Crypto’s Uphill Battle for Acceptance

More merchants have begun accepting cryptocurrency, and processors say there’s others to come. Good luck with that, say skeptics.

A dozen years after the emergence of Bitcoin, widespread merchant acceptance of digital currency remains more a vision than a reality.

Most merchants that do accept cryptocurrency insist on converting it into fiat at settlement, a preference that stems from their desire to avoid the volatility in crypto’s value, which can fluctuate up or down at a moment’s notice. For many merchants, this disadvantage offsets crypto’s virtues, including instant settlement and the availability of a growing cohort of users as potential customers.

Plus, the value of cryptocurrency has been plummeting this year. Bitcoin, the best known of the cryptocurrencies, saw its price drop more than 37% in June, its biggest loss of value since 2011, according to Coindesk, which tracks cryptocurrencies.

On one day that same month, Bitcoin also saw its biggest single-day drop in value since March 2020, a 16% decrease to $21,910. By July, Bitcoin’s value has since fallen to around $19,000 and has hovered in that vicinity since.

“Merchants don’t want to hold cryptocurrency because of its volatility and that’s an obstacle to its acceptance at the point-of-sale,” says Aaron McPherson, founder of AFM Consulting, a fintech and payments consultancy, and a close follower of digital currencies. “Cryptocurrency’s volatility hurts it as a payment option.”

‘Speculative Investment’

These swings in value can be traced to two factors. First, many consumers view cryptocurrency as an investment because there is a fixed supply of it, unlike the case with fiat currencies. The number of Bitcoins, for example, is fixed at 21 million coins. By comparison, central banks can print fiat currencies without regard to a set ceiling on supply.

Second, cryptocurrencies are not pegged to any tangible asset, such as precious metals, or backstopped by a central bank, as with fiat currencies. This makes its value more susceptible to the whims of traders.

“Cryptocurrency is purely a speculative investment, as there is no underlying value to it,” McPherson says.

Despite crypto’s volatility, efforts to grow merchant acceptance have not abated. Indeed, over the past 18 months, there have been several high-profile efforts to achieve mainstream acceptance. In June, Shopify Inc., a Canada-based e-commerce company, partnered with DePay, a Swiss blockchain-payments platform, to enable consumers to send direct payments to Shopify merchants’ wallets.

Shopify will leverage DePay’s blockchain—the technology that generates the official record for cryptocurrency transactions—to enable merchants to receive any preferred tokens, with automatic, real-time conversion of payments to stablecoins. Stablecoins are cryptocurrencies whose value is pegged to that of another currency, commodity, or financial instrument.

The deal is expected to spare consumers from paying a middleman to credit the merchant’s account when paying with a token. Shopify’s platform serves some 1.75 million sellers.

Eleven months earlier, Mastercard Inc. announced it will work with a pair of issuing banks and several service providers to test conversion of crypto to stablecoins for direct acceptance of crypto-backed cards on the network.

Much earlier, in March 2021, Visa Inc. announced it had processed its first transaction involving direct settlement with a stablecoin. The stablecoin was USD Coin, a digital currency linked to the dollar. The transaction was enabled by Visa’s integration with San Francisco-based Anchorage Hold LLC, the first federally chartered digital-asset bank, and processed by Crypto.com, a digital-currency trading platform.

Meanwhile, efforts continue to sign up merchants for crypto acceptance, even if it means settlement in fiat. RocketFuel Blockchain Inc. announced early last year a one-click, blockchain-based payments solution for e-commerce transactions.

RocketFuel’s service supports payments or direct bank transfers in 43 cryptocurrencies. Transactions are settled in U.S. dollars, while RocketFuel charges merchants 1% to 2% of the transaction total.

Consumer Demand

Other efforts to bring cryptocurrency acceptance to merchant checkouts include initiatives by BitPay Inc., a Bitcoin payment service provider, to convert cryptocurrency to cash when making a purchase. In addition to offering a digital wallet that allow cryptocurrency holders to buy, sell, store, and manage cryptocurrency, BitPay offers a debit card that automatically converts cryptocurrency to dollars at the time of a purchase.

BitPay users can also use their wallets to purchase gift cards with cryptocurrency, which is converted into dollars during settlement. BitPay users can then use the cards to complete their purchase with the merchants that sold the cards.

What differentiates this tactic, says Merrick Theobald, vice president of marketing for BitPay, is that consumers can purchase gift cards in the exact amount of the purchase, as opposed to the usual predetermined denominations, such as $50 or $100.

“When a consumer purchases a gift card using BitPay, the merchant doesn’t see a crypto transaction, they see it was paid for in dollars,”
Theobald says. But he adds: “Even though the transaction is settled in dollars, I would argue that it is a crypto transaction because it is settled on the blockchain.”

The fact that merchants receive their funds in dollars is simply a reflection of how merchants want crypto transactions settled,
says Theobald.

BitPay is working with point-of-sale technology vendor Verifone Inc. to enable a crypto transaction initiated through Verifone terminals to settle as fast as a credit or debit card transaction. “We also worked with several major cryptocurrency-wallet providers to make changes on their end” to make that happen, says Theobald. “Merchants don’t want to wait the several minutes it takes to settle a cryptocurrency transaction on the blockchain.”

As with any new payment option, there has to be consumer demand for merchants to support it. And signs seem to point to at least some increased consumer demand to pay with crypto at the point-of-sale. A study conducted in June by online payments company Paysafe Ltd. reveals that 80% of crypto holders want to pay for goods with their crypto balances, but are unable to because of a lack of merchant acceptance.

‘Misconceptions’

Many merchants are unclear about their cryptocurrency settlement options, says Elbruz Yilmaz, senior vice president of Crypto/Web3 at Paysafe.

“The first misconception is that merchants believe they can only settle in the crypto asset used to transact,” Yilmaz says. “This is not the case when there are a number of payment-service providers handling the conversion and the settlement is in a fiat currency.”

Between 30% and 50% of merchants are still unclear on cryptocurrency settlement options, Yilmaz says. Clearing up those misconceptions will require more merchant education, he says, adding, “Once merchants become more educated on the available settlement options and better understand crypto as an asset class, the demand for settlements in cryptocurrency will increase.”

While Yilmaz acknowledges that volatility is suppressing merchants’ willingness to settle transactions with crypto assets, he says the growing popularity of stablecoins could pave the way to move merchants away from settling
crypto transactions in fiat currencies.

“Stablecoins remove the volatility … with USDC being pegged [one-to-one] to the U.S. dollar,” he says. “We have seen the popularity of stablecoins such as USDC grow exponentially over recent years.” USD Coin is a digital currency developed by the blockchain company Circle Internet Financial.

When consumers can pay for purchases using cryptocurrency, they tend use it for big-ticket and luxury items, such as Gucci- branded products. Guccio Gucci S.p.A. is one of the luxury brands in BitPay’s merchant network.

Paysafe’s research confirms consumers’ preference to use crypto for expensive products. Of the consumers polled, 74% said they were interested in spending their cryptocurrency on automobiles. The same percentage expressed interest in spending crypto to purchase a house, condominium and other property, and 75% said they would use it to purchase treats for themselves.

To enable the purchase of big-ticket items, BitPay has developed an e-invoicing app that allows auto dealers and other merchants to electronically send customers an invoice that can be paid in cryptocurrency. “These merchants don’t necessarily have an e-commerce site, so this solution enables them to settle crypto transactions digitally,” says Theobald.

At the same time, e-commerce is a popular merchant channel with crypto users. “Crypto was built to be a digital currency, so it is a natural for e-commerce,” Theobald says.

One aspect consumers often overlook is the fees cryptocurrency exchanges charge when consumers sell off part of their digital assets. BitPay makes the mining fees, also known as consumer transaction fees, available to consumers so they can minimize the expense of cashing out their cryptocurrency.

‘Wait And See’

Still, all these options processors have come up with to enable cryptocurrency acceptance are simply workarounds, as they do
not support direct settlement
using an actual cryptocurrency, critics say.

“If a crypto transaction is settled in a fiat currency, it’s no different than a card transaction,” says
Ariana-Michele Moore, an advisor for Aite-Novarica’s Retail Banking and Payments practice.

Other stubborn hurdles to wider acceptance include a lack of consumer and merchant protections and merchants’ reluctance to add a new payment option that does not seem to address a specific problem.

“The lack of protections make crypto acceptance messy for merchants, and getting merchants to change their POS infrastructure to support a new payment option that doesn’t solve a problem is tough,” Moore says. “A lot of merchants are also taking a wait-and-see attitude toward crypto because they want to see what the friction around acceptance will be first.”