Why bitcoin for retail purchases is far from becoming a reality
- As the value of bitcoin surges, its use as a retail payment method has been slow to catch on.
- Due to the higher costs of transacting with bitcoin, customers are more likely to think of it as an investment vehicle rather than a means to pay.
With bitcoin’s price climbing to $4,000, its appeal as an investment product continues to gain interest. But one area where bitcoin is still struggling is consumer retail — largely a result of the hurdles of actually getting ahold of the virtual currency, kinks on the customer experience side and additional work for retailers.
“As much of a bitcoin bull I am, I have to be a realist in talking about retail in the U.S.,” said Ryan Gilbert, partner at Propel Venture Partners, a Silicon Valley-based venture capital firm. “Retail is one of the hardest channels to crack.”
A recent Morgan Stanley report pointed to bitcoin’s slow acceptance as a payment method, noting that the virtual currency’s “acceptance is virtually zero and shrinking.” It said only three of the world’s top online merchants accept it. Still, Bitcoin payments processor BitPay said it’s processed over $1 billion this year from global brands like Microsoft, NewEgg and the the video game platform Steam.
If retailers would accept bitcoin directly, they run the risk of having to figure out the tax implications of bitcoin’s value quickly swinging up and down. “If you’re going to accept bitcoin, you’re be amassing bitcoin, but as a retailer you’ve got to pay bills in U.S. dollars; how do you deal with depreciation and appreciation? There’s also going to be tax reporting consequences,” said Gilbert.
Since few retailers accept the virtual currency as a payment method, brands often need to work with third-party payments processors like Coinbase, BitPay or GoCoin. BitPay offers a debit card that lets users lets users load a Visa prepaid debit card with dollars using their bitcoin.
Some popular online consumer brands that accept bitcoin as a payment method are Expedia, Overstock.com and Shopify stores. Overstock reportedly handles 100,000 bitcoin transactions per week, a jump from around 30,000 when it first added it as a payment method three years ago. Expedia, which also added bitcoin as a payment option for hotels in 2014, uses Coinbase, which converts customer bitcoin transactions into U.S. dollars.
“There’s a huge amount of friction,” said Gilbert. “People think of bitcoin as an asset, and I suppose the question in mind has to be driven by what federal regulators have said.”
Bitcoin is expensive to use and acquire, so consumers think of it as more of an investment vehicle than a payment method. “In order for it to take off as a currency, it has to become simpler to use and people have to feel that it’s not too expensive to use,” said Celent Research Director Brad Bailey, referring to bitcoin’s higher transaction costs.
One area where bitcoin as the potential to edge out banks is payments across borders, which are still costly for the consumer. “The best consumer application is in the remittance space, to compete with Moneygram and Western Union, where cross-border transactions are very expensive — bitcoin is far simpler and easier,” said Gilbert. BitPay adds that customers who don’t have credit cards, especially outside of the U.S.: “Right now, bitcoin is being used globally to solve real pain points for people that might not have credit cards or where its cheaper and quicker than a business wire. In the U.S., most consumers have credit cards, so its really not solving that much of a pain point, ” said Sonny Singh, chief commercial officer at BitPay.