Why H&M Distributors just started accepting cryptocurrency payments
It's never too late to do crypto payments because all signs say the party's just getting started.
- The crypto payment solution is mildly ridiculous.
- The crypto payment solution lets H&M Distributors eliminate chargebacks, process transactions within minutes and drastically cut the costs of international transfers to unlock a much wider global customer base.
- There are huge opportunities in emerging markets for online retailers, and cryptocurrency payment solutions unlock them.
From one angle, it looks a little late to the party. The use of bitcoin in commerce has been declining throughout 2018 and many of the big names that used to accept it, including Microsoft, Steam and Expedia, quietly stopped accepting cryptocurrency payments after years of allowing them.
But from another angle, the same benefits that attracted merchants to cryptocurrency in the first place are still there. The cachet of accepting crypto has evaporated, but plenty of practical advantages remain.
H&M Distributors is using a crypto payment provider called Chimpion. Merchants that hold enough Chimpion Banana Tokens (BNANA) can gain access to the platform for free and don't need to pay the monthly subscription fee. Chimpion is in turn partnered with coins such as Bitcoin Diamond (BCD). Armed with BNANA, merchants can more easily start accepting BCD and other cryptocurrencies.
Bitcoin Diamond is one of the more successful of the approximately 50 bitcoin variants to emerge in the crypto hype of 2017.
If you've never heard of BCD, then perhaps some of its team members will ring a bell. Bitcoin Diamond was co-founded by 007, its Russia management team is headed up by Wolverine and its chief technical architect is Hawkeye. Its developers include Panther, Wasp and M.
Bitcoin Diamond's team is entirely pseudonymous in keeping with its focus as a privacy-centric cryptocurrency. So among other things, H&M Distributors' customers can now purchase lampshades, light fixtures and specialty lighting solutions with an entirely new level of privacy.
All this ridiculousness means H&M Distributors can process payments from anywhere in the world in minutes flat, give customers anywhere in the world transaction fees of less than a cent, do away with currency conversion fees and completely eliminate the possibility of chargeback fraud.
In addition to Bitcoin Diamond, this deal also allows H&M Distributors to start accepting bitcoin original flavour (BTC), Bitcoin Cash (BCH), Dash (DASH), Ether (ETH), Litecoin (LTC) and Zcoin (XZC).
But even as payment providers monkey around and cryptocurrency developers play superhero, the benefits delivered by the technology are very real. The benefits are pertinent for any ecommerce business with global shipping ambitions and are especially relevant for those that want to be able to serve customers in emerging markets.
Cheaper payments change everything
This is because traditional international payments are still exorbitantly expensive. For example, a $200 remittance from Nigeria (a market of almost 200 million people) would lose over 20% to fees during the transfer process.
This means the cost of goods needs to hit a relatively high threshold before a customer even thinks about buying online from an overseas provider. It's an especially terrible match for regions with a relatively low average income compared to the Western norm. It also applies to services, digital goods and more. These costs build a tangible and deeply problematic economic barrier between countries. It also leaves consumer goods retailers in a bad position. Even if the customers are there, the frictions of money transfers mean they can't be effectively served.
Eliminating the worst of international transfer fees opens the door to a much wider range of customers, especially for brands like H&M Distributors that are more focused on selling cost-effective consumer goods than big dollar luxuries.
Beyond that, other e-tailers have also noted the cash-flow boon of instantly settled payments, and cryptocurrency offers some fun (i.e. commercially valuable) new ways of automating payment schedules.
Eliminating chargeback fraud changes everything
Making payments without risk of credit card fraud or chargebacks is also a major benefit.
These involve buying things online with stolen credit card details or reversing credit card charges after an item is shipped. Theoretically, card providers and other intermediaries police these, but in practice it's a seriously expensive problem for merchants.
According to a Lexis Nexis study (PDF), the average costs of chargeback fraud for US retailers is about US$2.40 per dollar lost.
In other words, for every dollar scammed out of a seller, the seller is actually losing $2.40 on average once you factor in the cost of the scam itself, the administrative cost of following up, merchandise replacement and the fees involved in following up.
These scams are common enough that they're just part of the cost of doing business for online retailers.
The numbers are quite incredible. According to Juniper Research, in 2015, the rate of chargeback fraud climbed up to 1.49%. In other words, 1 in 67 transactions ended with chargeback fraud. It climbs even higher on special shopping occasions. On Christmas Eve 2015, almost 1 in 40 transactions ended in chargeback fraud. The rate varies by country and is considerably higher in regions with more of a fraud climate.
So even if an online retailer can find commercial viability in emerging markets, they still need to be ready to swallow unpredictable losses and need to have much more volume and consistency than they do to be profitable in other markets.
Cryptocurrency ensures that all payments are final, full stop – kind of. Payments can be transparently tracked by both parties, and you can even use fully automated escrow services for dealing with parties you don't completely trust. It's a simple and undeniably effective way for merchants to cut the cost of fraud.
Although ecommerce is growing everywhere, it's growing at extremely different rates.
In fact, pretty much everywhere, except North America, West Europe, the Far East and China, has yet to see ecommerce really take off to anywhere near its full potential, in part because of the frictions that cryptocurrency can solve.
At the same time, these same frictions have already seen cryptocurrency (and other payment solutions) take off in these areas.
As the BBC said, "African millennials can't get enough of bitcoin."
Sub-Saharan Africa was the world's foremost adopter of mobile money solutions, and now there are signs of residents leapfrogging straight over bank accounts and into cryptocurrency.
A similar trend is visible in South East Asia where 70% of adults don't have a bank account, but mobile usage rates are incredibly high and cryptocurrencies have started making their way into daily life.
By accepting cryptocurrency, a retailer can cure some major pain points. Beyond that, all signs point to a quickly growing crypto-happy customer base in emerging markets.
By the numbers, it looks like any online retailer who's serious about taking advantage of the opportunities in emerging markets needs to think seriously about how soon they can start accepting cryptocurrency, and how they can encourage more people to use it.
The downsides of accepting cryptocurrency
The chief downside to accepting cryptocurrency is that people won't take you seriously when you start talking about BNANA payments and saying you accept superhero money at your stores.
Other than that, merchants will have to contend with the fees of a new payment provider, and in the absence of serious volume, it may be hard to justify these. Indeed, despite the obvious potential of cryptocurrency payments, no one's really using them yet and the sheer lack of volume may be the main obstacle.
The rest of it is fairly seamless these days though. Just Google "crypto payment solution" and you'll find more options than you can shake a stick at, most of which essentially work as payment options like any other. You can typically even choose to have crypto payments converted to US dollars or whatever else on the spot to avoid the volatility risk.
On the whole, the benefits of cryptocurrency are definitely there as are the opportunities for anyone who manages to leverage them effectively.
Of course, doing so is easier said than done and very, very few people are actually using crypto for payments. But hey, if it was going to be easy, everyone would be doing it already.
Disclosure: At the time of writing, the author holds ETH.