The pros and cons of accepting crypto payments for retail transactions

The rise of cryptocurrencies like Bitcoin continues apace, with new players entering the game seemingly every week.

While the future of cryptocurrencies is the subject of considerable debate, a number of retailers have embraced them as a form of payment. For example, Alza, a Czech retailer with a strong physical presence in Eastern and Central Europe and an even larger online reach, began accepting Bitcoin in 2017 and even added Bitcoin ATM to some of its stores in the Czech Republic.

Should more retailers follow suit?  Here’s a look at the potential pros and cons of accepting crypto payments.

Cons

Let’s start with the bad news first. Bitcoin and other cryptocurrencies present retailers with a number of challenges. These include:

Exposure to price volatility

Right now, the biggest impediment to the use of cryptocurrencies as currency is the significant price volatility that has plagued them. While price swings provide speculators with ample opportunity to profit, the vast majority of retailers can’t afford to take on the risk associated with them. For example, if Bitcoin loses 5% of its value between the time a retailer accepts a Bitcoin payment and converts it into fiat currency, that could turn a profitable sale into an unprofitable sale.

While it is possible for retailers to hedge against price volatility to varying degrees, because crypto transactions aren’t confirmed instantly, there’s no perfect solution.

Potentially higher fees

Popular payment provider Stripe announced in January that it would no longer support Bitcoin payments. One of the reasons it cited is the fact that transaction fees had grown to be as high as bank wire transfers in some cases. In theory, Bitcoin is supposed to offer lower transaction fees, but as the popularity of the cryptocurrency has grown by leaps and bounds, the cost of transactions has risen in tandem.

Other cryptocurrencies have been designed to be faster, but currently they’re not nearly as popular as Bitcoin, limiting their viability as payment methods.

Security and legal headaches

While the general concept of a distributed ledger – the technology that powers cryptocurrencies – is straightforward, accepting crypto payments comes with its own set of potential complications.

One big source of potential complexity is security. To integrate Bitcoin and other cryptocurrencies into their checkout process, retailers need to set up a wallet, which is often housed with a third party such as a cryptocurrency exchange. A number of these have fallen victim to hackers.

Another big source of potential complexity is the fact that there is still ambiguity around the legal and tax status of cryptocurrencies. Regulators around the world have been playing catch up and the rules aren’t always clear and retailers might find that the headaches associated with any regulatory burdens outweigh the benefits of accepting crypto payments.

Pros

While accepting Bitcoin and other cryptocurrencies isn’t without challenges, there are also potential benefits.

The ability to appeal to a new market of buyers

Although crypto payments still make up a miniscule portion of retail sales, the huge increase in the value of cryptocurrencies in the past several years has created a lot of wealth and there is a segment of crypto holders willing to use their cryptocurrency as currency. Some retailers, like Overstock, are capitalizing on this by marketing the fact that they accept crypto payments in an effort to appeal to crypto holders.

Obviously, if cryptocurrencies become a commonly accepted form of payment, accepting them will in and of itself lose its power as a differentiator. But for now, the potential to parlay acceptance of cryptocurrency payments into increased sales is one reason for retailers to consider embracing them.

No chargebacks

Chargebacks are a sore spot for many retailers. More often than not, chargeback disputes are decided in the favour of customers, which often discourages merchants from fighting many chargebacks in the first place.

One of the most attractive features of crypto payments is that chargebacks are not possible. Once a transaction is complete, there’s no third party that can intervene to reverse the payment. If a customer is not happy with a purchase, she must try to resolve the matter amicably with the retailer or appeal to the court of public opinion. Arguably, this creates a more level playing field for retailers.

Potentially lower fees

While Bitcoin transaction fees have increased substantially, this might not be the case forever. A recent Bitcoin upgrade called SegWit, which has been implemented by numerous exchanges, has led to decreases in fees, demonstrating that where there’s a will, there’s a technology.

If the volatility of cryptocurrencies diminished and an era of lower fees became permanent, it could go a long way toward making cryptocurrencies a viable payment option for retailers.

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