Growing competition in the retail sector – and the possibility that the digital currency could help merchants lower transaction fees that cut into profit margins — could induce them to replace credit cards with Bitcoin.
“From a merchant perspective, Bitcoin has the advantage of not having large fees from credit card companies that cut into profits,” writes Ian DeMartino, in The Bitcoin Guidebook: How To Obtain, Invest, And Spend The World’s First Decentralized Cryptocurrency (New York: Skyhorse Publishing, 2016). “Credit card companies typically charge between three to four percent for each transaction, a fee the merchants normally take on themselves. For merchants with small profit margins, that fee could be up half or more of their profits for each credit card transaction.”
Kris Marszalek, Co-Founder and CEO of CRYPTO.com, agrees. “The banking and payment sector is ripe for disruption,” he says. “Everyday consumers feel little loyalty to or satisfaction with many incumbent institutions – charges are unnecessarily high and the customer experience is poor. The entire credit card business model is focused on wringing money out of people who can’t afford credit card debt: late fees, penalties and high interest rates.”
By contrast, blockchain and cryptocurrencies, he continues, “provide a way to shift the balance of power back towards consumers. Blockchain backed credit is fairer and more affordable than credit card debt. And when used as a means of payment, cryptocurrencies offer a number of advantages over existing methods. The digital nature means they are nearly free and fast to send globally; and travelers can use cryptocurrency cards to save up to eight percent on exchange charges when spending money abroad.”
[Ed. note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment. Disclosure: I don’t own any Bitcoin.]
Arran Stewart, Co-owner and CVO of Job.com, explains how Bitcoin could replace credit cards. Credit cards, he says, could be replaced with simple wallet verification that could be confirmed “with something as simple as a fingerprint. We are already used to doing the same and similar behavior with Apple Pay. This is far more secure and efficient as it would allow retailers to receive payment for goods and services much faster. The only roadblock to this becoming reality is the stability of the crypto market, which will come in time and as transaction volumes continue to increase.”
That’s bad news for companies like Visa and Master Card, which dominate the credit card payment industry — and for the banks that issue these cards and take their own cut.
But it is good news for Bitcoin investors, as it will raise exponentially the adoption rates for day to day transactions, and boost its price.
Still, Bitcoin enthusiasts should temper their enthusiasm. While merchants would be happy to replace credit cards with Bitcoin, shoppers are hardly likely to give up on their credit cards. For an obvious reason. Credit cards alter the trade-off between the pleasures of acquiring something versus the pain of paying for it; we get the pleasure now and defer the pain until later.
“Paying with plastic fundamentally changes the way we spend money, altering the calculus of our financial decisions,” explains Jonah Lehrer, author of How We Decide (Houghton Mifflin, 2009). “When you buy something with cash, the purchase involves an actual loss — your wallet is literally lighter. Credit cards, however, make the transaction abstract, so that you don’t really feel the downside of spending money.”