Cryptocurrencies are hot news. Visa announced that it would test a kind of cryptocurrency on its own network. Elon Musk proclaimed that Tesla would take cryptocurrency in payment for its own vehicles. Bitcoin’s value is soaring.
Merchants may be wondering if cryptocurrencies are ready for mainstream ecommerce. The answer is no. Here’s why.
8 Reasons to Avoid Cryptocurrencies
Problem 1: Volatility. The worth of national fiat currencies such as the U.S. dollar fluctuates slightly. The buying power of the U.S. dollar, even in times of relatively higher inflation, is more or less the exact same today as in a month or 2.
Cryptocurrencies, on the other hand, are remarkably volatile. 1 year ago, bitcoin traded at roughly $10,000. Today, it trades at approximately $60,000. It’s the equivalent of 17 cents expanding to $1.
To conquer volatility, the cryptocurrency business has created stablecoin, a type of cryptocurrency that has its own worth tied into a more secure asset such as the U.S. dollar or rock. However, stablecoin is not yet widely adopted, in part because crypto speculators do not like equilibrium as it hurts their earning capacity.
Whatever crypto proponents claim, the possibility of a meaningful drop in the value is terrifying. It’s too good of a risk for small- and – medium-sized ecommerce merchants.
Problem 2: No wages. Consumers use credit cards, in part, to make cash-back and point-based rewards. Issuers offer these incentives to motivate customers to pay with cards. There is absolutely no large-scale crypto equivalent to Citi’s Double Money card or Amazon’s Prime Rewards Visa, or a few of the many other popular loyalty programs. The lack of those programs is a disincentive to use crypto for regular payments.
Problem 3: No customer security. Chargebacks are costly and time consuming for merchants. Nonetheless, they’re a vital part of the credit card ecosystem. Knowing they aren’t responsible for fraudulent credit card purchases gives consumers confidence. Crypto payments do not have any protections. A customer has no recourse if the merchant does not deliver on its responsibilities. Merchants do not have any legal or contractual obligation to settle a crypto purchase, though they may choose to do it. A customer could sue a merchant, but it’s unlikely.
Problem 4: Not universal. Cash is universal. Debit and credit cards are worldwide. Cryptocurrency is not. There a slew of cryptocurrencies, but using crypto payments for retail purchases remains an anomaly. Only a few payment gateways (and even fewer point-of-sale terminals) process crypto transactions. Bottom line: Cryptocurrencies are too catchy for clients to obtain and for merchants to take.
Problem 5: Fragmentation. There are approximately 5,000 cryptocurrencies. Banks, payment processors, and merchants are mostly unsure how to process the thousands of available choices. New “coins” pop up seemingly daily. Which ones will need to merchants accept? Imagine if a customer wishes to pay with the latest cryptocurrency, but the payment gateway can not process? By comparison, consider national currencies. Most large financial institutions cope with about 150 sovereign monies, at most. The United Nations admits 180.
Problem 6: Expensive. Average prices for accepting cryptocurrencies for online purchases are approximately 1 percent, approximately 1 percent lower than most credit cards. However, accepting crypto becomes costly when integrating and maintaining another payment gateway and including currency-conversion fees. The latter phase, converting cryptos to fiat currencies, is the true catch. Merchants should carefully consider the cost as the prices are generally high, wiping out the savings from the reduced transaction fees.
Problem 7: Security risks. Cryptocurrency is essentially digital money. Stolen credit cards and bank accounts are colossal headaches. But unless the account holder was negligent, the lender or issuer will return the money. But not so with cryptocurrencies. Once stolen, cryptocurrencies are gone forever — with no recourse. Thus holders of cryptocurrencies must add security measures to protect their accounts.
Problem 8: Coming regulation. National and local governments globally are thinking about taxing, banning, limiting, or controlling cryptocurrencies. Many countries are in the early stages of creating their own national cryptocurrencies, called CBDCs (central bank digital currencies). Interested merchants and customers should permit the dust settle.