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Over the past few years, an increasing number of businesses have started accepting crypto payments owing to the growing popularity of these assets. Initially, digital currencies were seen as an experiment, and not a very good one at that, so companies were understandably reluctant to embrace them, put off by their newness and the risks they posed. But as time went by and to everyone’s surprise, cryptocurrencies developed into a massive ecosystem, people progressively warmed up to them, and more and more firms jumped on the trend.
Today, it’s nothing unusual for companies in different sectors to either accept crypto as a payment option or even invest in digital currencies. However, just because the trend has gotten stronger doesn’t mean all concerns are erased.
Following the crowd is not exactly a winning mentality, so entrepreneurs should ask themselves if bringing crypto into the equation would make sense for their business. Even if the Crypto Fear & Greed Index has been hovering in a neutral zone lately, pointing to a more balanced market, there are still many aspects companies need to keep in mind before making a decision in this respect.
The case for crypto adoption
There are an estimated 23,000 merchants globally currently supporting crypto payments, so one naturally has to wonder what exactly is prompting companies to take the leap and integrate digital currencies into their structures.
In theory, there are various advantages businesses could enjoy by adding crypto to their payment options mix. The first and most obvious incentive is the growing number of people who now own and use crypto, leading to a genuine demand for these types of facilities. According to a study by the nonprofit National Cryptocurrency Association, 88% of companies have been asked by their customers if they intended to introduce crypto payments. Basically, accepting crypto is as much about keeping up with consumers’ changing needs and preferences as it is about innovation.
There are other reasons why businesses have started treating crypto as a legitimate, efficient medium of exchange. The fact that the market has matured, and governments around the world have developed regulatory frameworks that create a much safer environment for crypto holders, is certainly giving companies the confidence they needed to move in this direction.
Beyond that, entrepreneurs are mostly drawn to crypto because of the practical benefits they offer, and the possibility to lower transaction fees stands as a major driver. Unlike fiat, crypto doesn’t need intermediaries to facilitate transactions, so businesses could use the money that would have gone to payment processors for something else. Considering most credit card processors charge fees between 1.5% and 3.5%, that’s a lot of money that companies could save.
Because of its borderless nature, crypto also allows businesses to accept payments from clients from anywhere in the world. Companies don’t have to worry about cross-border wire fees or complicated and time-consuming currency conversion procedures that are the norm with fiat transactions. Without the cumbersome banking mechanisms, crypto payments are usually settled in minutes, so companies can receive the funds faster and improve cash flow.
Another way in which crypto can prove useful to businesses is by eliminating chargebacks. Fraudulent chargebacks cost enterprises quite a lot of money (around $128 per incident), while also creating complicated internal processes. Because blockchain transactions, once confirmed, are irreversible and the funds go directly into the business’s wallet, the risk of chargebacks is zero.
Finally, companies also benefit from the fact that crypto appeals to specific demographics. People who are tech-savvy and keen on using innovative solutions appreciate businesses that give them the opportunity to pay for products and services with crypto, so that’s one way for businesses to expand their customer base.
The shortcomings that stand in the way
If there were only positives about crypto payments, all businesses would have already jumped on this train by now. But the way things are at the moment, it’s not all smooth sailing. There are still several aspects that keep them from incorporating crypto into their financial operations, starting with the strongest hurdle, which is volatility. While the market appears to be calmer today than it was in the past, digital currency prices still fluctuate a lot, and there’s a high chance values will change quite drastically in a very short period of time. This instability can cause businesses to lose a lot of money if the crypto they’re accepting slumps all of a sudden.
The transaction irreversibility that we mentioned previously also raises concerns. The same mechanisms that protect against fraudulent chargebacks also make it more difficult for companies to handle refunds. Without an automatic chargeback system, merchants have to process each refund request manually, and that can put a lot of strain on their teams.
The lack of intermediaries to help with transaction processing can also be seen as a double-edged sword. While crypto payments might eliminate the fees that credit card processors charge, there are network fees that companies have to take into account, and these change based on blockchain congestion.
And let’s not forget about the security risks and tax implications. If an employee misplaces the company’s private keys or discloses them by mistake, the company loses access to all its crypto funds, with no possibility of recovery. As for tax policies, different jurisdictions have different rules in this respect, and that also tends to complicate money management for companies that accept crypto.
Final thoughts
With tens of thousands of brands and retailers across the globe accepting some sort of crypto payment for their goods and services, it’s pretty obvious that the use of digital currencies for everyday purchases is no longer a rarity. Companies that don’t support crypto at checkout just yet are feeling the pressure to fall in line. But before deciding whether they should accept crypto or not, one has to take into account both the advantages and the challenges and potential issues that crypto payments entail.
