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E-Commerce Gateway Services Provider Digital River Flows Into Bitcoin’s Expanding Sea

Payment-gateway services provider Digital River Inc. announced Monday that it is adding Bitcoin as a payment option for its small and mid-sized U.S. e-commerce merchants. The Minnetonka, Minn.-based firm thus apparently becomes the first U.S.-based gateway to support the leading virtual currency.

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“Bitcoin continues to attract more mainstream attention,” Tom Peterson, executive vice president and general manager of commerce at Digital River, said in a news release. “We’re excited to be among the first pure-play e-commerce providers to make the crypto-currency available for small to mid-sized businesses interested in providing their online shoppers more payment choices and added convenience.”

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Payment gateways provide crucial access for online merchants to networks and processors and play an important role in cross-border transactions. A growing number of online merchants are accepting Bitcoin because of its low cost, increasing popularity with consumers, and ease of use in comparison with official currencies for facilitating international transactions. Last week, the Expedia Inc. online travel service announced it could take Bitcoin for hotel bookings, joining earlier acceptors such as Overstock.com.

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Beth Robertson, an independent payments researcher based in the Baltimore area, says she hasn’t heard of another gateway yet supporting Bitcoin. “But since there are a few larger merchants accepting the currency, it is somewhat inevitable that some gateways might be interested in facilitating acceptance,” she tells Digital Transactions News via email.

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Digital River has enlisted San Francisco-based Bitcoin services provider Coinbase Inc. to convert Bitcoin transactions into U.S. dollars and provide the payment processing. Coinbase also is supporting Expedia’s Bitcoin service.

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While Bitcoin has a growing base of consumer and merchant fans, its price has proven to be wildly volatile over the past year. That volatility stems in part from Bitcoin’s popularity with dealers in illegal goods and suspicions by banking regulators about how to handle a new type of money not subject to central-bank controls.

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Digital River handled $30 billion in transaction volume last year for “thousands” of merchants in 200 countries, a company spokesperson says by email. Some 52% of its volume came from outside the U.S. The company supports more than 170 currencies.

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“The potential associated with Bitcoin is exciting—it’s virtual and borderless, which means that Bitcoin has the potential to further break down barriers in international commerce,” the spokesperson says. “As the market for Bitcoin evolves and online growth in emerging geographies continues to climb, it offers merchants another important avenue for expanding their online businesses globally, without the initial limitation of cross-border hurdles.”

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Digital River will use Coinbase's Instant Exchange feature to manage Bitcoin’s price volatility. When a consumer makes a purchase with Bitcoin, Digital River receives the Bitcoin and then sells it to Coinbase in exchange for U.S. dollars. “This process happens instantaneously and mitigates the risk associated with holding Bitcoin,” says the spokesperson.

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In addition, Digital River acts as the merchant and seller of record by taking ownership of its clients’ products and reselling them to the ultimate customer, further reducing risk, according to the company.

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Digital River’s MyCommerce service offers a number of different pricing options for conventional payments, including 2.9% of the sale plus $1 or €1 as well as 0% plus 99 cents or €0.99. “There is no separate pricing for Bitcoin,” says the spokesperson. “Bitcoin is being offered just like any other payment option through our small to mid-sized commerce solution.”

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Robertson currently considers gateways’ provisioning of Bitcoin services “as a trial of sorts” because of the newness of virtual currency and because Bitcoin in particular “is under a high degree of regulatory scrutiny and tends to fluctuate rather dramatically in value.”

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“These are factors that would make acceptance challenging for a single merchant,” she says, “and which might be better handled by a gateway, which may have more experience in establishing and managing an explicit risk and transaction framework within which use of the currency is acceptable.”

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