Actually, there are multiple payment types that fit this description. One is cash. Another one, at least in theory, is cryptocurrencies like Bitcoin, Ethereum, and Ripple. A cryptocurrency is a digital currency that used cryptography to secure transactions. Many cryptocurrencies are based on blockchain technology, a distributed ledger spread across disparate computers with no centralized data storage.
Cryptocurrencies, often referred to as just “cryptos”, are not regulated by any central bank or government. This distinguishes them from what’s known as Fiat money like dollars, euros, and pounds, which are deemed money by government regulation.
Although still not part of the mainstream, cryptocurrency payments are more widespread than you might think. Monthly payments for goods and services using Bitcoin, the most widely recognized cryptocurrency, rose from 9.2 million in 2013 to 190.2 million in 2017, according to Master The Crypto. In 2017, the number of bricks and mortar retailers accepting Bitcoin globally rose 30% to 11,291, Visual Capitalist has reported. Subway, Microsoft, Shopify, and Expedia are among the multinational corporations that accept or have experimented with accepting crypto.
Barriers to Accepting Crypto
Retailers face several significant barriers when it comes to accepting cryptocurrencies. These barriers all relate in some way or another to the fact this payment type is still relatively new and untested compared to traditional payment types.
1. Price volatility
In the past 12 months, the Bitcoin price has fluctuated between $3,200 and $12,576. That sort of unpredictability can be scary for retailers – most of who are more concerned about making sales than playing speculator. In this respect, accepting payments in Bitcoin would be akin to accepting an unstable currency like the Turkish lira.
2. Long transaction times
The speed of a Bitcoin transaction depends on a multitude of factors, the most important of which is congestion. Bitcoin’s network can support up to 1 MB worth of transactions in each 10-minute block, and waiting periods can stretch to hours during periods of high traffic. This might not be a big deal in e-commerce, but it is a huge barrier to Bitcoin transactions in brick-and-mortar stores – where neither buyers nor sellers have the patience to wait more than a couple of seconds for a transaction to be processed.
3. Volatile transaction fees
Every Bitcoin transaction involves a fee that covers the cost of having the transaction processed by a Bitcoin miner and confirmed by the Bitcoin network. Bitcoin transaction fees are usually lower than credit card fees, but they have been known to spike – most notably in December 2017 when they rose as high as $37.50 per transaction. At time of writing, the average fee was around $0.57 to have a transaction mined on the next block (10 minutes) or $0.05 to have it mined within six blocks (one hour).
Why Would You Want to Accept Crypto?
Despite the many barriers, there are good reasons to accept crypto – or at least to consider incorporating crypto into your business in future.
1. It is cheaper
Ignoring a handful of irregular spikes, Bitcoin transaction fees are for the most part significantly lower than credit card processing fees. The cost of a typical credit card transaction ranges from 1.5% to 3.5% of the total value of the transaction. With Bitcoin, the fee varies wildly but it is usually under $1 for one-hour processing. This makes Bitcoin potentially much cheaper, at least if you’re an e-commerce business selling high-value goods and services.
2. Merchant protection
A major drawback of credit card processing is the chargeback, which occurs when the cardholder’s bank or credit card provider forcibly reverses a transaction. Chargebacks are meant to protect consumers, in that the consumer can appeal to the bank – bypassing the merchant – if they believe they have grounds for a refund. Unfortunately, chargebacks are very costly for merchants: not only does the merchant lose the sale potentially days or weeks after the transaction took place, but they are also liable for chargeback fees of typically $20 to $50. Cryptocurrencies are like cash in that no third party is able to enforce a refund.
3. It expands your market
If somebody wants to buy your product, why stop them? Most people still see cryptos as an asset class that can be bought and sold rather than currency that can be exchanged for goods or services. As the use of cryptos in retail grows, business owners will have more incentive to start accepting cryptos themselves.
4. It offers an option to high-risk merchants
A high-risk merchant is a business deemed by payment processors to be at higher risk of chargebacks. High-risk industries include online gaming, licensed firearms, licensed pharmaceuticals, affiliate networks, and various other industries. Most credit card processing companies don’t provide support to high-risk merchants, and those that do inevitably charge an arm and a leg for the privilege. Crypto basically solves this problem because there is no chargeback mechanism to begin with.
How to accept crypto
For your business to accept credit card payments, you need a credit card processor or point-of-sale (POS) system. To accept mobile payments, you need a digital wallet such as Apple Pay or Google Pay.
In theory, crypto works the same way: all you need is a POS or digital wallet that can handle crypto. The problem is finding a payments processor that supports crypto. Stripe, one of the world’s largest online payment companies, ended support for Bitcoin in 2018, citing a decrease in users because of sometimes-high transaction times and fees. None of Top10.com’s top 10 merchant service companies supports crypto, with the exception of Square, which supports Bitcoin through its Cash App mobile wallet.
For now, the best way to accept Bitcoin and crypto transactions is by signing up for a specialist payments processor like NetCents or Aliant while keeping your usual merchant services provider for credit cards.
What Does the Future Hold?
Cryptocurrencies won’t be replacing dollars, euros, or pounds as the main form of exchange for goods and services any time soon. With that said, the rapid growth of mobile payment solutions like Apple Pay shows there is always a market for new payment types – provided they are cheaper and quicker. If and when cryptos do become widely recognized, the growth could come faster than expected. You may not be ready for crypto yet, but it is worth thinking about this option as you formulate your business plan for the coming years.
