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.”
“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.”
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.
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.”