What are the risks of small businesses taking payments in Bitcoin and other cryptocurrencies? What are the rewards?
But first, for the uninitiated, what are cryptocurrencies in the first place? They are decentralized digital exchange media that enable buyer-to-seller transactions to take place without a bank or other third-party processor involved. No matter how small your business is, you can take payments over this medium, as more than 30% of U.S. small businesses now do, according to data from Skynova. Bitcoin and Etherium are among the most commonly used.
Among the positive reasons to accept them are the ability to get out from under credit-card processing fees, which usually run between 2% and 4%, although some types of crypto do charge a 1% fee. Some customers will be more likely to do business with your company, partly just due to the convenience of the additional option but especially if you sell your goods or services internationally, since there won’t be the usual overseas fees involved. And since there’s no third-party involved, all payments are final—meaning customers have no way to dispute charges, and there are no chargeback fees, which often can run $25.
Reasons for hesitancy include a steeper learning curve along with the patience required to get cryptocurrency set up. Since it’s decentralized, merchants need to handle any transaction errors themselves; there is no one to call upon. Transactions do not happen instantaneously; depending on network activity, it can be 10 minutes or more before they go through. While you no longer have to worry about stolen credit card numbers, crypto is not hermetically sealed from cybersecurity threats, although some companies are instituting greater protections. And given the volatility of cryptocurrency values, you either want to convert any payments you take into cash immediately—or view them as a longer-term investment.
If you decide to accept cryptocurrency, you should first talk with your accountant or research to make sure you understand state and national regulations, and the resulting implications on how to record payments. You will need to set up a crypto wallet to hold your cryptocurrency and/or a crypto gateway to exchange it for U.S. dollars. Then, set up your e-commerce operation to accept crypto payments—some companies choose to use a payment processor, which can be simpler for those who are less tech-savvy—and ensure those payments are recorded alongside all the others by integrating them with your accounting software. Finally, figure out how to plan to ride out the aforementioned volatility factor, which can include using a merchant service company that immediately makes exchanges to cash.
Over time, small business owners should keep their eye on the regulatory landscape as it’s likely to shift over time, which means you will need to adapt. But we all know small business owners are nothing if not adaptable.