The cost of traditional banking transactions has come back into focus as Amazon has announced that it will no longer accept Visa credit cards for payments in the UK. It was part of a battle that began in Singapore and Australia earlier this year, where the e-commerce giant took steps to deter Visa credit card payments. An Amazon spokesman stated: “We believe that the cost of accepting credit card payments should decrease over time so merchants can reinvest their savings in low prices and shopping improvements. Despite technical advances, the payment costs of some cards remain high or even rise. “
Citing Britain’s exit from the European Union, Visa increased its fees for purchases made with British credit cards from 0.3% to 1.5%. Mastercard also imposed a similar increase. Despite the pushback from Amazon, the truth remains that merchants have always been at the mercy of card issuers.
Credit cards have been a global standard for decades, but the financial services landscape has changed. The cryptocurrency sector, supported by the security and transparency of blockchain technology, offers functional alternatives that could replace credit cards in the not too distant future.
Credit cards vs. blockchain-based payments
Bloomberg found that merchants in the US alone spent $ 110 billion on card processing fees in 2020. Most consumers are little aware that these costs exist or that they are responsible for higher prices for everyday goods and services.
To accept credit card payments, merchants pay interbank fees, evaluation fees, and processing fees. These charges go to the card’s issuing bank, the card’s payment network, and the payment processor. The typical credit card processing fee is around 1.3% to 3.5%, plus the payment processor cut, which varies depending on the processor and merchant plan. These are fees that, in the eyes of many people, are not based on principles, but rather reflect the decisions of the issuers who monopolize the market.
Payments are essentially loans from the acquiring bank and the associated risks for the lender add to the costs. Since banks often have no direct relationships with one another, they have to use the SWIFT network for a correspondent bank that has a relationship with both banks and processes the transaction – another third party for a different fee. In addition, banks keep their own ledgers that need to be reconciled with other banks, which means more time and costs.
In contrast, most cryptocurrencies run on public blockchains that share their ledgers around the world, which gives untrustworthy parties the opportunity to review and negotiate data. By providing this open ledger that nobody has to manage, blockchains can provide financial services without the need for many of the traditional banking processes. The technology enables access to information about account holders and each transaction, reducing risk and reliance on third parties. The payment network bypasses the need for interchange fees by being more direct and transparent. The increased efficiency and inherent security of the blockchain significantly reduce fees and processing times.
Payment solutions for cryptocurrencies are already there
So, with the costly credit card-related intermediaries gone, merchants will surely have noticed what blockchain can do for their businesses. Not quite. With new technology, awareness and confidence tend to slowly build up until a tipping point is reached. Regardless of the adoption rate, however, the reality is that there are already crypto payment solutions that use and offer this technology to revolutionize payments for merchants.
A report released this month by analytics firm TokenInsight provided research on a range of payment solutions for cryptocurrencies. While the report pointed to well-known projects like Stellar and Ripple targeting large institutions for cross-border transactions, it also observed what Alchemy Pay offers online and in-store. It enables merchants to accept cryptocurrencies while receiving payments in their local fiat currency through the unique backend process. The network takes crypto and converts it into stablecoins and then into fiat through partnerships with OTCs and other exchanges. This overcomes a huge barrier to entry by asking very little from the traders and integrating crypto and fiat currency for them.
Such a solution, which was not possible three years ago, shows the further development of financial applications based on blockchain technology.
All in good time
So while Amazon is fighting the credit card giants on behalf of the merchants, it is worth knowing that there are already real alternatives. Nonetheless, the retail habits that have grown over the decades are not going to go away overnight, and there remains a need to educate both retailers and consumers on the topics of traditional finance and the benefits of cryptocurrency. As exciting as blockchain funding is right now, those in the know need to be patient until the news gets out.