Stablecoin, CBDCs Could Improve Ecommerce

Digital currencies have the potential to expand ecommerce, lower transaction fees, eliminate chargebacks, and prevent fraud. So far, however, volatility and its fear have stopped most merchants and brands from accepting cryptocurrencies. But this could be changing.

Stablecoin and central bank digital currencies could be non-volatile options. Stablecoins are tied to reference assets such as fiat currencies (i.e., U.S. dollar, euro), commodities, or systems that control the supply. In all cases, stablecoin’s value is predictable.

Central bank digital currencies (CBDCs) are government-managed. These digital currencies should, in theory, be as stable as any government-backed money.

Extending Ecommerce

Cryptocurrencies should improve ecommerce. There are many unknowns, but conceptually the benefits exist.

For example, a cryptocurrency might extend ecommerce to “unbanked” communities worldwide.

In 2017, the World Bank estimated that 1.7 billion people worldwide — 31% of adults — did not have a bank account.

According to a Federal Deposit Insurance Corporation 2019 survey, about 5.4% of American households did not have an account with a bank.

One reason for this could be the expense. Low-income adults sometimes pay $140 a year or more in the U.S. to open a bank account. By comparison, account holders with more funds typically pay nothing.

U.S. households described as “coping” or “vulnerable” collectively paid $23.7 billion in bank fees in 2020, according to a report by research firm Financial Health Network.

Folks without access to a bank account cannot typically obtain a payment card, limiting their access to ecommerce.

Cryptocurrencies bypass traditional banks. Thus digital money could extend ecommerce to shoppers who could benefit from buying online.

Unbanked consumers are primarily poor or what the Financial Health Network described as vulnerable. Nonetheless, access could open new opportunities for them, and collectively they represent a large new market for ecommerce.

Low-cost Ecommerce

Cryptocurrency advocates are quick to note the current payment system — credit and debit cards, mainly — is not low-cost or efficient. Those same advocates might add that digital dollars should be a significant improvement.

Here again, there are many unknown elements, but retailers and brands could make more money. For banks, the opposite would be true.

Many merchants incur payment processing fees of 2.5% or more. The various banks and institutions that facilitate ecommerce transactions pocket those fees — annually more than $100 billion worldwide.

The blockchain technology underlying cryptocurrency connects shoppers and merchants directly. There are no intermediaries in many, if not most, cases other than exchanges and infrastructure.

Fees, if any, might amount to fractions of a percentage point. Banks and payment card companies would need to find new ways to earn fees, but merchants should be better off.

If all consumers switched to cryptocurrency, merchants could earn perhaps 2% or 3% more in gross margin. A business with $10 million in annual revenue might see profit rise by $200,000.

Major retailers and brands recognize even now how expensive payment card processing fees are. In some jurisdictions, Amazon and Walmart have introduced a surcharge for customers who pay with Visa because of its fees.

Fraudless Ecommerce

One should be careful to underestimate crooks. Fraudsters are ingenious, reportedly stealing upwards of $20 billion in 2020 thanks to the porous state of payment card security.

Merchant service companies and payment card issuers don’t do enough to stop fraud, passing the cost burden on to retailers and brands.

Here too, stablecoin and CBDCs might help. While fraudsters may yet discover ways to profit from nefarious ecommerce transactions, the blockchain ledger should make it relatively more difficult.

Fund verification, for example, is better and more accurate with digital currencies on a blockchain than with the current payment system. Ecommerce merchants could expect dramatically fewer fraud losses if all transactions move from payment cards to stablecoin or CBDCs.

Chargebacks would presumably be nonexistent since there is no intermediary between the buyer and seller.

Consideration and Adoption

Stablecoin and CBDC transactions should be fast. Verification should be accurate. Credit card fraud should no longer exist. Chargebacks should cease. The entire ecommerce payment process should be better with stable cryptocurrency.

There are many unknowns. But blockchain currencies such as stablecoins and CBDCs have the potential to expand and improve ecommerce.

Terra, for example, is a relatively new stablecoin. Although private, Terra closely controls its value by adjusting the supply, much like the U.S. Federal Reserve and other central banks.

Several merchants in Southeast Asia have already adopted Terra. As more merchants accept it or similar stablecoins, consumers should become more comfortable keeping and holding stablecoins for ecommerce.

Armando Roggio
Armando Roggio
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