Cryptocurrency Payments: The Primary Issue Standing in the Path of Mass Adoption
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Set the scene – Making Crypto Payments Remains a Challenge
Finding payment processors and places to use cryptocurrency were early problems cryptocurrency supporters experienced and while the situation has definitely improved, the perception that cryptocurrencies are difficult to use is a misconception that traditional industries and consumers have found hard to shake. Unsurprisingly, this belief continues to proliferate in spite of data from a 2017 Visual Capitalist report that found that the number of brick-and-mortar shops accepting cryptocurrencies grew by 30.3 percent, which is roughly 11,300 retailers worldwide.
One of the challenges standing in the path of wider adoption could be that people unintentionally associate cryptocurrency price fluctuation as a reflection of their useability and the resulting reluctance to ‘use’ cryptocurrencies is not far from reason considering that the cryptocurrency market capitalization dropped by nearly 70% since January 2018.
Take for example, a recent interview with Aswath Damodaran, a professor of finance at the New York University Stern School of Business. During a CNBC interview Damodaran asked whether or not a person “would be willing to put bitcoin in their pocket and leave for a one-year trip, knowing that they were going to survive?” He concluded that most sensible people would answer no and until people are comfortably able to actually consider the possibility of answering affirmatively, we’re nowhere near ready for the world to fully adopt cryptocurrency.
In reality, there are plenty of ways and places for a person to spend cryptocurrency. In fact, a recent partnership between iVendPay and GoByte Network will see cryptocurrency payments made available at vending machines all over Israel and Malaysia. Considering that there are more than 18 million vending machines worldwide, the common criticism that cryptocurrency has no use begins to lose credibility.
Even cryptocurrencies that have performed poorly from an investment standpoint are increasing in functionality. Litecoin serves as an excellent example, as the token is currently accepted at more than nine payment processors which serve the customers of nearly 140,000 vendors, and the rate of adoption continues to grow.
The Payment infrastructure Is There but Where are the Users?
A hard look at industry facts also suggests that a lack of infrastructure is not the main issue preventing mass adoption of cryptocurrency. The infrastructure for cryptocurrency point-of-sale (POS) payments already exists and there is no shortage of established crypto-startups who are capable of providing seamless business-to-business (B2B) and POS services. Currently, consumers and merchants can choose from Dether, Bitpay, GoByte Pay, Uphold and PumaPay, and there are plenty of other options available.
So what is holding hodlers back when it comes to crypto payments?
Currently, scalability, transaction speed and token volatility are the most cited criticisms put forth as the obstacles preventing mass adoption of crypto-payment services, but these aren’t necessarily the death knell to crypto-payment providers. Perhaps it’s a bit naive to assume that cryptocurrency-oriented POS providers will conquer and push traditional POS providers out of the space.
As one would expect, there are crypto startups using this revolutionary rhetoric as marketing strategies to increase their customer base and encourage current crypto investors to embrace crypto payments. These companies truly may believe that they are destined to upend the current status quo for payments, but in reality a more effective way to move toward greater adoption of cryptocurrency payments would be integration of crypto-POS technology into current sectors as an additional attractive option for making payments.
Each of the common criticisms mentioned above can be countered by current solutions and data which shows there is plenty of room for the payments industry to accommodate crypto-POS providers.
Scalability / Transaction Speed
For example, GoByte Network (GBX) is capable of sending, processing and receiving payments in 3 seconds and the network can handle up to 1 million simultaneous transactions without any impact on transaction speeds. At the moment, Litecoin is capable of handling 112 BTC worth of transactions without any impact on network stability and transaction speeds.
There are multiple solutions for countering token volatility when accepting cryptocurrency payments. Merchants can easily exchange for fiat or sell into one of the many regulated stablecoins that are pegged to the US dollar and exchange these for fiat at a later date.
In 2019, institutional investors and multinational banks will become more involved with cryptocurrency, and it’s likely that more companies like Bakkt will spring onto the scene and offer instantaneous conversion of cryptocurrency to fiat when businesses accept cryptocurrency payments. Cryptocurrency wallet manufacturers will also follow this trend and integrate options that will allow consumers and merchants to convert digital and fiat currencies within their wallet apps.
There’s Plenty of Room for Crypto-Payment Growth and Adoption
Another common criticism bandied about by fear mongers and naysayers is that the POS market is already saturated by legacy providers and crypto-competitors. Data also stands against this point and suggests that there is plenty of room for growth in the sector. Almost weekly, crypto-oriented news outlets break news on new partnerships taking place between traditional businesses and crypto startups.
One of the biggest stories to make ripples recently was a rumored partnership between Starbucks and Microsoft that would support a payment system that simultaneously converts cryptocurrency payments to cash as soon as they are received. Meanwhile, nearly every two weeks Ripple has some groundbreaking announcement of a partnership or adoption of one of its many blockchain products. To date, more than 121 banks have adopted Ripples’ xCurrent blockchain technology, which is proven to speed up cross-border payments while significantly decreasing costs.
A recent survey shows that more than 39% of survey respondents in the US would like to use Bitcoin for general purchases and 60% of Square merchants would prefer to accept Bitcoin over USD. Even more encouraging is that 12% of this 60% actually intend to accept crypto payments within the next 12 months. Meanwhile, another report concluded that 40% of survey participants who possessed some awareness of digital currencies were open to using them for daily transactions.
So clearly the POS space is far from saturated and small businesses can easily grow their base and command additional market space by adding a cryptocurrency based payment system to their list of payment methods.
As the general public’s knowledge of cryptocurrencies expands and the arrival of institutional investors enter the market and develop digital asset backed financial products, these number of merchants and consumers are bound to increase.
A survey commissioned by LendEdu found that 38.46% of 18-24 year-olds have owned bitcoin, and 32.54% of 25-34 year-olds have owned or used bitcoin. In order to increase these rates, crypto startups focused on POS services need to focus on further stoking consumers’ desire to take advantage of the perks of cryptocurrency payments and a more collective focus of the entire crypto sector (and associated startups) is required.
Active Wallets Could Spend More
As of 2017, the number of active cryptocurrency wallets ranged between 5.8 million and 11.5 million. Thirty nine percent of these wallets offer multi-cryptocurrency support, and data shows that nearly one third of those without multi-currency support plan to add this feature by displaying it as a milestone on their roadmap. While we are unsure of exactly what the investor (holding) to consumer (spending) ratio is and the exact set of coins residing in each wallet, more could be done to incentivize non holders to spend their coins.
Rather than attempting to solely compete and serve as alternatives to traditional POS providers, crypto startups need to exploit the unattended areas of commerce and service that consumers need but traditional payments and service providers do not provide.
Take for example, Omni, a Ripple-backed San Francisco startup that provides what it calls “on-demand personal storage concierge services.” The company realized that the renter’s economy is quite strong in America and that many people have more personal belongings than space to hold all their items. Omni collects, packages, photographs, transports and stores customers personal items for a minimal fee and provides a storage rate that is comparable, if not better than market rate. The company also capitalizes on what it describes as a “local community” marketplace which allows users to:
- Store items.
- Rent items from other community members that one might like to try but not buy yet.
- Allows renters to earn money from renting belongings to other community members.
Renters have the option of earning credits which can be spent at Omni or they can cash out their earnings direct to XRP or as USD.
Omni serves as a fantastic example of crypto startups exploiting service and payment vacancies in the modern economy and other crypto startups need to work on building interfaces and bridges to the broader economy, i.e., outside of the closed vacuum that the crypto world tends to exist in. Allowing renters to be paid in XRP also removes the psychological ‘risk’ associated with cryptocurrency and could spur those receiving subsidiary income from renting personal belongings to spend it as they might view the income as disposable or discretionary rather than an investment.
Build It and They Will Come
Data from the the Boston Federal Reserve shows that 0.87% (2.8 million) of US consumers owned cryptocurrency in 2015 and more recent data from Chainalysis found that consumers used merchant services for a monthly average of $190 million in 2017 which is a significant increase from $9.8 million per month in 2013.
As the age-old saying goes, ‘build it and they will come’ and data shows that the same applies to the cryptocurrency sector. As the sector matures and the concept of digital assets enters the mainstream, higher quality cryptocurrency-based products that are reliable, convenient and easy to use will be required.
GoByte realizes that the time is now, and their recently released payment module and wallet app provide the POS services that consumers and merchants have been looking for. Their iOS and Android compliant wallet allows synchronized access to all accounts regardless of which device they are accessed from, and the QR code payment generator can be used at the point of sale or sent to a buyer or received by a seller.
The automatic conversion feature eliminates the need to switch between apps to check USD prices as the rate is automatically shown within the app’s dashboard.
A built-in address book and push notifications also ease the process of sending payments, and users can stay up to date on all transactions leaving from and arriving to their wallet. These are the exact types of services that consumers expect as they rival and sometimes outcompete similar services offered by traditional banking and payment systems. The crypto-startup also plans to assist retailers by offering to install their API to existing POS terminals for free, and GoByte plans to issue their own cryptocurrency debit cards, ATMs and POS terminals.
A New Approach Is Required
As 2019 fast approaches, worries of mass adoption remain a concern for many in the cryptocurrency community. Building relationships with legacy payment processors and competitors will remain a challenge but crypto startups that consider some of the suggestions listed in this article will be better prepared to conquer more territory in 2019.
2018 was meant to be the year of partnerships, application, ICOs and institutional investment. While ICOs and application may have fallen short, institutional investment and partnerships occurred all throughout the year. In addition to being forecast as the year that institutional investors flood the cryptocurrency market with cold hard cash, 2019 should also be the year where cryptocurrencies see broader use as payment solutions.
The e-commerce and payments sector is forecast to experience exponential growth, and by 2021 revenues from e-commerce and mobile payment processing are expected to rise from $528.2 billion to $885.4 billion. Surely the wisest short and long-term move for POS-oriented crypto startups would be to ensure they can catch this wave by setting up a cryptocurrency payments system which can accommodate the growing demand of customers expecting to use digital assets for everyday purchases.