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Is cryptocurrency the future for business payments? by DailyCoin

©Reuters. Is cryptocurrency the future for business payments?

The world of finance is undergoing significant change. With the rapid development of blockchain technology and the adoption of cryptocurrencies, businesses are also catching up with the changing financial sphere.

A growing number of companies around the world use and other digital assets for various investment, operational and transactional objectives. According to a late 2020 estimate, more than 2,300 US businesses accept Bitcoin, which does not include Bitcoin ATMs. In 2019, AT&T became the first mobile operator to accept cryptocurrency payments.

A study by Deloitte revealed that almost 75% of retailers plan to accept payments with cryptocurrencies or stablecoins in the next two years. PayPal (NASDAQ:), Starbucks (NASDAQ:), United Airlines, Amazon-owned retail chain Whole Foods, and largest hardware chain house deposit (NYSE:) are well-known names in the trading industry that have already started accepting cryptocurrency payments. Spanish airline Vueling will also reportedly introduce cryptocurrency as a payment method in 2023.

Even though prominent companies started accepting crypto payments, many companies still avoid using this frontier technology. In this article, let’s take a closer look at the advantages of adopting crypto and the potential risks for businesses.

Benefits of Crypto Adoption

Cryptocurrency offers several advantages over traditional payment methods, making it very suitable for transactions.

1. Lower transaction fees and higher security

One of the benefits of cryptocurrency payments is lower transaction fees than credit cards or other traditional payment methods. Because blockchain technology is decentralized, the absence of a third-party middleman significantly reduces transaction fees.

Web 3.0 payments are a form of decentralized finance (DeFi) and use secure ledgers to process fund management. The automation of transactions and the exchange of money is possible through the core function of the blockchain, the smart contract protocols.

Lower transaction fees are of great importance to small businesses. The use of credit card payment services most often involves a fee for each transaction, which adds costs. Credit card processing costs, excluding merchant service provider fees, can range from 2.87% to 4.35% of each transaction.

Another advantage of using cryptocurrencies for payments is increased security. With blockchain technology, payments are encrypted and stored in a secure, decentralized ledger. Decentralization makes it much more difficult for hackers to steal or manipulate payment information.

2. Faster cross-border transactions

The high speed of transactions is also a great benefit. Blockchain technology enables near-instant payments compared to traditional payment methods such as credit cards and bank transactions, which are slow. It especially applies to international payments which have always been complicated and inefficient, resulting in lengthy and expensive payment processing methods.

The need for cross-border transactions for business is increasing. According to estimates, cross-border payment flows worldwide will reach US$156 trillion by the end of this year. The notable increase in the volume of international payments can be attributed to the growing business focus on emerging markets in Asia, Africa and Latin America.

On the other hand, developing countries are particularly receptive to fintech development, as many people in these regions lack accessible banking services. It is estimated that 2 billion people around the world do not have access to formal banking services. The services available are often time consuming and expensive.

3. Access to new demographic audiences

Transaction volume in the cryptocurrency industry has increased since 2020. According to Chainalysis, cryptocurrency transaction volume grew to $15.8 trillion in 2021, which is a 567% increase from 2020.

Growing numbers indicate that crypto consumers are starting to trust crypto on a daily basis. With much more significant transaction volume, cryptocurrency and blockchain technologies are undoubtedly changing the payment landscape for businesses.

An added bonus for businesses is that cryptocurrency adoption can provide access to new demographics. According to research, up to 40% of customers who pay with cryptocurrencies are new customers, and their purchase amounts are double those of credit card users. Consequently, providing cryptocurrencies as a payment method can help businesses target different customer groups.

Crypto can also help small businesses grow and open their doors to foreign consumers who were previously unable to access their products and services due to geographic restrictions.

Challenges related to the adoption of cryptocurrencies

Despite the advantages that the adoption of cryptocurrencies can bring to companies, there are some challenges to face. One of them is that cryptocurrencies and DeFi are still loosely regulated. This regulatory framework protects investors and preserves market stability.

Without the safety net provided by institutions, investors and cryptocurrency holders are at risk of entrusting their funds to fraudulent players. They are also not protected against significant market declines, as happened this year when major cryptocurrency brokerage firms filed for bankruptcy.

Also, cryptocurrencies have a very volatile price. This poses the greatest risk, as it is difficult to determine the value of digital currencies. Bitcoin, for example, was once priced at $5 in 2009, but rose to more than $65,000 per coin in February 2021.

Another major challenge is the technical barrier that can be an obstacle for some companies to adopt cryptocurrencies. Accepting cryptocurrency involves setting up a digital wallet at a digital currency exchange, which can be a technical challenge for small business owners who need to gain experience with the technology. The crypto industry is known to have a relatively high learning curve, which can be a considerable barrier.

For example, the e-commerce sector, in order to accept crypto payments, would need to use third-party payment processors. Using merchant service companies, such as Bitpace or Coinbase (NASDAQ:), helps simplify the process for merchants to adopt crypto payments.

Such platforms allow e-commerce owners to integrate crypto payment gateway into their online stores, allowing them to receive and withdraw fiat and cryptocurrencies without prior technical knowledge or coding skills.

The future of crypto payments

The nascent technology is still in its infancy. However, as crypto regulation develops further and becomes more established around the world, trust and stability will improve. Blockchain technologies will increasingly support the growing demand for mobile solutions and drive online transactions.

While the ongoing crypto winter raises skeptical questions, industry pioneers remain optimistic, predicting that cryptocurrencies will transform the payments industry in the next ten to twenty years. While some challenges are still associated with using crypto for payments, time will tell if this technology can truly change the way business payments are made.

In the reverse

  • The crypto market is highly volatile and unregulated, which could pose a risk to investors. Also, since the blockchain industry has a steep learning curve, it could represent a barrier to entry for a complete newbie to the technology.

why should you care

A Deloitte study revealed that nearly 75% of retailers plan to accept cryptocurrency or stablecoin payments in the next two years. Many well-known companies are already starting to accept cryptocurrency payments. The increase in cryptocurrency transaction volume shows that customers are starting to bet on cryptocurrencies for daily transactions. Therefore, the changing financial scenario affects both companies and consumers.

Read more about havens for crypto payments:

Top 10 cities that are hotspots for crypto payments

Find out more about alternative solutions that cryptocurrency users benefit from:

Cryptocurrency users seek alternative solutions to make payments

See original on DailyCoin

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