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October 10th 2022

Cryptocurrency: The Perfect Gift for your Customers, or a Big Bag of Coal?

The newest tech has always been a staple of Christmas morning – cracking open the brand-new Nintendo 64 to play with your friends, finding a suspiciously phone-shaped box with your name on it, or lately, something to plug you into the metaverse.

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The question every merchant is asking today is, “Should we give our customers the option to pay in crypto this holiday season?”. But is this the call of valorous first-movers, or are merchants being fooled by the flash and the fanfare of cutting-edge payment technology?

While engaging with the newest tech might be the only right thing to do after unwrapping it under the tree, your payments acceptance strategy should involve scrutinizing every single opportunity before integrating it into your POS. So let’s take you through some of the questions leading merchants are asking CMSPI when making the crypto call.

Bitcoin, Ethereum, Solana: What are these, really?

Cryptocurrency is a lot of things: it’s an investment, a platform, a transaction facilitator, and more. Understanding cryptocurrency is crucial for building its business case – and three key characteristics are vital to know before moving forward:

Three Characteristics of Crypto

Should merchants put crypto under the tree?

Now that we’ve unwrapped the basics, let’s tackle the pressing question: “Should we allow consumers to pay with cryptocurrency?”. The answer leads us to one of the most complicated business cases in payments today. Here are four of the questions you should be asking before putting anything under the tree.

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Do my customers want it?

While there is no denying the immense hype around cryptocurrencies in the last couple of years, this interest is often in the assets as investment tools, offering risky but massive returns, which garners even more interest; an estimated 59 million or so Americans owned some form of it in 2021¹. The fear for merchants is whether what brought consumers to the asset originally - the opportunity to realize significant value in the short or long term - will also keep them from ever wanting to spend it. Most businesses are looking to cryptocurrency as a way to garner additional customers organically, but additional marketing and incentives may be required in order to convince someone to part with their precious Ethereum.

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What does reconciliation look like?

When a business directly accepts bitcoin, it fundamentally isn’t any different from a single consumer paying another. The data available on blockchains is raw and standardized, which makes it difficult to find exact transactions, and there aren’t any standard reports that are created of transactions to a single entity. There is also a lack of aggregation tools within a public blockchain, making any reconciliation efforts extremely difficult.

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How are the settlement timescales?

Because many cryptocurrency transactions are independently validated by nodes on the network, and consensus is required for seamless network operation, transactions can take a long time in relative payment terms: anywhere from a couple of minutes to hours. If you want your transactions moved to the front of the line and settled as quickly as possible, you might have to pay up in variable transaction fees to make that happen. These fees can be significant in times of high demand, with bitcoin transaction fees peaking at nearly 63 dollars per transaction in April of 2021.²

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What about indirect acceptance?

There are, as expected, other options that address some of the concerns listed above. Many gateways, processors, and third parties have developed the ability to act as an intermediary for cryptocurrency transactions by converting them in real time. There are also use cases for the backing technology, blockchain, to be a legitimate value add for internal business processes. However, partnering with an intermediary comes with familiar considerations for merchants, who need to balance additional fees and conversions against a data-driven case for acceptance.

Ensure your business is ready for the holidays

Cryptocurrency is one of a slew of payments considerations merchants have this holiday season, building a Christmas list that would give Santa Claus himself some pause. While the business case for implementing new digital assets as a payment method might be incredibly complex, there are other moves that are immediate slam dunks. Making sure that you’re paying the right fees by closely auditing and monitoring your invoices, achieving market leading debit incentives, and preparing your ecommerce business for a holiday of failed transactions and increased fraud are all things the leading merchants are doing now to get their houses in order before the halls are decked and the carolers come by. For more information about how your business can prepare for the holiday season, and tackle tough payments topics like cryptocurrency, reach out to Josh Pynn at jpynn@cmspi.com.

Sources:
  1. https://ycharts.com/indicators/bitcoin_average_transaction_fee
  2. https://www.bankrate.com/investing/cryptocurrency-statistics/#:~:text=Crypto%20user%20stats%20and%20demographics,form%20of%20cryptocurrency%20in%202021.