Poof! Abra Sends Money With Magic

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 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?

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