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Retail Blockchain Deep Dive: Payments
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Cryptocurrencies, the first application of blockchain, promised three big things: that the currencies in question could be used “anywhere” (thus enabling cross-border transactions), that they would be anonymous (or pseudonymous, if you prefer), and that they would be secure (rather, they are immutable, and that’s not quite the same thing).

That combination became a perfect storm for illicit activities, like transacting on Silk Road, but that’s not the kind of thing that lends itself to acceptance by legitimate businesses – like retail.

And yet, retail adoption of cryptocurrency payments is growing. At least 900 retailers will now accept cryptocurrencies of one kind or another, with around 100 of them adding the capability in the last year.

This is not because retailers necessarily want to accept currencies that fluctuate wildly in value, because sometimes that goes your way, and sometimes it does not. But still, 900 is nothing to sneeze at, and more are being added every day.

Why? Because it is getting easier to accept cryptocurrency payments, enabled by companies that manage the payment network side of it – acting like a company like ChasePaymentech does in the world of credit cards. Examplesinclude BitPay and Coinbase. Crypto-payments are also picking up because it’s getting easier for consumers to use cryptocurrencies much like they would use a credit card, thanks to companies like SPEDN that offer crypto wallets.

But those explanations only answer the surface-level question of why. Yes, it’s easier than it used to be, but why would you want to in the first place?

For retail, there are two real answers to this question. The first is that retailers want to make it as easy as possible for consumers to pay. If consumers want to pay with Bitcoin, then retailers will find a way to take Bitcoin. As long as it’s not substantially more expensive than accepting and processing a check or a credit card (or even cash – the acceptance of which is not actually free), retailers will find a way to take it. If U.S. society somehow reverted to trading goats as payments, retailers would find a way to accept goats. There are already far more retailers who accept cryptocurrencies than I expected going into this update on the state of blockchain-based payments, so it’s clear at least some retailers are expecting to earn loyalty – and business – from consumers who may just be delighted to be able to pay with crypto.

The second answer to the question is easy to say. Retailers want payments to be as cheap as possible and as painless as possible. Whether any kind of blockchain-driven payment method actually does that remains to be seen.

Blockchain Payments: Cheap?

As far as “cheap” goes, there are some examples that demonstrate that accepting cryptocurrencies is cheaper than your standard VISA or Mastercard transaction fees for credit cards. Just straight up, there are payment companies that will connect retailers to crypto networks for less than a traditional credit card network charges. Those payment companies are playing a middle-man role, making it easier to transact while taking a slice of that transaction that happens to be less than what a credit card fee usually is.

There are also business models that are built on passing on the transaction savings directly to the consumer, like this travel service that promises to undercut even AirBnB because it can offer savings on the transaction fees involved. Walmart is exploring using blockchain to power payments to couriers delivering to home – an attempt to make a labor-intensive market more scalable by making it more operationally efficient from the outset. And IBM is working on an initiative to see if microloans expand local farm-to-market produce sales by making the transaction costs of bringing produce to market cheaper and more painless than they are today.

Blockchain-based payments aren’t necessarily “cheap” but they are “cheaper”.

Blockchain Payments: Painless?

Deciding whether blockchain payments are relatively less painful than traditional payments is more nuanced. Whose pain are we talking about, for example? Retailers? Or consumers? And pain is definitely subjective. Retailers can put up with a relatively large amount of pain internally, if it saves them substantially on credit card fees.

Coinbase actually set up a pop-up donut shop in San Francisco, whose sole intent was to demonstrate to consumers that it’s getting easier than ever to pay with cryptocurrencies. It’s not painless – there is prep work that needs to be done by the consumer before venturing out with Bitcoin burning a virtual hole in your pocket. And the security on a wallet or vault is really only as good as your password protecting it, about which humans seem to be notoriously bad.

And then there is the question of which cryptocurrencies to accept. Bitcoin got all the market awareness by virtue of being first. But retailers now face a real question about what to do with Libra, Facebook’s new cryptocurrency. If it becomes the “coin of the realm” on Facebook, retailers who have traction with consumers there may find they have no choice but to accept it as payment for goods – because otherwise, routing consumers to your website to pay that way may soon turn out to have a lot more friction than paying directly through Libra.

And Facebook isn’t the only network of scale that appears to be considering their own cryptocurrency, as rumors continue to swirl around Amazon. An Amazon currency would pose a real conundrum to competitive retailers, especially ones who have disavowed Amazon Web Services of not funding their competitor’s margins. If consumers want to pay that way, do you take it or not?

This all supposes that the currency itself does not fluctuate, which Bitcoin does, but a very interesting analysis from 2017 found that only one country’s currency was more volatile than Bitcoin – South Sudan – and that Bitcoin, at least, is the least volatile cryptocurrency, less so than Ethereum or Ripple.

Conclusion: pain is relative. But for both consumers and retailers, the pain of using cryptocurrencies is lessened every day.

And Then the Government Gets Involved…

The final piece of the puzzle is government regulation. Governments have been getting involved in a big way in regulating initial coin offerings, which rapidly became an easy way to bypass regulations around initial public offerings of securities. Will they get involved in crypto-payments? Especially if the relative anonymity of such payments lets consumers avoid paying taxes they own on purchases?

Italy, one of the highest tax avoidance states around, is all over that. They’ve been working on a blockchain-based eCommerce infrastructure that has been billed as a way for the government to “fight back against dot-com giants” like Amazon, Alibaba, and eBay. However, requiring all eCommerce to be posted to a blockchain could easily also be used to make sure that people (and retailers) collect and pay all the taxes they owe on their purchases.

The Bottom Line

Payment in general is not easy. Blockchain payments are relatively more difficult – adoption alone, by both retailers and consumers, does not hold a candle to the adoption of, for example, cash. However, to write it off as an esoteric fad would be a mistake. Its maturity is greater, and the risks are smaller, than ever. And ultimately, retailers have a very basic incentive to participate: if consumers want to pay, retailers want to find a way to accept the value offered. That is one fundamental truth that could easily keep crypto-payments into the mainstream for a long time to come.





by Nikki Baird
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