Blockchain and Retail: What Retailers Must Know About Cryptocurrency
Blockchain and retail: Is it a marriage made in cryptocurrency heaven? Only time will tell.
Many major retailers, such as Overstock.com, Newegg.com, Microsoft and Reeds Jewelers, Inc., have accepted bitcoin payments for years. Cryptocurrency payment gateways abound.
Companies like BitPay serve the cryptocurrency market exclusively, while others like Shopify are well known to online retailers who have yet to wade into the world of accepting cryptocurrency.
It may seem like a passing trend for retailers outside of the tech industry. But understanding this emerging technology — and how it could benefit your business — will help you enter the future of retail.
Like Driving a Car
Blockchain is the decentralized, secure, internet-linked accounting mechanism that enables cryptocurrency transactions. But understanding its nuances is not essential.
“You don’t need to understand how an engine works to drive a car,” said BitPay co-founder and CEO Stephen Pair.
There are many potential benefits for retailers accepting payment in blockchain-based virtual currencies:
Payment security: Fraud rates on standard bank-based credit card payment systems from foreign buyers can be significant. Some retailers are therefore reluctant to accept these payments — particularly on high-value purchases. Cryptocurrency-based payments drastically reduce this risk.
“Wallet” services: Security from the consumer perspective is available from services that secure access to the individual’s cryptocurrency balance, enhancing consumer confidence.
Non-reversibility of transactions: There can be no charge-backs once a purchase has been executed.
No transaction size limits: There are no inherent ceilings on the value of transactions.
Lower exchange fees: Processing fees are lower for virtual currencies and often incurred by the purchaser.
Satisfying customer demand: Some buyers prefer conducting transactions using cryptocurrencies. Retailers may want to avoid turning away such customers.
The Road Ahead for Blockchain and Retail
The most common early adopters of cryptocurrency for retail purchases are younger buyers. Retailers catering to a more youthful customer base are likely to see the most cryptocurrency-based purchases in the near future.
For example, KFC Canada announced “The Bitcoin Bucket,” a meal bucket from the fast-food chain that could be purchased with bitcoin, via Twitter in early January 2018.
“KFC Canada presents The #Bitcoin Bucket. Sure, we don’t know exactly what Bitcoins are, or how they work, but that shouldn’t come between you and some finger lickin’ good chicken,” the tweet said.
The average age of cryptocurrency users will likely change over time — following the same pattern of older consumers’ adoption of social media.
Higher-value products, such as electronics and jewelry, are among the most common cryptocurrency-denominated sales, according to Pair. Customers who purchase such merchandise with cryptocurrency often operate outside the banking system, either for reasons of convenience or personal preference.
Most cryptocurrency-based purchases today are from web-based retailers or retailers with both brick-and-mortar and online sales channels. Frequenters of brick-and-mortar stores tend not to carry mobile wallets loaded with cryptocurrency.
Retailers who accept payment in foreign currencies from foreign buyers understand currency risk: the prospect ending up with fewer dollars than anticipated if the foreign currency depreciates against the dollar before the sales proceeds are converted to dollars.
A similar issue can face retailers accepting cryptocurrency payments. But retailers often opt to maintain their own balance of cryptocurrency in the hopes of gaining greater purchasing power in that scenario. But cryptocurrencies can fall as often as they rise against the dollar — so retailers need to manage that currency risk carefully.
Cryptocurrency-based retail sales will grow in the coming months and years. But retailers would be well-advised to consult with a blockchain currency financial specialist before jumping in with both feet. What role will cryptocurrency play in the future of retail? While it may be too soon to tell, understanding the benefits of blockchain and cryptocurrency will keep your business at the forefront of the modern age.