An Interview with Sidharth Sankar the Founder of ZipPay

Today we are talking with Sidharth Sankar, the Founder of ZipPay. Thanks for interviewing with us today. I'm very excited about your project. https://apps.facebook.com/zippay-us

(Q) What is ZipPay?

ZipPay is a Facebook app to make and receive payments. ZipPay is different than PayPal in that balances are held in Silver instead of U.S. Dollars.

Imagine that I owed you $10. If I paid you via PayPal, you get to hold ten U.S. Dollars in your Paypal balance. If I paid you via ZipPay, you get to hold Silver, that is worth ten U.S. Dollars, in your ZipPay balance. Which do you prefer to hold? Dollars, or Silver?

Mike Maloney, the famous author of Investing in Gold and Silver, has explained difference between currency and money. Currency is:

1. A unit of exchange for goods and services.

2. A unit of accounting.

3. Portable.

4. Divisible.

5. Fungible (meaning, a Dollar bill in my hand is interchangeable with a Dollar bill in your hand, and both are considered identical)

Money is all of the above, but mainly, a good store of value; meaning that, one unit of money will buy just as much next year, as it will buy today.

Personally, I like to think that currency is what you spend, money is what you save.

Legal tender laws arbitrarily decree than only the Dollar be used as a unit of exchange for goods and services. So it seems to me that while the Dollar can function both as currency and money, Silver can function only as money.

So if both the Dollar and Silver can function as money, which form of money is superior? More precisely, which, is the better store of value?

Historically, Gold and Silver have been known to be good stores of value when compared with the Dollar, especially during inflationary times. Besides, reckless deficit spending on Capitol Hill, financed in large part through Treasury purchases by the Fed, has all but guaranteed that Gold and Silver shall be superior forms of money.

So, ideally, while I'd like to continue to spend in Dollars, if only because everything in the marketplace is priced in Dollars; personally, I'd prefer to save in Gold or Silver. But if the amounts are small, then Silver, given it's price, is more convenient to hold than Gold. Hence, ZipPay: Dollar payments, held in Silver.

(Q) You are listed as the Founder of ZipPay, can you detail for us what that definitions includes?

I've been wearing multiple hats. I filed the paperwork to incorporate this company. I'm also the largest shareholder. I've been iterating on the business model for last two years. I've been conducting all negotiations with partners and payment processors. I've written the software. And from a legal standpoint, I'm also a Director and the CEO. However, Founder describes me best because I have this idea about payments for the sound-money industry that I want to implement on a large scale.

(Q) Is ZipPay a corporation? What is the current business structure?

I formed iFonePay LLC in the state of California, in March 2008, to test a couple of ideas floating in my head revolving around mobile payments. Payment processors would not grant me an account unless I formed a business entity. So I formed a company and named it iFonePay, because my original idea was to test a mobile payment app for the iPhone.

In November 2009, I quit my day job to start working for myself. My idea was to do payments via ACH. I was going to debit the payer's checking account and credit the recipient's checking account, for a small fee.

The biggest hurdle in launching a successful product, is creating a critical mass. It occurred to me that the most promising approach to solve this problem was to plug into the Facebook platform. It provided the ability to import user profiles instead of having the user enter information manually, and also offered the possibility to grow exponentially by taking advantage of the network effect. So all my users were to identified by their Facebook profiles.

Because it was to be a Facebook app and not an iPhone app, I decided to rename it, ZipPay.

Payment processors are nervous about ACH debit; especially so if a start-up wants to debit. And if it's a Facebook start up .... well, you get the picture. After many months of negotiations, I finally did manage to get processor to let me do ACH debit. But his collateral requirements were too high. So I decided to change the business model: I was going to charge the payer's card and credit the recipient's checking account.

The many months of negotiations with payment processors taught me a painful lesson: when up against a seasoned negotiator, I always loose. I needed help. I requested my friend Henry Huta, who has been a turnaround CEO for over 20 years, and is currently the CEO of Eco-Earth-Energy, to help me negotiate successfully. He generously agreed. His first recommendation was that I form a Corporation, preferably not in California, because it is easier to raise capital for a Corporation than for an LLC. I went shopping. I choose Wyoming because paperwork was a breeze, annual fee was reasonable, and additionally, I have been to Grand Teton National Park and I think it's enchanting. So I formed iFonePay Corp. in April 2010, with four shareholders including myself, in the state of Wyoming. iFonePay LLC is a wholly-owned subsidiary of iFonePay Corp.

(Q) One of the biggest stumbling blocks for digital currency backed by precious metals has (so far) been the relationship between user and merchant. While the transactions are simple, cheaper and instant using a digital precious metals system, getting a local brick and mortar merchant to accept POS payments in digital currency can be a negative issue. A primary cause of this issue can be traced back to accounting and tax issues. Since precious metals are an "asset" and not a currency in the United States, using them in daily commerce creates specific tax obligations and accounting for these gains or losses is almost impossible. In fact the IRS has not specified how to do such a system, so IMHO it's anyone's guess right now. However, on a state by state basis, local government's are now addressing this issue by declaring gold and silver minted U.S. coins to be legal tender currency. This removes the identification of precious metals as an asset and makes them currency just like a paper dollar. This is also how the U.S. Constitution envisioned currency as metal.How do you see the ZipPay model working?

I look at my model a little differently: I make a distinction between currency and money (asset). Imagine that you had a personal banker and you gave him two instructions: When a deposit is made to your account, he is to use those funds to buy Silver for storage in the vault. When a demand (withdrawal) is made on your account, he is to withdraw Silver from the vault, sell it, and fund your account. ZipPay functions like your personal banker. Quite honestly, I haven´t looked into tax obligations.

(Q)Please detail for us how the card payments work?

Imagine that I owed you $10 and I decide to pay with my card.

Let´s use the analogy of the personal banker.

ZipPay will charge $10 on my card. The funds are then used to purchase Silver for deposit to your ZipPay account.

Now imagine that I owed you $10 and I decide to pay from my ZipPay balance.

ZipPay will deduct $10 worth Silver from my ZipPay balance and deposit it to your ZipPay balance. Or else, you could interpret this to mean that you and I have a standing agreement to settle in Silver (legal tender issue?).

I´m not aware of any law precluding parties from settling in Silver if both parties are in prior agreement. Legal tender laws, as I understand it, prohibits you from declining to accept a $10 bill from me to settle my debt with you. However, if you and I have a standing agreement to settle in Silver, where´s the glitch? Isn´t freedom of contract a fundamental tenet of common law?

Besides, even if this is problem, if the vault is located in Utah, where Gold and Silver are now considered legal tender, it wouldn´t be a problem.

I´d like to re-iterate: I´m not a tax or legal expert. Perhaps I know only enough to be dangerous, but I don´t see tax regulation or legal tender laws to be show-stoppers.

(Q) In Russia, the massive non-bank WebMoney payment system has been incorporated into everyday accounting practices. If you are a local business and would like to also accept WM along with bank payments, there is even a book that is available from WebMoney that details the systems integration using local acceptable accounting practices. In other words the Russian's incorporate and encourage non bank payments, while the U.S. is blanketed with bank issued plastic. U.S. businesses are not yet ready to jump into accepting precious metal until someone or some system makes it so easy a child could understand it. ZipPay could be that vehicle.

ZipPay for the U.S. merchant will not be a disruptive service. By using ZipPay, the merchant chooses to hold his receivables in the form of Silver.

When the customer walks in to make a purchase, the merchant will charge the customer's debit or credit card for the (Dollar) price of the article. The merchant then incurs a sales tax obligation for sale of the article to the customer.

ZipPay will use the proceeds from the sale, to sell Silver to the merchant for storage in the vault. This is another, distinct, but not-so-obvious sale. On this sale, ZipPay might incur a sales tax obligation for sale of Silver to the merchant. I say might, because ZipPay is an e-Commerce merchant in the business of re-selling Silver. Sale tax might, or might not apply. If does apply, then the sales tax rate in the state in which the vault is located would apply.

Because the merchant's receivables are stored in Silver, he will likely, over the course of the tax year, incur a gain or loss.

To summarize, I see three possible obligations in this business model: The merchant incurs a sales tax obligation for sale of the article to the customer. ZipPay might incur a sales tax obligation for sale of Silver to the merchant. At the end of the tax year, the merchant might incur a capital gains (or loss) tax obligation. It is reasonable to expect that ZipPay would compute and notify the merchant of his sales tax and capital gains (or losses).

I believe that ZipPay's business model is compliant with existing legal tender laws. By signing up for ZipPay, the merchant is making a conscious decision to hold receivables in the form of Silver (money). However, he continues to conduct business in Dollars (currency). All his merchandise continues to be priced in Dollars. He can continue to charge his customer's debit or credit card, in Dollars, for purchases.

But what, if the merchant wants to pay-off his vendor? His receivables are locked in Silver. He can easily cash-out a portion of his balance in U.S. Dollars to pay-off his vendor. When the merchant chooses to cash-out, ZipPay is buying Silver back from the merchant. Because the merchant makes the sale this time, he might incur a sale tax obligation. In any case, ZipPay will deposit cash-out amount, in Dollars, to the merchant's checking account.

I'd like to re-iterate: I make a distinction between currency and money. Currency is what you spend in the marketplace for exchange of goods and services. Money is what you save. Currency = Dollar, Money = Dollar, Euro, Yen, Gold, Silver, or whatever can function as store of value. ZipPay = Dollar payments, held in Silver. Legal tender laws prohibit you from declining to accept Dollars as payment toward purchase of goods and services, you offer. However, I'm not aware of any law that prohibits you from buying Silver with Dollars. DISCLAIMER: I'm not a legal expert.

(Q) [merchants already accept plastic and account for it][merchants don't yet accept grams or ounces so they don't yet know how to account for the transactions] Your system seems to incorporate the best of both worlds and could be based on silver eagles that are legal U.S. tender.

I believe that ZipPay can accommodate Silver eagles, bullion, bars, rounds, etc. Merchants can continue to work with Dollars.

(Q) Now, why exactly, would a Merchant want to keep converting Dollars to Silver to hold receivables, and Silver, back to Dollars to pay vendors or meet expenses, when these conversions are expensive?

I honestly think most merchants would choose to hold only a portion of their receivables, that they expect to save for the longer term, in Silver. In today's economic environment, even if you want to hold as little as $1,000, for three months or more, you'd be better off holding in Silver.

(Q) The current ZipPay Facebook application is located here: https://apps.facebook.com/zippay-us it is very easy to understand and use. How long does it take to sign up for and begin using the Facebook ZipPay app?...in other words, if I sign up today, can I receive funds and send them just moments later?

Yes, we have a three-click sign-up process. Sign-up is free and personal information is not required. If you wish, you can immediately purchase Silver for deposit to your ZipPay balance. We accept VISA, MasterCard and Discover.

You can immediately make a payment to any friend on Facebook, including friends who haven´t yet signed up with ZipPay. When you make a payment, you could either choose to pay with your card, or from your ZipPay balance. We´ll instantaneously deposit Silver to you friend´s balance. Your friend can then immediately use this deposit to make another payment, or cash-out in Dollars. For the present, payment amounts are limited to $20 or less.

(Q) How can I, as a Facebook user, load my national currency funds and get digital silver using ZipPay? (bank transfer, credit card, etc?)

You currently can only use a regular credit or debit card to purchase Silver for deposit to your ZipPay balance. ZipPay is currently only available to US residents.

(Q) Once I have a balance of digital silver, what can I do with it?

You could either use it to make a payment to any friend on Facebook, including friends that haven't signed-up for ZipPay, or you could cash-out in Dollars. When you cash-out, we´ll make the deposit to your checking account in two business days.

(Q) I see from the Facebook application page that is a difference between the spot, buy and sell pricing. How is that determined and how often does that change? Spot Price: $39.90/oz. Selling Price: $43.09/oz. Buying Price: $39.10/oz.

When you receive a payment in Dollars, we sell Silver to you for deposit to your ZipPay balance, at selling price.

When you cash-out in Dollars, we buy Silver on deposit in your ZipPay balance, at buying price. Dollars are deposited to your checking account in two business days. Spot price is the last trading day´s closing spot price, and is sourced from Kitco. Selling price and buying price are keyed-off of spot price. I try to keep selling price approximately 8% above spot price and buying price about 2% below spot price. However, Silver is volatile and I cannot make any guarantees on these percentages. ZipPay is, in effect, a re-seller of Silver. When you receive a payment, we sell Silver to you. When you cash-out, we buy Silver from you. We make money by buying low and selling high. By buying in bulk, in bullion, the least expensive form of Silver, and during the inevitable dips, we hope to minimize the Dollar-cost average price in our vault. The spread between the Dollar-cost average price and selling price or buying price, is where we hope to make money. Spot price, selling price, and buying price are updated every trading day.

(Q) Are there any "external" third party agents that today can exchange national currency for ZipPay credits?

No. We don't offer ZipPay credits. We only offer Silver.

(Q) Are there any plans allow or set up third party digital currency agents that can do exchanges for customers?

No, not at the present moment.

(Q) Is it possible to transfer PayPal into ZipPay?

No, not at the present moment.

(Q) Is there any method for me to deposit cash to my ZipPay account? For example is there a prepaid ZipPay card like a Facebook or iTunes card hanging somewhere?

We don´t have a prepaid ZipPay card.

(Q) I see a lot of information about ZipPay being incorporated into mobile devices. This is very exciting. Can you tell us about the progress you are making in this direction?

ZipPay for mobile devices is really the ZipPay web application for the mobile form-factor. You´ll be able to pull it up on your smart phone´s web browser. But we´re not releasing it, just yet. We´re currently focusing on the ZipPay app on Facebook.

(Q) Is the mobile payments version backed by silver or is that simply a USD digital unit?

All ZipPay payments will be held in Silver. We believe in 100% reserves and investment-grade metal. ZipPay for mobile devices is just another channel that will become available to access your ZipPay balance.

(Q) The value that is in ZipPay right now, say I was today to deposit $100...where is the silver vaulted?

ZipPay reserves are held with Silver Saver, in their vault in Delaware.

(Q) Down the road, are there any plans to make the balance and the transactions more transparent? (Example: third party audits of the silver, or an app showing how many transactions are done in a day, etc.?)

Yes, absolutely!

After speaking with many individuals associated with the sound-money industry, I realized that there is a strong trend in America to go local, in all matters. Communities also want to have local control over their money.

Consequently, I've decided to improve on the business model. ZipPay will continue to process Dollar payments, held in Silver. But the vaults, which hold Silver, will be local. I hope this will engender trust in the community.

ZipPay currently supports only one vault- our own, held with Silver Saver in Delaware. With this new business model, ZipPay will support multiple vaults this allowing users the option to choose the vault in which they wish to hold money.

I´m also seriously considering closing ZipPay´s vault with Silver Saver. To answer you question, I believe that ZipPay should be the party auditing third-party, local vaults, to ensure 100% reserves and investment-grade metal. By closing our vault, we can completely eliminate conflict of interest. Our interests will then be perfectly aligned with our user´s interests. ZipPay will become a pure-play payment system for the sound-money industry.

(Q) What are your plans right now for ZipPay?

I´m currently in the process of integrating ZipPay with a third-party, local vault, operated by Northern Colorado Barter (ncobarter.com) at Fort Collins, CO. Discussions are underway, and I hope to launch with them this month. Very soon, Fort Collins, CO, will experience the convenience of internet payments, the integrity of sound money, and the security of a local vault holding 100% reserves in investment-grade metal.

(Q) I'd like to know, if there could be any type of partnership or business relationship such as vaulting that is possible for people who want to get into business with ZipPay...what is the next step to do this?

I only have two requirements for a ZipPay-compatible vault:

1. 100% reserves

2. Investment-grade metal.

I expect to have multiple vaults to cater to diverse market requirements: Gold-only vaults, Silver-only vaults, Gold and Silver vaults. Bullion, bars, rounds, etc. Some vaults might choose to allow redemption in specie; yet others, might only allow cash-out in currency. Some vaults might choose to serve the local community. Others might serve the entire country. The variations are endless. I'd like ZipPay users to have the choice of holding money in any vault.

(Q) Is there anything else you would like to discuss or request from our readers? What can we do to help?

1. I´d like to integrate with one or more vaults in Utah.

2. I´m seeking investment from individuals interested in a payment system for the sound-money industry.

I'd like to thank Sidharth for his time and consideration when answering my questions.

DGC Magazine