After a bumpy road, Australia still embraces bitcoin bill payments

Originally launched in May 2014, Living Room of Satoshi (LRoS) provides Australians with the ability to pay everyday bills with Bitcoin. After a turbulent start the company recently reached a major milestone.

“Our customers have proved that the Blockchain is a viable alternative to the expensive and inefficient de facto banking payment networks. Over $1 million of electricity bills, school fees and even tax payments show that everyday banking can happen on the Blockchain, and I expect to see much more in 2016.”
— – Daniel Alexiuc, Living Room of Satoshi CEO and co-founder

Any Australian bill can be paid with the simple service, phone, electricity, school fees, and rent. Users can even pay their taxes. Bank and credit card debt payments are the most common, with the Commonwealth Bank of Australia being the largest payee by dollar amount.

While the service doesn’t charge any upfront fees, the exchange rate spread sits around 2%. To work out the exchange rate on offer they “dynamically calculate the current exchange rate based on multiple exchanges with adequate liquidity available to Australia,” according to the company site.

Payments get even easier with BPAY Biller Codes. Started in 1997 as a way to pay bills by phone, BPAY was a cutting edge service that now dominates the market in Australia. Within a year the service surpassed AU$9m in transactions, and topped AU$9 billion in 2000.

The service has gone on to clear almost AU$300 billion in payments. While not an affiliate of LRoS, the integration of BPAY Biller Codes is on par with the USA’s ACH or Europe’s SEPA systems, and is clearly a savvy move.

The latest BPAY Annual Usage & Attitude Study shows that BPAY is the most widely-used method of bill payment in Australia, with 72% of Australians having used the service.

There are a few limitations when using the LRoS service. Each bill payment is limited to AU$1000, but clients can simply create two or more bills with the same details, and users can’t pay new payees more than AU$1000 per day. A new payee is a bill that hasn’t previously been paid using the platform.

In spite of a tech savvy market, cheap service and good integration, LRoS may face an insurmountable challenge. Last October, the Australian Tax Office (ATO) imposed a 10% Goods and Services Tax (GST) on customers acquiring bitcoin, affecting many small businesses using the digital currency.

LRoS had been growing steadily all year and reported that they were processing about AU$20,000 per week, up until the day of the ATO’s GST announcement. The highly anticipated guidance on crypto-currencies states that bitcoin transactions are, “akin to a barter arrangement, with similar tax consequences.”

“The ATO’s view is that Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes.”
— – Australian Taxation Office

Among many critics of the regulation was Ron Tucker. The Managing Director of Bit Trade Labs, and Australian Digital Currency & Commerce Association Chairman, predicted that the ATO’s view on Bitcoin would send business either offshore or underground.

“It’s essentially a double GST effect. It is adding 10 per cent tax on the entire supply of the Bitcoin. So if the Bitcoin is worth $500 today, you’ll be paying 10 per cent tax on that, as well as the GST on the service or commission fees that the Bitcoin companies may charge."
— – Ron Tucker, Managing Director at Bit Trade Labs

LRoS appeared to be one of the casualties of the tax clarification, closing not long after the guidance was released. However, Alexiuc’s faith in bitcoin was not shaken. In an interview with StartupSmart he stated that bitcoin is "an international currency that will continue its rise unabated."

“Bitcoin will not be affected by Australian regulations like these,” Alexiuc stated emphatically. “But innovation in Australia will be affected, and innovative startups and companies may find it easier to just head overseas.”

While he also considered moving his company offshore, to Singapore or Hong Kong, the company went on to find a way to work with international exchanges, and resumed business two months later.

“The GST ruling has not changed, but the resourceful bitcoin industry has. There are now many more options for small Australian businesses like ours to buy and sell bitcoins internationally and locally in compliance with the tax ruling, which has allowed us to reopen for business.”
— – Alexiuc

The company’s hard work and tenacity has started to pay off this year. LRoS was awarded the title “Best New Startup in Australia” in April, at a national awards ceremony in Melbourne, alongside the “Best state startup” award for Queensland.

The company has since expanded its service, launching "Pay Anyone" in June. Australians can now use the service to deposit funds directly into any bank account, internationally, without the recipient having any knowledge of bitcoin.

The innovation hasn’t stop there. LRoS is also attempting to develop a cost effective alternative billing option system for small businesses, called SatoshiPay, that would compete with the ever present BPAY. Unfortunately the service can’t be launched “until we either relocate overseas, or the ruling is changed,” Alexiuc told CIO Magazine.

The struggle hasn’t stopped there either. The platforms banking  partner, Heritage, sent Alexiuc a letter in November stating that the company’s Business Checking account will be closed. The account has been deemed "inappropriate for Heritage’s business." Even though the company is registered with the Australian Securities and Investments Commission, it has until Jan 30 to find an alternative.

Meanwhile, in other parts of the world similar services are having an easier time of it. In Canada Bylls has been running uninterrupted for a year, while Cashila has been running in Europe for a few months.

Cashila allows you to spend bitcoins on practically anything, while the vendor will receives Euros. It’s even integrated into Mycelium wallet, letting users pay bills to anyone with a SWIFT/IBAN account right from your phone.

Unfortunately, United States citizens are perhaps the worst off. The main bitcoin-to-fiat payment processor for non-businesses that deals in US Dollars was a now-defunct service called BillPayForCoins, which shut down earlier this year when their bank stopped servicing their account. The same problem that LRoS now faces.

“Despite a thorough and detailed explanation of our business with people at the highest level at each of these banks and despite the fact that they opened our accounts and approved our business.. within months Bank after Bank closed our accounts without warning, held the funds until they got around to cutting checks back to us (which is odd because once they closed the accounts we no longer had a bank to deposit into), and stopped or ignored payments that we made on behalf of our customers.”
— – BillPayForCoins

Meanwhile, Coinbase and other wallets have not yet picked up on this service, despite Coinbases’ “recurring payments” page inside user accounts. At the time of writing, this page only allows for recurring payments in bitcoin with no conversion.