Small businesses in Las Vegas and everywhere are being enticed with a new type of currency called Bitcoin. This new virtual currency was invented in 2009. It’s no wonder that Satoshi Nakamoto, Bitcoin’s creator used an alias, since transactions using this virtual money do not require users to give their real names. There are also no banks involved in Bitcoin transactions, which means to transaction fees. Can this be good news for small businesses?
What is Bitcoin?
Bitcoin is a digital currency, primarily used to make online purchases. It can be accepted as a form of payment to purchase anything from digital services to tangible goods. According to Mark Faggiano, CEO of TaxJar, a leader in sales tax return software, Bitcoin provides merchants with a way of receiving instant payments by way of peer-to-peer technology.
In other words, there are no government agencies and central banks involved. This alone sets Bitcoin apart from digital payment processing gurus like PayPal and digital wallet companies such as Google Wallet. This new virtual payment technology, also called cryptocurrency, allows merchants to accept digital payments, much like credit card payments, without the added associated processing fees.
Why Bitcoin for Small Businesses?
Because consumers can buy merchandise anonymously using Bitcoins, the premise is that this may help to increase online sales. This is especially true in certain industries where anonymity may be a factor, such as adult films and goods. It’s also a way to get consumers to buy anonymous gifts for others online.
Technically, Bitcoin transactions are recorded. However, the public log does not reveal sellers’ and buyers’ names, just their wallet IDs. This makes it extremely hard to track these “private” transactions back to them.
Bitcoin vs PayPal for Small Business Payment Processing
When consumers buy goods and services using Bitcoin, they’re paying with virtual cash. This is much like the idea behind PayPal, where the money is placed in the merchant’s account instantly. However, there are some major differences between Bitcoin and PayPal:
- Frozen Accounts – Thousands of online merchants have had to deal with the issue of PayPal freezing their accounts for various reasons. When this happens, the online payment processor rarely returns the money left in those frozen accounts. Because of the anonymity policy, Bitcoin has no reason to freeze accounts based on shared IP addresses, identification verifications, etc…
- Fees – PayPal fees can run anywhere from 3% to 9%, depending on the transaction. There are also some serious conversion fees involved with international transactions. Bitcoin currently charges very small fees, or no fees whatsoever for their services. Small businesses can save substantial amounts in virtual payment processing fees alone using Bitcoin.
- Global Access – There are currently numerous countries that do not allow their consumers to utilize the services of PayPal, in any way, shape of form. Bitcoins can be used by any consumer anywhere in the world. This makes it very easy, and financially feasible, for small businesses to sale goods and services internationally.
Irreversible Charges vs Chargebacks
So, should small businesses fear the idea of anonymous buyers using Bitcoin?
Bitcoin transactions are not only secure, but they are 100% irreversible. This ensures that merchants are protected from losses resulting from fraudulent chargebacks and other fraud-related activities. Policies such as this allow small businesses to expand into markets where fraud rates are exceptionally high or credit card payments aren’t available.
PayPal is infamous for its “buyer protection” policies. But, these policies are not always in the best interests of their merchants. Many small businesses have lost revenue do to fraudulent chargebacks being granted by PayPal. Bitcoin gives merchants more peace of mind with their "all transactions are final" policy.
How Do You Feel About Bitcoin Payments?
Have you used Bitcoins to make online purchases? Are you a small business owner or manager thinking about accepting Bitcoin payments for your goods or services? We’d love to hear your thoughts on how Bitcoin can help small businesses grow in 2014.