of money laundering increases, so should the due diligence on the customer.
1. Less Intrusive KYC at moderate volumes
Everyone has to play by the same rules but well funded online exchanges are much like banks in that their appetite for risk is incredibly low, meaning, they require the customer to fully identify themselves before doing any business whatsoever. Why is this? Too much on the line. Millions in funding, Banking relationships (without which they would not be able to do business), fines, and reputation. Similar to banks, when Bitcoin business reach a certain size, they take a binarary approach to KYC. It’s all or nothing.
Bitcoin ATM businesses are different. Bitcoin ATM operators benefit from their small size in that they can implement a true risk-based AML program. A true risk-based AML program can allow for lower identification thresholds while still allowing the user to buy a useful amount of bitcoin. ATM operators can also benefit from not having to comply with multiple regulatory regions.
2. Instant transactions
Bitcoin ATM transactions are instantly settled thanks to the instantaneous nature of cash and bitcoin. In contrast, the experience with exchanges is left to the will of the risk policy. Deposits themselves take a day or so to complete but on top of that, they typically hold your bank deposit (in some cases credit card transactions) for a few days before releasing the funds. The rationale is that since Automated Clearing House (ACH) transactions, bank wires, and credit card transactions are reversible, statistically, the passing of time decreases the likelihood of a transaction reversal.
3. Wallet Choice
When buying bitcoin online exchange services, they are first delivered to a wallet assigned to your account. At best this is an extra step between the purchase and delivery to a wallet you control, at worst it is giving up control of your property even if temporarily. With all the wallet choices out there today, users have more options than ever to secure bitcoins on their terms.
4. Better customer service
Customer service tends to get worse as a company grows and Bitcoin companies are no different. As small businesses, Bitcoin ATM operators can create brand loyalty by providing quality customer service and support.
But what about the exchange rate?
As transaction volume increases and the number of ATMs rise, the exchange rate at Bitcoin ATMs will fall. We’ll also start seeing lower rates for users who disclose more ID details or reach volume tiers. We’ll never be at the spot price but there is a service being provided that is worth paying for.