Does accepting cryptocurrency payments make business sense?
Merchants say the benefits are obvious and immediate, but there are some caveats to consider.
A lot of small businesses, and online retailers in particular, are asking themselves whether they should start accepting cryptocurrency as payment. Crypto payments have found a practical niche in grey market real estate sales, but other industries might have more trouble getting concrete benefits from it.
Overall, there are definite benefits to accepting cryptocurrency, with many merchants giving rave reviews of the whole experience. But there are also some downsides.
The exact balance of pros and cons also depends on which coins a merchant wants to accept, so that might be the place to begin weighing the decision.
A brief history of crypto payments
As early as 2014 there were an estimated 80,000 brands accepting bitcoin, including big names like Overstock.com and Dell. Plenty more started accepting bitcoin payments in 2017, but the sudden late-year surge in bitcoin's popularity and resulting network congestion quickly made it untenable, and the number of merchants accepting bitcoin actually started decreasing.
The Steam gaming platform's experience with bitcoin might be typical. It started accepting the coin in April 2016, and a relatively small amount of customers started using it. Then in early December 2017, both Steam and its customers started getting hammered with hefty and unpredictable transaction fees in excess of US$20, compounded by problems with extreme bitcoin price volatility and transactions that take several hours to clear. It stopped accepting bitcoin once these problems began. Bitcoin transactions have gotten much smoother since then, but the prospect of seeing them rise again means it might not be worth it.
Payments other than bitcoin
Bitcoin might have flubbed its moment in the limelight. The coin's market share dropped considerably as its network got more congested, and alternative cryptos started getting much more popular, especially the ones that focus on fast transactions, low fees and a network that won't get so easily congested.
For example, Headphones.com started accepting Nano. It's not as popular as bitcoin, Litecoin or Bitcoin Cash, but with a $1.5 billion market cap, it's still extremely well known and among the top 20 cryptocurrencies in existence. Nano is defined by its ability to offer extremely fast zero fee transfers, without running into the same network congestion that struck bitcoin, which understandably made it a pretty tempting proposition for Headphones.com.
"We've dealt with PayPal, Stripe and Amazon Payments for years. If you've spent time with those payment gateways, I'm sure you'll understand our motivation for supporting Nano," said Headphones.com CEO Andrew Lissimore. "Based on our experience, we think it's a no-brainer for other merchants to start accepting Nano."
Lissimore spoke of some of the concrete benefits the company had experienced by accepting Nano payments. In addition to the complete absence of any transaction fees, he also highlighted the actual implications of certain features.
"These are the fastest transactions we've ever processed," Lissimore said. "We get the currency immediately instead of waiting days or weeks while a payment gateway invests OUR money for some riskless profit before depositing to our bank. This has a HUGE effect on cash flow.
"We don't have to worry about Visa or Mastercard blaming fraud caused by their own lack of security on us. (FYI, if your Visa is compromised and you get reimbursed, that's coming from the merchant, not Visa, even though it's Visa that allowed the money to be spent in the first place). [This] has given us the freedom to ship products to places we usually would have avoided due to fraud concerns."
These benefits have driven other stores to accept Nano, although it has yet to see the same acceptance as bitcoin. Despite its network issues, there are hundreds of shops in Australia that accept bitcoin, while the only things you can buy with Nano in Australia are burgers or Land Rover parts.
There are also some less tangible benefits, including the marketing opportunities and a chance to grab customers' attention. The marketing benefits of accepting bitcoin have probably diminished now that it's gone mainstream, but there might still be a vibe of being on the cutting edge awaiting merchants that move to adopt lesser-known cryptocurrencies.
Case in point: Headphones.com wouldn't be making an appearance here if it only accepted bitcoin. There are tens of thousands of stores still accepting bitcoin, but only an estimated 120 or so that take Nano.
Litecoin is much more popular than Nano. It's also much faster than bitcoin, with much lower fees, although in extreme situations, it might still experience a certain degree of network congestion. LitePay, the complete Litecoin payment system for customers and merchants, was on track for a February launch, but ended up being sharply pared back after pre-launch troubles.
Which brings us neatly to the downsides.
It's not all puppies and publicity. The LitePay problems illustrate some of the inherent unpredictability around everything crypto. This extends to prices too.
Nano prices have tended to be a bit more stable than bitcoin. It's "only" shifted 10% in the last 24 hours and 30% downwards in the last week. And Nano is more reliable than most, recently showing a reasonably sturdy price floor around US$10 and occasional forays up to a ceiling of around $15.
Standard practice is to accept cryptocurrency payments at current prices, but natural volatility means the actual value of these payments can change quickly after acceptance. Some merchants will prefer to keep them as crypto and speculate on their growing value, while others prefer to protect their revenue by cashing it out into real money as soon as possible. The more common cryptocurrencies like bitcoin and Litecoin can be easily cashed out almost immediately, but less common coins like Nano are trickier to convert quickly.
It's probably just as well that at this stage cryptocurrency payments probably won't be a major source of revenue, and for most sellers will just be a neat little sideshow.
On the whole, it seems like the benefits would outweigh the downsides for any seller that doesn't mind a bit of tech tinkering and has enough breathing room to manage the volatility or lock up the occasional purchase as crypto.
Other than the unpredictable margins, the entire procedure might be a lot safer and more reliable than one might expect. For a business that's getting hammered by payment provider transaction fees, fraudulent chargebacks, EFTPOS machine rental costs, bank charges and similar pains, it might even be a refreshing change.
How to start accepting cryptocurrency
It's a two-step process.
The first step is to create a wallet. This is usually just a downloadable piece of PC software or a mobile app. It's also possible to find hardware wallets, which are kind of like specially made high security USB sticks, designed for long-term cryptocurrency storage.
The second step is to start accepting crypto.
In brick and mortar stores, this checkout usually takes the form of a QR code that represents your wallet address. Customers scan it with their phones to transfer funds. In online stores, it can also be a QR code or some other kind of payment widget. Ease of use and compatibility will depend on what kind of coin you're accepting and which system you use.
For example, the most popular Nano payment option is probably BrainBlocks, created by a PayPal Checkout engineer. Using it is basically as simple as copy pasting the relevant code to your website and adding your wallet address.
Does accepting cryptocurrency payments make sense for small retailers?
OPINION: There are some solid benefits in the form of fast payments, low fees, etc, but they don't really kick in until you're doing a decent amount of sales in crypto – at which point, the inherent downsides of cryptocurrency might start becoming a headache.
However, if you're doing a lot of business with overseas customers, or would like to, then crypto payments might be an extremely tempting offer for them and might actually get you more business. Other than that, it might still be hard to get concrete advantages from it.
Having said that, there's no real reason not to as long as you're happy to tinker and can stomach the volatility. Overall, it's probably worth doing just to see what happens and maybe keeping an eye out for any opportunities to leverage it into customer-engagement opportunities.
But if you're just not interested in touching anything crypto, then don't sweat it. You're not missing much... yet.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, SALT, BTC and NANO.