Why bitcoin is not taking off as a payment method
- Some retailers are accepting bitcoin, but it's more of a way to get noticed than a payments innovation
- Consumer bitcoin payments are still fraught with friction, and in 2018, use cases will likely still center around business-to-business payments across borders
Bitcoin may be everywhere suddenly, but there’s little reason for everyday people or even merchants to start adopting it as an alternative currency or payment method.
The digital currency, whose price has exploded past $10,000 (and then back down some) in the last two months is expensive to get, complicated to use and by next spring they’ll need to figure out how to pay taxes on their bitcoin transactions and holdings. Using cash or cards is just faster and cheaper. And for retailers — like KFC, who added bitcoin support throughout its Canadian locations last week — entertaining the price fluctuation is just a marketing scheme.
“I don’t think using bitcoin [to pay] solves a problem that needs to be solved today,” said David Sica, a partner at Nyca Partners. “For retailers, it’s a way to get noticed, making an announcement that you’ll accept bitcoin will give you some press, but payment volumes won’t be high.”
Beyond the KFC announcement, no major retailers have recently signed on to accept bitcoin, but independent restaurants here and there have recognized they have nothing to lose by making it available to customers.
The typical consumer using bitcoin to buy things is someone who has seen the value of their bitcoin holdings rise, Sica said. But they may not consider the tax implications involved in using bitcoin to make a purchase: it’s on the consumer to set aside enough to pay taxes that aren’t deducted at the point of sale since the vendor doesn’t deduct the tax at the point of sale.
“The emphasis is on paying taxes — that’s the extra layer where there’s a lot of consumer focus on properly reporting the gains so they can pay taxes with it and there’s no infrastructure in place to do that,” Sica said.
The cost to acquire and transact with bitcoin doesn’t make it worthwhile to use bitcoin for smaller purchases, said Ryan Gilbert, a partner at Propel Venture Partners. Sonny Singh, chief commercial officer at bitcoin payment processor BitPay, added that vendors of high-value goods in particular like computers, electronics and car vendors see more value in adopting bitcoin payments because its transaction fees are smaller than those of Visa or Mastercard. A percentage point or two can make a big difference for merchants. BitPay charges a 1 percent fee per transaction; Visa and Mastercard fees are typically higher than 1 percent depending on the type of transaction.
BitPay transacted $1 billion in bitcoin in 2017, a 328 percent jump from the previous year and 15 percent of which were business-to-business payments, according to the company. It expects that figure to increase to $5 billion this year.
In addition, Gilbert said international remittances are more likely to take off as a use case than consumer payments.
“You have to do some superhero things to start interacting with bitcoin,” whereas to get dollars or euros one need only type some card information into the required fields, he said. “In the U.S. most people will go to the App Store or Google Play, download the Coinbase app, and you’re paying when you’re buying and when you’re selling.”
Photo credit: Flickr / Francis Storr (image has been cropped)