For businesses that deal with Bitcoin, it can be hard enough to master cryptocurrency transactions – but it’s a whole new game when they start accepting Canadian dollars and begin working with banks. Between figuring out risk management processes and ensuring they’re complying with financial regulations, there’s a lot to learn.
Enter Vogogo, a Calgary-based startup that specializes in processing fiat currency transactions for “cryptobusinesses,” the name it gives to businesses that accept Bitcoin, Altcoin, Namecoin, Litecoin, and all of the other kinds of cryptocurrencies out there. (Fiat currency refers to government-issued currency, like the Canadian dollar or the U.S. dollar).
On Tuesday, the company announced it had raised $8.5 million in an oversubscribed Series B funding round led by Cormark Securities Inc. The round also included Salman Partners Inc., Clarus Securities Inc., Beacon Securities Limited, and Canaccord Genuity Corp.
“We have a lot of companies building really cool software that services Bitcoin-related businesses. And they set up these businesses, but they don’t think of the fiat side, because this is a very different business than, say, if you want to sell socks online,” says Rodney Thompson, chief strategy officer and one of the co-founders of Vogogo.
“What happens is that when these cryptobusinesses want to accept fiat, the risk and fraud management tools and systems and expertise they need to handle fiat is typically something they haven’t thought about, and it’s not something they can start building. It’s a highly regulated environment … we do all of that for them.”
Thompson and his co-founder, CEO Geoff Gordon, have been working in the payment processing space since the late 1990s, working with businesses to help them prevent fraud, money laundering, and other financial crimes. However, they’ve been working with cryptobusinesses for the past year, handling risk management processes for their transactions in fiat currency.
Vogogo also deals with dispute resolution, Thompson says. He gives the example of a husband who buys $100 worth of Bitcoin from a cryptobusiness, charging that to the bank account he shares with his wife. If his wife sees the charge but doesn’t recognize it, she might call her bank and get a chargeback issued. In a situation like this one, Vogogo will work with the bank to sort out the problem on the cryptobusiness’ behalf.
“If you’re running a cryptobusiness and all of a sudden, you’re trying to figure out dispute resolution, it’s a very difficult thing to learn on the fly,” Thompson says, adding it’s especially difficult for businesses that only have a handful of employees.
“A lot of these cryptobusinesses can be teams of two or three people to maybe like, eight to 12. So adding a whole risk team and a payment team is a giant undertaking for these typically quite small businesses, because they can run incredibly lean and very quick.”
While Thompson would not disclose which banks Vogogo is working with, he did say in the last 10 months, the company has processed about $75 million in transactions for cryptobusinesses. In terms of its pricing model, it takes a one per cent cut from each transaction, though it also negotiates discounts based on transaction volume with its customers.
Vogogo is planning to use its newfound funding to help it expand into the U.S. and European Union, Thompson says. It is also looking to hire developers and risk management professionals, he adds. The team currently employs about 19 people.