Benefits of Bitcoin Payments6 min read
Businesses all around the world are accepting Bitcoin payments because of the many benefits that come with accepting Bitcoin as a payment method. With the latest news about Tesla accepting Bitcoin as a payment method for their vehicles, there will be many more businesses to follow their footsteps to enjoy the benefits of Bitcoin payments. In this post, we will be discussing the benefits of Bitcoin payments and how accepting Bitcoin could affect your business. Our topics will cover the following:
- Customer Acquisition
- Quicker and cheaper cross border payments
- No chargeback fraud
- Lower Payment Processing fees
- Microtransactions on the Lightning Network
As with any new technology, Bitcoin garners a lot of attention, and typically when businesses start accepting it as a payment method they can expect to acquire more customers. By accepting Bitcoin payments, individuals and businesses open themselves up to transactions with anyone in the world. Businesses can advertise their goods and services to Bitcoin users and increase their brand awareness within the community of Bitcoin users. Businesses that accept Bitcoin benefit from this because it increases brand awareness at no up-front cost. With that said, accepting Bitcoin payments will give your business a competitive advantage over every business that doesn’t accept Bitcoin. Bitcoin payments provide businesses a more efficient way to transact value while increasing customer acquisition; a win-win.
Instant low-cost cross border payments
Businesses that operate internationally have few options for accepting payments from their customers. International transfers using legacy payment processors can be very costly and take days for payments to settle. Online payment processors such as PayPal are not accepted in every country and come with strict rules that can limit the growth of your business. Unlike traditional payment methods, Bitcoin can be used anywhere in the world. With that said, Bitcoin is the perfect currency for making cross-border payments. Not only is Bitcoin usable from anywhere in the world, but Bitcoin is also much faster than traditional payment methods and comes with same-day settlement for on-chain transactions, and instant settlement with payments on the Lightning Network.
No chargeback or fraud risk
Unlike traditional online payments that are “pull transactions”, Bitcoin transactions are “push transactions”. Pull transactions require a customer to provide their identification, payment information, and authorization for the merchant to “pull” money out of their account. In contrast, a push transaction is initiated by the customer, and identification isn’t necessarily required much like cash.
The problem with pull transactions is that they create the risk of true fraud and chargeback fraud as well as the risk of sensitive information getting into the wrong hands. True fraud occurs when stolen or compromised payment data is used fraudulently for payment without the cardholder’s knowledge or consent. For online transactions, in which merchants are liable for fraud by default, this can add up to unwanted substantial costs. Pull transactions require customers to trust that merchants will securely store their personal identification and payment information. With the hacks of Equifax, Capital One, and more recently the CRA (the Canadian equivalent of the IRS) we’ve seen time and time again that as a digital database of personal and financial information gets bigger it incentivizes hackers to gain access to it, violating the privacy of millions and putting them at financial risk.
Chargeback fraud is the fraudulent request for a return or refund in the form of a chargeback. Honest merchants are being defrauded by customers at an increasing rate with chargebacks increasing 41% every 2 years, and every dollar of chargeback fraud can cost the merchant $2.40. On top of losing money to fraud, merchants also lose money on the products they lose to fraudsters. In contrast, chargeback fraud cannot occur with push transactions like Bitcoin payments because they are final and irreversible. Merchants can honor legitimate refund requests, but a third party like a credit card company cannot cancel the payment and force a return and additional chargeback fees. Additionally, since the only financial information received from the customer is a Bitcoin wallet address, the prospects of harmful data breaches are reduced. Bitcoin provides the ultimate solution for businesses suffering from chargeback fraud as it has zero chargebacks — that’s right, zero chargebacks.
Lower Payment Processing Fees
Other payment methods have substantial transaction fees. Most payment processors have setup fees and include a flat fee per transaction in addition to a percentage of the transaction. PayPal’s fees can be over 4%. In contrast, when a merchant accepts Bitcoin payments with OpenNode, the fee is much lower. Additionally, unlike traditional banking, there are no service fees, minimum balance fees, or account maintenance fees involved when using a Bitcoin wallet.
However, transaction fees have been increasing for the past few months. According to Bitinfocharts, the average transaction fee is $13.79 USD at the time of writing, up from $1.386 USD this time last year. Higher fees arise when the blockchain is congested or “bloated”. With the rise in price over the past few months, Bitcoin transactions have also gradually increased, leading to longer confirmation times and higher fees just like the bull run of 2017 when the average transaction fee hit a peak of $55. In response to high fee pressure, the Lightning Network was created as a second-layer solution.
Microtransactions on the Lightning Network
Merchants can make use of the Lightning Network and the advantages it offers over on-chain transactions. For example, while the average on-chain transaction fee is $13.79 USD, the average Lightning Network transaction fee is a fraction of a penny. Since the Lightning Network exists off-chain, it doesn’t need miners to validate transactions. This means that Bitcoin transactions on the Lightning Network are significantly faster than on-chain transactions making them virtually instant.
With lower fees and an increase in transaction speed, the Lightning Network makes microtransactions with Bitcoin possible. Even before this recent rise in on-chain transaction fees, it would not make sense to pay for a small item such as a cup of coffee using the base layer of Bitcoin because the transaction fee would account for a significant percentage of the purchase. However, even transactions of minimal value can be serviced by using the Lightning Network. With OpenNode, we encourage merchants and developers to experiment with this whole new paradigm in payment fees.
Our mission at OpenNode is to help merchants around the world understand the benefits of Bitcoin payments while providing the smallest barrier to entry possible. We believe that every business can benefit from accepting Bitcoin payments and our platform makes it easy for any business to get started with Bitcoin in minutes. Visit our website to learn more OpenNode, Bitcoin, and how Bitcoin can help your business today.