Costs of processing of payments globally are estimated to be $500 billion per year. There is a massive opportunity for cryptocurrencies to wade in if they can provide better solutions. However, there are some challenges that remain:
- Crypto price volatility: makes it hard for merchants to accept crypto since they could lose even before they convert it back to fiat.
- Building of institutional grade wallets, payments processors in the crypto space is still ongoing.
- Building trust with merchants and consumers
- Providing better user-friendly services
For a brick and mortar business wanting to accept crypto, they can just set up a crypto address where the funds will be sent and have a sign ‘bitcoin accepted here’ if its bitcoin they are accepting. A business can use hardware terminals or scanning of simple wallet addresses through QR codes to send payments. However, for business dealing with high volumes especially online companies they should run a full node which they use to verify transactions. However, this might need a competent computer programmer to ensure everything is okay.
The best way currently is therefore using a payment processor. Payment processors can provide the tools that entail integrating merchant website and shopping cart to the processor. They also provide option of converting the crypto currency back to sovereign currency (with no exchange rate risk to the merchant). Examples of payment processors: coinbase, bitpay, circle among others.
- Existing credit card processors such as Visa, Mastercard charge 2-3% processing fee, while some of the existing crypto processors charge 1%.
- Key areas of attraction is online products which have low margins since saving even 1% in merchant processing fees could have significant impact on profits.
- Crypto also enables ‘push’ model of payment instead of ‘push’ model used by credit cards. In the ‘pull’ model, credit card companies need to extract more information from banks and payment rails in order to process the payment and customer personal information exposure is high. However, for crypto payments, its ‘push’ whereby only information related to payment is required.
- No chargebacks: fraudulent card use has led to many companies turning away customers from regions that would be considered ‘risky’ for fear of chargebacks. With crypto, payments are irreversible and merchants can rest assured that payments from any region all over the world can be accepted without first profiling the user/customer.
- A solution to volatility risk highlighted above can be done through stable coins settlements adopted by payment processors. Already Bitpay, uses Circle and Gemini Dollar to prevent risk of value change or price volatility for holders.
There is a growing list of companies accepting cryptocurrencies, especially bitcoin as a means of payment globally. You can check them out here. However, since then more companies have joined the bandwagon. Even in Kenya, Betty’s Place, a restaurant accepts bitcoin for payments. Another is Boxlight Electronics and electronics shop in Nairobi.
Case of OpenBazaar
One interesting case of crypto payments is OpenBazaar– a decentralized marketplace that allows merchants to set up online shop and payments done through cryptocurrencies. As a merchant all you need is to register and start selling and it’s done in a peer to peer way without middlemen to aggregate services or process payments. Also no bank account is required, no listing or platform fees. It is an interesting experiment and its success or failure could provide greater insights on possibilities of fully decentralized marketplaces as well as crypto payments.
The ideal situation in the long term is to have a fully decentralized global network of exchanges and easy to use wallets and remittances done without dedicated remittance providers. In that case, the volatility of crypto would be minimal or controlled through other features such as vibrant futures market and merchants would be willing to hold cryptocurrencies such as bitcoin without facing the risk of loss in value.