By Jared McClure, CrayPay
For most retailers, discussions about the benefits of blockchain technology and cryptocurrency have been primarily theoretical. That’s about to change.
In November 2018, Amazon Web Services announced a new managed blockchain offering, which marked a significant step toward practical application for retailers. Services like the one Amazon is offering make blockchain technology more accessible by removing the complexity and overhead costs of setting up and managing a scalable network. In turn, blockchain technology offers businesses faster, more secure ways to transfer assets, handle retail transactions, and manage supply chains.
As blockchain becomes more accessible, processors and payment facilitators will accelerate the development, making it more readily available to merchants. In other words, 2019 is the year when the hypothetical use of blockchain and cryptocurrency coalesce into reality for merchants and their customers.
Blockchain Vs. Fraud
For retail, the biggest, most immediate benefit of blockchain is fraud prevention. Today, merchants shoulder the increasing costs of fraud. For every dollar of fraudulent transactions, retailers lose nearly three times that much: an average of $2.94, according to the 2018 True Cost of Fraud report released in January by LexisNexis. Reducing fraud expenses will send money straight to a retailer’s bottom line.
To combat fraud, blockchain technology introduces smart contracts to the equation. Smart contracts essentially enable merchants and customers to create “if-then” agreements that require verification before the next step in the purchase process is completed. Payments are held in an escrow-like status awaiting verification, which means sellers don’t deliver their goods or services before payment is confirmed.
Secure and personalized digital IDs provide a precise, identifiable, and permanent record of payment processing. Each transaction is immutable and secured through unique cryptographic keys. The result is an end-to-end audit trail that makes fraudulent claims regarding payment or delivery difficult, if not impossible.
Another important aspect of blockchain in payments is that it cuts out the middleman — and thus the need for transaction fees — by enabling different decentralized entities that don’t necessarily trust one another to reach a community consensus. The need for a separate entity to manage or mediate transactions is significantly reduced or completely eliminated. As a result, handoffs and human interventions that add time and costs are greatly reduced, as are opportunities for fraud.
One open question is whether the distributed ledgers used by a blockchain are public or private. If the ledgers are public, the consensus protocols will be more heavily scrutinized, further ensuring security. However, merchants may opt for private, proprietary chains, which may not be subject to the same due diligence.
Retail Impact: 3 Things To Look For In 2019
Don’t expect drastic changes in the year ahead. Instead, seek out information and take advantage of opportunities to migrate toward blockchain payments in three key areas.
1. Traditional Payments Leveraging Blockchain
I predict that blockchain will hit the mainstream before we ever see a widespread cryptocurrency adoption. Remember, blockchain and cryptocurrencies are different entities. While you can't have cryptocurrency without blockchain, blockchain technology has other non-crypto payment applications.
Traditional payment platforms, such as credit cards, can benefit from blockchain. In 2019, the major players, including MasterCard, Visa, and American Express, will continue to incorporate blockchain into existing card networks for enhanced fraud protection as well as speed and functionality improvements.
In the future, as cryptocurrency becomes a more viable option for retail payments, merchants will have new options to remove the banks and card associations from the payment equation, freeing up money that today goes toward the intermediaries’ fees.
2. New Options Facilitating Cryptocurrency Exchanges
Cryptocurrency is only beginning to move beyond the fringe when it comes to retail. While there’s no need for merchants to go all in on any given cryptocurrency at this point, a few viable crypto coins are emerging from the pack. As a result, more merchants are testing the waters when it makes sense for their business.
There certainly won’t be mass acceptance of crypto in 2019, but facilitators are starting to mitigate the exchange of the currency between consumers and merchants. Starbucks is a case in point. In 2018, the coffee retailer joined forces with the Intercontinental Stock Exchange, Microsoft, and others to develop an exchange that will enable consumers to convert cryptocurrency into coffee-buying cash.
3. Creative Crypto Incentives
The long-term promise of cryptocurrency lies in its decentralized peer-to-peer transactions that don’t require the involvement of banks or credit card associations, eliminating current transaction costs. In 2019, look for crypto to be used to offer merchants alternate options regarding credit card processing rates. For example, as an incentive to encourage consumers to use crypto and blockchain payments, merchants could see networks offering flat 1 percent processing fees for payments made with cryptocurrency. These reduced processing fees could also extend to existing card processing through creative use of crypto as an offset for interchange rate losses.
Blockchain and cryptocurrency are the tools that will move payment processing and security into the future. Merchants who take advantage of the early opportunities will be one step closer to reducing their losses from retail fraud and freeing themselves from current-state processing fees.
About The Author
Jared McClure is the cofounder and COO of CrayPay, a free app that drives mobile payment adoption by offering to instantly pay a portion of every purchase made. Jared embodies years of experience in new business development and successful strategic implementation. During his 18-year career, Jared has provided leadership, vision, and management to ensure proper operational controls. His entrepreneurial background is manifested in his oversight of the company’s technological development, brand partnership strategy, and customer service. Prior to CrayPay, Jared was the cofounder and president of Transfer for Less, an online service for digitizing assets.