An estimate of the real savings for merchants from Bitcoin

http://www.thebusinessofbitcoin.com/2014/02/bitcoin-for-b2c-payments-part2.html

by davidrangel • 12 years ago

24 33 12 years ago

pbreit3• 12 years ago

There are no savings given the volatility. Since it can take days to convert to usable currency, you'd have to bake in 3-20% padding to cover volatility.

unlimited_power• 12 years ago

Use a service like BitPay and it converts instantly.

pbreit3• 12 years ago

That's just transferring the expense/risk which is not sustainable.

sergiosgc• 12 years ago

20% savings is not ground shaking. Remember that BTC is tackling an entrenched opponent, quasi monopolist. It'd take an order of magnitude in savings to guarantee success. Think 50% to 90% less.

ronaldx• 12 years ago

It depends. A high-volume, low-margin retailer would save a huge amount from 20% on transactions.

If Amazon were motivated to take on the risk of building the infrastructure, this could happen quickly. But, they have other things to focus on, and I doubt they would make the calculations in the same aggressively optimistic manner.

lhl2• 12 years ago

There aren't guarantees in life, but I think you're wholly misunderstanding the scale we're talking about. Visa processes about 200M transactions/day. Almost $17B/day. These are not small numbers.

I think you're also misunderstanding of how the financial system looks at payment rails - there's a pent up (ongoing?) demand for better ones.

Also, while merchant transactions are one market, they certainly aren't the only one. There's lots of talk about international remittances. This is a $500B+ market[1] that is growing at an insane rate[2]. Average fees are 9.3%[3] and way worse for some countries - it's not unheard of to say, pay $40 for sending $100 from the US to Kenya. Now that is a market that's ripe for disruption (you'd have to balance bitcoin inflows w/ capital flight for the economy to work, but it's worth pointing out there's already a service linking bitcoin w/ M-Pesa: http://motherboard.vice.com/blog/one-third-of-kenyans-now-ha... )

IMO, this is a particularly useful page which gives some context on where bitcoin currently sits with other payment networks: http://www.coinometrics.com/bitcoin/btix

[1] http://www.bloomberg.com/news/2013-12-17/global-immigrants-s...

[2] http://gulfnews.com/business/economy/global-remittance-flow-...

[3] http://www.cognizant.com/InsightsWhitepapers/Remittance-Mark...

davidrangel7• 12 years ago

As the two other comments here state, 20% is nothing to sneeze at when you are a low margin retailer (which many are). And I think 20% is the low end of possible savings (I'm the author of the post) - it's possible that the savings will end up being significantly higher, especially if retailers can keep some of the money in Bitcoin (because business partners start accepting Bitcoin and/or volatility comes down) and if fraud costs come down.

JeffJenkins2• 12 years ago

If merchants were doing sales and returns using Bitcoin it seems like you could make money on the volatility by returning items when the value of Bitcoins went up within the return window. You'd have to be willing to keep items you bought if the value of Bitcoin went down, but if you systematically made all your regular purchases that way you ought to come out ahead. Is this a real risk for merchants, or am I missing something?

gavinjoyce• 12 years ago

Merchants could simply return the $ value of the product

pmorici4• 12 years ago

That sounds shady. Unless that was explicitly agreed to before the purchase I don't think that would fly.

pmorici4• 12 years ago

If that were a profitable scheme then why don't people do it with other currency pairs and goods?

JeffJenkins2• 12 years ago

Generally multiple currencies aren't accepted and the volatility is much lower. You probably couldn't make a profit on normal consumer goods that have a return policy. For this to work you'd need potentially extreme currency changes over the course of a few weeks.

dror• 12 years ago

Most of these savings could be accomplished by having the merchant withdraw the payment from your bank account rather than a credit card.

Frankly, I'm surprised that Amazon doesn't offer this service. Just take the money out from my bank, offer me the same protections as a credit card, and we split the credit card fee: 1% for you and 1% for me :-).

Used to be that violated their credit card agreement to charge more for credit card purchases, but looks like that's not the case since Jan 2013. http://www.washingtonpost.com/business/capitalbusiness/as-ru...

TwoFactor• 12 years ago

There is a lot more risk on the consumer allowing a merchant (and vicariously the consumer's bank) full "pull" access to a bank account. You'll need a dispute resolution system, which is what debit cards are basically providing in addition to point of sale systems. Imagine a security compromise like with Target, but if there was full bank account access as well... it would be a nightmare.

Bitcoin is "push" based which eliminates the ability to fraudulently pull charges from the sender's account. Banks also charge a fee, and add transfer times to transactions that are basically non-existant with bitcoin

davidrangel7• 12 years ago

Agreed. Giving someone full access to your bank account is very risky. At least with credit cards you can always dispute charges and it is the merchant who is usually on the hook, not the consumer.

al2o3cr• 12 years ago

"Assuming consumers will be ok with only 0.5% in rewards"

And assuming they'll be OK with having ZERO chargeback rights in case the purchase turns out to be not-as-advertised and/or defective.

That second article (explaining why consumers would want to do this) best be a doozy, because so far consumers have had to swallow a requirement for them to provide a "mobile wallet", lower rewards, AND increased vulnerability to fraud all to save the merchant 0.375%.

waterlesscloud2• 12 years ago

Assuming Bitpay, Coinbase, and company don't get into providing some sort of chargeback protection for consumers, which of course they could do.

It's also possible that merchant reputation will become key, which isn't exactly a bad thing.

davidrangel7• 12 years ago

Agreed on both counts. They (e.g., Coinbase) will likely have to do this, and charge for it.

davidrangel7• 12 years ago

I agree that foregoing the rewards is a fairly big assumption and it might not be realistic. But I do think there are other advantages and will write about those. The I don't think people will (or should) absorb the merchant risk and that's why someone does have to take up an acquiring bank-type role (and charge for it).

wyager• 12 years ago

I'm ok with not having chargeback rights on these transactions, because it's not like I'm going to do a chargeback on my local burrito place or grocery store or whatever.

Also, the article factored in a "Bitcoin discount" for customers, and .375% of revenue is a hell of a lot more that .375% in profit. That's easily 20% of profit for small margin businesses. The article was also very conservative on credit card fees.

If a Bitcoin user wants chargeback ability, they can use a third party mediator for a fraction of what credit card companies charge.

philrapo3• 12 years ago

Shouldn't we be asking what the savings to the consumer are?

I use my credit card all the time for 2 reasons: 1) fraud protection and 2) reward points.

Interchange fees paid by the merchant are essentially being passed to the consumer via reward points. Why would people switch from credit cards to bitcoin en masse?

davidrangel7• 12 years ago

It's a good question and also needs to be answered. I'm the author of the post and have one coming on the consumer side.

philrapo3• 12 years ago

Nice, looking forward to reading your thoughts. I've been thinking about this myself recently.

I'd suggest using a higher estimate for the value of rewards points. (You used a 1%.) You can explicitly get >1% cash back on many cards, so I'd argue that's really the lower bound.[1]

Most reward points can be redeemed for ~2%, with conscious consumers getting even more than that. [2]

Consumers are very aware of the value they're getting, too. If you read AMEX company filings, the redemption rate on MR points is >90%. I found that shockingly high. It's tough to get consumers to switch to bitcoin when it's worse value and more risk.

[1] https://creditcards.chase.com/freedom?jp_cmp=cc/freedom/off/... [2] http://boardingarea.com/onemileatatime/2012/05/25/my-updated...

bdlbdl• 12 years ago

I'd be very interested in hearing why a consumer would use bitcoins when a credit card option is available to them. The only reasons I can come up with are:

- The user is a bitcoin evangelist - The user bought/mined bitcoins early and wants to cash in without selling them which would incur an exchange fee and tax hit. - The user would prefer anonymity for that txn. Assumes no physical delivery (e.g. online porn) - The merchant offers a steep discount for btc. But why would a merchant offer a fee more than the 0.35% referenced in the article?

An estimate of the real savings for merchants from Bitcoin

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