Business > Merchant Voice

Should merchants accept Bitcoin?

I was recently asked if ecommerce merchants should accept Bitcoin. My answer is a resounding “yes.” I can think of only a few minor downsides and many major upsides to accepting the digital currency.

The number 1 reason you should accept Bitcoin is that it is fraud free. As I have written before — see “Credit Card Processing Sucks” — credit cards are a terrible payment system. It is inherently insecure and the credit card companies put the entire fraud onus on the merchant. I predict credit cards will eventually meet the same fate as that of traveler’s checks.

What’s tremendous about Bitcoin, from a fraud perspective, is that it’s basically the same as dealing in cash. There is no third party involved in the transaction that can come back months later and claim that the transaction was fraudulent and extract the funds from your account (plus a “chargeback fee”).

No, with Bitcoin, if you’ve received the money, you can ship the goods. You don’t have to manually analyze an order, run it through fraud filters, or bother calling the billing address, looking them up on social media, or any of the other ridiculous things us merchants go through in determining if an order is OK to ship.

Note that integrating Bitcoin into your website is not a major technological issue. Companies such as Coinbase and BitPay makes it incredibly simple to accept Bitcoin via a few API calls.

The second benefit to Bitcoin is the cost. Instead of paying 2 to 3 percent in processing fees, Bitcoin is essentially free from a transaction standpoint. Think about that for a second. That’s 2 to 3 percent straight to your bottom line. If your margin is 50 percent, you’ve just increased your bottom line by 4 to 6 percent simply by receiving your funds via Bitcoin instead of credit card. And it’s fraud free.

Now couple the reduced transaction costs with the total elimination of fraud. If you’re dealing internationally (where fraud rates are estimated at 2 percent of transactions), and you’re basically swimming in newly discovered revenue. It’s as close to a no-brainer as you could find in business. It’s almost too good to be true.

So, I know what you’re thinking, “Dude, the value of Bitcoin swings so wildly. I can’t have my business’s funds in Bitcoin.”

This is a legitimate fear. There are solutions (such as Coinbase and BitPay) that will instantaneously transfer an incoming Bitcoin transaction to U.S. dollars. Their fees differ, but it’s substantially cheaper than credit card processing. And have I mentioned that it’s 100 percent fraud-free? So, Bitcoin is still a great deal from a cost perspective even if you don’t want to keep your funds in Bitcoin.

Bitcoin is also gaining a lot of popularity amongst customers and the “big boys” have noticed. Overstock.com, Virgin Galactic, Expedia, Dell, Intuit (makers of Quicken and QuickBooks), Dish, Newegg, Tiger Direct, 1-800-Flowers (and many, many more) all accept Bitcoin. This is no longer the currency relegated to nefarious activities. Bitcoin is a legitimate currency and ideal for ecommerce (especially those doing business internationally).

As more large companies are hacked and their customer’s information is stolen, the more likely consumers are to embrace technologies such as Bitcoin. Privacy is of huge concern to many consumers and the private nature of Bitcoin is quite appealing.

The main advantage credit card companies have over a payment system such as Bitcoin is their rewards programs. However, merchants have a lot of power in pushing digital currencies. What’s worth more to customers: getting an extra 5 percent off their purchases by using Bitcoin or the 50 airline miles from their credit card? I don’t know the answer to that question, but it is certainly a compelling one.

And from the merchant’s standpoint, what’s the cost savings in knowing that an order is 100 percent fraud-free (not to mention the cost savings in eliminating the parasitic credit card company)? I think it’s easily worth the 5 percent. It could be worth 10 percent depending on the merchant’s margins and its fraud losses.

One final issue merchants must decide upon is how to handle refunds on purchases made with Bitcoin. One suggestion is to simply mention to customers using Bitcoin that if they are to return an item, they will receive their refund in U.S. dollars. This helps insulate merchants against currency fluctuations, but customers should be aware of this policy. Another option is to only provide customers store credit when their purchases are made with Bitcoin. I don’t think this is a reason to avoid accepting Bitcoin, however.

The bottom line is that I strongly suggest all ecommerce merchants look into accepting Bitcoin.

Jamie Salvatori
Jamie Salvatori
Bio   •   RSS Feed


x