Poof! Abra Sends Money With Magic

Category: Finance

A new “Uber-like” service called Abra is making tech news headlines. According to CNN Money, Abra makes bank accounts obsolete. Who needs a bank or ATMs, Paypal or Western Union, when you have a smartphone? (Hint: you do)...

Abra (Cadabra) Makes Bitcoin Your Bank

“The idea is that all banking should be as easy as sending a text message,” writes a CNN reporter. Of course, it’s not that easy. It’s not even as easy as the money transfer services it’s trying to replace. The difference is that Paypal, Square Cash and others require a bank account. Abra's target market seems to be those who do not.

Let’s see how Abra actually works. Assume you want to send $100 to someone. Here are the steps in the process:

• Download the Abra app and install it on your iOS or Android phone. (Let's assume it makes sense that you can afford a smartphone and the monthly fees, but for some reason a bank account is out of the question.)

• Open the app and use its “Teller” feature to locate an Abra Teller near you. What’s a Teller? It may be a local business or a person registered with Abra.

• Go to the Teller and hand over your cash; any amount will do, says Abra. Don’t worry about meeting a stranger in a parking lot with $100 (or $1000) in cash. Abra vets individual Tellers as carefully as Uber vets drivers. (OK, worry a little, if you wish.) All businesses, of course, are perfectly trustworthy so background checks are unnecessary. (Ouch, I just bit my tongue.)

Abra (cadabra) money transfer

• Abra assigns a QR code to each Teller and user. They scan each other’s codes and the app verifies that both are who they claim to be.

• The Teller enters the $100 collected from you as a deposit on his Teller app screen, and confirms to Abra that you made the deposit through him. (All this is done after the Teller collects his fee and Abra’s fee from you, the sender.)

• Presto! You have $100 “on your smartphone,” according to Abra CEO Bill Barhydt, a former Goldman Sachs software engineer. (No, I’d never heard of Bill until now, either.) But the money you handed to the Teller (less fees) is now “on your smartphone.” The app says so right on the screen.

To send that $100 to someone “anywhere in the world,” just use the app to send a text message to any contact (who has a smartphone). Required data is the contact’s name and phone number, the amount to be sent, and an optional note.

Fee or No Fee?

The recipient of your $100 will have to download the Abra app, find a Teller, and go collect $100 in his or her local currency after verifying his/her entitlement to it, presumably via more QR code scanning. Oh, the recipient will pay the Teller and Abra fees, too.

Abra’s home page prominently declares, “NO TRANSFER FEES.” But according to Barhydt, Abra charges 0.25% of each transaction to both the sender and recipient – 0.50% total. Tellers are free to charge whatever they want, although Abra recommends no more than 1.5% of each transaction.

Already, I don’t trust these guys. Whether you call it “transfer,” “service,” or “convenience,” a fee is a fee. The missing asterisk here is that if the teller doesn't charge a fee, Abra won't charge a fee. But really, why would a Teller not charge a fee when they can?

Note that the sender and recipient use different tellers so they may pay different fees. The fee each Teller charges shows up on the map of Tellers near you, so you can shop before heading to one.

And Now, the Cadabra...

How did the money get from one Teller to another? CNN Money doesn’t say. Abra’s website doesn’t say. But the money-moving magic doesn’t involve banks. It’s much worse than banks; it’s Bitcoin. Barhydt and company think that you don’t want to know how Abra works, so they don’t tell you.

Only the promoters of Bitcoin are reluctant to call it “Bitcoin” these days; too much bad publicity has attached itself to that name. Now the Bitcoin industry insiders talk mostly about “the blockchain,” so ordinary mortals won’t understand what they’re talking about.

The “blockchain” is an encrypted record of all Bitcoin transactions that have ever occurred; literally, it’s a huge chain of transaction “blocks” that’s encrypted so it cannot be altered without detection. The blockchain is stored in bits and pieces across Bitcoin users’ devices worldwide.

So, between the time of deposit and time of withdrawal, your money exists in the form of Bitcoin cryptocurrency. The value of a Bitcoin in terms of US dollars has fluctuated wildly. But don’t worry; Abra guarantees the value of your deposit for a whole three days. Just tell the recipient to hurry up and withdraw cash.

Abra will allow you to use a debit card (and its associated bank account) to deposit money into its Bitcoin-based money-transfer system. But you can’t withdraw money via a credit to your debit card, as Square Cash so conveniently permits. So much for moving to a cashless society.

Upsides and Downsides

The key benefits of Abra include anonymity, instant money transfer, and low cost. Abra never has possession of any money (other than its fees) so money cannot be seized or frozen by the company or a court order. The blockchain that keeps records of money transfers is encrypted and distributed, nearly impossible for law enforcement to crack. Abra is much cheaper than Western Union or Moneygram, which maintain similar networks of “tellers” worldwide.

Potential users of Abra include customers of Western Union and the erstwhile Silk Road contraband marketplace. It may appeal to immigrants sending money to families in their home countries, who pay 10% or more to wire transfer services. Criminals of all kinds will be drawn to Abra because it allows them to evade the global surveillance of bank transactions.

Ironically, the CNN Money article about Abra had, embedded between paragraphs, a link to another story entitled, “What the future of crime looks like.” I can see all sorts of potential abuses here. For starters, what if a Teller receives counterfeit bills from the anonymous guy he meets behind the corner gas station? Will he (or the recipients on the other end of the transaction) be able to recognize bogus currency?

Your thoughts on this topic are welcome. Post your comment or question below...

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Most recent comments on "Poof! Abra Sends Money With Magic"

Posted by:

11 Jun 2015

If it sounds too good to be true...

Posted by:

Rocky Perkins
11 Jun 2015

I prefer good old fashion greenback dollars. There is no monthly fee, app. or smart phone required to use it. And, as best as I can tell, it's still an anonymous transaction! I'm with you, how can people afford all these smart phone options (no they do not come fee free and run between $200-$500 per month to use) and not $50 to open a bank account) When everyone is forced to use bitcoin, then I'll join in.

Posted by:

11 Jun 2015

It smells like a total crock of sh*t rather than a useful pot of gold.

Posted by:

David Guillaume
11 Jun 2015

Great reporting Bob, I have not stopped laughing since I read your post a few minutes ago. You definitely get 12 out of 10 for the best laugh I have had all week
David Guillaume

Posted by:

11 Jun 2015

Sounds to me if you can afford all these fees then you can afford a Bank Account and pal pal unless your are doing something shady. Way to much chance for abuse.

Posted by:

11 Jun 2015

The next time I think about Abra Cadabra, I'm going to find my Steve Miller Band CDs. These folks might spur me to learn how to send money with PayPal. I don't care how hard they work for my money, they will never earn it.

Posted by:

11 Jun 2015

While I agree that this is great for criminals - that was my first thought in reading it - I have to point out that getting a bank account isn't necessarily about being able to "afford" one - I have seen banks refuse to open accounts for people with poor credit. (And I truly can't imagine why - I can see why they would refuse to extend a line of credit, or some such - but why not open an account?)

Anyway, as sucky as *they* are, the prepaid "credit" card is still an option for the no-bank-account people.

Posted by:

11 Jun 2015

Rocky, above, talks about spending $200-$500 per month on smartphone service. Of course, Bob's regular readers know there are many smartphone options available for less than $40/month, and phones for $100 or less.

People are "unbanked" mainly because banks won't accept them, not because they can't afford bank account fees. Banks turn away depositors for lack of identity documentation or bad credit history.

The undocumented and unbanked are not all illegal immigrants. Quite a few poor citizens lack birth certificates, driver's licenses, and even proof of residence such as a lease.

Then there are those who, like Rocky, prefer hard currency. If Rocky needs to send money ASAP, I wonder how he does it.

Abra's disingenuity and lack of transparency bother me, but the bottom line is that it can beat Western Union and that's a very good thing!

Posted by:

Barry D
11 Jun 2015

This is all part and parcel of the TPTB (the powers that be) to slowly guide the herd to a cashless society. Why?

It is possible to track every transaction that is made electronically.

Prevent bank runs and increase their control

Eliminate the underground economy

Paper money provides the check against negative interest rates for if they become too great, people will simply withdraw their funds and hoard cash

And much much more.

Posted by:

11 Jun 2015

Didn't Abbot and Costello and Larry, Curley and Moe already do this before?

Posted by:

12 Jun 2015

Methinks something smells fishy.

Posted by:

G R Volz
12 Jun 2015

Was this started on 1st April?
Best laugh I have had in ages.

Posted by:

13 Jun 2015

This is great, you know the old saying better than sliced bread well this is. I'm just wondering does this come with real brass cuffs, or are they gonna use them plastic ties. I also agree with David, funny stuff and I'll be keeping this info close to the vest, all the way to the bank.

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