Amazon has announced that it will no longer accept Visa credit card payments in the UK, bringing into sharp focus the cost of traditional banking transactions. The move was made in response to a fight that started earlier in the year in Singapore, Australia. Amazon spokeswoman explained. “We believe the cost of accepting credit card payments should be going down over time to allow merchants to reinvest savings into low prices and shopping enhancements. Yet despite technical advancements, some cards’ cost of payments continue to stay high or even rise.”
Citing Britain’s exit from the European Union, Visa increased its fees on purchases with UK credit cards from 0.3% to 1.5%. Mastercard also implemented a similar hike. Despite Amazon’s pushback, the truth remains that merchants have always been at the mercy of card issuers.
While credit cards have been the global norm for many decades, financial services has evolved. Blockchain technology and the security of cryptocurrency offer functional options that may be able to replace credit cards.
Blockchain-Based Payments Versus Credit Cards
Bloomberg stated that the US was home to $110 billion worth of card processing fees. These costs are not well known by most consumers, and they can lead to higher prices for everyday products and services.
Merchants must pay processing fees and interchange fees in order to accept credit cards payments. These fees go to the card’s issuing bank, the card’s payment network, and the payment processor. The typical credit card processing fee ranges from about 1.3% to 3.5%, plus the payment processor’s cut, which varies depending on the processor and the merchant’s plan. These are fees that, in many people’s eyes, do not follow principles but rather reflect the choices of issuers who monopolise the market.
These payments can be viewed as loans from one bank to another. The lender is also exposed to additional risks. Because banks often don’t have direct relationships with each other they have to use the SWIFT network for a correspondent bank that has a relationship with both banks and settles the transaction – another third party for another fee. Banks also maintain their own ledgers that must be reconciled to other banks. This adds time and costs.
Most cryptocurrencies, however, run on open blockchains that share their ledgers worldwide. This allows for anyone to check and verify the data. The blockchain can offer financial services by providing an open ledger that is accessible to all parties. Blockchain technology gives account holders access to all transactions and allows them to see who they are. This reduces risk. Because the payment network is more transparent and direct, it eliminates interchange fees. Increased efficiency and inherent security in blockchain help to reduce fees as well the settlement time.
There are already cryptocurrency payment solutions
Merchants will be able to see the benefits of blockchain if they can eliminate costly middlemen like credit card companies. Not quite. The tipping point can be reached when trust and awareness build up slowly with new technology. However, despite the slow adoption rate, there are crypto payment solutions that leverage this technology. These solutions can revolutionise merchant payments.
TokenInsight released a report on this month’s cryptocurrency payments solutions. Although the report focused on well-known companies like Ripple and Stellar, which are used by large institutions to transact cross-borderly, it also highlighted what Alchemy Pay has to offer online and in-store merchants. The unique backend allows merchants the ability to accept crypto and also receive payments in fiat currency. It takes cryptocurrency and converts them to stablecoins. Then it transfers the fiat currency to its partner OTCs. It removes major barriers to entry, requiring minimal input from merchants while integrating fiat and crypto currency.
This solution is a breakthrough that wasn’t possible three years ago. It also demonstrates how blockchain technology has allowed financial applications to evolve.
It’s all good!
It is important to remember that even though Amazon might be fighting credit card giants for merchants’ sake, there are other options. The retail business habits of decades-old retailers will not be abandoned overnight. It is important to inform both the consumers and retailers on the differences between traditional finance and cryptocurrency. Although blockchain finance sounds exciting, it is not yet widely known. Those who know the best will have to wait until they hear the news.