Merchants hold the keys to crypto’s next big step
Crypto has had a turbulent year from an investment standpoint. In May, the market collapsed, with extremely volatile trends and Bitcoin dropping into the teens.
However, widespread retail adoption of crypto payments is already happening with big brands and SMEs joining. Gucci, Balenciaga, Alo Yoga, and Tag Heuer are some of the brands that have announced they will be accepting cryptocurrency as payment. Hublot released a limited edition collection that could only be purchased using Bitcoin.
A report released by Goldman Sachs in January 2022 predicts that the digital economy is an $8 trillion-dollar opportunity.
It’s no wonder that online merchants and retailers have started accepting payments in bitcoin and other cryptocurrencies and are positioning themselves in the Web 3.0 space. Recent data shows an estimated global crypto ownership rate at an average of 4.2%, with over 320 million crypto users worldwide.
Nearly 16,000 (almost 30,000 with ATMs), venues around the world accept cryptocurrency payments, according to Coinmap.org. Over 2,300 US companies already accept bitcoin, according to one estimate. More than 85,000 retailers in Switzerland accept crypto from their customers, through a partnership between Worldline and Bitcoin Suisse.
There’s been plenty of research that shows the same thing: retailers want to let their customers pay them using cryptocurrencies.
- A report by Worldpay and Crypto.com shows that 60% of merchants want to accept crypto within a year.
- Some of the key findings in “Paying With Cryptocurrency: What Consumers And Merchants Expect From Digital Currencies,” a PYMNTS and BitPay joint effort, show that 85% of companies with more than $1 billion in annual sales accept some form of crypto-enabled payment method. Smaller merchants — those with $250 million to $1 billion in annual online sales — just 23% accept crypto for purchases.
- A study by Deloitte and PayPal showed that for 85% of US merchants enabling crypto payments is a high priority. The majority of US retailers expect digital currency payments to be the norm in the next five years.
The technology to accept crypto payments has already been around for years, with companies like Coinbase, PayPal, and BitPay offering solutions that allow merchants to accept crypto payments.
The use of crypto for retail presents a host of opportunities and challenges.
Most merchants see crypto payments as a way to gain new customers, lower transaction fees, and eliminate chargebacks and interchange fees, which can be meaningful for small businesses that operate on thin margins. Crypto payment fees are around 0.5%-1%, which is much lower than other payment options that charge between 1.5% and 3.5%.
Take, for example, The Pavilions Hotels & Resorts group, a Hong Kong-based hospitality group. The Pavilions is one of the first international hotel chains to embrace digital currency payments. Customers can book rooms in many of the hotel chain’s global destinations, based on the currency and location they are situated in at the time of booking, using Bitcoin, Ethereum, and 40 other cryptocurrencies. Accepting cryptocurrency payments has helped The Pavilions Hotel Group nurture lucrative crossover markets, such as luxury travelers who also happen to trade in cryptocurrency.
But there are plenty of challenges to crypto payments adoption, such as the volatility of crypto, complex wallets, and cost-effective on-ramps from fiat to crypto. Also, there is a steep learning curve and complexities in integrating crypto payments.
Merchants want the convenience that Bitcoin payments provide them, and don’t care about the price of Bitcoin. They are worried about slippage, fees, and volatility during the short time when they hold Bitcoin. To deal with these worries, most merchants will automatically convert the crypto they accept as payment to fiat, without ever holding the crypto. This makes it relatively easy for them to turn on crypto payments without having to change how they operate or worry about crypto’s volatility.
Some have argued that merchants could create selling pressure, especially as crypto payment adoption increases and their numbers rise. But essentially merchants buy Bitcoin from the customer, in exchange for goods, and then sell them for dollars or euros. Someone who buys Bitcoin one minute and sells it the next cannot affect the market.
On the consumer side, Visa and Mastercard are betting crypto will be used for everyday purchases from food to clothes to plane tickets. Earlier this year, Visa announced that customers using its crypto-linked cards purchased $2.5 billion worth of goods in fiscal Q1 2022.
Paying with a card that is funded by crypto could become commonplace, similar to how debit cards are linked to our bank accounts. This lets users make purchases using their crypto and frees the merchant from the burden of having to find a crypto-to-fiat off-ramp.
The key question is whether merchants will end up bypassing cards entirely when accepting crypto payments, saving on the fees they pay when accepting debit and credit cards.
Strike is building a cheap, bitcoin-based payments network to rival credit card giants and give merchants a direct way to accept crypto payments. Strike partnered with Shopify, Blackhawk, and NCR to deliver Lightning-powered payments to online and brick-and-mortar stores. Sites that use Shopify can receive bitcoin from customers and instantly convert it to fiat, without any fees or processing delays. By leveraging the Lightning Network, Strike offers merchants an alternative to traditional credit card networks.
More and more retailers will accept Bitcoin and other cryptos for payment, as usage grows, but there is a critical element for Bitcoin to become a commonly used payment method. Merchants will have to hold the Bitcoin they receive, and not convert it to fiat, and find ways to entice crypto owners to use their Bitcoin instead of holding it and using fiat payment methods (credit/debit cards, Paypal, Apple pay, Google pay, etc.) to pay for things.
by Ilias Louis Hatzis is the founder and CEO of Kryptonio wallet.
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