Bitcoin Drama

Banking Partners Force Paxum to Drop Bitcoin Due to ‘Potential Risk’

Sexy e-wallet nixes cryptocurrency.
bitcoin creditcards Banking Partners Force Paxum to Drop Bitcoin Due to Potential Risk

(falkvinge.net)

Established banks and payments processors are skittish about the cryptocurrency Bitcoin, it would seem, prompting Canadian e-payments service Paxum to drop its Bitcoin clients last week.

Paxum, an e-commerce payments solution popular with adult web sites, started working with Bitcoin exchanges more than a year ago. Paxum hooked up with leading Bitcoin exchange Mt. Gox in December 2010, major Bitcoin exchange Tradehill in July 2011, and more recently with BitInstant, a service that speeds up Bitcoin transactions by fronting customers the credit, and others.

But on Friday afternoon, the operators of Paxum’s Bitcoin-related accounts received an email with the subject line “Bitcoin termination.” Paxum’s banking partners, which include MasterCard, had called off the Bitcoin party.

Paxum declined to name the partners that were responsible for the change.

Although Bitcoin is not illegal, Paxum’s partners consider the cryptocurrency “high risk,” Paxum explained. “We simply must cease all business with Bitcoin based on our banking partners/Mastercard etc. We don’t have a choice in the matter I’m afraid,” Ruth Blair, a representative for Paxum, told Betabeat via Skype.

“The main fears had to do with the fact that it’s a decentralized currency and as such there isn’t much control over it,” Paxum said in a statement to Betabeat. “In the end, it is converted to a legal tender (generally USD), but it is unclear to them how this currency is supported and who pours actual money into it, and more importantly, why.”

One or more of Paxum’s partners have put a policy into place essentially banning Bitcoin, Paxum confirmed. The policy requires frequent checks and audits by a third party that would be incompatible with the decentralized currency. “We are trying to soften the general outlook on Bitcoin by shedding more light on the situation, but the new rules that appeared almost overnight are very clear and unfortunately we cannot predict if and when this might change,” Paxum said. “We will try to bridge the gap between Bitcoin and our partners, but we will abide by the rules, as we are not willing to take risks when it comes to our clients’ funds. We believe  it is important for us to provide all of our clients with a safe, secure environment where they know they can trust us and their money is safe.”

Contrary to initial impressions, there is no new government regulation that prompted the change, Ms. Blair said, nor was the change prompted by any Bitcoin-related fraud.

“We had been in discussions with our banking partners, Mastercard and our auditors for the last couple of weeks, and on Friday our banking partners ended the discussions with us and stated that it was too much of a potential risk to continue doing business with Bitcoin and Bitcoin Exchangers and instructed us to close all Bitcoin-related accounts,” Ms. Blair wrote on Friday in the forum for adult site webmasters, GoFuckYourself. “We had no choice but to follow those instructions and therefore, all Bitcoin associations were severed on Friday.”

The email:

Dear client,

Effective immediately; Paxum Inc can no longer accept any accounts related to Bitcoin or Bitcoin Exchange. All current Bitcoin accounts have been closed and may no longer perform any transaction. Account holders will be able to withdraw their funds via wire transfer.

Best regards,

<Removed>
<Removed>
www.paxum.com

Paxum is a global e-wallet, payroll manager and money transfer service similar to PayPal. Adult content companies use it to pay affiliates and “cam models,” and to purchase traffic, domains, hosting through easy and relatively quick peer-to-peer payments. As we already know, porn sites and Bitcoin users have similar needs. “This is why we have been so popular with Bitcoin clients, since accessing money through our system is very easy, low-cost and fast,” Ms. Blair said. “We also have other mainstream clients, but we are much more established in adult at this time. We do plan to target more mainstream clients in addition to our adult clientele as we progress our business.”

E-payments network Dwolla is still working with Bitcoin exchanges. Dwolla did not immediately respond to a query about whether they’d had similar concerns from their partners, which include Veridian Credit Union and the payments solutions provider The Members Group.

CORRECTION: This post originally had MasterCard in the headline; Paxum says the real push for the change came from its banking partners, “not really MasterCard.”

Follow Adrianne Jeffries on Twitter or via RSS. ajeffries@observer.com

Comments

  1. I can see why Mastercard and the banks probably wouldn’t want competition from an up-and-coming decentralized payment mechanism that completely unseats them in terms of transaction fees and flexibility.

  2. Ruth Blair - Paxum says:

    If anyone has any queries or needs any assistance/information relating to Paxum, please feel free to get in touch with me directly.

    Ruth Blair – ruth at paxum.com – ICQ #233-854-608 – AIM/YM/SKYPE – PaxumRuth

    1. mac55 says:

      I will be leaving Paxum for sure now. I hope in the future Paxum wants to add Bitcoin in future and gets denied. Bitcoin is here to stay.

  3. J. D. Uhls says:

    Cool! The banks are starting to show their fear!

  4. Jon Matonis says:

    I did not ever think it was Mastercard so glad that was confirmed by Paxum. My requests to Ruth Blair at Paxum for further clarification went unanswered even though she graciously provides her contact details in the comments below.

    1. Ruth Blair - Paxum says:

       Hi Jon,

      I added you on Skype first thing this morning when I logged on. I received my first message from you today at 4:17pm Eastern, and replied to you at 4:20pm Eastern. Interestingly enough, this comment you made here on Betabeat was posted at 4:18pm Eastern.

      I personally tend to allow people more than one minute to reply to me before I will assume they are non-responsive. I think this would be a good lesson for you to learn as well. Even in today’s hi-tech society, you won’t always get an instant response from people.

      I have left you a message on Skype. Thanks for your interest.

      Ruth :)

      1. Jon Matonis says:

        Hi Ruth, thanks for giving bitcoin the chance that you did, because that is more than other e-wallet providers would have done. Despite what others say, Paxum should get credit for that!

  5. Charlie S. says:

    This totally shows MasterCards fear. 

    …..and it begins….

  6. David Sterry says:

    This was surprising even though it probably shouldn’t have been. Though Bitcoin may seem to be a natural extension of Paxum’s business it is completely different.

    It is currency exchange and currency exchange carries lots of additional risk for anyone handling money. I would be interested to know if the banks left the door open to Paxum being able to handle Bitcoin with additional money laundering controls.

    Paxum has one of the most complete “Know Your Customer”-type setups (bordering on tissue samples) so I would think if anyone is able to legitimately address anti-money laundering concerns it would be them.

  7. BladeMcCool says:

    Ha ha ha ha fiat bank system chumps are getting scared. “Oh noes the people has already created the solution they need to the reaction they’ll have from the central bank problem we created”. Rofl.

  8. Bobby says:

    And the war begins. May take a year, 10 or a 100 but Bitcoin will bring down the banks like the Movie and Music industry have been. You can’t continue to charge people fees for using their own money.

    1.  Nothing is free, not even money. You or someone will have to pay for it one way or another. It’s a matter of risks vs usability.

  9. stevenwagner says:

    It seems rather unprofessional for paxum to provide such ambiguous reasoning for their actions. Bitinstant only deals in USD, they dont even touch bitcoins, so why would they get disconnected? How is the privacy issue different then a customer who does cash deposits?

  10. Anonymous says:

    Nothing can stop an idea whose time has come.  Bitcoin is like the transition from the horse and buggy to the automobile.  They better get on board, or perish.

  11. operator says:

    … then they fight you, and then you win.

  12. Dana Shetterly says:

    All you need to know 

    ” it’s a decentralized currency and as such there isn’t much control over it”
    If they can’t control other people they don’t want to play.

  13. Anonymous says:

    I wonder if antitrust action could be taken.  This sounds like a totally anti-competitive dick move.

  14. John Tate says:

    The banks seem to fear regulation. Jefferson did this, blame Thomas Jefferson, that worthless hack.

  15. Daniel Honeywell says:

    “The main fears had to do with the fact that it’s a decentralized currency and as such there isn’t much control over it,” – the proof is right there.
    and quite frankly, that is a scary statement.

  16. Which Bank? same as Tradehill or what?
     

  17. Which Bank? same as Tradehill or what?