37coins

What did it do?

37coins was an SMS-based wallet service that let users without internet access send and receive bitcoin on basic mobile phones. Users texted a local gateway number to check their balance or send money, and the people who ran these Android-phone gateways earned a small bitcoin fee per transaction.

Why did it shut down?

The company was founded in 2013 with the aim of reaching the unbanked population in developing countries, and by May 2014 it was operating in Germany, Japan and the Philippines. Outside the US, however, text message delivery across different operators was unreliable, a fundamental flaw for a product that moves money. In their closure announcement on 11 August 2015, the founders admitted that they had failed to deliver a quality product showing product–market fit and that the capital raised had not been enough for their original goal. SiliconANGLE, reporting that the start-up had raised USD 525,000 in total, criticised the team for ignoring the rapid spread of smartphones and internet use in its target markets. Users were given until the end of 2015 to withdraw their funds.

The story

Founded in 2013, 37coins set out with the idea of bringing bitcoin to millions of people without a smartphone or internet connection. Its founders, Johann Barbie, Jonathan Zobro and Songyi Lee, were working in the bitcoin start-up group at the Plug and Play Tech Center in Sunnyvale, California. The target audience was people with no access to banking but with a simple phone in their pocket.

The system was built on text messages. Users texted a balance or address command to a local gateway number, and to send money they messaged the amount and the recipient's phone number. Independent operators who ran the gateways on Android phones took small bitcoin fees for the service. PIN and phone confirmation options were offered for security. According to a CoinDesk report in May 2014, the service was running in Germany, Japan and the Philippines, and a partnership had been set up in Singapore.

The model, elegant on paper, struggled in the field. Text message delivery was unreliable across countries and operators; in a service that moves money, a delayed or lost message directly undermined users' trust. In its farewell post on 11 August 2015, the team wrote that, despite its good intentions, it had failed to deliver a quality product showing product–market fit, and that the capital raised had fallen short of what was needed to reach its original goal. Users were given until the end of the year to withdraw their balances.

SiliconANGLE, noting that the start-up had raised USD 525,000 in total, criticised the team for not knowing its target market first-hand; according to the writer, smartphone and internet use was spreading far faster than assumed in many developing countries. The story of 37coins shows that even a well-intentioned financial inclusion idea cannot scale until infrastructure realities and user behaviour have been tested in the field.

Lessons for founders

• Before building a money product on a channel whose infrastructure you do not control, in this case SMS delivery that varies from country to country, measure its reliability in the field in your target market.
• Establish your target audience's access to technology through on-the-ground research, not assumptions; as smartphones spread, the advantage of a text-based solution can melt away quickly.
• Launching in several countries at once on a small seed budget spreads resources thin; first prove a product that works flawlessly in a single market.

Sources

1. Bitcoin Remittance Startup 37coins Announces Closure (CoinDesk, 2015-08-11)
2. 37Coins.com Shuts Down Bitcoin Operations (Cointelegraph, 2015-08-11)
3. Clowns: SMS Bitcoin wallet service 37coins closes due to absolutely no understanding of their market (SiliconANGLE, 2015-08-12)
4. 37Coins Plans Worldwide Bitcoin Access With SMS-Based Wallet (CoinDesk, 2014-05-20)

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