One good reason to accept Bitcoins: It screws credit card companies
Seemingly every week, you come across news stories and press releases from restaurants, bars, dating sites, domain registration, and other services announcing that they have begun accepting Bitcoins. It reminds me of the early days of e-commerce, when companies would trumpet that they had a website, and mid-90s TV news anchors would stumble over the URLs, usually butchering the www part of addresses: “double-u-dub-ya-dot...”
Despite mad fluctuations in value, the threat of digital theft, inconvenience of purchasing them, dearth of places where you can spend them, and ties to sleazy underground marketplaces where drugs are sold, a growing number of establishments are adopting Bitcoins as a mode of payment. Their reasons vary. Some recognize a cheap marketing opportunity, a way to seem cutting edge. Others are companies run by early adopters who love technology, intrigued by the promise this completely virtual currency born of cryptography offers.
But there’s also an economic argument: Accepting Bitcoins is like telling usurious credit card companies to go to hell.
It’s well known that consumers despise credit card companies. One survey ranked credit card companies first in its “Hall of Shame,” followed by banks, cable providers, mobile phone carriers, and insurance companies as industries consumers most loathe. Consumer Reports claims that credit cards are one of the lowest-rated services on which the magazine has ever shined its klieg lights. But the people who use credit cards aren’t the only ones to detest these companies. So do, by and large, merchants.
One Bitcoin-accepting-credit-card-hating business is Boston-based Foodler, which let’s users order food online from more than 12,000 restaurants in 48 states. Think of it as an aggregator for eateries that deliver (usually within the hour) or the biggest virtual food court ever. After speaking with Foodler co-founder, Christian Dumontet, I can understand why he’d like Bitcoin to succeed and toss credit card companies into a dumpster.
He calls Visa, Mastercard, American Express, and the rest a “major source of friction in innovation” because they require processing fees, typically around 2 percent per transaction. These are largely borne by the consumer, but they also hit Foodler, which charges restaurants a base rate of 6 percent on food and beverages, calculated when an order is taken. The credit card companies calculate their 2 percent take on the total bill upon delivery, which is higher since it includes tax and tip. That means more than a third of Foodler’s cut goes right out the door.
Dumontet, who has a background in software – he worked at Cisco – has been dabbling in Bitcoins, and he likes them for a variety of reasons. Every transaction is final. There are no chargebacks, fraud, or transactions fees. Bitcoins work a bit like gift cards. Once the amount of Bitcoins in a user’s account is established it’s a cinch to transfer them to Foodler. But it's the fact that every Bitcoin transaction means one less credit card transaction, and that adds to Foodler's bottom line. Of course, not many customers use Bitcoin. Yet.
What about the manic swings in Bitcoins’ value, which during one six-week period flew over $250 then plummeted into the $50s? “Wild swings don’t concern us,” he says. “If there was a steady downward trend we’d have pressure to exchange them into US dollars.” Foodler converts Bitcoins on a regular basis anyway to pay the restaurants – often daily, in many cases twice a week, but never less than once every seven days. In the month Foodler has accepted Bitcoins the exchange rate has remained in the $120 to $128 range.
Of course, if enough businesses adopt Bitcoin to the point that credit card companies view it as a threat, expect them to lobby the government to intervene. The industry has friends in high places, most notably Vice President Joe Biden. A man of the people who often touts his working class Scranton, Pennsylvania roots, Biden voted in 2005 for a bill that made it harder for consumers to use bankruptcy to seek protection from credit card bills. His biggest corporate donor over 20 years was MBNA, a Delaware-based financial services company that is a subsidiary of Bank of America. His son worked there as a lobbyist.
“The government could target the exchanges, which would be a natural point of regulation,” Dumontet says.
Until then, Foodler will continue to promote Bitcoins for payment. Every time a transaction goes through that doesn’t include 2 percent of the total bill walking out the door is a finger in the eye of the credit card companies.
Merchants should enjoy it while it lasts.