Contributed article in our business series. Enjoy! – Kimberly
If you’re in business, you might be considering your options vis-a-vis payment systems. Modern-day businesses are required to keep pace with the pulse of the market. In recent months, a veritable explosion in cryptocurrency adoption has taken place. Institutional traders have poured into the crypto market en masse, bolstering substantial interest among retail traders. At one point, the market capitalization was well above $2 trillion+.
This begs the question: Should SMEs implement changes to their payment systems to accommodate cryptocurrency usage?
Modern-day payment processing solutions encompass a wide range of options, notably: Google Wallet, Apple Pay, Venmo, Square, Amazon Payments, Stripe, PayPal, NeoSurf, Visa, MasterCard, Diners Club, American Express, Bank Wire, et al. The popularity of these payment solutions is growing by the day for a range of activities. For instance, NeoSurf cash voucher pre-paid cards have become popular for casino transactions online. According to Statista, the most popular payment methods by the percentage of total e-commerce transactions volumes worldwide in 2020 included the following:
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- Digital Payments Mobile Wallets – 44.5% of global transactions
- Credit cards – 22.8% of global transactions
- Debit cards – 12.8% of global transactions
- Bank transfers – 7.7% of global transactions
- Cash on delivery – 3.3% of global transactions
- Charge cards and deferred debit cards – 3.3% of global transactions
- Pre-paid cards – 1.1% of global transactions
*Source: Statista 2021
By contrast, cryptocurrency comprises a fraction of global transactions, negligible in monetary terms. American Express inked an op-ed about the ‘Pros and Cons of Bitcoin for International Payments’. The article extolled the virtues of cryptocurrency, particularly the ability to transact without managing multiple currencies, the relative security provided by blockchain-based transactions, the speed of the transactions, and the reliability thereof. Of course, the volatility of crypto-based payments means that businesses are continually having to reassess pricing to match the current fiat price.
Then there are the regulatory elements to consider. Cryptocurrency is frowned upon by many governments around the world, including China – the world’s second-largest economy. Today, a great many suppliers are still reluctant or unwilling to accept digital currencies as a de facto payment method. It is also worth pointing out that cryptocurrencies would cause major disruption in the markets since these are all the equivalent of debit cards with pre-loaded balances available. Since there are very few banks or financial institutions offering crypto credit, it is difficult to foresee a situation where crypto outflanks fiat as the ranking form of payment.
Nonetheless, online businesses can implement dual payment systems to accommodate stakeholders who wish to transact in crypto. Regulatory and tax considerations tend to play a part in decision to allow crypto as a viable payment method. Overhauling payment systems or supplementing them with crypto-friendly options can entail significant expense on the part of a business. Further, there is an assumption that business stakeholders understand payment-related issues with Cryptocurrencies. A certain level of sophistication is needed to buy digital currencies as a crypto exchange, and then transfer payment from a digital wallet to a merchant. Customer support on the business end must be trained to help in this regard too.
The 2020 McKinsey Global Payments Report
2020 figures present interesting findings regarding cash usage by country in emerging markets and mature markets. It is undeniably clear that cash utilization is on the decline across the board. For example, consider the following 2010 cash usage figures against the 2020 cash usage figures by country:
Clearly, global trade volumes are increasing, but payments are coming courtesy of alternatives to cash such as debit cards, credit cards, e-Wallets, and cryptocurrency. The countries with the highest growth rate of electronic transactions (10% +) include Brazil, Slovakia, Mexico, Greece, Malaysia, Ireland, Russia, Peru, Poland, Romania, Czech Republic, Argentina, Pakistan, Nigeria, India, and China. These are important trends to bear in mind when assessing the viability of different payment solutions for businesses.by