The advent of cryptocurrency has generated immense buzz in the tech and finance sectors. Over the past few years, the use of crypto as a legitimate payment option for goods and services has steadily gained traction.
Initially, digital currency adoption was confined to technology enthusiasts, but it has increasingly permeated mainstream commerce. Particularly, the integration of cryptocurrencies into e-commerce is poised to transform the industry by proffering enhanced security, speed, and cost-effectiveness. This integration has created a paradigm shift that promises to significantly alter the way businesses process transactions.
According to Statista, e-commerce could have an annual growth rate of 11.51% from 2023 to 2027, making it possible to reach an estimated market value of $6.35 trillion by 2027. The number of users in the sector is expected to increase to 5.29 billion people by 2027, with a 66.6% user penetration. Greater integration would see the crypto industry tap from this astronomically expanding user base and adoption.
Businesses continue to show interest in crypto
The crypto industry is witnessing a tremendous influx of interest from major companies as they scramble to offer crypto payment options to their customers. The likes of Microsoft, AT&T, Twitch, and Burger King are already accepting crypto payments through dedicated payment processors such as BitPay, NowPayments, and Binance Pay. BitPay alone boasts a clientele of over 250 companies and stores that accept crypto payments via its solution.
Evidently, the adoption of crypto in e-commerce is gaining more traction as Visa reportedly recorded a whopping $2.5 billion in volume from crypto-linked cards in Q1 2022, accounting for a staggering 70% of all transaction volume observed in 2021. Binance, Crypto.com, Nexo, Wirex, and Coinbase are among the exchanges partnering with Visa and Mastercard to issue crypto-linked cards, indicating the rising trend in this space.
A report from payments provider Checkout.com reveals a significant increase in the number of users between 18–35 years old willing to pay for goods and services using cryptocurrencies. The percentage rose from 30% in 2021 to 40% in 2022. Similarly, 23% of a total of 3,000 surveyed merchants across 11 countries expressed readiness to accept crypto payments.
Deloitte also studied last year’s data in conjunction with PayPal, and results further validate the growing interest in crypto payments, as up to 65% of surveyed customers indicated significant interest in paying for products and services with cryptocurrencies.
Furthermore, a whopping 85% of merchants expect that crypto payments will become commonplace soon, with only 1% revealing no plans to integrate them; 39% plan to integrate digital currencies within the next year, 22% within the next two years, and 12% within the next four years. And 26% of the surveyed organizations have already integrated crypto payments into their payment options.
Shopify, one of the largest e-commerce platforms for small businesses, partnered with Alchemy Pay in 2020 to allow its merchants to accept crypto payments. Alchemy Pay, in turn, formed a partnership with Binance Pay in August 2021, allowing Binance Pay users to access Alchemy Pay’s e-commerce partners, including Shopify.
CoinGate also disclosed in January that crypto payments in e-commerce have been on the rise, with a particular surge observed last year. The report disclosed that there was a 48% increase in newly registered e-commerce merchants for crypto payments in 2022.
Moreover, merchants using CoinGate have received 927,294 payments in crypto in 2022, a 67% increase from the figure observed in 2021. This figure also represents 2.7 times the annual average.
Payment processors PYMNTS and BitPay further disclosed that 85% of companies with annual sales of over $1 billion are integrating crypto payments to attract new customers, while 82% of businesses that accept crypto payments prefer this option due to the elimination of intermediaries.
Some merchants remain indecisive
Despite the increasing adoption rate, there are still some merchants who remain reluctant to integrate crypto payments. The PYMNTS report shows that 68% of these merchants cite the challenge of integrating crypto payments as one of the main reasons behind their reluctance.
Crypto adoption in e-commerce has also been impeded by the high volatility observed in the crypto markets, leading to unpredictable price fluctuations. Other merchants have remained reluctant to integrate crypto payments due to the complexity involved in setting up crypto payments and the absence of native wallets.
Challenges and limitations of cryptocurrency in e-commerce
Though it promises a plethora of benefits for the e-commerce sector, cryptocurrencies also face several challenges and limitations that must be addressed for their widespread adoption.
Regulatory uncertainty
One of the biggest challenges is the lack of regulatory clarity around cryptocurrency. The legal and regulatory landscape surrounding cryptocurrency is still evolving, and businesses that want to integrate cryptocurrency into their e-commerce platforms must navigate a complex and uncertain environment.
Due to the decentralized nature of cryptocurrency, it is difficult for governments and regulatory bodies to monitor and regulate transactions, which has led to concerns about money laundering, tax evasion, and other illegal activities. The lack of clear regulations around cryptocurrency can make it challenging for businesses to comply with legal and regulatory requirements and can limit its adoption by larger enterprises.
Volatility
Another challenge is the volatility of cryptocurrency prices. Cryptocurrencies are known for their price fluctuations, which can make it difficult for businesses to price their products and services in cryptocurrency. The value of cryptocurrency can vary significantly within a short period, which translates to uncertainty and risk for businesses that use it as payment.
To mitigate this risk, some businesses that accept crypto may choose to convert it immediately into a stablecoin, which can result in additional transaction fees.
Low adoption
Additionally, the adoption of cryptocurrency in e-commerce is still relatively low compared to traditional payment methods. While the number of businesses that accept crypto as payment is growing, it is still limited, which can present a challenge for businesses that want to reach a broader customer base.
The limited adoption of cryptocurrency in e-commerce can also hold its liquidity, making it more challenging for businesses to convert cryptocurrency into fiat currency or other assets. Gustavo Monteiro, SVP for product partnerships at the Ecuador-based payments processor Kushki, highlighted this issue in an exclusive interview with crypto.news.
“Lack of liquidity which may hinder the merchant’s ability to fund its operation, and harder traceability, which could expose the merchant to money coming from illegal sources,”
Monteiro told crypto.news
Monteiro also brought attention to how difficult it is to trace transactions on a blockchain, citing it as one of the risks involved in implementing crypto in e-commerce. According to the SVP, this “harder traceability could expose the merchant to money coming from illegal sources.”
Benefits of cryptocurrency in e-commerce
Despite these challenges, the use of cryptocurrencies in e-commerce opens up the sector to multiple enhancements.
In this regard, Monteiro stated that cryptocurrencies have the potential to facilitate cross-border transactions and, therefore, cross-border e-commerce. “But for that to happen, three things are key: transaction confirmation speed, liquidity, and broad acceptance. Without that, the less tech-savvy customers and merchants won’t feel comfortable switching from fiat to crypto.”
High transaction speed
One of the key advantages of using cryptocurrency for e-commerce transactions is its speed. Blockchains, such as Solana (SOL) boast high-speed transactions while promising transparency and security.
Traditional payment methods like credit cards and PayPal take longer times to process transactions, which can cause inconvenience for customers and increase the risk of fraud and chargebacks for merchants. In contrast, cryptocurrency transactions are processed within seconds, enabling faster and smoother transactions.
Low risk of chargebacks
Cryptocurrency transactions are also irreversible, which reduces the risk of chargebacks and fraud for merchants. Once a transaction is verified and added to the blockchain, it cannot be reversed, ensuring that merchants receive payment for their goods or services without the risk of fraudulent chargebacks.
Increased security and privacy
Another advantage of using cryptocurrency in e-commerce is its increased security and privacy. Cryptocurrency transactions are secured by complex cryptographic algorithms that make them virtually impossible to counterfeit or double-spend. The use of public and private keys ensures that only the owner of the cryptocurrency can initiate a transaction, making it a secure method of payment.
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Moreover, cryptocurrency transactions offer a higher degree of privacy compared to traditional payment methods. Traditional payment methods require users to share their personal information with third-party payment processors, whereas cryptocurrency transactions do not. Users can transact anonymously, without revealing their personal information, providing increased privacy and security.
Latin America: a case study
“Blockchain has a multitude of applications and can offer a better alternative to a series of legacy processes and technologies, like notarization, ledger book-keeping, etc.,”
Monteiro remarked, speaking on the potential impact of blockchain and crypto in e-commerce within Latin America.
Latin America is one of the fastest-growing cryptocurrency markets globally, with countries such as El Salvador, Brazil, Venezuela, Colombia, Ecuador, and Mexico taking center stage within the region. Latin America boasts four countries on Chainalysis’ top 20 list of global crypto adoption index in 2022, with Brazil ranked seventh in the world.
In June 2022, a Mastercard survey found that 51% of Latin American consumers have already made payments with crypto. The region has seen a rapidly increasing rate of crypto adoption since the pandemic, due to growing inflation rates and continuous currency devaluation. Investors have flocked to digital assets as a hedge against the economic situation despite some countries frowning against their use.
Responding to an inquiry on why crypto adoption might be necessary for Latin America, Monteiro emphasized that he wouldn’t go as far as to say it’s “necessary, but crypto can certainly help increase competition between financial services, which is definitely helpful to improve their quality.”
A data platform Chainalysis also revealed that Latin America represents the seventh-largest crypto market in its global adoption index for 2022. Accordingly, citizens in LatAm countries were reported to have received up to $562 billion from July 2021 to June 2022 in crypto transactions.
Chainalysis highlighted three primary factors driving this growing adoption, including a desire to make a profit, remittance needs, and the search for a reliable store of value.
This growing adoption rate in the crypto scene within Latin America could be leveraged by payment processors in the region to drive adoption. However, this has not been the case. Monteiro noted that Kushki seeks to establish itself as a reputable player when it comes to facilitating the reception and disbursement of funds in crypto for businesses.
Despite this, Monteiro confirmed that the firm has no plans to integrate cryptocurrency as a payment method for the time being, but they’ve got it on their radar for the long term.
Future outlook of cryptocurrency in e-commerce
As more businesses adopt cryptocurrencies and more consumers become comfortable using them, the assets are expected to grow in popularity within the ever-expanding e-commerce scene in the foreseeable future. However, regulatory clarity and volatility remain significant challenges for this integration.
To address these issues, several initiatives have been launched to create stablecoins. Stablecoins provide the benefits of cryptocurrency while minimizing the risk of price fluctuations. They are designed to maintain a stable value and can be used for everyday transactions.
Blockchain technology underpins cryptocurrency and is opening up new possibilities for e-commerce. Blockchain allows for secure, transparent, and decentralized transactions, which can improve supply chain management, reduce fraud, and increase trust between businesses and consumers.
The use of blockchain technology can help create tamper-proof records of product origin, authenticity, and delivery. This can improve supply chain transparency and reduce the risk of counterfeiting.
For example, the luxury goods industry relies on authenticity to maintain its brand reputation and consumer trust. Blockchain technology can be used to create tamper-proof records proving the authenticity of luxury goods, ensuring that consumers buy genuine products.
Overall, the future of cryptocurrency in e-commerce looks promising, with the development of stablecoins and blockchain technology helping to address some of the challenges and unlock new possibilities for businesses and consumers alike.
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