Evaluating the Rewards (and Risks) of Accepting Cryptocurrency Payments in Your Business – First Horizon Bank

Cryptocurrency has been a topic of conversation among investors, and businesses are also taking notice. Major brands like Dell, Microsoft, Overstock, and Expedia now accept various forms of cryptocurrency, such as Bitcoin and Ethereum.

According to a survey conducted by Neustar International Security Council, 80 percent of companies are interested in exploring cryptocurrency as a payment option. Fortyeight percent perceived cryptocurrencies as a way to generate income through increased value.

"Right now, it's easier to accept cryptocurrency than it was two to three years ago," says Matvey Dyadkov, CEO of online advertising platform Bitmedia.io. "There's no need to create any kind of software and it makes clients' lives better and easier."

Accepting cryptocurrency as a form of payment can yield tangible benefits, whether you're operating a larger business or a smaller to midsized company. The question is, does it make sense?

The Upsides of Accepting Cryptocurrency

Cryptocurrency acceptance can open up new possibilities for your business. The benefits include:

1. Increased Sales Potential

Offering bitcoin or other digital currencies as a payment option can help attract a wider scope of customers. Matthew Rincon, founder of online marketing agency Digital Coffee, says accepting cryptocurrency has given his business access to a new audience.

"We've won projects simply because a client wanted to pay strictly in cryptocurrency," Rincon says. He made the decision to accept digital currencies after a client asked if they could pay using Ripple, a cryptocurrency that uses blockchain technology.

Jim Taylor, project coordinator for TruGrid, a SaaS (software as a service) company, says cryptocurrency is an appealing alternative to credit cards for some of their clients. "It's basically a matter of enabling more customers to be able to use our service."

Accepting cryptocurrency payments could allow you to extend your reach to customers outside your current niche. That, in turn, can translate to higher revenues.

2. Faster Payment Processing

One of the biggest headaches for businesses of all sizes is maintaining positive cash flow. Waiting on receivables to be paid or for payments to process can be timeconsuming. Cryptocurrency eliminates delays in transaction settling, allowing for streamlined cash flow management and less frustration.

"My business can see funds in its account the same day," says Pujit Mehrotra, founder of Agnimurus Inc., which provides datacenter and cybersecurity services to small businesses. Previously, he'd had to wait two days to have access to funds received through his online payment processor.

Dyadkov says accepting cryptocurrency in his business has made dealing with international payments much easier. He's been able to avoid the delays typically associated with international wire transfers and PayPal transactions.

3. Lower Transaction Costs

Transaction fees can take a bite out of your receivables. Accepting cryptocurrency can reduce these costs.

"Traditional fiat payment processors charge percentage-based fees, so larger transactions can incur relatively significant costs," Mehrotra says. "Crytocurrencies, on the other hand, generally settle large transactions at a much lower cost, especially in volume."

As of March 15, 2018, the average Bitcoin transaction fee was $1.45. Rincon says, if you're considering accepting cryptocurrency payments, to be mindful of how transaction fees can vary. "Bitcoin can be slow to transact and the mining fees can be costly," he says. He recommends Litecoin, Bitcoin Cash, or Ripple as alternatives.

Transaction fees for certain cryptocurrencies can fluctuate from day to day. To provide an example of the potential volatility, during March 2018, the average Bitcoin transaction fee was as low as 95 cents, after having spiked to a high of $55.16 in December 2017.

4. Fewer Chargebacks

Chargebacks can be the bane of a business owner's existence. According to a 2017 WePay survey, 25 percent of small and midsize businesses experienced a chargeback resulting in a financial loss over the previous year.

Cryptocurrencies like Ripple, Bitcoin, and Litecoin eliminate the possibility of losses due to fraudulent chargebacks because payments aren't reversible. Mehrotra says this reduces the risk of being targeted by credit card scammers.

The cost of those scams to e-commerce businesses totals $40 billion per year, according to The State of Chargebacks: 2018 Report by Kount and Chargebacks 911. Reducing chargeback risk can minimize revenue losses.

The Cryptocurrency Cons

Cryptocurrency is a relatively new technology and there are some drawbacks to consider:

1. Fluctuations in Cryptocurrency Values

Cryptocurrencies are similar to stocks, in that their value may not be the same from one day to the next. Bitcoin's price, for example, topped $19,000 in December 2017 before dropping to $7,000 in February 2018.

Because cryptocurrency is as yet unregulated by the federal government, and is considered a decentralized currency, price fluctuations are the rule, rather than the exception. To hedge against these fluctuations, your business has to be able to convert cryptocurrencies to cash relatively quickly.

Matthew McKeever, an attorney and shareholder at Copple, Rockey, McKeever & Schlecht, a firm that represents clients in the cryptocurrency and blockchain space, says using an established payment processor can mitigate security and volatility risks. There are fewer security concerns "if an established payment processor like Coinbase or Bitpay is used," says McKeever.

2. Security Challenges

Cryptocurrency can make transactions more secure, but it's not foolproof. In January 2018, hackers made off with $530 million in cryptocurrency stolen from a Japanese digital currency exchange.

Cryptocurrency is not FDIC-insured. However, some private companies offer their own form of insurance. Digital currency exchange Coinbase insures losses resulting from a breach of Coinbase's physical security, cyber security, or employee theft. It doesn't, however, insure you if your personal cryptocurrency wallet is hacked.

If you're accepting cryptocurrency, you must be prepared to accept a certain degree of security risk. Using a trusted payment processor, securing your account with multifactor authentication, and installing malware protection on your business computer systems can curb the risk, but it's difficult to eliminate it entirely.

The Bottom Line

Cryptocurrency can offer value to both online and brick-and-mortar businesses, but it may not make sense for every business. Weighing the positives (and potential negatives) can give you perspective on where cryptocurrency fits in your payment model.

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