The list of merchants accepting bitcoin continues to swell. In just the last month, gaming giant Zynga and discount online retailer Overstock.com have both announced plans to begin accepting bitcoin. Many other notable companies have publicly expressed a desire to embrace the alternative currency, but have yet to pull the trigger. But it’s not as easy as just putting a “Pay with Bitcoin” button on your check-out page. There are real workflow and customer experience issues to grapple with.
A recent post to the bitcoin subreddit by a self-proclaimed finance department employee for a major US retailer explores the types of difficult questions a retailer must answer before adopting crypto-currencies. For this particular merchant, the biggest question comes down to refund and return-policy.
Most merchants that accept bitcoin, fearful of exposure to currency risk, use services like BitPay and CoinBase to immediately convert all bitcoin payments received to dollars (or their native currency). But this would mean that either the retailer cannot provide bitcoin-denominated returns or would have to repurchase bitcoin at market rates at the time of a return, subjecting the business to currency risk.
The Reddit post by our retailer employee reads:
One big issue that keeps coming up is processing merchandise returns. For example, let’s say you buy 1BTC worth of merchandise (think major appliance or something durable, like a refrigerator) when the spot price of BTC is $1000, then our company comes out to install it and all of the sudden it doesn’t fit in your kitchen or you as the consumer decide to return it, but today the price of BTC is $900, or $1100. (In the event it’s $1100, the customer may return the product for no other reason than they want to get their BTC back because it’s worth 10% more, there’s a moral hazard there, especially with special orders that take time to process. We’d have no way to prove this was the customer’s motivation, the customer is always right.)
Overstock chose to solve this issue by only offering in-store credit when items are returned. This means that the customer is taking the currency risk in the case of refunds. In the above refrigerator purchase scenario, if the customer purchased a $1,000 refrigerator for 1 BTC and the exchange rate increased to $1,500 then the customer would still only be eligible for $1,000 in store credit if the item were returned. However, if the exchange rate plummeted to $500, then the site credit paid upon a return would be more than the current value of the bitcoin used to purchase the item.
In the case of cancelled orders, Overstock will give refunds in bitcoin. The company’s bitcoin FAQ reads, “Any refund is issued for the full USD value of the order and processed at the Bitcoin exchange rate at the time the refund is completed.” This means that if the exchange rate increases between the time of purchase and the time of order cancellation, the customer will receive less bitcoin back than they originally paid. The inverse, of course, is also true.
Several Reddit commenters suggested variations of the Overstock policy to the original retailer employee poster, to which he responded:
So far most everyone is suggesting we just process returns in $US, which is fine, except that really proves that BTC is not a currency, but a payment method. Either way, that’s not a solution, because our bosses will just say to let people get cash for their BTC on exchanges and use that at our stores.
Of course, this is no different than a consumer using any other foreign currency. If a European traveler were to exchange €1,000 for dollars, purchase a refrigerator from a US merchant, and then return that refrigerator a month later they would be paid out in dollars. If the euro/dollar exchange rate fluctuated during the in between period, it would be the customer’s burden. The subtle difference is that the merchant did not accept the euro as payment.
One Reddit commenter suggested a creative insurance-based solution for solving this currency risk problem. User ccyff writes:
One solution might be give customer an option to purchase BTC price protection which locked the BTC returning price and the price protection cost should be kept in BTC. At the beginning, this with cost your company money to research what % should you charge. However, in the long term, the price protection charge will break even with your loss in exchanging.
The retailer employee poster responded, saying:
This seems like a legit option that would allow the customer to protect themselves from $ fluctuations and us as the retailer to be protected against people using us as a de-facto exchange. Seems like a legit idea for discussion.
Another potentially problematic scenario was raised by a commenter, who said:
I see one added problem with this situation. If people continue to struggle to get fiat withdrawals from exchanges in reasonable time frames, then you’ve just set-up your company to act as an unofficial ATM. Person wants to “cash out” $10,000 worth of Bitcoin. They can either wait a month for the exchange to process the withdrawal, and have their bank flag their account as suspicious. Or they buy the biggest fanciest flat-screen with Bitcoin, get next day delivery, then send it back at the door and get their $10,000 “refund”.
One answer to this problem is to only issue store credit returns on bitcoin purchases over a certain value. Another is to institute a time delay for big-ticket returns. Neither is ideal.
The complicated nature of the above scenarios make it obvious why some merchants are hesitant to accept bitcoin. There’s just no clear policy that protects the merchant’s financial interests, while at the same time ensuring that the customer will feel treated fairly in the event of a return. Someone has to take the risk in a transaction.
Most commenters in the Reddit thread, presumably ardent bitcoin enthusiasts, are quick to write off the customer service nightmares that any of the above scenarios would create.
One user writes:
Hate to say this, but that’s the customer’s problem, not yours. You advertised as $1000. You were pain in money and paid them back the same money. The numbers used in the transaction don’t matter – they bought using dollars as a baseline, they get dollars back as a baseline.
Only an idiot would be pissed. Bitcoin isn’t the main currency anywhere in the world, local fiat currencies are. Just make clear “payments and refunds in BTC will be at the equivalent value of your local currency”
The problem is, the average consumer is unlikely to agree with this sentiment. Of course, most consumers have never heard of bitcoin, let alone transacted with it. And should a mass retailer integrate bitcoin, only a small subset of consumers would likely take advantage of the integration in the near term.
But for large merchants like Target (which the original poster describes as a competitor), Wal-Mart, Best Buy, Nordstrom, and others, delivering good customer service and customer experience is at least a stated goal. The current volatility and illiquidity of the bitcoin market presents very real challenges to delivering this caliber of experience today.
Many people have suggested that integrating bitcoin is a savvy PR move for companies like Zynga and Overstock. Under this theory, the number of times the company’s announcement is written about and discussed in the media and on sites like Reddit presumably justifies the burden of addressing the above outlined logistical and customer service headaches.
We’re still in the early days of crypto-currencies. With broader adoption will hopefully come reduced volatility and also best practices around merchants adopting these currencies. But until then, we are stuck with a set of uncomfortable compromises and a less than ideal customer experience.
Presumably, that’s the price of admission if you want to accept what many affectionately call the money of the future.