Why We Started Abra

The following article is adapted from a post that originally appeared on the RRE blog in March 2015.

By Bill Barhydt and Jim Robinson

Yesterday at the Launch Festival in San Francisco we announced Abra. Abra (A Better Remittance App) is an exciting new iPhone and Android software cash wallet and money transfer application.Bill Barhydt

We started Abra because we believe that the first generation of digital currency applications are technical marvels but don’t solve real consumer pain. To make digital currency useful to “cash consumers” digital currency should: be transferable to any phone number in the world, not represent exchange rate risk, be as private as real cash, have no costs for money transfer, and be fungible to real paper-cash at very low cost 24 hours a day, 7 days a week. Abra was designed to fulfill all of these needs.

Our “marketing description of Abra:”

With Abra, digital cash (equivalent to US Dollars) is stored directly on the smartphone. Instantly transfer money peer to peer to any phone number in the world… Abra never touches your money. Abra merges money transfer and payments via a single digital cash wallet that works ubiquitously anywhere in the world. There is no bank or other third party involved in managing, storing, remitting or accepting your money. Abra represents the next generation of digital cash applications but without the technical fuss.

Technically put, Abra is digital cash stored directly on your phone, guaranteed in US Dollars. Abra app-based transfers use the blockchain to settle, and transactions are published directly to the blockchain from your phone. Abra’s back-end servers never touch consumer’s money or their transfer requests. The value of the holdings in your wallet do NOT fluctuate with the value of Bitcoin for at least 3 days after initial deposit onto your phone [editor’s note: since this note was written, Abra updated its policy and now the value of the holdings in your wallet will not fluctuate for as long as you hold that currency, regardless of how long it’s been since you deposited those funds.] Abra is not a financial service — it is an app that facilitates storing digital currency equivalent to US Dollars directly on your smartphone and transferring your money from your Abra App to any other Abra App anywhere in the world.

To make Abra accessible to consumers globally we are launching a network of Abra Tellers. Tellers are like mobile airtime agents.  Instead of selling airtime, Abra Tellers sell and buy digital currency. Think of them as human ATM’s.  In the US, consumers with supported ATM cards will be able to add digital cash to their smartphone with their ATM card and pin.  This is a US first.  Those using an ATM card to buy digital cash via one of Abra’s exchange partners will need to provide ID.  Others do not have to register with Abra at all. All Abra Tellers are background-checked, similar in fashion to Uber or Lyft drivers.

Abra began Teller sign-ups yesterday in advance of a full service launch. We’ve been playing with builds of the App and we love it. It’s the digital cash app we’ve always wanted for ourselves.

To design Abra we turned to the traditional Hawala model.  The concept of a Hawala dates back to the 8th century. Hawaladars are people who collect and hand out money on behalf of others over long distances. Hawaladars settle with each other via barter transactions, netting out reverse transactions, or in modern times via bank wires if necessary. Traditional Hawala’s are generally illegal in the United States as no one is allowed to hold or remit funds on behalf of someone else without being a licensed money transmitter both with FinCen (the Financial Crimes Enforcement Network) and with the US State regulators where the consumers’ reside. In the case of Abra, however, consumers and Tellers are always holding their own money just as with the standard open source Bitcoin software. Abra Tellers simply buy and sell digital currency directly to and from other consumers in their neighborhood in small amounts. 

Funds are stored in US Dollars so there is no foreign exchange taking place. Consumers send money peer-to-peer directly via the blockchain. As everyone is always holding their own money in their Abra App and no third party directly facilitates the transfer of money, money transfer laws don’t apply and no foreign exchange happens.

Abra Tellers are strictly forbidden from knowingly buying or selling digital cash to any person that they believe would use the App for illicit means.

A real world example can help illustrate how Abra works:

Bill in San Jose wants to send $100 to Nancy in Mexico.  Bill finds an Abra Teller, Sebastian in downtown San Jose. Sebastian charges 1.5% for selling digital currency to Bill.  Bill arranges to meet Sebastian from the Abra App. When they meet, Bill hands Sebastian $101.50 representing the $100 in digital currency and the $1.50 fee. Sebastian’s Abra App then transfers the digital currency directly to Bill’s phone. Bill then transfers $100 in digital currency to Nancy’s phone in Mexico.

To get access to the cash in Mexico, Nancy finds an Abra Teller, Miguel, in her neighborhood and sells the digital currency to him in exchange for Pesos. If both parties charge 1.5% for buying and selling the digital currency then they have saved a fortune in fees versus traditional money transfer services that can charge upwards of 8%, 9%, or more, for such transactions.  

Why are Sebastian and Miguel likely willing to provide these services for a 1.5% fee or even less?

Consider that Sebastian and Miguel already provide some form of service in their neighborhood for cash. In the case of Sebastian that means he already has to deliver cash to his bank every day for safekeeping. Adding a little more cash to the mix costs him nothing and earns a few more dollars in fees every day and certainly puts him in the good graces of his friends and customers. In the case of Miguel he takes in a lot of cash via his current businesses, selling prepaid airtime and his Bodega store. Buying digital currency helps him manage all of his cash at no cost while actually making a little extra money in the process. This is a real win-win.

You might be wondering… How does Sebastian get access to digital currency to sell and how does Miguel sell the digital currency he has bought from consumers. Simple. The Abra App has a built in “Teller” function that allows Tellers to easily buy and sell digital currency similar to the manner in which they buy and sell airtime. They can do this for cash themselves or via their bank account.  The difference between the cost of this transaction and the fees charged to the consumer is the Teller’s personal profit.

You can sign up for Abra and let us know if you want to be an Abra Teller by going to Abra’s website. Help us make Abra better by giving us ideas and suggestions on how to improve the service design and make it useful for everyone!

17 thoughts on “Why We Started Abra

  1. Hey.I have a few questions about HOW IT WORKS:
    1.”Digital currency” like Bitcoin or some private digital currency Abra developed?
    If it means Bitcoin , who take the rate risk in the “real world example”?
    If not , how can anyone else but Abra make sure your Private Digital Currency can be cashed in the real world?

    2.If Bill and Nancy can accept digital currency ,why they don’t buy some from Abra themselves ? But through some Teller guys with extra cost which they need negotiate(not so convenient)?

    Thanks for your time!

    1. Thanks Tony. To answer your questions:

      1) It’s Bitcoin, and Abra takes the foreign exchange risk.
      2) Abra is not an exchange, so we don’t buy or sell currency ourselves.

      1. 1. On exchange risk:
        a. Just to clarify, when I upload $10 to my Abra account, Abra is giving me exactly $10 worth of Bitcoin; therefore, I incur no transaction fees going between fiat and Bitcoin and likewise in the other direction when I offload.

        b. I read that Abra is able to provide stable value between fiat and Bitcoin because of Contracts for Difference in Value (CFDs). How do these CFDs work? Who are the counterparties? Am I, as the consumer storing digital cash, one party and Abra the counterparty? Or is Abra one party and a third party the counterparty to the CFD? What happens to my funds if the volatility and liquidity risks move against Abra, causing in worst case Abra to go bankrupt? E.g. Assuming $1,000 = 1 BTC and I load $1,000, I technically have 1.0 BTC. When I wish to offload, 1 BTC = $800 but I am still entitled to $1,000, which would be 1.25 BTC. How does Abra ensure it has the liquidity to guarantee I have actually 1.25 BTC?

        2. Abra as an exchange: If I don’t use a teller but instead buy digital currency through a bank transfer or debit card, then I am not buying digital currency from Abra? Likewise, if I offload via bank transfer rather than through teller, am I not selling digital currency to Abra?

        3. Do I incur any merchant acquiring fees when I load funds using a debit or credit card?

        4. When I transfer from dollars to pesos, is the FX rate between dollars or pesos or Bitcoin and pesos? Since my digital dollars are actually the dollar-equivalent in Bitcoin, the conversion to pesos is actually from Bitcoin to pesos rather than USD to Pesos, correct? If yes, I am charged a small FX fee on the conversion from Bitcoin to pesos?

        5. As I a lawyer (and consumer), I’m curious as to how Abra is regulated. You said money transfer laws don’t apply because Abra is not holding customer deposits and managing the transfer of the funds themselves. But see my question in 1 b) regarding the guarantee of stable digital cash value — this is exactly an area that is regulated (or ought to be). Plus, you are guaranteeing me a certain price for my money when I do the FX conversion to a foreign currency and I need to be sure that your backend works so that funds are digitally transferred correctly, even if you don’t take “physical” possession of my funds in a centralized bank account.

        1. Fennie: That was exactly what I was thinking when I read about this service. I’m sure plenty of Attorneys Generals and the DOJ would be interested in the question of whether this firm meets the definition of a bank or money transfer business or both.

          Agreeing to redeem a fixed amount of bitcoin for $10 regardless of price moves is really not much different than taking a deposit and giving the customer the bitcoin as collateral.

          A bank deposit afterall is not a “physical” possession of cash, but a loan to the bank by the customer, recorded on a computer.

  2. Hi Guys, congratulations for the product! I have a question. The teller living in Mexico use pesos as a paper cash, and he will use an exchange rate to convert pesos to dollar and vice-versa. This is a big problem in many countries because the rates on the peer to peer market (including tellers in this case) are sometimes abusive, and can easily be higher than the fees regular companies such as Western Union and Money Gram charge . What are you doing to avoid this problem?

    Thanks!

    1. Hi Bruno, good question. With Abra, while Tellers will set their own rates for processing deposits and withdrawals, Abra sets the f/x fee. We aim to take a very small markup on the mid-market exchange rate — it should almost always be less than what a traditional money changer or remittance service would charge.

      Our goal is to be transparent and fair with fees. Our teller fees, for example, are listed up front before you choose a teller, so you can choose the one most convenient to you based on cost, hours, location, ratings, etc.

  3. Interesting model – you answered tony’s 2) as abra is not an exchange but tellers are exchanging $ for digital currency via Abra? so how do you avoid not being an exchange in that respect – or do the tellers but bitcoins (or bring in bitcoins) from other wallets into Abra?

    Cheers

    1. Abra tellers are not employees of Abra but rather, they are partners. Abra requires that all of our teller partners comply with whatever legal requirements that they may have for buying and selling digital currency.

  4. Hi! Can you also rate Abra tellers, just like Uber? For countries outside the US, how do you manage local laws. I am from the Philippines and there is a law on Anti-Money Laundering (RA 9160), which I believe governs this service. Thanks!

    1. Yes, you will be able to rate Abra tellers. When a user selects a teller, they’ll be able to choose the one that they prefer based on location, hours, and rating. Tellers in any country will have to comply with all applicable local laws.

  5. Why does Abra only guarantee the value of deposit in $ for the first 3 days? since the transaction is in bitcoin, why cant the bitcoin deposited by Sebastian into Bill’s Abra app convert into US$ and therefore always pegged to the dollar?

    Since most of these will be smallish transactions, is 1.5% realistic since its not much to cover the teller’s hassles?

    I signed up but when do you expect to launch? it will be very interesting to see not only how many users/tellers are on board at launch, but also how many users can actually use Abra. Thx

    1. Thanks for your comment. We’ve changed our model a bit since our initial concept and deposits are now held in the user’s home currency (e.g. US Dollars). Our website has been updated to reflect this.

      As for the transaction fee, it needs to be competitive for both tellers and end users for the system to work. In the end, it’s a marketplace and some places may be higher than 1.5% and some may be lower. We expect that the majority of tellers will use it as a supplement to an existing cash business, or as a bit of side income, rather than as their main revenue source.

      If you’ve signed up on our website (or downloaded our wait in line app), we’ll definitely let you know when we’ve launched!

  6. “Changed our model a bit”?

    I cannot find any explanation of how your service actually works. What does your app use to determine what my balance is? If it’s still the bitcoin blockchain, then who is taking the foreign exchange risk now?

    If it’s not bitcoin used to transfer value, then what prevents Abra (or anyone else) from just printing money out of nowhere?

  7. Hi, I’ve been reading about Abra and I’m very interested. This post and the comments above have been more elucidating than your website (something you guys ought to work on), but I still have a few questions about your service.

    1) Abra takes the foreign exchange risk, but for how long?
    2) The balance is in bitcoins, in the local currency or in
    3) How is the foreign exchange rate calculated? By the official rate, or by bitcoin rate? I ask that specificaly because, for instance, at this very moment, 1 US dollar costs 3,96 Brazilian reals, but if I make this exchange through bitcoins, it’s only 3,86 (plus some exchange fees, of course). Still, you can see why do I question that.
    4) If Abra is not a exchange, does that mean that Tellers can look for an exchange to adquire their bitcoins for sell? How exactly does that work?

    5) Last, but not least, and of the upmost interest for me…. Any plans of coming to Brazil in 2016? 😉

  8. Question for becoming a teller: if most AML laws impose extra scrutiny on “aggregation accounts” (ie where I am bringing in money flows from outside my core business such as becoming an unlicensed Money Service Business) won’t my bank have issues with this? What are you doing to strengthen the AML control around your product beyond asking your tellers to make reasonable efforts to stop illicit activity? Ideas for safer detection of source of funds? Does Abra subscribe to the Windhover principles?
    Question as a potential customer of Abra:
    a) presumably bitcoin provides an audit trail but who can see this (regulators etc allowed with/without my permission?)
    b) I see the best value in abra if I am making a high volume of low value payments to many different parties who don’t necessarily need to convert to cash (with fx) each time. What are the max transaction amounts permitted (you mention small payments a lot in your descriptions) and what happens when someone wants to withdraw an amount that in aggregate is large?
    Well done on your product. Looks very interesting but keen to know your long term future in light of increasing regulatory focus when blockchain gets more popular

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