Sitting just below IBM’s newest Israeli R&D center, the walls of Simplex’s Tel Aviv headquarters are plastered with Futurama-inspired graffiti. Upon entering the crypto payments firm’s office you are greeted, along with that burst of cartoon color, by a pool table and large windows that look out onto the mix of glass skyscrapers and run down Bauhaus apartment blocks that make up the Mediterranean city below.
In many ways, the geeky, start-up surroundings fit with the personality of Simplex CEO Nimrod Lehavi. A programmer by training, Lehavi has been working with technology companies for over twenty years. Along with his role at Simplex, he also co-founded GeekCon – an annual, invitation-only event aimed at “hacking the digital lifestyle” which has been described as a “summer camp for nerds” – in 2005.
Lehavi founded Simplex in 2014, along with two former PayPal executives – Netanel Kabala and Erez Shapira. Living in a small town in Israel at the time, he was unable to verify his address when trying to purchase some Bitcoin online. Realising that he might not be the only person in such a position, he decided to launch his own cryptocurrency payments firm to solve the problem.
Complete with Futurama DVD box-sets and a cabinet filled with half-empty whiskey bottles, Finance Magnates met Lahavi in his own office last week. Our talk came at an interesting time. Despite the plush surroundings in which we found ourselves, the cryptocurrency industry has been in something of a nosedive since the price of bitcoin crashed in November of last year. But unlike other leaders in the industry, Lehavi didn’t attempt to shy away from the problems that the industry is facing.
Surviving the nuclear winter
“It’s the nuclear winter,” he said calmly as we started our conversation. “As you know, the market peaked about 12 months ago and now it has jumped off a cliff. We’re doing about 10 percent, in terms of volumes, of what we were doing in January of last year. So we’ve done some downsizing and had to lay off about twenty-five people last month.”
Still, all winters come to an end and Lehavi wasn’t by any means pessimistic about the future of the cryptocurrency industry. Nor does he have reason to be. Since co-founding the tech firm five years ago, Lehavi has made Simplex into the most successful payments company operating in the cryptocurrency space.
“When we started out, we had a map on the wall and we’d put a pin on the countries and cities that we had clients in,” said Lehavi. “But it got so crowded we had to stop it. At this point, if you are buying cryptocurrency using a credit card, with the exception of Coinbase, it’s probably through us. We announced the partnership with Binance a couple of weeks ago and we’re already working with another five or six from the top ten exchanges – in terms of volumes – in the world.”
The payments balancing act
Simplex’s rise has been fuelled by a mixture of good technology and solid know-your-customer (KYC) procedures. So confident is the company of its anti-fraud capabilities, that if your firm is faced with a chargeback, Simplex will repay you the lost funds. For companies operating in the cryptocurrency space, many of whom are having to deal with some less than savoury payments providers, this is a breath of fresh air.
“We are the only company operating in the crypto ecosystem being financially penalised for bad KYC,” Lehavi told me. “That doesn’t mean we don’t get some chargebacks. But it’s a small number and that’s the cost of doing business. The way we operate, it’s a sort of balancing act. If we are getting no chargebacks, that means we’re being too stringent and vice versa. Of course that can be stressful at times. I like to joke that I’m really only 25, it’s working in payments that makes me look as though I’m in my forties.”
Weeding out the bad actors over the course of the payment process is not an easy task. One common problem is ‘friendly fraud’ whereby a user makes a payment on their credit card and then claims they didn’t do it. Preventing that from happening requires a Futurama-esc level of data gathering on the part of Lehavi and his fraud analysis team.
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“We look at about 700 attributes, per transaction, in real time,” said the Simplex CEO. “It’s everything from the way you move your mouse, language, how you fill in forms, previous logins – anything that could be relevant. We have to validate that you are who you say you are. Especially in crypto, there are constantly new attack vectors that we have to fight back against but that puts us in a strong position to provide the same service, to different industries, later on.”
“You can use a Simplex IBAN account like a pseudo-bank account”
Though the company is yet to make any major moves outside of the cryptocurrency space, Lehavi told Finance Magnates that Simplex will likely be providing payments services to other industries in the near future. More specifically, the payments firm has set its sights on e-commerce, particularly store vouchers and online gaming – two areas that have been hit hard by credit card fraud.
For now though, the company is going to be focusing its efforts on developing its existing payments solutions. Registered as a Payments Institution (PI) by the Bank of Lithuania, Simplex is planning on rolling out a solution that will enable it to hold fiat balances, as opposed to just transferring it. That would mean a trader would be able to deposit money into an IBAN account on an exchange.
“Being able to hold fiat currencies can open up a number of interesting solutions for retail traders and exchanges,” said Lehavi. “You can end up using your Simplex IBAN account like a psuedo-bank account. I mean, today you can withdraw your bitcoin from Binance and move them to Coinbase, we want to enable people to do that with fiat [currency].”
Having an IBAN account may not sound like a big deal but, especially for exchanges, it’s a boon. A lack of regulatory oversight means that banks are still extremely reticent about doing business with cryptocurrency firms. That’s a problem which has affected Simplex too.
Chasing the banks
Despite following KYC procedures that, ironically, were drawn from compliance regulations which financial institutions have to adhere to, Lehavi said that his company constantly struggles to find banks to do business with.
“The problem is that the risk for the bank is huge,” said Lehavi. “We open one account, it gets shut down, we open another one and the same thing happens. Even when we got the [PI] license in Lithuania, most banks in Lithuania wouldn’t let us open an account. Put it this way, if you are a compliance officer at a bank, you don’t get promoted for saying ‘yes.’’’
With those problems in mind, we finished our interview with that most cliched of cliched cryptocurrency questions – where does Lehavi think the cryptocurrency industry goes from here?
“I think that in the past five years, pretty much nothing changed,” said Lehavi. “Adoption hasn’t blown up. Banking relationships are still very difficult. Regulation is still non-existent, except for some changes in Gibraltar, New York, and Estonia – but even those have been very limited. Looking forward, I think in the next ten years, the crypto market will continue to function by hype cycles. Each one of those will draw millions more to the market. The next one will probably be created by security token offerings [STOs]. I’m not a big believer in them, but I do believe in the hype created by them. Institutional will get involved, retail investors will get ‘FOMO,’ and then the money will start pouring in again.”
And what of the ‘nuclear winter’ that the industry is powering through? “There will be consolidation,” said Lehavi. “Like in past nuclear winters, the firms that make it are going to come back much stronger than they were before. It’s the survival of the fittest.”