
An estimate of the real savings for merchants from Bitcoin - davidrangel
http://www.thebusinessofbitcoin.com/2014/02/bitcoin-for-b2c-payments-part2.html
======
al2o3cr
"Assuming consumers will be ok with only 0.5% in rewards"

And assuming they'll be OK with having ZERO chargeback rights in case the
purchase turns out to be not-as-advertised and/or defective.

That second article (explaining why consumers would want to do this) best be a
doozy, because so far consumers have had to swallow a requirement for them to
provide a "mobile wallet", lower rewards, AND increased vulnerability to fraud
all to save the _merchant_ 0.375%.

~~~
waterlesscloud
Assuming Bitpay, Coinbase, and company don't get into providing some sort of
chargeback protection for consumers, which of course they could do.

It's also possible that merchant reputation will become key, which isn't
exactly a bad thing.

~~~
davidrangel
Agreed on both counts. They (e.g., Coinbase) will likely have to do this, and
charge for it.

------
JeffJenkins
If merchants were doing sales and returns using Bitcoin it seems like you
could make money on the volatility by returning items when the value of
Bitcoins went up within the return window. You'd have to be willing to keep
items you bought if the value of Bitcoin went down, but if you systematically
made all your regular purchases that way you ought to come out ahead. Is this
a real risk for merchants, or am I missing something?

~~~
gavinjoyce
Merchants could simply return the $ value of the product

~~~
pmorici
That sounds shady. Unless that was explicitly agreed to before the purchase I
don't think that would fly.

~~~
waterlesscloud
It's pretty much how the merchants that accept bitcoin are handling it right
now. It's flying fine.

~~~
pmorici
No, it's one of the things you have to consider before accepting Bitcoin.
Overstock for example gives store credit and is explicitly says up front that
is what they are doing. Anyone that tries to refund in USD at the current
exchange rate instead of returning the original payment w/o stating upfront
that is what they are going to do is being hugely dishonest. Think about it
what if you tried to return your laptop to Sony and they said find but we are
going to refund your money in JPY instead of USD and o by the way the exchange
rate has changed 10% since you bought this so here is a refund for 10% less.
No way that would fly so I'm surprised people would think doing the same with
Bitcoin would be ok.

------
pbreit
There are no savings given the volatility. Since it can take days to convert
to usable currency, you'd have to bake in 3-20% padding to cover volatility.

~~~
unlimited_power
Use a service like BitPay and it converts instantly.

~~~
pbreit
That's just transferring the expense/risk which is not sustainable.

~~~
lhl
All payment processors take currency risk. Coinbase has an interesting
approach by also being an exchange and doing some algorithmic arbitrage.

The current volatility isn't inherent to the protocol, it's just a function of
market depth and liquidity which will presumably improve/stabilize as the
network grows.

~~~
pbreit
But not all currencies have the same risk.

------
philrapo
Shouldn't we be asking what the savings to the _consumer_ are?

I use my credit card all the time for 2 reasons: 1) fraud protection and 2)
reward points.

Interchange fees paid by the merchant are essentially being passed to the
consumer via reward points. Why would people switch from credit cards to
bitcoin en masse?

~~~
davidrangel
It's a good question and also needs to be answered. I'm the author of the post
and have one coming on the consumer side.

~~~
philrapo
Nice, looking forward to reading your thoughts. I've been thinking about this
myself recently.

I'd suggest using a higher estimate for the value of rewards points. (You used
a 1%.) You can explicitly get >1% cash back on many cards, so I'd argue that's
really the lower bound.[1]

Most reward points can be redeemed for ~2%, with conscious consumers getting
even more than that. [2]

Consumers are very aware of the value they're getting, too. If you read AMEX
company filings, the redemption rate on MR points is >90%. I found that
shockingly high. It's tough to get consumers to switch to bitcoin when it's
worse value and more risk.

[1]
[https://creditcards.chase.com/freedom?jp_cmp=cc/freedom/off/...](https://creditcards.chase.com/freedom?jp_cmp=cc/freedom/off/na/multiple)
[2] [http://boardingarea.com/onemileatatime/2012/05/25/my-
updated...](http://boardingarea.com/onemileatatime/2012/05/25/my-updated-
analysis-on-what-a-milepoint-is-worth-credit-card-points/)

~~~
davidrangel
Thanks. You make a good point about the rewards. I thought 1% could be a
decent estimate given that not everyone pays attention, some points are never
redeemed and rewards over 1% are usually only for specific purchase types
(e.g., gas). But I may very well have underestimated this. And if people do
redeem at a 90%+ rate, then they will definitely notice if there are no
rewards on the Bitcoin side.

Very interesting.

~~~
philrapo
Here's a source for that stat from a Q3'12 AMEX earnings call transcript:

"As you know, our current ultimate redemption rate is 93%, a very high
assumption for any consumer loyalty program."

[1] [http://seekingalpha.com/article/931161-american-express-
mana...](http://seekingalpha.com/article/931161-american-express-management-
discusses-q3-2012-results-earnings-call-transcript?part=single)

------
dror
Most of these savings could be accomplished by having the merchant withdraw
the payment from your bank account rather than a credit card.

Frankly, I'm surprised that Amazon doesn't offer this service. Just take the
money out from my bank, offer me the same protections as a credit card, and we
split the credit card fee: 1% for you and 1% for me :-).

Used to be that violated their credit card agreement to charge more for credit
card purchases, but looks like that's not the case since Jan 2013.
[http://www.washingtonpost.com/business/capitalbusiness/as-
ru...](http://www.washingtonpost.com/business/capitalbusiness/as-rules-change-
more-retailers-offer-discounts-for-cash-
payments/2013/06/29/d4c84d7a-dcfc-11e2-bd83-e99e43c336ed_story.html)

~~~
TwoFactor
There is a lot more risk on the consumer allowing a merchant (and vicariously
the consumer's bank) full "pull" access to a bank account. You'll need a
dispute resolution system, which is what debit cards are basically providing
in addition to point of sale systems. Imagine a security compromise like with
Target, but if there was full bank account access as well... it would be a
nightmare.

Bitcoin is "push" based which eliminates the ability to fraudulently pull
charges from the sender's account. Banks also charge a fee, and add transfer
times to transactions that are basically non-existant with bitcoin

~~~
davidrangel
Agreed. Giving someone full access to your bank account is very risky. At
least with credit cards you can always dispute charges and it is the merchant
who is usually on the hook, not the consumer.

------
sergiosgc
20% savings is not ground shaking. Remember that BTC is tackling an entrenched
opponent, quasi monopolist. It'd take an order of magnitude in savings to
guarantee success. Think 50% to 90% less.

~~~
lhl
There aren't guarantees in life, but I think you're wholly misunderstanding
the scale we're talking about. Visa processes about 200M transactions/day.
Almost $17B/day. These are not small numbers.

I think you're also misunderstanding of how the financial system looks at
payment rails - there's a pent up (ongoing?) demand for better ones.

Also, while merchant transactions are one market, they certainly aren't the
only one. There's lots of talk about international remittances. This is a
$500B+ market[1] that is growing at an insane rate[2]. Average fees are
9.3%[3] and way worse for some countries - it's not unheard of to say, pay $40
for sending $100 from the US to Kenya. Now that is a market that's ripe for
disruption (you'd have to balance bitcoin inflows w/ capital flight for the
economy to work, but it's worth pointing out there's already a service linking
bitcoin w/ M-Pesa: [http://motherboard.vice.com/blog/one-third-of-kenyans-now-
ha...](http://motherboard.vice.com/blog/one-third-of-kenyans-now-have-a-
bitcoin-wallet) )

IMO, this is a particularly useful page which gives some context on where
bitcoin currently sits with other payment networks:
[http://www.coinometrics.com/bitcoin/btix](http://www.coinometrics.com/bitcoin/btix)

[1] [http://www.bloomberg.com/news/2013-12-17/global-
immigrants-s...](http://www.bloomberg.com/news/2013-12-17/global-immigrants-
send-500-billion-back-home.html)

[2] [http://gulfnews.com/business/economy/global-remittance-
flow-...](http://gulfnews.com/business/economy/global-remittance-flow-
grows-10-77-to-514-billion-in-2012-world-bank-1.1172693)

[3] [http://www.cognizant.com/InsightsWhitepapers/Remittance-
Mark...](http://www.cognizant.com/InsightsWhitepapers/Remittance-Market-Ready-
and-Waiting-for-its-Skype-Moment.pdf)

