We all hope and expect more merchant adoption of crypto payments. The speed, capacity and scalability issues are improving and some coins have solved most of the technical issues better than others.
The problem is not the lack of crypto payment options and real solutions. The problems are mostly legal and accounting related.
1 - At this time the laws regarding transacting in cryptocurrencies are murky at best. This is worse than bad laws which are at least understood.
2 – Crypto accepting businesses may be deemed to be engaged in “money transmission” and have to register under the Bank Secrecy Act. Additionally, the merchant has to be keep records, report “suspicious” transactions and have an anti-money laundering plan.
Along these lines, and making matters more confusing, Texas and Kansas have concluded that Bitcoin is not money, while North Carolina concluded that it is.
Despite this, it appears that merchants that accept cryptos strictly as a payment for the sale of goods do not need special licenses, but they must be careful and not offer ant transfers or exchanges.
3 – Accepting cryptos as payments and holding them will create accounting issues as the IRS wants to tax the profits made on the sale and also on the coins, so the accounting becomes a nightmare.
The solution is to use Merchant Service Providers (MSPs) which act as intermediaries. They take the coin payments and give the merchant US Dollars. This way the merchant does not really transact in cryptos and doesn’t hold any.
The merchant has to be sure that the MSP is registered under the Bank Secrecy Act in the appropriate state.
4 – Adding the MSP as a middleman certainly does not seem like decentralization. It simply adds more layers of risk. Will the MSP process payment on time? Are there disclosures so that the customers know they are dealing through a MSP and what that means for them? Are the customers told about losing the protections and benefits associated with credit card purchases?
5 – How is the exchange rate for the merchant determined and what is the transparency level? Are there fees associated with the MSP exchange or are the prices padded to favor the MSP?
6 – What is the privacy level of the customer and how is the customer information handled by the MSP?
7 – This I find to be quite a big issue. How are refunds and returns handled?
The issue is complicated by the fact that cash refunds would be complicated due to the change in price of the coin between purchase and the refund time. If refunds are issued in payment currency there are compliance issues that creep in again.
Refund policies must be clearly disclosed and understood by the consumers.
8 – Merchandise pricing in cryptos. This is a substantial issue and the prices fluctuate wildly. Once again, the use of a MSP is imperative as the price of the gadget the merchant sells must be kept current with the dollar value of the coin.
Some solutions which can be considered beyond MSPs, is to allow customers to purchase only gift cards with cryptos, and then use the gift cards when buying actual merchandise. For very large retailers, such as Amazon, it may be better to just issue their own crypto tokens. This solution seems great as the tokens can be controlled by the merchant. But things don’t work neatly in the real world. Before you know it, the merchant tokens are exchanged P2P or even become adopted by exchanges, and the volatility and all the legal and accounting problems are back.
These and many other issues will be dealt with in time. Better laws and solutions will be implemented as the trend for adoption and use can’t be stopped.
If you had a business selling [anything] would you accept crypto payments, and if you would how would you do it?
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