Cryptocurrency quietly enters the checkout counter: payment giants expand digital asset consumption scenarios

As mainstream banks and card networks begin to offer a range of cryptocurrency products and services, whether consumers will adopt cryptocurrency as a payment tool remains an open question.

Companies are making it unprecedentedly easy for consumers to pay with cryptocurrency at the point of sale. Until recently, paying with cryptocurrency was a complex undertaking, requiring enduring delays while waiting for blockchain transaction confirmations—if retailers were willing to accept it at all. Moreover, the volatility of digital assets was difficult for both retailers and consumers to manage.

But over the past year, a growing number of mainstream payment service providers and card networks are lowering the barriers for retailers to accept cryptocurrency. As a result, companies are increasingly adding cryptocurrency as a payment option and betting that consumer adoption will rise. The continued surge in cryptocurrency value—with the total global market capitalization exceeding$2 trillion, roughly equivalent to the value of U.S. dollar bills in circulation—makes it worthwhile to encourage consumers to spend from their ever-growing digital wallets.

Two key factors underpinning corporate bets on crypto payments are the growing number of consumers holding cryptocurrency—unlike five years ago—and technology that makes crypto transactions easier than ever. Companies say that as more customers hold crypto assets, convenient crypto payments are a natural next step.

"The crypto world is a real-time world, and there is a mismatch with the traditional bank transfer world," said Randy Kern, chief technology officer of card issuing and processing company Marqeta. "Now we are able to provide a more seamless experience."

Growing acceptance

In recent months, major payment companies have expanded merchants' ability to accept cryptocurrency.

Mastercard, headquartered in Purchase, New York, has established apartnershipwith digital asset exchange Bakkt, allowing participating merchants, banks, and fintech companies to accept cryptocurrency payments. The partnership also allows crypto rewards to be issued to consumers. Mastercard's partnership with Bakkt enables merchants and other partners to accept cryptocurrency, while Bakkt provides custody services. Additionally, this month Mastercard worked with other partners to launchcrypto-linked credit, debit, and prepaid cardsin the Asia-Pacific region, which can be used to convert cryptocurrency into fiat currency for spending.

Also in October, payment software company ACI Worldwide announced a partnership with RocketFuel Blockchain to allow customers to accept more than 50 cryptocurrencies with a single click at e-commerce checkout, with no fees.

Marqeta last month began providing technical support for Visa crypto debit cards from Bakkt, Coinbase, and Fold. Marqeta's technology enables crypto transactions to be processed at speeds similar to fiat currency transactions.

Visa said it works with 50 crypto platforms on card programs and announced in July that crypto-linked Visa card spending exceeded$1 billion。

in the first half of 2021. "Visa credentials—whether physical or virtual—are becoming the preferred mechanism for a growing number of consumers who own cryptocurrency when they want to actually use that value to make purchases," said Cuy Sheffield, head of crypto at Visa.

Payment companies and merchants interviewed by Payments Dive said adding cryptocurrency as a payment tool is a response to consumer demand and an opportunity to expand average order value. Crypto payment software from third-party companies allows crypto payments to be quickly converted to fiat currency, enabling merchants to receive or make payments without holding digital assets.

Merrick Theobald, vice president of marketing at crypto payment processor BitPay, said the availability of crypto transactions has increased average order value and helps merchants reach new customer segments. BitPay charges a flat fee of 1% for backend fiat conversion and completes crypto payment transactions.

"Sometimes people worry about Bitcoin's volatility, but that's also why merchants want to work with BitPay, because we manage the volatility—they have nothing to do with it—if they charge $100, they will receive $100 minus our 1% fee," he said.

Atlanta-based BitPay said it supports more than a dozen cryptocurrencies globally, and its 1% fee is lower than fees charged by major card networks, which can chargemore than 2%per transaction. Additionally, Theobald said adding crypto payments is a way for merchants to attract buyers who typically make larger purchases.

According to aForrester Research studycommissioned by BitPay last year, the average order value for crypto adopters is $450, compared to $200 for non-crypto users. Additionally, 40% of customers paying through BitPay are new customers, indicating a significant opportunity to expand customer reach, the Forrester report said.

As acceptance of crypto transactions at checkout increases, payment companies say technology enables faster transaction settlement, with timeframes similar to regular card transactions. Compared to settlement times for crypto payments processed on a blockchain without intermediaries, processing through Marqeta can reduce processing time from days to minutes.

"It's no longer a multi-day process; now from your wallet and the associated Marqeta-issued card, you're able to compress that entire three-day, multi-step process into something done entirely behind the scenes in real time. Through your card, you can make purchases in the real world, and from the merchant's perspective, it looks like a traditional fiat purchase," Kern said.

Visa, the largest card company, and Mastercard, the second largest, are promoting crypto payments with no more friction than traditional card transactions.

"Very few merchants are able to accept Bitcoin directly on the Bitcoin blockchain because it's difficult for them—it requires new infrastructure, and they have to upgrade their point-of-sale terminals," Sheffield said. "Transaction confirmation can take 10 minutes, and there's also volatility that merchants have to deal with."

In contrast, Visa allows cryptocurrency to be accepted at 70 million merchants, where crypto balances are automatically converted to fiat currency in the background, Sheffield said.

Will consumers choose it?

Despite the growing choices for consumers to pay with cryptocurrency, it is still too early to assess usage levels of crypto at checkout, although practitioners agree that current adoption rates are not high.

Sheffield acknowledged that Visa's $1 billion in crypto-linked card payments represents only a tiny fraction of the trillions of dollars in payments Visa processes. (Last year, Visa's total payment and cash volume was $11.3 trillion.)

Online retailer Overstock made waves in 2014 by becoming one of the first major retailers to accept Bitcoin for purchases. Nevertheless, CEO Jonathan Johnson told Payments Dive that Bitcoin sales account for less than 0.25% of total sales.

Analysts say simply enabling crypto payments is unlikely to convince a large number of consumers to make it their default payment method.

Daniela Hawkins, payments analyst at research firm Capco, said that while crypto payment solutions are more accessible, it is unclear what payment problem they solve. She noted that to ensure crypto payments flow from consumers to merchants, retailers need to enable them through some established payment rail.

Crypto payments for everyday purchases also involve an additional tax burden, a factor that may deter some consumers from using it. Making a purchase with cryptocurrency—no matter how small—is considered a taxable event because when a buyer sells cryptocurrency to initiate a payment, an exchange of value is involved. Therefore, in addition to sales tax, the transaction triggers other tax reporting requirements because purchasing goods with cryptocurrency involves selling the underlying digital asset.

"The IRS treats cryptocurrency as property, so anytime you buy, sell, or exchange cryptocurrency, it is considered a taxable event," said Shivani Jain, a certified public accountant and partner at accounting tax advisory firm Sax LLP.

Tools for tracking the tax implications of crypto transactions are evolving. While technology may eventually solve this problem, the average consumer needs to put in some effort to meet tax reporting requirements, she said.

Some believe that companies adding crypto payment tools is a marketing strategy or a gesture of support for the crypto ecosystem. But for most consumers, without additional benefits from crypto payments, adoption is unlikely to grow, said David True, partner at payments consultancy PayGility Advisors.

"This is for true believers, or people who really like using cryptocurrency and believe in its future," True said, referring to those who already use it for everyday payments.

Others need a different reason.

"If there's simplicity, they'll pay with it; if there are rewards or some kind of ancillary benefit, they'll also pay with it," True said.

In fact, for some consumers, cryptocurrency as a reward for credit card spending—including products from BlockFi, Upgrade, and Gemini—appears to be accelerating the use of cryptocurrency as a payment tool. For example, BlockFi's crypto rewards credit card, since its launch in July, has reportedlyapproached $2 billion in annualized transaction volume。

Nevertheless, crypto reward points earned through card activity are more valuable to customers than using the card for crypto transactions, said Kalpesh Kapadia, CEO of Deserve, a card technology company that partnered with Visa and BlockFi to launch the crypto rewards credit card introduced last summer.

"People want to hoard Bitcoin, hoping it grows," he said. "It's like gold. When you want to sell, you exchange gold for dollars."

He said the volatility of cryptocurrencies may dampen their use as a payment tool, but stablecoins—digital currencies pegged to the value of reserve assets like the U.S. dollar—have potential. For example, stablecoins are part of Facebook'sNovi digital currencypilot launched in the United States and Guatemala, which uses the stablecoin USDP.

Betting on the future

Companies supporting crypto payments say they want to stay ahead of the new payment habits of younger generations, who are more willing to use cryptocurrency for transactions and may want greater interoperability between their crypto and non-crypto assets.

ACI Worldwide said its customers—including banks, merchants, and billers—are requesting crypto payment options due to consumer demand.

"We get asked, 'When can my consumers use it to buy a pizza? When can my consumers go to the movies and pay with cryptocurrency?'" said Debbie Guerra, head of ACI Worldwide's merchant division. "I think this is a herd effect from younger buyers who are more familiar with mobile devices."

People who buy cryptocurrency, literally speaking, want to have crypto payment capabilities that enable them to transact more seamlessly between crypto and non-crypto assets.

"Particularly for millennial and Gen Z consumers, cryptocurrency is starting to become a mainstream investment, and these consumers want access to that liquidity," Sheffield said. "They buy Bitcoin to hold and believe it will appreciate over time—but they still want to be able to access that money. They don't want to wait."