PayPal Moves into Cryptocurrency—Discretion Remains Key

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PayPal is expanding its cryptocurrency services, but e-commerce expert Alexander Graf argues that this is not a green light for retailers and merchants to embrace crypto as a legitimate payment method

PayPal account holders are now able to buy and sell cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Retailers and online merchants might be wondering if they too should embrace crypto as a payment method for buying goods and services. In fact, it seems that the mainstream market should, for now, remain “highly speculative and suspicious” of the cryptocurrency phenomenon, valued at two trillion dollars.

Crypto is appealing. It offers a lower cost of transaction, so the merchant and the buyer can save up to 2% of the cost of the transaction against a credit card fee. Unbanked customers can use crypto too and this represents an untapped market. Crypto also promises to cut the risk of fraud as Bitcoin transactions are documented in code, offering security and transparency.

The caveats

Yet, the reality is that there is little buy-in for the new currency. There are early adopters among cryptocurrency evangelists and investors but the average consumer is not yet using crypto. Cryptocurrency has an adoption rate of under 1% in most developed nations–rising to as much as 32% in one African nation.

The highly volatile exchange rate of crypto is a significant obstacle. And cryptocurrency transactions can take hours or even days to process, which is risky for buyers and merchants. There is also no consumer protection available with cryptocurrency. If a virtual currency wallet is defrauded, then there’s little to no chance that those funds can be recovered. And finally, there’s no authority in the shape of a central clearing bank to monitor and support crypto.

Of course, the absence of these regulating bodies, for some people, contributes to the appeal of this kind of currency. It is becoming apparent that this is an attractive environment for criminals and fraudsters. In a survey last year, 90% of respondents from financial firms admitted they were worried about crypto being used for money laundering. Over 80% were worried about sanctioned/shadowy players using digital coins to circumvent the formal financial system. If you want to smuggle millions from one country to another, then ransomware cryptocurrency is the payment mode you need to adopt. For everyone else, it is not yet a mainstream option.

Additionally, there are major environmental concerns around crypto. One bitcoin transaction might consume more energy than a household uses in one month. Some estimates have found that the Bitcoin mining process creates 191 tonnes of carbon dioxide versus 13 tonnes of carbon dioxide for gold. China, in a move to improve its environmental image, has banned the practice altogether. In the context of increasing global focus on sustainability, the massive environmental issues around crypto are hard to ignore.

Cryptocurrency not yet practicable

The e-commerce market is usually on the leading edge of technology innovation. There is no doubt that players are keeping a very close eye on the potential of crypto to become a viable medium of exchange in regular e-commerce.

But for now, cryptocurrency is not a practicable option for mainstream e-commerce. There is no compulsion for consumers and retailers to follow PayPal’s lead–there are too many real-world disadvantages. Crypto in mainstream e-commerce is years away. In the meantime, having a platform in place ready to manage crypto payments effectively for e-commerce will become increasingly important, ready for when cryptocurrency adoption does begin to increase.

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