Bitcoin services startup Vogogo is closing its cryptocurrency-focused payment processing service next month after it failed to gain traction, a move that comes amid the exits of several executives and reports that at least some bitcoin services will be affected in the near-term.
Announced on 5th July, the move will see Vogogo shutting down its payments service after it completed selling its risk management business. Those two business lines were major elements of Vogogo, which raised $8.5m in venture funding in August 2014 before going public last year.
The closure is notable given the relatively small size of the country’s bitcoin industry and Vogogo’s position as a visible service provider in Canada.
One bitcoin exchange, Coinbase, which used Vogogo as a payments processor for the Canadian market, has been affected by the shutdown, telling customers in that country that it won’t be able to offer support after the end of this month.
Other exchanges that operate in Canada, most notably Kraken and QuadrigaX, say they aren’t affected by the closure.
Vogogo has been searching for new directions – and revenue – since April, public statements show, when the company announced that its board of directors was looking for alternatives. At the time, the company said it would downsize as part of a cost-cutting plan.
CFO Tom Wenz said in an interview that other assets, including an Electronic Money Institution license obtained last fall, are being looked at as revenue generators, though he said that the company wasn’t going out of business and that it has “plenty of cash in the bank”.
He said that the payment business wasn’t making enough money to keep it afloat, and that ultimately, the company opted, in a decision he said was made Monday, to close it down.
Wenz told CoinDesk:
“The payment business, there wasn’t a lot of interest in it. There wasn’t a lot of revenue or customers there. So, the simplest way to preserve cash value to the organization was just to shut that piece down.”
Impact on bitcoin services
In an email sent to Canada-based customers and later circulated via social media, exchange service Coinbase said that it wouldn’t be able to provide electronic funds transfers or Interac transfers for those clients, or store funds denominated in Canadian dollars.
Those funds need to be withdrawn by 29th July, the email said.
Coinbase later told CoinDesk that it was working to restore service to Canadian customers in light of the loss of access to Vogogo’s processing service.
“We will adjust to this change as quickly as possible and hope to promptly restore services to our Canadian customers,” the company said.
Bitcoin service Celery said that about 10% of its volume comes from Canada since its integration with Vogogo in 2015, and that it hadn’t yet spoken to customers about alternatives. Founder Ilya Subkhankulov suggested that alternatives within Canada for bitcoin companies might be few and far between given the existing financial climate.
“The Canadian payment processing market is especially hard to obtain access to for digital currency transaction processing because only a handful of banks have a tight grip on the payment networks,” he said.
Kraken CEO Jesse Powell said that while Vogogo was the firm’s main processing service for Canadian dollars, he said the exchange had alternatives to turn to following the closure.
“At the moment, we don’t expect our clients to be affected,” Powell told CoinDesk.
Multiple factors
Wenz framed the decision to close the processing unit, as well as the company’s broader strategic shift, as an effort to pivot away from a business model that wasn’t working.
The past several months has seen significant change within the company. In May, the board of directors created an internal group to consider new directions. Less than a month later, Vogogo announced that president and CEO Geoff Gordon would resign effective 24th June. He is set to resign from the company’s board on 10th July.
In 16th July, Vogogo announced that chief revenue officer Rodney Thompson resign as chief revenue officer. Wenz himself is set to shift to a part-time basis at the end of this month.
Beyond the revenue and market traction problems, Wenz pointed to the company’s public stock as a factor. Vogogo’s stock price traded at nearly C$2 last July, according to data from Bloomberg, before suffering a 12-month decline of more than 90% that has left it trading at around 12 Canadian cents.
“The current business model wasn’t being supported and that was reflected in the stock price,” he said. “Instead of burning more capital on a business that wasn’t getting support, we’re looking at other options.”
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