Financial Markets

As investors continue to ride the crypto wave, companies are increasingly accepting bitcoin for transactional purposes. One estimate suggests more than 15,174 businesses worldwide are now doing so, which has implications for payment systems. By Stephanie Ramezan and Ekaterina Daminova at Gemini

This rise in crypto adoption among businesses may be a ripple effect from increasing retail adoption. According to recent research by Chainalysis, global crypto transactions and savings have surged during the pandemic, with adoption up by 881% in the year ending June 30, 2021. 

As with any financial innovation, there are clear short-term risks with potential long-term rewards for those who enter fast and adopt first. Major companies across a range of industries now accept, or are planning to accept, crypto as payment, including Expedia, PayPal, AXA, Starbucks, Coca-Cola and WeWork. It may not take long for others to follow. Payments giant Visa also recently announced that $1bn was spent on their crypto-linked card in the first six months of the year. Further, the largest blockchain payments processor, Bitpay, has already been incorporated by many companies, with an average of 61,755 transactions processed every month. 

These developments signal a larger tectonic shift within traditional payments systems, with the legacy financial ecosystem and crypto world merging faster than anticipated.  

Making business sense

Trillions of dollars are shuffled across antiquated payments systems daily, characterised by slow speed and added fees. For example, a transfer from London to Argentina will likely include an intermediary in the US, where each party takes a cut in addition to the exchange rate fee, and you may not even receive the payment for up to a week. Since digital assets such as bitcoin are decentralised, and transactions are captured and stored on a blockchain ledger which cannot be altered, the requirement for third parties to verify payments is minimised, allowing for faster, cheaper and more secure borderless payments. It is therefore no surprise that payments in the crypto space have seen consistent growth in transaction volume: Ethereum was the first blockchain to settle $1tn in one year in 2020, according to research firm Messari.

Crypto also provides the opportunity to tap into a new and more diverse customer base. The number of crypto users is growing in most countries, particularly in emerging markets such as India, Pakistan and Vietnam, where crypto has gained huge traction. Moreover, there remain around 1.7 billion unbanked adults around the world, some of whom will likely be (or become) part of the crypto community, where they have found easier access and operability compared with legacy payment infrastructure. This shift could mean lost revenue for companies that are unable to accept crypto as a means of payment, and opens the door for crypto to potentially become a viable alternative to incumbent credit card networks.

Additionally, the increase in stablecoin circulation and its implementation as ‘digital fiat’ by governments is also a sign of things to come for the payments space. Usually pegged to a fiat currency such as the dollar, stablecoins offer the innovation of crypto while providing both issuers and users with the safety and reliability of the underlying asset. For companies, the ecommerce market is currently leveraging the use of stablecoins in peer-to-peer digital wallets, capitalising on the reduced cost of international transactions and data processing, making it a viable alternative to incumbent credit card networks. 

Benefits for businesses

Businesses should not dismiss the use of crypto as a means of payment, and while there may be some hurdles to navigate in the beginning, as with any new disruptive financial solution, the kinks should eventually be ironed out.  

Once settled, digital currency provides an abundance of unprecedented benefits for businesses that cannot be ignored, such as transparency, lower fees and security. There is still work to be done by local regulators and authorities. However this should not stop businesses from accepting crypto now and laying the foundations for the opportunities that lie ahead.

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