There’s been a ton of talk lately about online and offline retailers accepting bitcoin. Overstock.com just took the plunge and saw quite the initial response, selling $130,000 worth of merchandise, across 840 transactions in its first day to what the company’s CEO, Patrick Byrne, described in a celebratory tweet as “almost all new customers.” In the same tweet, he wrote, “#Bitcoin’s first full day on @overstock.com was a huge success… #stunned.”
On Friday, I explored the challenge that processing returns and refunds can present to merchants that are hesitant to assume currency risk by dealing in virtual currencies. But there are obvious upsides to those willing to solve this and other thorny issues. For example, as Byrne’s tweet illustrated, accepting bitcoin can attract entirely new customers to a business.
As Atlanta programmer and Overstock bitcoin customer No. 1 Jason Steele told Wired on Friday, one motivation for this shopping activity is to help nurture and support the growing bitcoin ecosystem. “It’s a concept that could take off, and should take off, for a lot of reasons,” he says. “I want wider adoption. I want more businesses to use it.” Another factor driving this adoption is that transacting in bitcoin makes economic sense for both the customer and the merchant.
Following my Friday article on returns, Andreessen Horowitz partner and active bitcoin investor Chris Dixon (a PandoDaily investor) noted that one of the the biggest incentives for merchants to support bitcoin is to improve their margins:
Although he didn’t reference Overstock directly, Dixon might as well have been channeling its CEO, who shared a similar sentiment in a Forbes interview last month, prior to the company’s first day accepting bitcoin. Byrne said:
[Bitcoin] saves us about 2 percent from interchange fees. It’s no secret that our net margin is about 2 percent now. And so the savings would be a very substantial improvement to our bottom line.
Interchange fees, or credit card processing fees, are a killer for retail businesses. As Dixon wrote in an earlier blog post about his interest in bitcoin:
That’s money that could be reinvested in the business, passed back to consumers, or taxed by the government. Of all of those choices, handing 2.5 percent to banks to move bits around the Internet is the worst possible choice.
This is even more true when it comes to international commerce. Dixon continues:
The other main challenge startups have with payments is accepting international payments. If you are wondering why your favorite technology service isn’t available in your country, the answer is often payments.
As Dixon and others have predicted, and Overstock has demonstrated, accepting bitcoin can have a material impact on a business, both from a customer acquisition and a transaction economics perspective.
It’s a fair bet that Overstock won’t be the last major retailer to hop on the bitcoin train. Overstock’s Byrne predicted as much in a CNN interview following the company’s first day, saying:
I actually think this forces the hand of Amazon and some other big players, they have to follow suit… They can’t just cede that part of the market to us. We’re the only main, large retail site taking bitcoin. They have to start taking it or they’re just giving away a piece of the market. And that piece of the market is growing at, I think, a rate of 30 percent per month. It’s still tiny, it’s just 20 bips [basis points] or 30 bips. It’s some tiny fraction of a percent, but it’s growing quickly.
Not all merchants who accept bitcoin will do so for margin improvement. Many will look at the decision as little more than good PR. But as the number of consumers spending bitcoin grows, and the number of merchants willing to accept virtual currencies follows suit, those who ignore this trend may quickly find themselves on the outside looking in.