How do bitcoins impact online merchants?

Manoj Kheerbat is founder and CEO of Gropay, an Amsterdam based payments and fintech consultancy. 

There’s a lot that has been said and written about bitcoins. They are the talk of the town these days. Undoubtedly, bitcoins and related distributed ledger technologies will have a lasting impact on payments and financial services.

However, what should online merchants do about bitcoins? Should they offer them as a method of payment on their sites? What are the risks? What are the advantages over other payment methods? How should merchants get started?

Should I accept bitcoins?

In short, yes. There is no reason not to accept bitcoins and accepting them is only going to improve conversion for online merchants.

There are a lot of bitcoin owners out there and as early adopters of technology they are generally from a high net-worth and high spending power demographic.

The value of bitcoins has been increasing rapidly, this also helps the spending power of bitcoin owners.

There are still only a limited number of online merchants that accept bitcoins so offering them as a payment method can be a differentiator and good also for the merchant’s marketing and brand.

It can be especially interesting to accept bitcoins if you are targeting countries that are blocked by traditional payment products such as Paypal and credit cards.

An additional reason is that bitcoin transactions are generally less expensive than those made through credit cards and other payment methods.

A lot of companies don’t accept bitcoins but accept gift cards that could have been purchased through bitcoins. Is that not enough?

Accepting gift cards that may have been purchased through bitcoins is a great start and we recommend accepting gift cards generally. However conversion will be more positively impacted if bitcoins are accepted directly.

What are the legal and tax implications?

It depends on where you are based and the countries in which you do business. For businesses in Europe, The European Union has passed no specific legislation relative to the status of the bitcoin as a currency but has stated that VAT/GST is not applicable to the conversion between traditional (fiat) currency and bitcoin.

VAT/GST and other taxes (such as income tax) still apply to transactions made using bitcoins for goods and services.

But aren’t bitcoins mainly used for illegal activities such as money laundering?

The majority of bitcoin usage and exchange is believed to be in peer to peer exchange for investment or speculation purposes. It’s hard to know for sure because bitcoin transactions are anonymous.

The majority of actual purchases with bitcoins are indeed believed to be for illegal purposes. The anonymous nature of bitcoins makes it attractive for such transactions.

However, the fact that bitcoins are popular for illegal transactions does not make them unsuitable for legitimate goods and services. There are number of brand name retailers accepting bitcoins, such as Expedia.

What are the risks of accepting bitcoins?

The value of bitcoins can fluctuate sharply. You accept bitcoins but you need to pay your suppliers, buy your goods in traditional fiat currency.

While the value of bitcoins has generally been moving up, the volatility could mean that bitcoins you accept are worth less in traditional currency, impacting your cash flow.

A way to work around this risk is to immediately on acceptance convert your bitcoin to traditional currency. Of course, if you believe that the value of bitcoins will continue to rise and you do not need the immediate cash flow then you could keep your receipts in bitcoins.

How do I accept bitcoins?

The easiest way is to check if your current payment gateway supports bitcoins.

A lot of them do already. If they don’t, are they planning to add them soon? If your current gateway does not accept and is not planning to accept bitcoins then you need to look at the business case of allocating development time and effort in integrating to a gateway that does support bitcoins compared to the conversion and revenue benefit you might expect through accepting bitcoins.

Maybe combine the requirement to accept bitcoins with a regular cost and capability review and payment gateway request for proposal (RFP) process.

How do I price in bitcoins given their value fluctuates so much?

We recommend working with a payment gateway or bitcoin exchange that performs the bitcoin conversion and pricing for you.

Let’s say you have a product priced at €100, your bitcoin partner should provide you with a dynamic exchange rate for pricing that item in bitcoins at the time of purchase.

Unless you want to hold bitcoins, we also recommend that you use your bitcoin partner to use the same exchange rate to immediately convert the received bitcoins back to your EUR or other traditional currency. That way you do not continue to carry any bitcoin value fluctuation risk.

How do refunds work with bitcoins?

Your consumers will expect refunds when paying with bitcoins just as they do with other currencies. However your terms and conditions should make it clear that refunds are priced in the original traditional currency (e.g. EUR) and are made using the exchange rate at the time of refund request.

When your customer requests a refund you ask your bitcoin partner to convert the traditional currency amount of the refund into bitcoin using the exchange rate at that time. The resulting bitcoins are refunded to your customer.

Can bitcoin payments be charged back or reversed?

Unlike with credit cards, bitcoin payments cannot be charged back or reversed. This is by design as bitcoin is intended to behave much like cash, with recipients being assured that the money is now permanently in their possession after a transaction. bitcoin transactions are not reversible.

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