Government Targets Digital Payment Services

by Matt Klassen on June 25, 2013

The Bitcoin Foundation, a non-profit organization that promotes best practices for the controversial virtual currency system, has been handed a cease-and-desist order from the California Department of Financial Institutions, accused of illegally transmitting money, simply the latest emerging payment service to draw the ire of government agencies.

But a tertiary player in the actual mobile payment revolution at best, one has to wonder if the court injunction against the Bitcoin Foundation is nothing but a witch hunt, as the government of California seemingly has little idea what the NPO actually does, or perhaps its part of many such court orders, the beginning of a blanket attack on this burgeoning economic shift.

Either way, still struggling to gain traction with consumers as a viable payment alternative, the last thing the mobile payment revolution needs is for government agencies to tell the various competing services that they can’t do the only thing they’ve been created to do: handle money.

While the legal action against the Bitcoin Foundation strikes me as somewhat of an anomaly, an agency dedicated to promoting best practices in an industry having been accused of “engaging in the business of money transmission without a license or proper authorization,” the fact that the California Department of Financial Institutions is concerned about the transmission of money from emerging payment services points to larger concerns with the entire economic paradigm itself.

For its part, Bitcoin Foundation board members have categorically denied any wrong doing. “One activity that the foundation does not engage in is the owning, controlling, or conducting of money transmission business”, board member Jon Matonis wrote in an article for Forbes, going on to say that, “it’s difficult to tell whether or not it was a general blanket action and if other bitcoin-related entities received cease and desist letters from California. If Bitcoin Foundation was not the only recipient, then expect other companies to come forward in the days and weeks ahead.”

This injunction against the Bitcoin Foundation comes as part of an increasing focus by government agencies on these emerging payment systems, with popular mobile payment platform Square having been handed the same cease-and-desist order from the State of Illinois in March over allegations that it had violated the State’s Transmitters of Money Act.

Certainly a significant blockade in the road ahead for the mobile payment revolution, I still have to wonder why governments are taking action now, and what the motivation behind these cease-and-desist orders really is. On the one hand, if mobile payment platforms haven’t done their due diligence in establishing themselves as legitimate money handlers that would be an unacceptable oversight, but most of these payment services have been around for several years now, only recently becoming the targets of these government agencies.

This leads me to think that perhaps there’s something more to this story, perhaps these two injunctions serving as but the warning shots against a paradigm shifting industry, with more to come as antiquated government groups desperately try to maintain the economic status quo.

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