Online Retailer’s Incentives for using cryptocurrencies as a medium of exchange

The advent of online retailing that kicked off with the** ‘Amazon wave’ ** starting in 1999 has brought much to cherish about on the Internet. Quite possibly anything, from airplanes to a hairpin can be procured just by clicking a few buttons. This brought in a whole new industry of manufacturers and retailers that didn’t exist before the dawn of the e-commerce era. Online middlemen have sprung up all across the globe whose sole business model is the procurement of goods from manufacturers and shipping it to end consumers, without ever laying hands on the product. Other than the logistics, there is nothing that the middlemen need to take care of to profit from the changing of hands.

The likes of Amazon, AliBaba, Ebay, Flipkart solely increased their market value by being nothing but online middlemen. Any vendor wishing to distribute their product can simply make an account and be done with it. These e-commerce sites specialize in being the marketer for the products.

Payment structure

The payment for products procured online can be done in various ways. In developed and certain developing countries, this usually involves the use of credit or debit cards or other intermediation portals such as PayPal, as they ease the process of transfer of value from the customer to the platform and then finally to the vendor.

As per a report publish by statista.com published in March 2018 shows the increasing trend of online shoppers using digital means of transfer to make payment for the goods.

But here's the part where most people fail to notice the drawback.

Most e-commerce portals try to gain as much coverage as possible, and for this reason they have to keep their margins very low, usually between 1-5%. Some sites even tend to price it lower than their cost price to maintain the incoming consumer flow towards their portal. All this makes it tough for the site to maintain the economies of scale. Now this doesn’t include the transaction fees and other costs the retailer has to pay to the organizations such as MasterCard, Visa, PayPal etc, who usually gulp about 3% of the total amount transferred. Thus the margin retained by the consumer effectively drops down to mere pennies on the dollar.

Integrating with Cryptocurrencies

Overstock.com prides itself on being the first major retailer in the world to accept Bitcoin as payment for goods. The CEO of the company Patrick Byrne had commented that by intergrating Bitcoin within its ecosystem, Overstock has managed to increase its profit retention as more and more consumers seeing the possibilities of crypto payment. Bitcoin being a borderless and trustless mode of value transfer allows Overstock to retain all of the profit after paying off to the vendors, and doesn’t have to encourage the intermediaries and other agents involved in transferring value. This shift has also allowed Overstock to increase its customer base as it can now serve consumers from other global destinations that did not traditionally have the means to transfer USD by exchanging it with their local currency.

Hundreds, if not thousands of retailers have followed suit by opening up their website to accepting cryptocurrencies as payment mechanisms to help develop their business growth.

Thus cryptocurrencies open a new paradigm of business opportunities that are immensely advantageous to the retailers, both in cutting cost and most importantly, gaining coverage.

-SB