Saar Wilf

Saar Wilf really doesn’t want you to call Initiative Q a pyramid scheme: The Modern Consensus interview

We ask tough questions of Initiative Q’s founder and CEO

Last week, Modern Consensus published a deep dive into a strange scheme called “Initiative Q” that promised new users the ability to get $20,000 for free. When we called them out for deceptive marketing, we expected to hear some brushback via a Medium post. We thought they might post some kind of reply on Twitter. However, we didn’t expect that Initiative Q CEO Saar Wilf would give us his personal Skype and set up a meeting with us on a Sunday.

We think it’s pretty gutsy to Skype with the people who tore your company apart, so we gave him an interview.

In brief: Initiative Q is a bit of a far-fetched idea that people will someday use imaginary money—or “Q’s”—to make everyday purchases. Where will this supply come from? How will it remain steady? Why would it do so? Those are still unanswered questions. But that didn’t stop Wilf from launching a website and giving them away to users who invited their friends.

What follows is our no-questions-barred interview with the controversial CEO who once had his fraud detection company acquired by PayPal. It was nice to have a genuine conversation with a person instead of just another online shout-fest. Wilf spoke from his Tel Aviv main office where he also claims to be working on eye detection software and another project that can tell you if there’s a mosquito in your room.


MODERN CONSENSUS: You claim that if enough people sign up for Initiative Q that you will build the perfect system behind it. Stop me if I’m wrong, but you could make that claim about any industry.
SAAR WILF: Not anything. Initiative Q doesn’t work in any industry. It is all based on the idea of how money is valued. Money is unique in that its value is way higher than the efficiency it creates. Imagine an economy where the opposite exchange of goods is in money. So the money had the same value as the economy itself. It’s called the velocity of money.


I get how money works. I’m not sure you get it, though.
Money solves a problem—how to trade—but the value it gets is high because it’s involved in every transaction. And therefore you can distribute it for free. Say you build a new messaging network. You can’t tell people you will give them 10,000 free messages. But if you create a new financial system and tell people that, they will get money if that works.


I know you hate being called a Ponzi Scheme, but literally you just described the scheme of Charles Ponzi. He sold the ability to profit from free messages. So why not just make Initiative Q for the Post Office and give away free forever stamps?
This is something you will have to figure out how to fund. Trucks, packaging, insurance. But your network will collapse when you give it away. Money is just numbers in a database. Creating money is free. But if people trust it it has enormous value. So how do we get people to trust this money? Coupling it with an efficient payment network.

Charles Ponzi
Charles Ponzi during happier times (via Wikimedia Commons).

Money is not free. It has a value. And when you print money “for free” you change its value.
Well, kind of…


Show me what an easy transaction in your system would look like. And keep in mind that your system does not exist, nor have you shown your users your plan.
If we have adoption on buyer and seller side, you can go to a restaurant and just get up and leave at the end of the meal. You don’t need to give the card or sign or swipe. I don’t know the common way to pay in your country. So you can have your smartphone automatically connect to the point of sale. You can close the transaction like you would in an Uber. Everyone knows what needs to happen. Just no one knows knows how to get people to move to the network.


What you’re talking about is Esperanto—the made up language with unified rules—for banking. You’re saying that since all languages have flaws we should switch to a made up language and follow these new rules.
This is a classic problem. How to get people to leave what they were using.


You’re starting upside down.
Twenty years ago, I started a payments system and it failed because we had great technology but no way to bring the people. And the solution that won was by far inferior technology—credit cards—and they had the simple way to input the numbers. They had phone keypads. You could could punch your number on an internet form. That’s why they won.


Wait, you wanted to make a payments system before PayPal without using bank accounts and credit cards?
The common knowledge was that no one was going to use credit cards. And everyone know it was obvious there had to be new technology. I was focused on micropayments. Get people to pay half a cent for clicking on a news article. We had a neat solution based on identifying people through their IP address. It was a cool solution.


Listen, I had never heard of Venmo until my friends all started using it. I use it because they use it. So it’s useful. You’re doing the opposite. You want everybody’s friends to sign up for something, not because it works great, but because their friends are signing up for something.
I’m self-funding it for now. All we’re doing is spreading the world. That’s all we need right now. We just need people who want us to succeed. But eventually when we need to build a best of class payment network then we will go to investors.


You’re basically Moviepass for money: sign up now and we’ll figure it out later.
It’s not about figuring it out later. What needs to be done is clear. The issue is that’s not very interesting. There’s no technological challenge here. We will use all the best technology that has already been thought of. And the advantage is we have a way to get people to move there.


But there’s no plan. When my girlfriend asks me how much our next vacation will cost I don’t say to her, “We’ll go somewhere. Don’t worry. And we’ll use the best technology that has already been thought of.” These things cost money.
These are all things people have thought about. Paying with your smartphone. Direct point of sale. Self checkout. Barcodes with your smartphone. More advanced fraud protection. Fingerprint and face identification on your device. Credit verification.


Those are all seller-side concerns. Each of those cost the merchant, not the buyer. If they’re so great, why don’t they just do it?
No one wants to be the first buyer when there are no sellers.


No, I mean if these solutions are so great, then why don’t the credit card companies just do it?
They don’t have unlimited power. They can’t do it in one day. They can’t do it without cannibalizing their business. Touchless payments took maybe 10 years from conception to being widely adopted.


The figures I read about your company are all over the place. Vox says 2 million people have signed up in 180 countries. Wikipedia cites that figure. How many sign-ups in how many countries do you actually have?
Well, over 5 million. Distributed globally. We are strongest countries with the most internet users, so India, Brazil, Spain and U.S.


What are people supposed to do when you’ve replaced their bank and their phone dies?
Maybe an RFID sticker on your phone? Maybe the last bit of your phone battery will be able to do this. People are used to this. They know they can’t get an Uber when their phone battery is dead.


Have you tried literally anything? A prototype? A wireframe?
No. It’s not at this stage. We want to get people focussed, to get on our side. Explaining to people who don’t know what it is.


But you don’t know what it is.
No. They don’t know what our plan is.


But you don’t know what your plan is.
C’mon. There’s a difference between not giving all the details and not knowing what we want to do. We know what we want to do. Everyone knows what a modern payment system looks like. Not about theory. And first, that needs a lot of people on your site.


That’s my question.
Exactly. That’s the problem. If that works out the money will be worth a lot. And so we give the money away for free. You can’t do that with a dating app [or] with messaging. There’s no other technology to incentivize. It only works with money.


You’re not guaranteeing messages. You’re saying, join our network and then go buy groceries.


Ok. Let’s say I’m starting a dating site. Everybody sign up.
So what’s my incentive?


The dating app would have a history. People would say it worked for them and you should try it. Or they might be turned off by the interface or the matches. But if you started a dating app, people would still say, okay, what’s it look like? And you can’t tell them.
The problem we’re focussing on is how to get people. I could talk payment-tech all day long, but the important thing is to bring users.

The pyramids of Giza (via Pixabay).

What do you call your users? They’re not using anything.
We call them users because it’s easy.


Okay, so on this system doesn’t even exist: can I send my friend $1 and know they will receive a dollar?
Maybe not a $1. But maybe $0.99.


Venmo and Paypal can do it.
That’s more of a promotional thing.


PayPal is running a promotion? They’re 20 years old. You worked there 10 years ago. So even your pretend service doesn’t have a promotional period?
Yeah, but when your payment network is operating, you want to have [a sense of] accurate costs.


Venmo and Cash are based on sending money to people you know.
But what if there’s a mistake? Or fraud? There’s always overhead. But there is a cost to moving $1. If you’re not paying it. Someone else is paying it.


Facebook payments does it too.
A lot of these things work when you’re willing to grow your network. But there is no way to avoid transaction fees. There’s no way to mix user data and payments.


You’re literally not trying to do anything but grow your network. What I mean is that when we say Facebook user data, your credit card number is user data. A now Facebook can sell you things on your credit card in their system. But the “promotional value” of getting you to go to your wallet, pull out your credit card, link it to your Facebook account—now you can pay to boost posts or buy ads or products through Amazon. The existence of your credit card number itself in the system is user data.
I don’t know.


When an Initiative Q user goes to share their invites, “ex-PayPal guys” appears in the text. But that phrase does not appear anywhere else in the legal documents or user information pages. Did anyone from PayPal who wasn’t on your team at Fraud Services Corp start Initiative Q?


So it’s wrong to tell my mom and grandfather they can trust this new service from “ex-PayPal guys”
I was at PayPal for two years. I believe my co-founder was with me at Fraud Sciences and at PayPal three or four years. We are not working with anyone we met over there.


And who is that?
Aviv Cohen.


So that is the “ex-PayPal guys.” Two of you from Fraud Sciences Corp. I didn’t see it on the website.
We didn’t put the whole team up.


Pretty much the easiest way for us to see if a crypto-space project is legit is to look at the team. They’re usually prominently displayed.
We’re getting a lot of attention right now and I don’t want them bothered.


How many on the team full time?
Eight. Nine? Eight.


The Vox article says you started this with Economist Lawrence H. White. What does Lawrence H. White do there?
He doesn’t work here. He’s an advisor on monetary economics.


Is there another kind of economics?


So this Vox article. How did that come about?
We were approached. Did a Skype call.


Was that a sponsored post?
No. We never paid for anything anywhere.


Why does the Vox article link to a Lawrence White’s Wikiwand article? Wikiwand is just plagiarized Wikipedia articles with ads. You personally own Wikiwand.
I assume she copied the link from our website. We link to Wikiwand.


You say in your Medium post that It’s not a Ponzi or MLM [multi-level marketing] because that’s not the definition of a Ponzi scheme.
People are constantly trying to accuse us of having malicious plans. People are very used to be suspicious of something free, especially if that thing is money. They think it’s a plan to get their email and sell them. Or a pyramid scheme where it’s free but there’s money later on. I understand that. It’s hard to understand pretty complex monetary…

Yeah but you just said that you will take on venture capital when you get enough users emails. That’s selling emails for money.


Charles Ponzi also took on investor capital to start his firm before he had a product or any record of success. You’re even letting people earn Q’s to get their friends to sign up under them, like a Ponzi or MLM.
No it isn’t. A venture capitalist is investing money in a company that can become the new Visa. If that succeeds, they make 100x their investment. But that isn’t the later users paying the early users. This is just a person saying it has X chance for success.

Charles Ponzi’s mugshot (via Wikimedia Commons).

You personally will make money when you take on investors. The company is just a collection of email addresses at this point. You will literally be selling their emails to investors.
I wouldn’t call that “selling.”


You also don’t plan on releasing all the free Q’s at once. If this money succeeds, your late users will sign up and late users will pay them. Like a pyramid scheme.
The later they join the less they get. They all get something, but it’s less the later they join. So it’s different from a pyramid.

How pyramid schemes work (via the SEC)
How pyramid schemes work (via the SEC)

The people at the top get more because of there being a lot of people at the bottom. That’s literally a pyramid scheme, according the the SEC.
No, a pyramid scheme is people losing money. Not getting less money.


You have a company that does nothing. You’re actively trying to raise venture capital. The people who buy in now get a lot. The people who buy from them later get less. I get that that’s how tech companies work. But tech companies—hear me out—start by offering some kind of tech.
Well…I’m just saying people don’t understand the definition of a Ponzi scheme.

Pyramid scheme red flags
Pyramid scheme red flags, according to the Securities and Exchange Commission (via SEC).

If this works well for a bit and then your investors try to sell out to other investors before it turns bad, then they are no better than a Ponzi scheme.


I lost out on 50 percent of my free Q’s because they expired while I was looking into the system doing my research.
I see. I’m sorry to hear.


So does your company benefit from your users not understanding the system? “Users” lose out by not immediately sharing it.
That’s a good point. My initial reaction is I don’t think there are many people like you who take two weeks to study it. I should look into that.


So what is it other than people getting other people to do something? If Ponzi himself had taken over the world’s shipping and mailing industries then, yes, it wouldn’t be a Ponzi scheme. But that doesn’t sound likely.
Let me get a minute to read the original scheme. I’m on Wikipedia right now.


Not Wikiwand?

It looks like he did have an initial investment strategy. It’s the same with Madoff. So when it stopped working, he started sending new investors money to cash out. Whenever people cashed out, he just took money from the balance sheet and at some point, it wasn’t enough to pay and that’s when it collapsed. That’s just a quick read.

If we fail, we just erase the database and go to our next venture. We’re not going to be leaving thousands of broken houses behind us. It’s a fine point, but an important one.


What’s the plan for the unbanked?
We want to leap over decades of financial systems and get these people all these financial services on a smartphone. In China, they skipped over credit cards for smartphones and now they have better payments than the U.S. and Europe.


So these people who are too poor to have bank accounts will now just buy smartphones?


My final criticism: Having 2 trillion at a $1 value is insane. There’s 40.3 million XRP out there—total!—and it’s trading at $0.37.
May I say you have done the most homework of any reporter. This interview is more fun for me than just telling someone it’s going to work.


So to your questions, 2 trillion by itself isn’t ambitious. Being a global leading payment system is.


Again, that’s a HUGE leap. But I’m glad you brought it up. Your entire plan revolves around universal adoption. Apple and Samsung don’t even agree on their payment systems. But you think you can do it AND make it worth $2 trillion.
I can walk you through it. The exchange of all money is equal to the amount of goods exchanged in one day. So the next question is, what is the value of all the money? How many reserves of money to you have. Suppose you have have $1,000 in your account in a year and each day you spend $3. That’s the velocity of money. That means all units of currency circulate in one year. So if it takes a year for all the money to circulate. The global average for the velocity of money is about six months. The question is how many transactions will be using Q? Global GDP is $150 Trillion. So when you become a leading payment network. Then [our platform will process] a few trillion dollars.


Global GDP figures include corporate loans and government aid. You think governments are going to transact in Q’s, the currency that started as a secret Facebook event? What will your revenue be
Maybe 0.1 percent of each transactions. At that point, our revenue is in the billions and everyone is very happy. But that’s different from the value of the currency.


So since this doesn’t exist, why not just make it free?
Oh, it’s definitely possible that initial transactions will be free. And to have initial transactions have a negative fee [i.e. like getting “cash back” on credit card purchases] So as long as we maintain purchasing power stability, we can do that. If money is not stable, like Bitcoin is now, that makes it unusable as a means of payment. That is the reason we did not choose blockchain.


A blockchain would account for all of these “Q’s” that you’re throwing at every problem. But you can’t. What’s your cap table? Like, who owns what percentage of the company and its future value and revenue? Who gets the “Q’s” and when?
We do reserve 10 percent of Qs to be sold to investors over time. Maybe a few hundred Q’s per $1. We reserve another 10 percent for the monetary committee. The rest to mostly buyers and sellers who join early. We want as much to be circulated widely. We want people to trust our network.


Bro. That’s a Ponzi scheme. The early buyers sell access to the later ones. But at least by the time cash is involved, you’ll be regulated as a money transmitter.
We want to be your grandmother’s preferred payment system.


My gramma can’t get into this because she doesn’t have a smartphone. But since Q’s are traceable, there’s no fungibility. She can’t take her money out when she wants to. She can’t put Q’s in an envelope and give them to me for Christmas. Neither could the Ponzi investors, because it doesn’t have a real value.
No, to be fair, the ability to convert today’s money to paper is limited. In a sense, we already live in that world.


Are you referring to fractional reserve banking? Because I’m not going to defend it. But it does exist—unlike Q’s.
We will have competing banks using Q’s. What you don’t have is the ability to change monetary committees. If you lose trust in the central bank, then yeah, you want to exchange to another government or a competitor of ours.


Every entrepreneur gets asked this question: if this idea is so great then how come no one has done it?
Only in the last two or three years have people understood what money is. So all these things are thing cryptocurrency brought up. Ten years ago, such a story would be too weird to people. It’s much less weird than 10 years ago. A unique combination of conditions.


So why just do it without the Q’s? Fix payments and be the best at it.
I don’t know how to get tens of millions of people to be first on a network without giving them something very valuable first.

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Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives. Disclosure: he owns cryptocurrencies. Follow him on Twitter.