Are crypto payments becoming mainstream for small and midsize businesses?

Bronwyn Howell

Four years ago, my colleague and I reacted with some mirth when Australia’s Brisbane Airport became the first in the world to allow travelers to use bitcoin, Dash, Ethereum, and other digital currencies to shop and dine across its terminals. At the time, transaction fees of around $10 ensured exchanges of comparatively modest sums were processed in a timely manner. While this may have helped with a small number of high-end merchandise deals, it hardly seemed useful for a quick coffee or snack between connecting flights. Likewise, the 10 percent discount on goods purchased with the approved digital currencies did not successfully entice me and my colleague during subsequent stopovers between Brisbane and Port Moresby.

How things have changed in such a short time! Last month, Visa released the sixth edition of its Global Back to Business study, which revealed nearly a quarter of surveyed small and midsized businesses (SMBs) planned to accept digital currencies such as bitcoin in the coming year. The study, conducted in December 2021, surveyed 2,250 small business owners with 100 employees or fewer in Brazil, Canada, Germany, Hong Kong, Ireland, Russia, Singapore, the United Arab Emirates, and the United States. It does not state whether these plans were evenly distributed across the countries or skewed towards a subset of them.

Bitcoin minted coins spilling out of a leather wallet. RLTheis. Via Twenty20

As cryptocurrencies have become more accepted, transaction costs have fallen, making their original intention of rivaling both the traditional banking system’s credit and debit cards as well as intermediaries such as PayPal more feasible.

Nonetheless, some impediments remain. The transactions are not instant; bitcoin payments, for example, can take around ten minutes to clear as miners compete to build transaction blocks and lock them onto the chain, even with transaction fees to prioritize them. Cryptocurrency volatility also makes setting and evaluating prices problematic. If prices are set in a fiat currency such as the US dollar, large exchange-rate swings even within an hour or day mean the value exchanged may differ significantly depending on the transaction’s timing.

Setting cryptocurrency ticket prices is thus more difficult than comparatively stable fiat currencies such as the pound sterling or euro. This reflects why other less-stable currencies are not usually accepted at retail locations that typically accept multiple currencies, such as international airports. Much also has been made of the association between cryptocurrencies and fraud, causing individuals to lack confidence in using them.

The Visa study suggests a significant number of SMBs are not deterred by these potential impediments. Perhaps SMBs see something their larger counterparts do not, given scant evidence of large consumer-oriented firms moving to a crypto-payment environment in which bitcoin, Ethereum, and the like are welcomed.

First, SMBs deal with fewer transactions, so they face fewer aggregate transaction costs. It may be more feasible for some SMBs to make the necessary one-off calculations and strike deals than it is for larger firms, though this is unlikely true for high-volume transactors like restaurants and coffee shops.

Second, SMBs lack the market power of large firms to demand payment only in their preferred form or via one-size-fits-all payment systems. They may have few options but to take payments in the form preferred by their customers, especially if the sums involved are large and sales will be lost on this point (e.g., payment for the customized fit-out of a yacht.) SMBs may also be more focused on their customers in the first place and are thus willing to be flexible rather than force a customer to use their system. They may also be more likely to deal with unbanked individuals who do not or cannot access the conventional digital payment systems.

Third, crypto payments may be less risky compared to the alternatives available to SMBs, such as cash and checks. When a SMB accepts a check, it has no idea whether the funds to meet the payment are in the payer’s account. If delays in payment occur, someone with a prior claim (e.g., the bank) could take priority, leaving insufficient funds for the transaction (the “double spend” problem.) If the crypto funds associated with the payer’s public key are available when the transaction proceeds and a sufficient transaction fee is paid, double spending can largely be averted as no other claim is likely to prevent full payment to the payee’s designated address. Likewise, providing that the private key to that address is not shared, the payee’s funds are more secure than cash in a till or even a safe.

While the Visa survey may have simply captured sentiments from an underinformed SMB community overconfidently jumping on a bandwagon by signalling optimistic intentions to use cryptocurrencies, it behooves policymakers and others to consider that this might not be such a surprising finding after all. For Visa at least, this parallels a shift to a payments space it is already preparing for.

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