A few weeks ago, while on tour for the upcoming documentary, The BIT Movie crew stopped by 101 Deals Thrift Store to see how easy it is for small businesses to accept bitcoins as an option for payment and checked out the Bitcoin vending machine where folks can buy bitcoins locally. I also made the case why 101 Deals Thrift Store accepts bitcoins as payment and why other businesses should as well.
First and foremost, accepting bitcoins as a form of payment is an improvement over merchant card services. Bitcoin is an instant cost savings to the business’s bottom line. Currently, 101 Deals Thrift Store accepts credit/debit cards through a merchant card service. The fee to accept the cards in person is 2.75% and over the phone is 3.5% plus 15¢ per transaction. This means that if a sale at the store is made for $10, only $9.73 is deposited to the business’s account. There are a few options to accept bitcoins for merchants, but one that is tailored to business and easy is Coinbase.com. When using Coinbase, there is no transaction fee for the merchant and the first $1,000,000 (!) of converting bitcoins to US dollars (IE “cashing out” is free).
Consider a small business that processes $100,000 in credit/debit card sales a year. If 10% of the sales were instead in bitcoin ($10,000), the savings would be $270. Even if the business reached the $1 mil threshold and incurred the 1% fee, the savings is still $170 a year on every $10,000 of sales. If the business accepts cards over the phone instead, the savings are even more dramatic, $350 on $10,000, (not accounting for the 15¢ per transaction cost).
Bitcoin is also much better suited for distant transactions than credit or debit cards. I recently made a sale to a customer over the internet. After agreeing on the details via email (which I had mentioned I accepted Bitcoin but wasn’t taken up on it), we then had to get on the phone to complete the sale. Our schedules were not the same and it took several days and numerous voice mails before we could both find a suitable time to complete the transaction which was carried out via card over the phone. If the customer would have paid with bitcoins, he/she could have instead just made the payment at a convenient time and place for him/her. In this situation, bitcoins would have yielded a savings in terms of time for the business as the numerous phone calls/emails to connect to exchange information would have not been necessary.
The example above illustrates another advantage as well, security of information. Conducting a card sale over the phone is bad for both the business and consumer because of risk. There is more risk (and thus a higher fee) when accepting cards over the phone for the business and there is risk for the consumer as well since someone at the business could more easily record the card information and be able to run it again or sell the card information. With bitcoin, there isn’t this problem because the consumer retains their private information (the keys that allow him/her to spend the coins).
Bitcoin also has an advantage in fund availability. With credit/debit card sales, the funds are typically available to the business in one to two business days depending on the merchant card service provider. If a sale is made on Friday afternoon, the money is typically not be available to the business until Monday and can be even as late as Tuesday or Wednesday in the case of a week with a holiday on a Monday such as Labor day. With Bitcoin, as soon as the transaction is made, the bitcoins can be spent by the business.
What about cash though?
There are also many advantages to Bitcoin over cash as well, the key most being security. With cash, there is a high-level of risk and businesses have to employ many controls to try to safeguard their cash holdings from theft, loss/destruction, or even misplacement. There is a lot of work that goes into managing cash that doesn’t occur with Bitcoin. With Bitcoin, only designated persons can be given access to funds and the treasury function of business is thus much more secure. Also, in a theoretical business that only accepted Bitcoin, it would basically be impossible to “hold-up” the business since clerks wouldn’t have access to funds and thus couldn’t give them to the robbers.
There is also a lot of work associated with accepting cash that doesn’t exist with Bitcoin such as restocking and managing change for cash drawers and taking cash deposits to banks. It also helps deal with computational errors that result from cash transactions such as giving the wrong amount of change or logging incorrect amount of tender. Bitcoin has the potential to help eliminate these errors completely.
With Bitcoin, funds exist online and businesses can save time and money by not having to deal with the physical world as well. There is no standing in lines, buying/writing/mailing checks, there are savings on ink, envelopes, stamps, paying wire fees, etc. Business would instead be empowered to send funds instantly to suppliers, customers (refunds), and employees. Additionally they can save on bank fees and can save time by not having to deal with banks nearly as much. With Bitcoin, an entity can create an address (similar to opening an account at a bank) in seconds and not have to fill out endless forms, submit IDs, sign documents, etc.
Finally, accepting Bitcoin can differentiate a business from other businesses. A customer who has bitcoins might come to a business if it accepts Bitcoin instead of another that doesn’t. It’s an easy way to attract new customers who might simply come conduct business just because a business is willing to accept bitcoins.
Ultimately, while Bitcoin might seem far-fetched at the moment because it seems confusing, complicated, not widely used, and unstable, the Internet had similar characteristics in 1995. It may not be perfect at the moment, but in my opinion, Bitcoin is a groundbreaking advance in money and shows a glimpse at the future of money. Businesses should at least entertain accepting it as payment, what is the downside to providing customers another way to pay?