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Can crypto become the new cash? A look at adoption patterns for consumers and merchants

  • Market volatility raises concerns, but recent data suggest that cryptocurrencies may be on their way to adoption for commerce.
  • Most consumers want to be able to pay with crypto, and merchants are starting to cater to this need in earnest.

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Can crypto become the new cash? A look at adoption patterns for consumers and merchants

Recent market volatility may indicate a rough patch for digital currencies, but recent data suggests that they may have the requisite consumer demand and merchant adoption to power through. With cryptocurrency ownership reaching an all-time high this year, it looks like paying with crypto could become mainstream sooner than we thought.

Research about in-store and online purchases made with cryptocurrencies suggests that they are most popular with Millennials. Moreover, more than a quarter of all cryptocurrency holders also use wallets like Apple Pay and Google Pay – which may indicate that upon wider adoption by merchants, those who own cryptocurrency will not shy away from using it the same way they use their digital wallets.

Even though many consumers that invest in cryptocurrency do so for investment and savings opportunities, 30% of consumers have reported using it to make purchases online and 21% report using it to buy items in-store. Groceries, clothing, gaming, and entertainment subscriptions were the most popular categories. 37% of consumers reported using digital currencies to buy groceries in-store, and 34% reported the same for online purchases.

A snapshot of the data shows the distribution of purchases across different categories:

Products or services purchased using cryptocurrency in the last 12 months 
Share of products or services purchased using cryptocurrency in the last 12 months
Data Format: Category name after which percentage of by purchases made online for the category, followed by percentage of purchases made in-store for the category
Groceries 33.7%, 37.5%
Financial services  24.4%, 23.3%
Online gaming or gambling services 31.3%, 33.5%
Education/training services 16.1%, 19.6%
Clothing or accessories 29.8%, 33.7% 
Gold or other precious metals 16.0% , 22.9%
Subscription-based entertainment and media services 28.2% , 32.9%
Real estate 12.7% , 19.2%
Gift cards 23.5% , 31.9%
Vehicles 15.1%, 19.1%
Restaurants or food delivery 25.4% , 30.7%
Events 15.9% , 18.9%
Computers, mobile phones or other electronic devices 24.3% , 28.5%
Furniture or appliances for home or office 16.6% , 16.9%
Professional services 18.8% , 27.9%
Have not made any such purchases 3.4% , 2.1%
Retail or product subscription services 20.9% , 26.1%
Jewelry 22.7% , 24.9%
Tourism and travel-related services 17.5% , 24.4%
Source: PYMNTS

However, financial advisors like Rachel Burk at Offit want to caution consumers before they fully embrace cryptocurrencies with open arms. Based on her experience, paying with crypto can be expensive, simply because at the moment, crypto functions less like money and more like property. “It’s like buying and selling a thousand Beanie Babies during the year, except the sale of those Beanie Babies gets reported to the government. Which then sends a very large tax bill. One of my clients paid out $20,000 last year just in use of crypto! People need to be careful about the tax implications if they are going to use crypto to make payments. It may seem cool, but it’s costly,” she said. 

Merchants' experience with crypto

While consumer demand is essential to ensure cryptocurrency’s success as a payment method, it alone cannot guarantee it. To become as ubiquitous as cash, digital currencies need to convince merchants and vendors of the value that can be extracted from integration. This is often made difficult due to the novelty and volatility of digital currencies, but recent data by Deloitte shows that the tide may be turning in favor of cryptocurrencies.

Almost 75% of merchants report that they plan to accept cryptocurrency or stablecoins as a form of payment within the next 24 months. This is because most merchants expect the expansion into cryptocurrency to lend them a competitive advantage. In fact, merchants that currently accept payments through digital currencies have already noticed a positive impact on their customer base growth and brand perception, which they expect to grow further in the next year.

Offering crypto as a payment method isn’t as easy as providing functionality for a new card or digital wallet. From the merchants that have shifted to cryptocurrencies due to organizational needs, 62% report partnering up with third-party digital currency payment processors, 18% report building alliances with traditional payment processors, and 20% are building solutions internally.

Digital Currency Infrastructure by Motivation for Adoption

a) Organization focus( enable immediate access to funds, take advantage of blockchain-based innovation, allow in-house management of treasury) 
1) Building functionality early: 20%
2) Alliances with traditional payment processors: 18%
3) Partnering with third-party digital currency payment processors: 62%

b) Customer focus (improve CX, increase customer case, brand perceives as cutting edge)
1) Building functionality early: 17%
2) Alliances with traditional payment processors: 16%
3) Partnering with third-party digital currency payment processors: 68%
Source: Deloitte

Although merchants are accepting crypto as payment, most organizations don’t plan on holding or handling any digital assets. More than 52% of respondents reported using payment processors to convert their digital assets into fiat, and organizations that partner up with third-party payment processors are more likely to lean towards doing so.

This hesitation is most likely borne from cryptocurrency’s volatility, but may also hint at just how unbaked this pie is. While 79% of organizations are concerned about cryptocurrency, the merchants that expect customer interest to increase over the next 12 months have already invested heavily into tapping this emerging market.

However, not all integration strategies are created equal. Organizations that have gone the mile and chosen to integrate digital currencies into their financial functions have felt the greatest positive impact, with only 7% reporting feeling no positive impact. Regardless of integration strategy, 52% of merchants believe that improving national guidance around digital assets will broaden adoption. This means that despite a push from consumers and merchants alike, the biggest hurdle cryptocurrency needs to overcome is that of having adequate regulatory clarity before it can fully compete with cash from consumers’ wallets.

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