Now is the time to start accepting cryptocurrency as payment. Here's why.
Cryptocurrency recently burst into mainstream consciousness, dominating national headlines as Bitcoin and Ether continued their relentless upward march in value. Market exchanges secured naming rights for iconic arenas, and countries began to respond in their own ways to the growing market.
Sometimes lost in the hype and hoopla about cryptocurrencies as investment vehicles has been that more businesses are making it easier for customers to pay for goods and services with their favorite cryptocurrency.
Small business owners should consider offering crypto payments to their customers because it opens their products to new sets of buyers. Additionally, it can cut the time and cost of B2B purchases while offering businesses and their customers greater security.
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What are cryptocurrencies?
Cryptocurrencies are like digital cash. Every transaction made with cryptocurrency is recorded on a public ledger distributed across many computers. This transparent, decentralized system ensures payments are secure.
The original cryptocurrency, Bitcoin, started out with a seedy reputation as the coin of choice for illicit purchases. Later, it turned into a speculator’s novelty investment choice.
Along the way, many alternative currencies have been created, like Ethereum and Binance, to improve up the foundation laid by Bitcoin.
Today, some are turning to these cryptocurrencies as an alternative to fiat, or government-backed, currencies. That means Bitcoin and its ilk can be used to purchase everything from a car to a cup of coffee. The normalization of cryptocurrency as an everyday means to make purchases has been helped by the construction of a network of thousands of crypto ATMs now available all over the U.S.
The list of businesses that accept cryptocurrency or have a crypto ATM available is growing every day.
Some governments recognize the benefits of digital currency, too. In 2021, El Salvador became the first country to accept Bitcoin as legal currency.
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What should businesses consider before accepting cryptocurrency payments?
The momentum around crypto payments is building, but it behooves small businesses to carefully consider the potential challenges, as well as the benefits, of allowing crypto payments.
First and foremost, it’s important to follow IRS rules around crypto. Small businesses are required to track crypto payments and record both how much that currency was worth when it was received and what it was worth when it was sold. Cryptocurrency is also subject to capital gains tax, according to the IRS.
This can complicate crypto payments because the value of currencies can fluctuate wildly. Small businesses can mitigate these risks by using a third-party vendor. This vendor can handle all the backend logistics like converting virtual currency into government-backed currency and back again, rather than keeping that cryptocurrency on the small business’ books.
Some small businesses also only accept crypto for expensive items rather than small, frequent purchases to better manage revenue and expenses.
Cryptocurrency is a new and rapidly evolving space. For that reason, it’s also important for small businesses that accept crypto payments to stay abreast of changing state and federal regulations surrounding cryptocurrency. Social acceptance of this new form of currency is still being sorted out, and different cultures are approaching this industry differently. For example, China just banned cryptocurrencies, but Wall Street this year issued a new exchange-traded fund for Bitcoin.
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More customers are demanding the option to pay with cryptocurrency
Small business owners can benefit from offering crypto payments as an option because it may attract a new demographic to their product and widen the audience that’s receptive to their message.
Businesses that accept crypto enjoy 40 new customers sales, according to a Forrester consulting report. Those who pay with crypto produce double the average order value than traditional customers, which can mean an impressive return on investment for the business.
Visa reported customers spent $1 billion on Visa crypto cards in the first half of 2021, which offers a sense of the growing volume of purchases made by those with cryptocurrency burning a hole in their digital wallets.
Many consumers who hold cryptocurrency are also active advocates of the technology, and willing to put their digital money where their mouth is. According to a PYMNTS study, 47 percent of people who own cryptocurrency actively look to purchase from businesses that accept digital currency.
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Cryptocurrency enables faster, cheaper transactions
Businesses that make foreign transactions are no strangers to steep fees and slow processing times. International purchases are one area where cryptocurrency shows potential.
Cryptocurrency transactions are made directly between two parties, which means they don’t require a third party like Western Union or other organizations to get involved. An average transaction can rack up 6.8 percent in fees, according to the World Bank. Credit card companies can charge small business owners as much as 3.5 percent per transaction.
Meanwhile, some exchanges are offering fee-free, instant transactions across borders, according to Forbes.
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Crypto payments are more secure for businesses and customers
Cryptocurrency can protect businesses in two ways, thanks to the design of the public, distributed ledger that undergirds these digital currencies.
The first of these protections is that with cryptocurrencies, there are no chargebacks. Once a transaction is made on a cryptocurrency, it can’t be undone. This is unlike credit cards, where buyers can claim they didn’t make a purchase and have the credit card company approach the business and demand repayment.
With cryptocurrency, the only way to refund a customer is by making another transaction to pay them back.
The second way crypto offers better security is by reducing fraud. Fraud rose 35 percent between April 2019 and April 2020, and credit and debit card fraud were leading sources behind bank and wire transfers. Cryptocurrency payments are public, transparent and irreversible, making them more secure.
Since cryptocurrency payments are automatic, experts think financial reporting costs could plummet 70 percent, according to Forbes.
That transparency also makes it easier for a business to show it's complying with regulations.
Customers can also rest assured their data is more secure when paying with cryptocurrency since identifying information about them isn’t stored in a central location, where it’s subject to data breaches by hackers.
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Third-party vendors provide an easy way to get started with crypto payments
Businesses interested in accepting cryptocurrency as a payment can find third-party vendors capable of processing payments and complying with rules and regulations.
This makes offering new ways for your customer to pay easy while eliminating the cost and time of developing an in-house solution.
Cryptocurrencies may be a young technology, but they’re gaining mainstream acceptance. The ability to offer crypto payments as an option is one way for small business owners to stay ahead of their competition and offer customers flexibility in how they pay.
