Why have some of the world’s largest corporations, including Microsoft, Dell and Overstock jumped on the Bitcoin bandwagon? And why are many more Fortune 500 companies set to follow their lead? Bitcoin saves businesses time and money before and after every transaction.
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Bitcoin gives businesses another way to take a payment, which always helps the bottom line. An abundance of options is far better than a dearth. Making it as easy as possible for a consumer to pay is always a wise business decision.
Does a merchant actually care how he gets paid? It depends on the cost of doing business.
Checks, for example, are still widely used in the United States. The downsides are legion, including a general lack of security of a consumer’s bank account information. Having to make out the handwriting on the check is not a given. And writing bad checks is a major black market industry. Fraud has become a major part of the check system. Bitcoin removes the identity and fraud aspects from the equation, which extends to its advantages over debit and credit cards.
Debit and credit cards are also rife with fraud and identity theft costs. Just ask Target and Home Depot. Credit/debit cards are 1950s technology not ready for the 21st century. Every transaction done by card is tied to the payor’s name, address, account information and even Social Security number. There may be multiple intermediaries who can get hacked before the transaction is fully reconciled. There are many potential weak links in this chain that lead to fraud for the consumer.
Bitcoin doesn’t require this level of trust, or security compromise. Identity is not tied to Bitcoin transactions, just some key values and the balance.
Another attractive reason to accept Bitcoin is the ability to lure a new market segment and revenue stream. The company’s brand becomes one that is on the cutting edge of technology. Who doesn’t want to be seen as cuttingedge, hip and cool? These traits attract a younger buyer, one who can become a lifetime customer.
"The use of digital currencies such as bitcoin, while not yet mainstream, is growing beyond the early enthusiasts,” said Eric Lockard, corporate vice president of Universal Store at Microsoft.“We expect this growth to continue, and allowing people to use Bitcoin to purchase our products and services now allows us to be at the front edge of that trend.”
Costs are the primary factor in attracting new businesses to digital currency. The average Bitcoin transaction costs 0.0001 BTC to perform while a credit card will cost a merchant around 3 percent. This 3 percent pays the merchant processor and provides coverage for things like fraud and identitytheft protection and merchant terminal costs.
Let’s say your average transaction is $20. That means it costs you 60 cents to obtain $20, leaving you with a net of $19.40. It's one of the costs of doing business, in addition to all the other costs a merchant has to account for throughout the day (employees, benefits, insurance, taxes, rent, theft, the costs of the goods themselves).
Merchants are always looking for ways to cut costs, thereby increasing actual net revenue. That’s where Bitcoin transactions come in handy.
Let’s take the world’s largest Bitcoin merchant, Dell. The computer company does more than $50 billion in business annually.
Dell’s average transaction is much higher than the average merchant. If Dell accepts a credit card for a $500 computer sale, it knows that’s an average 23 percent “cost of doing business." The card company may cut Dell a deal on the actual transaction rate at 2 percent. Two percent of five hundred dollars comes to $10.
If Dell accepts the same payment by Bitcoin, with a cost of 0.0004 BTC, this will translate to a cost of 16 cents. Michael Dell just saved 99 percent of the cost of doing business on each Bitcoin transaction. And his company had a gross revenue of almost $60 billion last year. If all transactions were so cost efficient, divide $60 billion by $500, multiplied by $15 per transaction. That’s what would fall to his bottom line.
This obviously wouldn’t happen, but this economic conversion can be phased in over time.
If Dell holds just a few percent of bitcoins in the account annually, it also comes out ahead on the back end through appreciation, instead of losing money every year investing everything into a depreciating currency like U.S. dollars.
It’s a winwin situation for Dell, and the consumer pays a lower price, when Dell doesn’t have to pass the costs of doing business on to the consumer. Dell can now charge 2 percent less going forward, and attract more consumers.
“The cost of carrying out creditcard transactions is roughly 2 percent. Given that our net margin is also approaching 2 percent, the avoidance of such fees will make Bitcoin sales that much more profitable,” says Patrick Byrne, CEO of Overstock.
Dell, Wikipedia and Overstock are leaders of a pack of supermerchants heading Bitcoin’s way. Any merchant worth their salt would have very little reason not to incorporate “The Future of Money” into their portfolio, once they perform their due diligence.
Fortune 500 companies didn’t get to be market leaders by paying higher operating costs than their competitors. Businesses love accepting Bitcoin, and will continue to move in this direction, with the progress in mass adoption, for the foreseeable future.