Payments have evolved over the course of human history. From barter to cash, and from cash to credit cards, humans have found efficient ways of exchanging value. Change comes with resistance, but in the long term, it brings many benefits for all parties involved.
Crypto payments are on the rise.
46 million consumers said they are likely to use a cryptocurrency for making a purchase in a recent study by PYMNTS and BitPay.
Cryptocurrencies are a two-edged sword, at least for now. It mostly influences a business positively, but there are a few caveats to accepting cryptocurrencies as a payment method for business transactions.
It’s important to understand the basics of cryptocurrencies and their nature as a method of payment to truly understand their impact on a business’s customers and sales. This article discusses what cryptocurrencies are, how they influence a business’s customers and sales, and the things to watch out for.
The Concept of Cryptocurrencies and Their Impact on Customers and Sales
Cryptocurrencies are still a black box for many. It’s like kale. People know it’s out there and has its benefits, but not everyone is all that excited about trying it. If you’re one of them, you’re losing the race.
Cryptocurrency valuations can potentially skyrocket moving forward as they have over the previous decade. What’s even more important is that accepting crypto payments opens your doors to a large group of customers that may have a limited number of options right now.
The anxiety about accepting crypto payments is understandable though. It comes from a lack of awareness about cryptocurrencies and watching people murmur about why it’s a sin to buy crypto, accept it as a payment method, or invest in it.
Let’s try to get rid of that fear through talking a little bit about what cryptocurrencies are.
What are Cryptocurrencies?
Cryptocurrencies are digital assets that live on a blockchain. Blockchain, put simply, is a ledger that stores all transactions executed in its native cryptocurrency. A blockchain encrypts, validates, and records all transactions, which makes cryptocurrency payments secure and irreversible.
The nature of cryptocurrencies excites investors, scare central banks, and make the government sceptical. However, customer-centricity always wins. If the end-users find value in cryptocurrencies, no force can stop them. If someone wants burgers for Bitcoin, they’ll go get it.
Here’s the good news: cryptocurrencies aren’t bad news for businesses either. Businesses can receive money faster and pay less transaction costs by using cryptocurrencies. Let’s talk a little bit about how cryptocurrencies help a business’s customers and sales.
Impact of Cryptocurrencies on Customers and Sales
There are a few factors to consider before one can start accepting crypto payments. Most considerations are a benefit, but it’s always good to keep an eye out for things that could go wrong. Following are the factors that a business should consider before accepting crypto payments.
- Crypto payments improve sales and profitability
There is a large group of people out there trying to buy things with crypto. Unfortunately, there are still many businesses wary of accepting cryptocurrencies as payment. The lack of acceptance, in a way, can also turn into an opportunity.
When a business starts accepting crypto payments while the competitors still only accept fiat, guess where the crypto-paying group will go?
That’s not to say that people will pay for a terrible product or subpar service. However, all else equal, the group will lean towards a business that accepts crypto payments.
The result is increased revenue and profitability. But that’s just one side of how crypto payments increase profitability.
Crypto payments are low-cost. A business spends plenty of dollars year after year in payment processing fees. If the transaction is in a different currency, the merchant even pays the exchanging entity a spread. With crypto, none of these are a problem. For instance, a customer can just buy BTC with fiat and transfer it to the merchant’s wallet. No fees, nada, zilch!
- Say goodbye to chargebacks
A chargeback is a consumer protection mechanism. When a credit card holder’s card has been fraudulently debited with a certain amount, they can request the card-issuing company to reverse the transaction.
However, humans always find a way to get creative with things. A few high-IQ customers often take advantage of this mechanism. They make an online purchase and when the product is received, they request the card company to reverse the transaction. This is called chargeback fraud.
Chargebacks aren’t a thing in the crypto-verse. Decentralization is at the core of blockchain tech. Once a transaction has been executed, nobody can reverse or modify it—not even Satoshi.
The absence of a chargeback mechanism allows businesses to feel more confident about not being defrauded. It also increases the total revenue without all the chargeback fraud pulling money out of the business.
- Crypto payments ensure data security
Customers may be reluctant to provide sensitive information to any website or terminal that they don’t trust. For example, think of a newly established e-commerce store. The store has an excellent product portfolio. A customer wants to make a purchase, but they’ll need to add their credit card information.
The customer’s skepticism wouldn’t be entirely unjustified in this case given the increased incidents of data breaches. So, see how this can keep the customer from moving forward?
Crypto payments do away with this concern because they are encrypted. Once the transaction goes through, it will live forever on the blockchain as it is. It can’t be modified or tampered with in any way. The recipient of the payment can’t view any of the sender’s sensitive details either.
Plus, blockchain is decentralized. So, it’s always possible to validate file signatures. Customers might feel more confident about using crypto than a traditional payment method, and it’s certainly going to impact the customer experience positively.
What to Watch Out for When Accepting Crypto Payments
There are two sides to every coin. Crypto payments offer a world of benefits, but they still come with their fair share of quirks. A few important things to consider about accepting crypto payments are listed below.
- Taxmen say crypto is “property”
Cryptocurrencies are currencies (duh!). However, as far as the IRS is concerned, they’re property and will be taxed as such.
The IRS’s tax treatment of crypto can be a problem for businesses. Whenever crypto is converted to fiat or transferred for a payment to a fellow vendor, the transferrer will generate a capital gain or loss on the cryptocurrency.
If it feels like jargon, just think of capital gains and losses as profit and losses, but on capital assets or “property.” For a business that transacts dozens of times every day, the process of computing and paying capital taxes can quickly become complicated.
- Cryptocurrency valuations are volatile
How should a businessman feel about receiving $500 worth of crypto payment only to find out that it’s worth $250 the next day?
There are two considerations here. First, empirically speaking, the valuation of an established coin like Bitcoin is likely to rise in the future. So even if the price halves the next day, the long-term prospects are attractive.
However, looking away from a valuation that has halved takes thick skin. That’s the second consideration. For people that lose sleep over volatility, cryptocurrencies can quickly turn into a nightmare. Need a preview?
Cryptocurrency payments, therefore, are best suited for someone who feels confident about the future of cryptocurrencies and has the psychological fortitude to ride the volatility without stressing about it.
- Lost cryptocurrency can’t be recovered
Cryptocurrency is intangible. A crypto coin is represented by a private key that is stored in a wallet. The best practice is to only store a small number of coins on a hot wallet (i.e., an online wallet), while the rest should be stored on a cold wallet (i.e., an offline wallet).
Cold wallets are immune to hackers since they aren’t connected to the internet. But they’re still prone to human error. It’s normal for a person to forget a flash drive in their pocket. What happens if the flash drive—the person’s cold wallet—takes a spin in the washing machine the next day?
Puff! The crypto coins are gone. They can’t be recovered.
This is a serious concern, especially for someone who considers themself sloppy. People can and have lost a ton of money simply because their wallet was lost or damaged.
The Time is Ripe for Crypto Payments
Even with the associated risks, now is a great time to start accepting cryptocurrencies as payments.
The volatility isn’t a big concern for businesses that are well-funded and confident about cryptocurrency’s future. Any other problems associated with crypto can be dealt with simply with a little due diligence and planning.
The benefits in the context of customers and sales that come with accepting cryptocurrency payments outweigh the drawbacks. They offer monetary benefits, security, and efficiency. But more importantly, they make businesses future-ready.
It’s quickly becoming clear that businesses will have to accept cryptocurrencies at some point. So why not start now and give the competitors something to worry about?