Cryptocurrency and its role in retail

A guide to the cutting-edge customer payment option

Cryptocurrency can feel like another language, but we’ve been here before. If you’re a business owner in the 1990s, you remember being urged to put up a website. It seemed like a potential waste of time: If a customer wanted to find you, they could use a phone book. Apps, artificial intelligence, delivery services — plenty of other developments have come down the pike that might have seemed unnecessary until suddenly it was obvious they were a benefit to a business.

If you hear the word “cryptocurrency” or more specifically, references to Bitcoin or Ether or Litecoin, your eyes might be glazing over. Even if you feel like you understand cryptocurrency, though, you might be reluctant to take it as a payment.

“Right now, I’d say the mood among business owners is uncertain,” says Leon Buck, the National Retail Federation’s vice president of banking and financial services.

There’s good reason for that uncertainty. At the moment, Buck says, “I would say that cryptocurrency doesn’t really meet the standard to be called currency. It’s risky to accept it because it’s such a highly speculative investment. A dollar in Bitcoin might be worth $1.50 tomorrow or fifty cents. It’s a highly speculative notion that doesn’t work for retailers right now.”

Tomorrow, he concedes, might be another story. So, if you’re not up to speed, consider this your cryptocurrency crash course.

What is cryptocurrency?

It’s hard for any casual bystander to wrap their head around the very idea of cryptocurrency. For starters, there are over 10,000 different cryptocurrencies.

There are a lot of confusing rabbit holes to go down — like cryptocurrency mines, which aren’t holes in the ground where miners dig for minerals, but more like warehouses full of rows of computers — but the easiest way to explain it is that cryptocurrency is a digital or virtual currency.

It’s true that cash feels like it’s digital these days, since most of us rarely have dollar bills in our wallet and instead spend money with a credit or debit card. But it’s still commonplace to go to an ATM and take out cash sometimes. Cryptocurrency wasn’t built to be held in one’s hand. It’s literally a digital piece of currency, created by computers and algorithms.

Any time someone buys or sells cryptocurrency, that transaction is recorded on a decentralized ledger called a blockchain. Those transactions are secured using a technology called cryptography, which is how the industry coined the term “cryptocurrency.”

Incidentally, “secured” is the important word in that last sentence. Because of the way blockchain technology works, counterfeiting cryptocurrency is virtually impossible. It’s secure from counterfeiters, and that’s one of its big selling points.

Another positive — depending on your point of view — is that this money isn’t backed by the government or a central bank. It’s created and managed by computer networks.

But the value of many cryptocurrencies, such as Bitcoin and Ether, is often changing, and that’s a negative for many retailers. You don’t want to be in possession of a lot of cryptocurrency that is worth a lot of money one day and the virtually nothing the next.

What does it mean for a retailer to accept cryptocurrency?

It still isn’t common for retailers to accept cryptocurrency; if you don’t, you aren’t behind the times. If you do accept crypto or are considering doing so, you might end up ahead of the curve. But there’s nothing wrong with remaining in a wait-and-see mode.

“It’s up to each retailer and what they think and believe. We believe in retail choice and whatever best fits the consumers’ needs,” Buck says.

NRF is spending a lot of time talking with federal agency officials about the future of cryptocurrency. A serious concern is what happens when credit card issuers ultimately become involved: Some credit cards are already giving consumers rewards back in the form of cryptocurrency.

“Right now, our position is that cryptocurrency shouldn’t be allowed to become just another mechanism for the credit industry to collect another fee,” Buck says.

Whether it’s a good idea for a retailer to accept crypto is anybody’s guess. It can be argued that it makes sense for retailers to — at some point — accept crypto, since that means ultimately giving customers another way to pay.

“Individuals have more options of payment tools at their disposal, whether cash, credit or crypto, and retailers that offer the ability to accept cryptocurrency payments should gain a competitive advantage,” says James Putra, vice president of product strategy at TradeStation Crypto, a cryptocurrency trading platform headquartered in Florida.

Putra says he has seen that lately with charities that have been accepting crypto payments: TradeStation Crypto has helped several nonprofits set up the ability to take crypto donations.

These charities have been gaining access to a much younger demographic,” Putra says, adding that older taxpayers are often more sensitive to the tax ramifications of donating and generally donate in December before the new tax year.

“The people who are donating using cryptocurrency are donating smaller amounts,” he says, “but they’re doing it more frequently and throughout the year, rather than just at the end.”

There are other benefits beyond giving customers another way to pay, says Steven Gordon, a professor of operations and information management at Babson College. One of the classes Gordon teaches is called “Blockchain and Cryptocurrencies.”

He lists several reasons retailers might want to consider accepting crypto as payment: It provides the ability to accept sales internationally without paying foreign exchange fees; it eliminates fraudulent chargebacks, which are common with credit card payments; it reduces transaction fees.

Accepting crypto as payment might also satisfy the preferences of some customers, allow retailers to appear “modern” and provide experience with the means of payment before it becomes required for competitive reasons.

That said, there’s no need to rush. “I think this will be many years away,” Gordon says.

How would a retailer accept crypto payments?
There are mainly two approaches: get a cryptocurrency wallet or use a third-party processor to facilitate crypto sales, says Eric Chason, a professor of law at William & Mary Law School who has done extensive research on cryptocurrencies.

“Retailers that want to handle crypto directly would need to feel comfortable with the underlying technology and their ability to convert the crypto into U.S. dollars. They would also need to decide which cryptocurrencies to accept. Bitcoin, Ether and USD Coin would probably be on their list,” Chason says. “There could certainly be more, but there are thousands of cryptocurrencies. No retailer could accept them all.”

For example, Congress recently clarified that currency reporting requirements apply to crypto payments,” Chason says. “So, if a car dealership accepted crypto, it would need to report those payments like it would if it received physical cash.”

Businesses are more likely to use a third-party processor; BitPay is one of the more well-known.

“Many of them will take the customer’s crypto as payment and convert it into fiat currency for the retailer,” Chason says. “That removes the retailer from worries about handling the technology and price fluctuations.” He says the recent rise in stablecoins, which are cryptocurrencies pegged to the U.S. dollar (referred to as USD Coins), might streamline this process.

“My guess is that this model will grow in the future. Customers could pay with volatile crypto, like Bitcoin, and a processor would convert it into a stablecoin, like a USD Coin, for the retailer,” Chason says.

What does the future look like for retailers and cryptocurrency?
Buck says what will really be a game changer is if the Federal Reserve creates its own central bank digital currency, also known as a CBDC. Numerous countries like the Philippines and the Bahamas have been looking into doing just that.

“We feel the real future of cryptocurrency would be having a CBDC, where you could have the advantages of cryptocurrency without the risk,” Buck says. “The CBDC could offer an important alternative to debit and credit cards.”

Until then, he says he wouldn’t encourage — or discourage — retailers from accepting crypto payments.

But it could behoove many business owners to continue researching cryptocurrencies and learning about them — and possibly ease into the crypto space without investing too much time and energy into it.

Because it’s probably coming. You’ve likely heard of the metaverse, the name that’s been given to the virtual reality world that is expected to become popular in the near future.

If virtual reality is a bigger thing someday than it already is, retailers might want to have digital storefronts in that world, and customers might want to pay with crypto.

“The metaverse is going to be a pretty large space,” Putra says. “It’s been around for a while already, only we didn’t call it that. We called it Xbox. But merchants are going to need to figure out how they engage in that space.”

Putra also thinks accountants and CFOs of the future are likely going to resemble IT departments, where they’ll have studied blockchain along with bookkeeping and budgeting.

The real question isn’t whether cryptocurrency will be accepted at retailers in the future. It’s how soon?
“All retailers are looking into it,” Buck says — Starbucks began accepting crypto payments for its coffee, and the Dallas Mavericks basketball team has been selling tickets for crypto for some time.

“This is coming, and we are aware of it, and I think retailers have seen the future, and we are ready to adjust,” Buck says. “And it could be a really good thing. But it has to be a value-added service for retailers rather than a possible loss.”