Merchants want to be able to accept crypto from more customers. Crypto can’t yet replace fiat for payments, but it can complement fiat, says Alexander Mamasidikov, co-founder of mobile digital bank MinePlex.
Since 2020, crypto adoption has been rising rapidly. In addition to millions of retail investors, institutional players have joined the industry to gain exposure to the asset class.
However, apart from investments, we should also explore another crucial aspect of cryptocurrencies, which is payment usability.
Due to the lack of intermediaries, digital asset transactions are inexpensive and settle quickly. Furthermore, their underlying blockchains can be accessed by anyone, anywhere, and anytime; you only need a smartphone or a desktop computer and an internet connection.
For these reasons, many consumers – including 59% of current and former crypto owners – see it as an ideal method to settle their everyday payments. At the same time, a Visa survey revealed that over 30% of small businesses across four countries are planning to integrate digital asset payments in 2022.
Considering these unprecedented developments, many expect crypto to replace fiat currencies in the coming months. However, while the mainstream adoption of digital asset payment methods can definitely happen, it is still years away, as the industry has to solve multiple critical issues regarding infrastructure.
Merchants: Challenges for Small Businesses
When it comes to small business, replacing fiat payment methods with crypto is not yet an option for most market players. There are multiple reasons for this.
Firstly, unlike major fiat currencies, digital assets (even the ones with the highest market caps) are subject to increased volatility. For retailers, a 5% drop in BTC’s value can be huge enough to generate losses on an order. Furthermore, they can’t afford to hold their assets until the price returns to the level the customer used to settle his transaction.
Of course, the small business could decide to accept only stablecoins – cryptocurrencies pegged to the price of major fiat currencies or other stable assets – for their products. However, such a move would be counterproductive, as it would drive away many of their crypto enthusiast customers who prefer to settle their transactions via digital assets like Bitcoin, Ether (ETH), and Dogecoin (DOGE).
Moreover, completely replacing traditional payment methods with crypto would likely create serious cash flow-related issues for retailers. Even if a business solves the problem of volatility, it needs to use digital assets to pay its suppliers, contractors, and other partners.
As a result, the retailer still has to use fiat to settle these payments. A business could decide to work exclusively with crypto-friendly firms, but that would hinder its competitiveness on the market. You don’t want to break partnerships with the best suppliers and work with mediocre ones only because you can pay the latter in Bitcoin.
Merchants: As a business owner, you will find yourself in a similar situation when paying your employees. You can’t just give them crypto and expect them to use it to settle their everyday payments like they would with fiat.
While the number of providers accepting crypto in this field is increasing, we can’t yet pay for groceries, rent, mortgage, or children’s tuition with digital assets. At the moment, only a very small minority of companies offer cryptocurrency payment options in this field.
Most importantly, small businesses will likely lose the majority or at least a significant amount of their existing customers with such a move. You can attract some new, tech-savvy people to your store with crypto payment methods. However, if you force your customers to pay via BTC instead of their credit cards, bank accounts, or PayPal, they will leave for another company that offers these services.
Crypto to complement fiat payments
Taking into account the above, we can see retailers are not yet ready to replace conventional payment methods with digital assets. With the current state of adoption, cryptocurrencies are more likely to function as a complementary method to fiat that will play an increasingly important role in finance.
While we can’t expect businesses to ditch credit cards, bank accounts, and digital wallets for Bitcoin altogether in the near future, many of them will expand their offerings with crypto to fulfill the surging demands among consumers.
To avoid issues related to volatility, accounting, and cash flow, businesses can utilize the services of dedicated crypto payment processors that automatically convert non-stable coins into fiat currency, as well as offer advanced reporting and withdrawals via traditional methods.
In the future, crypto might become a viable alternative to fiat and compete strongly with traditional currencies in the field of payments. But for that to happen, the overall infrastructure would have to go through significant changes.
This includes the ability to accept a wide variety of cryptocurrencies with automatic stablecoin conversions. Furthermore, the predominant majority of businesses (including SMBs like bakers, local supermarkets, schools, gas stations, etc.) have to support crypto, as that would pave the way for mainstream consumer adoption.
Just like in the case of credit cards, consumers won’t adopt a new payment method if they can use it effectively to settle their everyday payments. If there are no POS machines in the majority of the stores, people will continue withdrawing cash from ATMs to buy the products and services they need.
Nevertheless, we can already see that many companies are exploring the new possibilities that digital assets bring into the world of business and payments, with the gap between crypto and fiat gradually becoming shorter. And while it is hard to give an exact time frame, within the next decade or so we are likely to witness the creation of a fundamentally new global payments infrastructure, where the two types of assets can stand on equal ground.
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