Blockchain technology and cryptocurrency have the potential to significantly reduce fraud and cut payment fees for retailers. In 2019, we'll start to see a real migration to cryptocurrency.
I'm not talking about a mass adoption of cryptocurrency in the year ahead. It’s still much too early for that. However, 2019 is shaping up to be the year when crypto moves beyond the fringe as more forward-thinking retailers start dipping their toes in the water.
As exhibit A, Facebook is developing a digital stablecoin currency that will tie to the U.S. dollar in order to reduce exchange volatility. Still in the strategy stages, the currency will ultimately enable users to transfer money via Facebook’s WhatsApp.
Another high-profile example is Amazon Web Services’ recent release of a managed blockchain platform that makes the technology more accessible. Using the platform, developers can skip over much of the complexity and cost to set up a scalable blockchain network in just a few clicks. From there, users can create faster, more secure ways to transfer assets or handle retail transactions.
Notably, these major steps forward are occurring even as prices of bitcoin and other cryptocurrencies have fallen. Despite that, blockchain, also known as distributed ledger technology, will completely change retail and our current payment systems. In fact, as blockchain gains mass acceptance over the next several years, the anticipated impact compares to the advent of internet use.
While cryptocurrencies are dependent on blockchain technology, blockchain is not tied to cryptocurrency. Traditional payment options, including bank transfers and credit cards, can operate using blockchain to provide enhanced fraud protection, improved processing speeds, and reduced costs.
Blockchain is already making a difference in countries that lack robust banking infrastructures. In Kenya, a company called BitPesa is leveraging blockchain to provide a secure way for companies on the African continent to pay their Chinese suppliers. As a replacement to slow and costly money transfers that required intermediaries, users go to BitPesa’s website to initiate the transfer directly to the Chinese vendor’s account. The savings on these cross-border payments is estimated to be 60 percent.
Blockchain is also becoming a factor in countries with established banking systems. In Japan, Ripple launched an app called Money Tap that makes it easier for banks to handle domestic payments — virtually instantly — through blockchain technology. For customers, the app makes the payment process faster and safer.
What’s It All Mean?
In both the BitPesa and Money Tap examples, blockchain’s decentralized peer-to-peer transactions eliminate the traditional intermediary role of banks or credit card associations. While these types of payment options won’t replace the current system overnight, retailers should look for opportunities to migrate toward blockchain payments that make sense for their businesses today.
For example, look for cryptocurrency to be used as an incentive to change customer behaviors. Merchants may be offered a flat 1 percent processing fee for cryptocurrency payments or reduced fees for existing card processing with crypto used as an offset for interchange rate losses.
In the year ahead, retailers won’t need to make dramatic changes, and they definitely shouldn't go all in on any single cryptocurrency at this point. But retailers who take advantage of early opportunities give themselves new options to reduce their reliance on intermediaries. In 2019, the money saved on processing fees can go straight to the bottom line.