Do Your Clients Accept Cryptocurrency Payments?by
Busy season is not conducive to starting the learning process in 2009 with the bitcoin whitepaper and the story of Satoshi. The following examines current possibilities, along with the potential risks and rewards, leveraging familiar concepts and scenarios.
The majority of small business clients that are not specifically fintech companies, likely are using a third-party payment processor to accept payments and convert crypto into fiat (USD). This is considered a custodial solution. A payment processor allows the business to expand its payment choices beyond cash and credit/debit cards.
The process closely resembles that of signing up for a merchant service account. BitPay is the dominant company in this market. For anyone looking for this type of solution, the website is thorough in providing information as to how the process works and the benefits.
BitPay offers settlement options in cryptocurrencies, including: bitcoin, Bitcoin Cash, and recently three stablecoins, GUSD, USDC, and PAX. Most retailers using this service are likely to opt for immediate conversion to USD.
“Push vs. Pull” – Blockchain promises to eliminate chargebacks and reduce fraud that is associated with identity theft. “Pull” payments occur when a merchant at the time of sale, makes a request to a bank or financial intermediary for the agreed upon funds. Conversely, in a “push” payment, the customer is initiating the transaction.
Chargebacks occur when the customer disputes a charge directly with the third-party processor. As described by Chargebacks911®, there are generally three catalysts: merchant error, criminal fraud, or chargeback fraud.
Chargebacks provide relief to the consumer in the event of human or system failures at the merchant level or identity theft by criminals. Chargeback fraud is initiated by the consumer requesting a refund directly from the bank or financial intermediary. This may be due to customer ignorance equating the merchant and bank as the appropriate refund point. More often, this is characterized by customers intending to deceive the merchant and obtain the product or service at no charge.
In the case of blockchain, the person in control of the private key is initiating the transaction, “pushing” the payment and making it more difficult to argue the transaction was not intended.
This solves the intentional efforts by a consumer to deceive, protecting the merchant. It does address push payment risks and abuse. It shifts the liability for the transaction back to the consumer.
This is not necessarily a risk-free event for the merchant. If consumers are not well versed in protecting their payment keys, there remains a risk of loss for the merchant. There may be a displacement of funds by the loyal patron or revenues derived from theft.
Volatility – Given the extreme price fluctuations, converting to fiat is preferred, particularly for most small businesses and transactions. Those offering product and services with limited margins cannot afford to risk a double-digit price movement of a currency or the resources required to actively hedge.
Tax Reporting – Settling the transaction immediately in USD avoids an additional taxable event. Holding the cryptocurrency, could result in a realized gain/loss at the time of conversion.
Lower Fees – The fee for using BitPay is 1 percent which is lower than most existing processing fees of 2-3.5 percent.
Increased customer traffic – There are some individuals that choose to patronize based on payment type (e.g. to earn reward points) or vendors that may lose a sale because they do not have an agreeable medium of exchange. Unless one is selling a commodity with limited differentiation, adding crypto as a payment method is unlikely to increase overall sales.
Awareness and Internal Controls
Regardless of whether one chooses to accept cryptocurrency or not, its existence does impact the control environment. For example, an employee could easily setup a wallet, inform customers that the business accepts crypto, and receive payment for the good or service. Clients that have a seemingly unexplained anomaly may want to review their segregation of duties and asset controls.
Custodial solutions assist in increasing mainstream awareness and some consider it to be an initial step toward increased adoption. These solutions do not capture the decentralized intentions of original cryptocurrency creators.
There are some non-custodial products on the market currently being used predominately by developers and fintech businesses. These users tend to possess a deeper understanding of blockchain and are comfortable accepting, holding, and transacting in cryptocurrency. One of these solutions is Gilded, which has a CPA with 10 years of public accounting experience as an active member of the founding team.
Gilded is working to close the gap between accounting and blockchain by building a user-friendly, integrated solution. This product currently syncs with QuickBooks to journal income and expenses from the blockchain to their nominated accounts. Those interested in learning more will find a curated newsletter especially for accountants, or a team able to field inquiries with a practitioner in mind.
Technological capability is not a substitute for knowledge and understanding of applicable laws, principles, and regulations. Conversely, those practitioners with industry/sector specific knowledge should have a working familiarity with the available tools to mitigate the risk of emphasizing form over substance.
Disclosure: I bought at the top, sold at the bottom, and lost the keys to the remaining alt coins that I obtained exploring other blockchain projects and refused to dump on the market when I ran away from home. I am not a journalist. I am a former practitioner passionate about preserving the integrity of the profession. I currently serve as a consultant to an organization determined to extend the useful life of legacy systems. I wrote this article myself and the views expressed herein are my own and should not be interpreted as guidance, tax, financial, or legal advice.