Since late 2017 Cryptocurrency, namely Bitcoin, has been on the lips and touched the ears of a lot mainstream households. It was in November Bitcoin began to rise in value until finally peaking in December at 20,000USD to 1BTC. This was followed a subsequent crash and devaluation of the decentralized currency. As of writing this in September 2018, BTC trades at around 6,500USD. It should be noted, this is still close to double what it was trading at this time last year. This shouldn’t be taken as an indicator of another spike, but rather an illustration of the maintained perceived value.
The biggest problem with cryptocurrency, though, is despite the waves it made and attention it grabbed a lot of people still don’t know how it works. Which partially explains why it’s no longer as hot of a topic. The crash did not help either. The apparent volatility of the currency surely scared a lot of people off. There is a lot of unknown still associated with Bitcoin, so it’s yet to grab the full attention of the general public. Digital transactions have become a preferred method for a lot of people on platforms like Paypal, Venmo and Apple Pay. However, they’re by no means the most prevalent payment method either as most people still opt for their debit card.
This is problematic as those alt-pay platforms deal in USD or whatever your country’s currency may be. They’re accepted as transactional solutions by the banks. Bitcoin still doesn’t have full support of many of the major banks in the US. Currently, most US banks allow for BTC to be purchased using traditional checking and savings accounts. They do, however, have bans on purchasing crypto using lines of credit. The other inconvenience lies in transferring back. You’ll have to go through a third party exchanger before you can put your money back into your bank as so few have adopted ways to handle altcoins.
Which brings us to the other side of the coin(pun intended,) what is the adoption rate like for retailers? If banks are resistant and consumers are hesitant, who’s actually accepting Bitcoin? Microsoft allows for small transactions for things like movies and games. Expedia and Dish network take Bitcoin as payment the same as any other. Overstock.com even accepts other cryptos like Ethereum, Litecoin and Monero.
The market seems to be a little more accepting in comparison to banks, but it’s still a pipe dream to expect a bar in rural Montana to accept crypto for a $2 Coors. Where will we be in five years from now, though? The respondents to our 2022 e-Commerce survey were surprisingly optimistic in the face of the current state of things.
Percentage of E-commerce Transactions Made Using Cryptocurrency?
About half of the people who took the survey think 10-30% of all transactions in e-Commerce will be done by cryptocurrency.
Another quarter see crypto accounting for over 30% of transactions.
This is interesting, because Overstock, accepter of most major cryptos, reported less than 1% of all of their transactions coming from crypto. It’s hard to imagine crypto taking such a large market share of the transactions without significant adoption by online sellers like Amazon, eBay, and Wal-Mart. Further to the point, it doesn’t matter if goods can be bought with crypto unless it’s adopted by the consumers themselves. So the question circles back to how do you get the average shopper to create a crypto wallet, and then spend it?
I reached out to Jared Franklin, Product Manager at Blispay to get his thoughts on the evolving payments landscape.
It takes a very, very long time for anything to change when it comes to the payments space, especially when it comes to payment method adoption by consumers. One simple reason for this is that it’s really hard to change user behavior without a 10x improvement in both user experience and end user value. Cash works, and everyone already knows how to use it. Debit and credit cards work really well, and people know how to use them. They also provide a lot of value to consumers (rewards, protections, security, etc.). For a new payment method to gain adoption, it’s going to need to be 10x easier, safer, and provide significantly more value to the end user, and that’s extremely difficult to do. Think about Apple Pay penetration... amazing user experience, but still not quite dead simple for the masses to figure out. Additionally, there’s always a classic chicken and egg problem when it comes to payments. Like Apple Pay, crypto will have to overcome a chicken and egg problem between merchants and consumers for use cases around payments to gain clarity. Nothing changes fast, and 5 years is categorized as lightning fast in this context.
Crypto is still considered a frontier technology (one that doesn’t have mass adoption, or even value prop clarity). It’s extremely early… promising, but early. The value prop for merchants in the US to accept crypto payments isn’t remotely clear at this point in time, and it’s largely dependent on the value prop and penetration for consumers (hence the chicken and egg problem). This is the crux of the issue. It’s not yet clear what the value prop is for many of the current cryptocurrencies and cryptoassets for consumers. Many theories exist, and there are some benefits, but nothing with certain and obvious clarity at this stage. There won’t be mass adoption without moderate to obvious clarity when it comes to their value creation and use cases. When it comes to Bitcoin in particular, it doesn’t make sense for most people to want to spend it within the next 5 years, as it’s currently designed to satisfy the store of value use case. And this is OK. If it is to have a shot at being used for transactions in the future, it likely needs to be a trustworthy store of value first, and that is going to take many years to work itself out. It doesn’t make sense for the masses to want to give up any of an asset that is being used as a store of value (especially one that is believed to grow significantly in value). Aside from that angle, there are all of the obvious holes that are going to take a few years to fill around custody, key and recovery phrase management, taxes, regulatory clarity, etc.
From a merchant perspective, we have to think about the value prop to them here in the US, and it’s far from clear. They have to deal with all of the same issues that consumers do around custody and that’s no easy feat for most businesses. There’s just not a clear benefit to most merchants to accept crypto in the US until the value prop for consumers to earn, hold, and spend crypto clarifies itself.
With all of this being said, I can envision a future where an ‘internet money’ gains traction and provides a lot of value to both merchants and consumers, but we’re likely more than a decade away, if it even ends up happening at all. Until the full ecosystem gets built out, there won’t be mass adoption. This ecosystem will have to include everything from crypto dispersed payroll and retirement contributions to lending/borrowing instruments. We’re already seeing lending products come to market like the folks at BlockFi. It’s likely that payments is just one use case that crypto proves useful for, but it won’t happen in the next 5 years. We first need to see if the store of value use case pans out. After all, what merchant will want to accept something that isn’t considered a trustworthy store of value? It’s extremely exciting to think about the progress that will be made over the next 5 years in the crypto space regarding regulations, taxes, custody, onramps, and new value props while we learn if bitcoin satisfies the store of value use case.
My advice to any retailer thinking about accepting crypto as a form of payment would be to think long and hard about who your customer (or desired customer) is and what value they’re getting out of paying in crypto. It’s highly likely that the demand just isn’t there yet. You may get more value out of headlines promoting that you are accepting crypto than you will out of new customers that shop with you due to the fact that you accept crypto. If you think there’s value and want to explore it further, then reach out to Coinbase about their Coinbase Commerce product. I’m pretty sure they aren’t even charging for the service at this time. If you’re already a believer in bitcoins likelihood of becoming a store of value with an increasing price, then it’s probably worth adding it to your website even if you only get a few sales, because those few sales just may end up being worth the same amount in the future as many sales generate for you today. But know that it’s a big ‘if’.
I absolutely agree with Jared’s point of view; today it’s probably worth more PR value than anything else and I don’t see an important strategic advantage to gaining some early adoption. When we see consumer adoption of cryptocurrency and a preference for using it to make purchases online we’ll have plenty of options for incorporating cryptocurrency as a form of payment. It’s similar to the decisions we had to make around incorporating PayPal as an alternative payment method in it’s early days. The finance team didn’t want another bank account to reconciles (a time consuming one at that) if there wasn’t enough volume to warrant it.
At the same time, having finally played around with Android Pay in the last year and making some NFC purchases here and there, I feel that there is a lot ton of opportunity to dramatically improve the customer experience when it comes to payments. Apple, Google and Amazon will continue to lead the way while entrepreneurial companies like Affirm, Blispay, Klarna and many others will take a run at reducing checkout friction.