My colleague, Gary, recently published an interesting article on his perspective on why online store owners should refuse Bitcoin. In response to the overwhelming number of comments and feedback we are receiving for more information, I’m going to share the good, the bad and the ugly of accepting bitcoin for ecommerce merchants and customers. After all, we should think about our customers since they determine the success of our business, right?
Before you jump out of your seat, let me address that I am neither an economist nor an expert in Bitcoin; but I am a skilled researcher who interacts with online merchants on a daily basis. Today I have only one objective: to address the concerns of online merchants and their customers – so from an unbiased standpoint, let’s dive in.
Bitcoin Enables Internationalization
There’s no denying that if your online store accepts bitcoin, you’re opening your business to the world. Customers from anywhere on the planet can purchase your products and not have to worry if you accept their country’s currency.
That’s definitely a plus and you can fully reap the benefits of attracting customers from around the world IF your site is localized for international visitors (taxes, translations, metrics) and IF you are equipped to service international customers (shipping and customer service).
I also can’t forget to mention the added publicity that comes with accepting Bitcoin. Overstock.com made $130,000 in sales on their first day of accepting the virtual currency. Could your online business replicate the same success or is this type of result only plausible for online retail giants?
PROS: International consumers can buy your products and as a result you’ve opened your business to an entirely new customer base.
CONS: If making your online store accessible to the world is your reason for accepting bitcoins, you need to do more than just accept the popular electronic currency. Localizing your e-shop takes time, effort and money.
Many online retailers are worried about the risk of accepting the volatile digital currency. However, merchant services such as Coinbase and BitPay help protect you from currency fluctuations by crediting your bank account at the end of each business day, converting bitcoins into your local currency with zero conversion risk.
Accepting bitcoins offers a lot of benefits to merchants and consumers. For consumers, Bitcoin charges no transaction fees. For online merchants, bitcoins have a lower transaction fee (1-2%) than most online payment processors and the protection against chargebacks is also very attractive.
Keep in mind that Bitcoin, being a digital currency, is vulnerable to hacking. The Verge recently found that even the best service on the market can be prone to theft.
PROS: No transaction fees for consumers and very low transaction fees for merchants with protection against chargebacks.
CONS: The potential for hacking.
Bitcoin Affect on Returns
As an online retailer, if you’re using a service that immediately converts your bitcoin payments into your native currency, how will you handle returns? It’s important to assess how bitcoin payments will affect your customer service and return policies.
For example, if a customer buys a product, such as a television set, for 1BTC and the value of 1BTC at the time of the purchase was $1,000. A couple of weeks later, your customer decides to return the television set but the price of 1BTC is now $900. What do you do then? Or what if the inverse scenario happens and the value of 1BTC is now $1,100. You can't help but ask yourself: Is the customer unhappy with the product or are they just trying to get their BTC back because it’s worth more? How does a business solve this issue and still keep the customer happy?
How about if you refund the customer for the USD value at the time of purchase and convert it to Bitcoins for the exchange rate at the time of the return? If the exchange rate increases between the time of the original purchase and the time of the return, the customer will be refunded less bitcoin than they originally paid. How will your customers feel then?
If you’re going to accept crypto-currencies on your e-commerce site then you’ll need to find a way to balance good customer service and the currency risk associated with returns and exchanges.
PROS: If your business doesn’t provide refunds or exchanges and you immediately convert bitcoin payments into your native currency, you have nothing to worry about.
CONS: You are bound to encounter a scenario where one party (either you or your customer) needs to assume the currency risk. The digital currency makes it very challenging to deliver good customer service and not suffer a financial drawback due to the currency’s volatility.
What’s your take on Bitcoin and virtual currencies for online merchants?
We’re living the early days of crypto-currencies and we’ll keep a close eye on its future developments. Please feel free to comment and share your advice and experience with Bitcoin to help online merchants make the best possible decision.