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Opinion

Paying for goods and services: cryptocurrencies vs. credit cards

By James Tennant

June 2018

4 Min Read

Cryptocurrency vs credit cards

Cryptocurrencies are the next evolution in money. But will they replace credit cards and debit cards as the new way to perform cashless transactions? In the latest Coinverge article, we take an in-depth look.

Since the introduction of plastic debit and credit cards, the world has become ever more cashless with each passing year. In fact, I can't remember the last time I took cash out of an ATM. Most things, from a bus ticket to a drink at the bar can be paid with a debit or credit card these days, and it's a far more efficient and tidier way to pay than dealing with paper notes and metal coins.

So, if we already have a working system that most users are happy with, why should anyone want to move from credit to crypto? What is the advantage of paying with cryptocurrency instead of using your credit card?

We're glad you asked :)

1. Cryptocurrency Lowers the risk of fraudulent charges

Yes, we know that saying cryptocurrency has a lower risk of fraudulent charges is easy. But, so you can really understand the truth behind the statement, let’s break it down.

According to cardfellow.com, when you swipe your credit card in the checkout line (or enter it online) a series of events take place in order to make your transaction possible. Before you see the money come out of your account, even though it only takes seconds, your card information is seen by the merchant, the acquiring bank, the card service, and the issuer.

That means your account information touches at least four different locations in order for you to make one purchase. And, each of those separate touches means a separate chance for someone to take your information.

With cryptocurrency things are different. And far simpler.

When you are making a purchase with cryptocurrency, using a secure cryptocurrency payment platform (like the payment platform the guys and gals at UTRUST are creating), transactions are actually done instantly and move from the buyer to the merchant without going anywhere else in between. No personal or account information is transferred, just the currency from point A to point B – all recorded on an immutable blockchain.

Now, doesn’t that sound safer?

2. Credit and debit card fees are high

With the likes of MasterCard and Visa charging interchange fees for processing payments, merchants feel the sting of high credit and debit card fees on a daily basis.

A fee, by the way, that's often incorporated into the price of the item so the cost to the merchant is covered by the buyer. So it's actually the consumer who often bears the cost of the fairly exorbitant fees, which isn't right.

To give you an idea of how big the business of interchange fees is, in 2014, merchants in the United States paid $61 billion in interchange fees, says David Robertson, publisher of the Nilson Report.

Are MasterCard and Visa going to give that sort of revenue up? Not likely.

Enter cryptocurrencies.

Paying with crypto reduces those fees to a negligible amount. For example, UTRUST has created a payment platform that charges a fee of just 1% for the merchant and nothing for the buyer, much lower than the likes of Paypal or credit cards.

What's more, the savings that merchants will make will likely be passed on the buyer too, so everyone wins.

3. No more chargebacks

Credit card chargebacks are a huge problem for merchants. In fact, merchants lose billions every year to fraud and chargebacks. So, this is no small matter.

Chargebacks, in case you don't know, occur when a customer sees a charge that they don’t recognise on their credit or debit card statement, often because they've forgotten what it relates to, and then they contact their bank directly, requesting the transaction to be reversed. These disputes often lead to a refund or “chargeback” being issued, as it is often not deemed cost-effective for banks to open an in-depth investigation, and they lack the information to legitimise the sale or satisfy the cardholder promptly. (Thanks to The Telegraph for the explanation).

Most of the time, people are not trying to commit fraud, but because such a high percentage of cardholders take this route when they forget what a charge on their card relates to, it causes the problem to mount up and gives merchants a big headache.

Merchants are hit with not only with the cost of the reversed transaction but also with various fines, fees and reputational damage too. Accepting cryptocurrency payments prevent chargebacks from happening and can save businesses both time and money.

Headache gone.

 4. Worldwide access

Although Visa is “Everywhere you want to be.” there are still a few restrictions. Many people all over the world have very little access to credit or cash because of their current financial status. However, because cryptocurrencies are borderless and can be mined, bought and sold all over the world, the playing field is leveled. According to quora.com 3.5 billion people have access to the internet across the world. That means, 3.5 billion people have access to same cryptocurrencies.

Furthermore, because access is the same for everyone who has the internet, there are no exchange rates when you are working with another country. For example, if you live in the US and are completing a crypto transaction with someone in the UK, there is no need for the currency to be changed at any stage like it would be if using dollars and pounds. All you need to simply do is send your cryptocurrency to their account and your transaction will be complete.

By accepting cryptocurrencies, merchants can open their services and products to a truly worldwide audience, and by owning and spending cryptocurrencies, buyers have access to a truly worldwide marketplace – one without exorbitant fees and borders to worry about.

How can I buy/sell with cryptocurrencies?

Right now, there aren't many options open to you, as we discussed in this article looking at cryptocurrency payment platforms. However, one company is seeking to be the leader in this space – the “Paypal of cryptocurrency” - UTRUST.

UTRUST are developing a cryptocurrency payment platform that makes it easy for merchants to accept crypto while protecting them from the volatility of the market. They're also making it easy for people to spend their cryptocurrencies securely, with leading buyer protection (something that's sorely missing from the crypto market).

If you'd like to find out more, we wrote about UTRUST here. Make sure you check it out to find out more about this exciting new company and the product they're building.

We hope you enjoyed this article, and that you have a better understanding of the benefits paying with cryptocurrency has over credit cards, but if you think we missed a major point, or you have something else to add to the discussion, please do so below. We'd love to hear from you.