Online payments have always been identified as a real area for disruption by cryptocurrencies. The emergence of digital currencies supported by trusted blockchain technology, offering fast and low-cost transactions have all the makings of an online merchant favorite.
It makes sense for a predominantly internet-enabled commerce market to be facilitated by not digital currency, but fiat. Since bitcoin arrived on the scene less than a decade ago, there has been the talk of whether cryptos will become the new de facto currency for online commerce.
Crypto Volatility is Discouraging Merchants, Says PayPal CFO
According to PayPal CFO, John Rainey, merchants aren’t jumping on the crypto bandwagon just yet. Rainey believes the wild volatility of cryptocurrencies is to blame, saying:
“Because of the volatility of the cryptocurrencies, the merchants saw swings in crypto that threatened the viability of their businesses. If you’re a merchant and you have, let’s say, a 10 percent margin on a product that you sell and you accept bitcoin, for example, and the very next day it moves 15 percent, you’re now underwater on that transaction.”
As a result, most PayPal merchants prefer to stick to fiat which is a lot more stable. 2018 is a case in point of crypto volatility. The market lost about 50 percent of its value after reaching stellar heights in December 2017. Bitcoin, the number one crypto, shed $119 billion from its value in the first quarter alone. According to Rainey, this swinging volatility is anathema to online merchants.
The PayPal CFO also said the mass appeal of crypto to consumers shouldn’t be confused with its viability as a payment channel. He went on to say, “You could have something that appeals to consumers, but if merchants don’t accept it, it’s of little value. Right now, we don’t see a lot of interest from our merchants. But if it’s something that stabilizes in the future and is a better currency, then we’ll certainly support that.”
Is Volatility Really that Big of an Issue?
Examining Rainey’s raises some critical questions about how volatility affects the world of e-commerce. Volatility refers to frequency and degree at which the exchange rate of a cryptocurrency fluctuates against fiat currency (usually the US dollar). Cryptos no doubt experiences many price swings even within a 24-hour trading period, but the question remains if such movements affect the profitability of merchants who accept them.
For starters, services like Coinbase and BitPay allow merchants to lock in the crypto exchange rate at the time of purchase. Thus, it doesn’t matter how the price of the cryptocurrency moves in the aftermath of the transaction since a particular exchange rate has already been specified. These services are commonplace in the crypto-merchant ecosystem, and it would be impractical for any online merchant not to make use of them.
The second issue is about the need for fiat to be used as a base currency. It might make more sense to peg crypto prices to a cryptocurrency, preferably a stable coin whose value is permanently tethered to the USD. Of course, such a coin would require optimum levels of liquidity; otherwise, the entire infrastructure might collapse. The conclusion, therefore, seems clear that merchants shouldn’t point to volatility as a reason for eschewing accepting crypto payments.
Merchant Adoption of Altcoins is Rising
Despite what Rainey said, altcoins are proving to be popular in the online payment arena. Privacy coins have found increased adoption not just in illicit trade but also in transactions that require high levels of discretion.
Reports indicate that Monero, a fungible crypto is being used to purchase sensitive items like sex toys and other goods that people would instead prefer to be kept off their credit card statements. The fungible coin is also a popular choice for online services such as VPNs, as well as being adopted by security-focused laptop manufacturer Purism.
CheapAir has started accepting bitcoin cash, dash, and litecoin apart from bitcoin. Dogecoin has also become popular on certain online retail platforms. Overstock widened its acceptance of cryptocurrency in August 2017 and embraced 45 digital currencies such as ether, litecoin, and dash.
Moreover, CoinPayments, which allows people to pay with a variety of altcoins, is broadening its reach in Europe and is used by merchants such as TorGuard. Finally, cryptocurrency marketplaces incorporating altcoins such as Crypto Emporium are springing up, allowing cryptocurrency enthusiasts to buy a range of luxury goods from clothes to watches, to property.