Why your company needs to start accepting crypto payments
The question is not whether or not crypto is a good investment. For most business people that’s not a priority right now.
Quietly in the background something big has changed. Several major economies, including the UK, are now pushing ahead with plans to introduce digital coins based on blockchain technology. Their regulators are keen to make the space safe and transparent, before high tech giants move in with their own agendas.
What’s on offer for business is a range of potential cost savings. With a fully digital currency, merchant fees would come down or disappear (according to McKinsey, merchant fees currently cost business $100 billion annually) because the inherent security features of blockchain make possible low-cost, instant, peer-to-peer transfers. This would also, at a stroke, remove the need for foreign currency conversion and mean an end to expensive FX charges on international transactions. A report by the Monetary Authority of Singapore, Bank of England and Bank of Canada notes that CBDCs, which can either be retail CBDCs or Wholesale-CBDCs (W-CBDCs), offer various advantages including 24-hour availability, anonymity and eliminating counterparty credit risk for participants. In wholesale or large-value payment systems, CBDCs could enable faster settlement along with longer settlement hours.
The underlying blockchain technology also opens the way to greater business efficiency through “smart contracts”, where actions are automated in software based on what the parties involved want to happen - rather than having to wait for slow and expensive intermediaries (I’m thinking about lawyers, banks and agents here). This sort of automation would also make it much easier to set up complex marketing programs - things like cashback rewards - for example. This level of efficiency would lead to much lower business costs, fewer barriers to entry, and the ability to fully automate processes - end-to-end.
This is going to happen - sooner than you perhaps imagine. The UK is moving towards launching a central bank digital currency (CBDC). In February, the Bank of England and the UK Treasury published a consultation paper about a possible digital pound already nicknamed “Britcoin” that they say could replace cash by 2030. That’s not very far away and certainly needs to be looked at soon by any business with long term ambitions.
In the US, the Federal Reserve Board is going through a similar process. And the week after the UK announcement, Christine Lagarde, President of the European Central Bank, made a speech to the EU Parliament in which she reiterated progress towards a European CBDC and called on the parliament “...to swiftly start working on the legislative proposal which the European Commission intends to publish in a few months.”
Are we missing something?
If this degree of enthusiasm from the central banks strikes you as odd, in the face of a so-called “crypto-winter”, then consider this. What’s going on is that most of us blend things like “crypto”, bitcoin, and blockchain into a single mental mashup, when they actually need to be considered separately. As a result, we naturally think that a downturn in one of them extends right across the board. But that’s actually not right.
Keeping things simple, bitcoin is the original cryptocurrency, constructed using a technology called blockchain. Bitcoin is no longer unique. There are now many other cryptocurrencies - sometimes called “altcoins” - many of which (not all) were launched as vehicles for a quick profit.
Unfortunately, the reputation of crypto has been hurt by a few bad actors.
Besides the now-bankrupt crypto exchange FTX and the crypto trading, lending, and asset custody outfit Genesis, people in pursuit of a quick profit also invested in companies like cryptocurrency lending company Celsius and crypto hedge fund Three Arrow Capital. These (and similar companies) were lending crypto on dubious collateral and are now defunct.
However, don’t be fooled into thinking this means the end of crypto. Far from it.
What are central banks doing in this sort of environment?
Central banks are working on the premise that cryptos powered by blockchain have a bright future in finance, and they want to ensure they take the lead.
Central Bank Digital Currencies use blockchain as the underlying technology but are linked to existing currencies, like the pound, dollar and euro. The idea is you get all of the advantages of a digital currency but less of the volatility and risk.
That’s really important, because the rapid ups and downs in the price of Bitcoin - which largely dictates the overall market in all altcoins that are not firmly pegged to a hard currency - may make it unattractive to both consumers and merchants for use in day-to-day purchases.
Things called stablecoins already exist, issued by private companies like exchanges Binance (BinanceUSD) and Circle (USD Coin). Many of them do a good job tracking their target currency and volatility is low because they hold large percentages of the underlying currencies.
Unfortunately, there is also a category of coins called “algorithmic stablecoins”. Again, keeping it simple, these are not backed by the underlying currency but rely on a complex, software-automated process of coin creation and elimination to stabilize the price. The flaw in this concept - the lack of hard currency collateral to act as ultimate backstop - became obvious in 2022 with the rapid decline of algorithmic “stablecoin” TerraUSD from LUNA.
CBDCs are the logical next step. As they come into being, they will obviously have access to unlimited quantities of the underlying currency and can guarantee stability.
Are my competitors ahead of me accepting stablecoins?
In a word, probably. Privately issued stablecoins are already widely accepted. Looking just at Circle’s USDC, you can use it to buy gift cards at Mastercard, Airbnb, Domino’s and others. The range of merchants taking it as direct payment is not quite at the same level, with brands like APMEX, Dish TV and Jomashop, for example, but it does also include Microsoft, where you can purchase games, movies, apps and more across the Xbox and Windows stores.
In the real world, most merchants use a third party platform to process payments and Visa, Stripe and Checkout.com, for example, all now accept USDC as settlement.
If your business is not at least considering options for stablecoins today, and CBDCs in the near future, it is likely to be falling behind.
My message is this. Cryptos are here for good. The commercial applications are so vast, from making international transfers faster and cheaper, to new applications such as reward and cash-back schemes, that they need to be on your radar.
National cryptos in the form of CBDCs will soon be here too. If your company is able to accept and process these currencies you'll be a step ahead of your rivals.
My company Nexpay makes it easy for digital companies, many of them involved with digital assets one way or another. It's our view that all companies should be able to handle crypto payments, as easily as they do euros, dollars, or pounds.
It's surprisingly straightforward to embrace crypto payments. And once you've taken the step you can feel reassured that you are ready for the future, whatever it looks like.
About the author
Uldis Tēraudkalns is the CEO of Nexpay, a Lithuanian fintech startup providing banking infrastructure for digital businesses. Uldis counts more than a decade of experience working in finance as well as managing venture investment, as a result of which he has served on the boards of different companies. Uldis holds a Master’s degree in Finance from the Stockholm School of Economics, Sweden and is one of the hosts of The Pursuit of Scrappiness, a leading business and startup podcast in the Baltics.