Are Cryptocurrencies the new Gold Card?
With the popularity of digital payments on the rise, are cryptocurrencies set to be the new Gold Card? Yes, says Adina Ahmed, and they are coming to a retailer near you soon!
Once the preserve of geeks, gamblers and money launderers, cryptocurrencies (such as Bitcoin, Ethereum, Litecoin, Dash, Ripple, Zcash, Monero and even Cryptokitties) are starting to breakout from the online world, into the ‘real’ world.
So how does this translate to the person shopping on the High Street, or ordering their online supermarket shop for delivery? Will we soon be paying for our groceries in bitcoin?
The new ATM – Crypto exchange platforms
Buying and selling cryptocurrency is done through special crypto exchange platforms or ATMs. You may not have noticed, but these crypto ATMs have quietly been opening up around the UK and across the globe. There are now almost 4,000 ATMs that provide cryptocurrency transactions in 75 countries, and nearly 200 of those are in the UK.
Bitcoin is the largest crypto currency with a current market capitalisation in excess of US$138 billion. We have already seen the likes of Bitcoin becoming more popular in volatile economies, for example, where there is hyper-inflation. Investing in gold, the previous haven in difficult markets, is all well and good, but you can’t spend it in the shops – or online for that matter. This is becoming significantly less true for cryptocurrencies.
In the same way that a gold card or other premium card account tends to be used for high-value purchases, a crypto-card – linked to a cryptocurrency account – could become the new normal. Blockchain technology is already being harnessed for corporate payments as it provides a powerful and secure ledger that records every step of a transaction and transfer of ownership.
For the global traveller or shopper, it could be much more convenient to have one account in a digital currency. The very fact that it is based on blockchain tech (which means the transaction is recorded for anyone to see that needs to, and cannot be altered or tampered with in any way), makes it very appealing. Indeed, research shows that consumers may be more open to paying in crypto than many retailers would imagine.
A new world of alternative payments
The alternative payments market has been opening up for some time now and with PSD2 (the EU’s Revised Payment Service Directive that came into effect in January 2018) that is set to accelerate. The PSD2 framework mandates that banks provide access to bank accounts to trusted third party payment services providers, including those providing access to crypto accounts. With restrictions on the fees that can be levied, the cost to the merchant of these new types of payments could be significantly lower than traditional card-based transaction costs.
In the financial industries the sentiment is also shifting. In a speech at the Singapore Fintech Festival in November 2018, Head of the International Monetary Fund Christine Lagarde called for the international community to consider endorsing central bank issued digital currencies (CBDCs). Lagarde went on to point out that if done properly, CBDCs could satisfy public policy goals; specifically financial inclusion, security and consumer protection and privacy in payments.
Elsewhere recently, Stanley Yong, global lead for central bank digital currency solutions at IBM, has said that CBDCs can help to mitigate the risks that contributed to the 2008 financial crash. Yong made the further point that one of the major advantages of a CDBC, even in developed economies whose societies are to some extent already cashless and use a wide array of digital payment solutions, would be the reduction in the fragmentation of the marketplace.
Consumers are getting used to the idea of digital payments; paying with their phone or their watch, devices which are simply linked to a card-based account that is not necessarily a bank account, or even to their phone or ISP account. Paying in your cryptocurrency of choice is the next step and retailers and merchants that provide the option will steal a march on the competition.
Adina Ahmed is an Operations Director at Anderson Zaks, a UK-based leading omni-channel Payment Service Provider that delivers fast and secure payment processing services to UK, Europe, Middle East and USA businesses.