© Reuters. Is cryptocurrency the future of business payments?
The world of finance is undergoing a significant shift. With the rapid development of blockchain technology and the adoption of cryptocurrencies, businesses are also catching up with the changing financial sphere.
A growing number of companies worldwide are using and other digital assets for various investment, operational and transactional purposes. According to a late 2020 estimate, more than 2,300 US businesses accept Bitcoin, which does not include Bitcoin ATMs. In 2019, AT&T became the first mobile carrier to accept cryptocurrency payments.
A survey by Deloitte revealed that nearly 75% of retailers plan to accept either cryptocurrency or stablecoin payments within the next two years. PayPal (NASDAQ: ), Starbucks (NASDAQ: ), United Airlines, Amazon-owned retail store chain Whole Foods and the largest home improvement chain Home Depot (NYSE: ) are well-known names in the commerce industry that have already started accepting cryptocurrency payments. According to reports, the Spanish airline Vueling will also introduce cryptocurrency as a payment method in 2023.
Despite prominent companies starting to accept crypto payments, many companies still shy away from using this frontier technology. In this article, let’s take a closer look at the benefits of crypto adoption and the potential risks for businesses.
Benefits of Crypto Adoption
Cryptocurrency offers several advantages over traditional payment methods, making it suitable for transactions.
1. Lower transaction fees and increased security
One of the advantages of cryptocurrency payments is lower transaction fees than credit cards or other traditional payment methods. Because blockchain technology is decentralized, the absence of a third-party intermediary significantly reduces transaction fees.
Web 3.0 payments are a form of decentralized finance (DeFi) and use secure finance to process the management of funds. Automation of transactions and money exchange is possible through the core feature of blockchain, smart contract protocols.
Lower transaction fees are of great importance to small businesses. Using credit card payment services mostly incurs a fee for each transaction, which adds to the cost. Credit card processing fees, excluding merchant service provider fees, can range from 2.87% to 4.35% of each transaction.
Another benefit of using cryptocurrency for payments is increased security. With blockchain technology, payments are encrypted and stored on a secure, decentralized ledger. Decentralization makes it much more difficult for hackers to steal or manipulate payment information.
2. Faster cross-border transactions
The high speed of transactions is also a big advantage. Blockchain technology allows for near-instant payments compared to traditional payment methods, such as credit cards and bank transactions, which are slow. This applies especially to international payments, which have always been complicated and inefficient, resulting in lengthy and expensive payment processing methods.
The need for cross-border transactions for business is increasing. According to estimates, worldwide cross-border payment flows are estimated to hit USD 156 trillion by the end of this year. The noticeable increase in the volume of international payments can be attributed to the growing business focus on emerging markets in Asia, Africa and Latin America.
On the other hand, developing countries are particularly susceptible to fintech development, as many people in these regions lack accessible banking services. It is estimated that 2 billion people worldwide do not have access to formal banking services. The services available are often time-consuming and expensive.
3. Access to new demographic target groups
Transaction volume in the cryptocurrency industry has increased since 2020. According to Chainalysis, the volume of crypto transactions grew to $15.8 trillion in 2021, representing a 567% increase over 2020.
The increasing number indicates that crypto consumers are starting to rely on cryptocurrency on a daily basis. With a much larger transaction volume, cryptocurrency and blockchain technologies are undoubtedly changing the payments landscape for businesses.
An additional plus for businesses is that adopting cryptocurrencies can provide access to new demographics. According to research, up to 40% of customers who pay with cryptocurrency are new customers, and their purchase volumes are twice that of credit card users. Therefore, providing crypto as a payment method can help businesses address different customer groups.
Crypto can also help small businesses grow and open their doors to foreign consumers who could not previously access their products and services due to geographic restrictions.
Challenges related to crypto adoption
Despite the benefits that crypto adoption can bring to business, there are some challenges to face. One of them is that cryptocurrencies and DeFi are still vaguely regulated. This regulatory framework protects investors and preserves market stability.
Without the safety net offered by institutions, investors and crypto holders take the risk of entrusting their funds to fraudulent players. They are also not protected from significant market crashes, as happened this year when major crypto brokerage firms filed for bankruptcy.
Cryptocurrencies are also very volatile in price. This poses the highest risk as it is difficult to determine the value of digital currencies. Bitcoin, for example, was once priced at $5 in 2009, but rose to more than $65,000 per coin in February 2021.
Another major challenge is the technical barrier that can prevent some businesses from adopting cryptocurrencies. Accepting cryptocurrency involves setting up a digital wallet on a digital currency exchange, which can be technically challenging for small business owners who need to gain experience with the technology. The crypto sector is known to have a relatively high learning curve, which can be a significant barrier.
For example, in order to accept crypto payments, the e-commerce sector will need to use third-party payment processors. Using merchant services companies, such as Bitpace or Coinbase (NASDAQ: ), helps simplify the process for merchants to adopt crypto payments.
Such platforms enable e-commerce owners to integrate the crypto payment gateway into their online stores, allowing them to receive and withdraw both fiat and crypto currencies without prior technical knowledge or coding skills.
The future of crypto payments
The emerging technology is still in its initial stages. However, as crypto regulation develops further and becomes more established globally, both trust and stability need to improve. Blockchain technologies will increasingly support the growing demand for mobile solutions and boost online transactions.
While the ongoing crypto winter raises skeptical questions, industry pioneers remain optimistic and predict that cryptocurrencies will transform the payments industry in the next ten to twenty years. While some challenges are still associated with using crypto for payments, time will tell if this technology can truly change how business payments are made.
On the backside
- The crypto market is highly volatile and unregulated, which can pose a risk to investors. Also, since the blockchain sector has a high learning curve, it can present a barrier to entry for a complete newbie to the technology.
Why you should worry
A survey by Deloitte revealed that nearly 75% of retailers plan to accept cryptocurrency or stablecoin payments within the next two years. Many well-known companies have already started accepting crypto payments. The increase in crypto transaction volume shows that customers are starting to bet on crypto for daily transactions. The changing financial scene therefore affects both companies and consumers.
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