In order to increase market reach and customer base, in recent years many businesses have been experimenting with the integration of digital currencies like Bitcoin, Dodgecoin, and Ethereum into their payment systems, as alternatives to traditional payment methods. This allows for transactions without involving banks or payment processors that may impose additional fees.
Cryptocurrencies are digital currencies secured by cryptography, which make it nearly impossible to counterfeit or double-spend. Most cryptocurrencies exist on decentralised networks using blockchain technology—a distributed ledger enforced by a disparate network of computers.
How does it work?
You must have a crypto wallet and exchange account to receive payments. You can either create your own account without a third-party processor or opt for a payment provider, which is more convenient but generally comes with transaction or cash-out fees. Setting up your own wallet requires deciding on accepted currencies and programming it with addresses, transfers, security, and interface for payments.
Who is already doing this?
Companies such as Lush, Etsy, Microsoft, and Shopify already accept Bitcoin. For example, Lush accepts Bitcoin payments to increase the number of available payment methods to global customers. Some retailers do not accept Bitcoin directly but offer the option to purchase gift cards tallowing purchases in the UK through Bitcoin service providers like BitPay and CoinGate – companies offering this include Amazon, Argos, John Lewis, Sainsburys, Tesco and Primark.
In the world of smaller retailers, platforms such as Etsy do not have their own platform for accepting Bitcoin as payment, however independent merchants have the freedom to include Bitcoin as a payment option during the checkout process. Similarly, Shopify allows online sellers to accept crypto payments in the United Kingdom.
If your business is contemplating the acceptance of cryptocurrency as a payment method, it’s crucial to properly understand the potential pros and cons.
The upsides
Global Accessibility: Cryptocurrencies operate on a decentralised network, making them accessible to anyone with an internet connection. This can open up new markets and customer bases for businesses, enabling transactions with individuals and businesses worldwide who may not have access to traditional banking systems.
Lower Transaction Costs: Cryptocurrency transactions often come with lower fees compared to traditional payment methods, such as credit cards. This can be particularly advantageous for businesses with an international customer base, reducing currency conversion costs.
Brand Identity: Cryptocurrencies are key to monetising the metaverse. Numerous brands are establishing virtual stores and devising innovative strategies for incorporating NFTs into e-commerce. Brands embracing crypto are viewed as innovative and forward-looking, appealing to certain market participants.
Reduced Chargeback Risks: Unlike credit card payments, cryptocurrency transactions are irreversible. This reduces the risk of chargebacks, which can be a significant concern for businesses, especially in industries where chargeback fraud is prevalent.
Faster Transactions: Cryptocurrency transactions process in a matter of minutes – much faster than traditional banking systems.
The downsides
Complexity: Using cryptocurrencies can be complex, both for the customer and the merchant. The customer has to navigate apps and crypto wallets, and the merchant has to decide how to accept, manage, and track transactions and make sure they fully understand what they’re doing.
Volatility: Cryptocurrencies are volatile, leading to uncertainties in pricing and potential losses for businesses, particularly those that rely on stable and predictable revenue streams.
Regulatory Uncertainty: The regulatory landscape for cryptocurrencies is still evolving, and businesses may face uncertainties regarding compliance and legal requirements.
Security Concerns: Although blockchain technology is considered secure, the cryptocurrency space is not immune to cyber threats. Hacks and security breaches can result in the loss of funds, which could pose a significant risk for businesses and erode customer trust.
Tax Implication: Taxation on crypto payments in the UK can be complicated. Both Capital Gains Tax and Income Tax apply so it is important to correctly calculate and report each taxable transaction. For example, if you sold a £100 item when the exchange rate was 0.025BTC and waited to convert it to cash when the same amount of Bitcoin was worth more, you would be required to pay tax on the difference. Since prices fluctuate, you could potentially lose money or miss the window when exchange rates are in your favour.
Conclusion
As businesses increasingly explore digital avenues, the integration of digital currencies into payment systems is growing. Cryptocurrencies offer an alternative to traditional methods, providing global accessibility and lower transaction costs. However, businesses must carefully consider potential drawbacks such as complexity, volatility, regulatory uncertainty, security concerns, and tax implications.
