The Case for Commercializing Cryptocurrencies
By Tyler Roye, Co-founder and CEO, eGifter
Recent innovations in digital payments have helped move e-commerce from just online on desktop browsers to mobile and social, which has opened new channels for retailers to drive revenue and gain loyalty. But more channels have also opened the door to new challenges. One of the largest issues retailers face is how to deal with fraudulent ecommerce transactions from mobile devices. New solutions are emerging, but they add layers of cost and complexity.
In an effort to find a solution, retailers are paying close attention to emerging payment options. One of the most discussed solutions is the use of cryptocurrencies, of which Bitcoin is the most prominent.
These digital, encrypted coins that can be easily and securely passed between users have the potential to change the way payments are received and processed in digital commerce. Cryptocurrencies solve several of the most complex digital ecommerce payment solutions problems, such as high transaction fees and credit card data security, while drastically reducing fraud risk. This is music to the ears of online merchants who bear the full fraud risk of card-not-present (CNP) transactions.
Still, there are remaining barriers that need to be overcome before widespread adoption among large U.S. retailers can really take off. Like any transformational technology, there needs to be additional infrastructure investment from large, well-capitalized companies before cryptocurrencies can gain a foothold.
Some retailers are already feeling the benefits of these new currencies, as Bitcoin use is slowly spreading into the mainstream. From larger, more well-known names to small businesses and startups, companies have been making news for accepting Bitcoin. Recent examples of larger retailers who accept the digital currency directly include Overstock.com, Shopify and TigerDirect.com, and most recently, Dish Network.
In April, mobile POS vendors Square and Stripe both added Bitcoin as a payment option. With more than 250,000 merchants on its platform, Square’s move to more flexible payment solutions demonstrates its potential to speed early adoption among both retailers and consumers, especially in the small business space.
More investment should be coming. Cryptocurrencies offer too many benefits to be ignored: tighter security, lower transaction costs, and lower risk are too valuable in the digital commerce world for a solution offering them all to be overlooked.
Why Retailers Should Accept Bitcoins
For retailers, the arguments for accepting Bitcoin center on costs and risk.
More evidence of mainstream adoption will be critical, and this is likely to come as companies like Circle work on addressing the gating issues slowing mainstream adoption. In December of 2013, Bitcoin’s market capitalization reached $12 billion, according to Blockchain. It’s since tailed off a bit, but there are still billions of dollars in Bitcoins in the market. The current users of Bitcoin are in fact consumers and they are looking for places to spend their coins. Because relatively few retailers yet accept cryptocurrencies, word of mouth in the Bitcoin community can drive thousands of transactions through digital channels, creating a loyal group of brand devotees. This is a benefit some forward-thinking retailers are already realizing.
Bitcoin and other cryptocurrencies provide a way for smaller retailers to compete with the e-commerce giants. While large retailers can negotiate much lower credit card transaction fees, smaller retailers can’t. Bitcoin transactions are instantaneous, cashless, and have much lower fees than credit card transactions. In very low margin businesses, this lower cost can be material.
Still, the regulatory uncertainty of Bitcoin is a problem for some in terms of legitimacy, which may cause risks. For retailers looking to get in early but avoid the regulatory risk, there are a couple of ways brands can indirectly accept digital currencies for their goods and services today with little or no risk:
1. Work with a Bitcoin processor to instantly transact Bitcoins into your favorite currency after a sale is complete. This also reduces risk exposure to currency fluctuations.
2. Partner with startups piloting new offerings. This method still shields the brand from any risk within the currency, while simultaneously allowing them to take advantage of a third-party distribution channel for their digital gift cards.
Bitcoin is Just the Starting Point
These are just some of the factors that businesses should consider when thinking about whether payment flexibility and innovation online or at the point of sale is worth the investment.
Cryptocurrencies are not the be-all-end-all for the future of payments, but they are an interesting piece of the emerging payments landscape that should not be overlooked. There are many interesting commercial alternatives emerging. Some indicators point to the possibility Facebook may offer a payment system that could eventually be an alternative to PayPal.
It’s exciting to think about what the future holds for digital payments, but the message is clear – digital currencies are here to stay and will continue to evolve. The important takeaway for retailers is that modern commerce must incorporate strategies for frictionless, low risk mobile transactions. Embracing these changes is a key opportunity to gain a competitive edge.