Bitcoin Compared to Other Payment Methods8 min read
In this article we’ll be comparing Bitcoin to other methods of payment. Before getting into the comparisons, it helps to consider the qualities that make a payment method fit for use. A good payment method should be quick to settle, easy to use, and have low or no fees. We will be comparing Bitcoin as a payment method to:
- Checks and money orders
- Debit and credit cards
- Online payment processors
- Bank transfers and wires
Cash is still one of the most common ways to pay for purchases. Cash is attractive to business owners because its costs are much lower than card payments. In fact, the average cost of a cash transaction is approximately 30 cents. You may be wondering how that’s possible since there are no transaction fees, no merchant account fees, and no minimum monthly charge with cash transactions. Rather than paying fees the smaller cost of cash tends to come from the time and labour of counting, sorting, and reconciling the cash. It’s also easy to start accepting cash. There’s no need to sign up for a merchant account or invest in point-of-sale terminals. It’s great for small-ticket purchases and unlike credit cards there is no chargeback risk.
While cash has the advantage of being immediate, it is not the most secure form of payment because it can easily be lost, stolen or destroyed. There is also the risk of counterfeiting and more recently a concern with contamination. With the Covid-19 Pandemic, everyone has become more aware of how easily bacteria can spread and how much the use of cash can contribute to that. Another issue with cash is having to physically be present for the transaction. Online and international transactions can’t be made with cash. In contrast, although a Bitcoin transaction has a small fee and may not be immediate, Bitcoin cannot be destroyed or counterfeited and it can be used globally. Storing large amounts of cash can also be an issue for business owners but isn’t a problem at all with Bitcoin. Bitcoin is similar to cash since transactions are irreversible which makes chargebacks impossible. Additionally, with Lightning Network transactions it can be even more like cash since these transactions have immediate settlement. The phrase “cash is king” is often used to show how cash is preferred by everyone but in terms of monetary policy, Bitcoin presents a much better system. With a fixed supply and pre-defined inflation schedule, Bitcoin provides a much more solid policy compared to the fiat currencies of the world which central banks can choose to print more of and therefore devalue at any time.
Checks and money orders
Checks and money orders have similar limitations as cash with the additional problem of longer settlement times due to the introduction of intermediaries. They were used initially for larger purchases where cash would not have been ideal. Checks are essentially paper forms linked to a buyer’s bank account that the buyer fills out and gives to the seller. The seller gives the cheque to their bank, the bank processes the transaction, and a few days later the money is deducted from the buyer’s account. With the increasing trend toward faster payments, checks are seen as slow and their use has been dropping year on year. In comparison to checks, Bitcoin transactions are much faster. Checks are also not free to use as checkbooks have to be purchased beforehand. They also present the problem of checks bouncing when the buyer’s account doesn’t have sufficient funds. This isn’t an issue with Bitcoin, as it relies on a check/verify system. When someone initiates a Bitcoin payment, they need to actually have the amount in their wallet and they can verify it themselves by running their own nodes or using block explorers.
Debit and credit cards
Before you can start accepting card payments in your business, you need the right technology. You’ll likely have to set up payment processing services from a provider or a financial institution like your bank. You’ll need to invest in point-of-sale terminals and also have to pay for upgrades, maintenance, and repairs. Then there’s a monthly fee for your merchant account, which allows you to accept payments. Merchant accounts also include variable costs. There’s usually a set fee for every debit transaction and credit card transactions often carry a percentage fee. There could also be a flat transaction fee. Some merchant account providers also levy a minimum monthly charge, meaning you’ll pay a certain amount regardless of how many card transactions are made. The more people who use credit cards in your business, the higher the cost you must pay each month. The use of credit cards also brings the risk of true fraud and chargeback fraud. Since Bitcoin transactions are “push” transactions, chargeback fraud is impossible because the transaction is final and irreversible. There are also no monthly charges or minimum balance requirement associated with holding Bitcoin in a wallet. Point-of-sale terminals are optional as well since most software wallets will be able to receive Bitcoin by providing the purchaser with a simple QR code that will point them to the receiver’s address.
Online payment processors
Online payment processors have made accepting payments a lot easier for a lot of businesses. However, 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 1%. For businesses that operate internationally, options are limited. International transfers using legacy payment processors can be very costly and take days for payments to settle. Online payment processors such as PayPal are also not accepted in every country. In contrast, Bitcoin can be used anywhere in the world making it the perfect currency for accepting cross-border payments.
Bank transfers and wires
Unlike some electronic payments, bank wires are more expensive—anywhere from $15 to $50 per transfer. The fee depends on the bank, whether the wire is outgoing, incoming, domestic or international, and the transfer amount. In general, domestic incoming wires fall at the lower end of this price range, while international outgoing wires are the most expensive. The money moves fairly quickly, and the recipient doesn’t have to wait several days for funds to clear before claiming or using the funds. In other words, there is usually no bank hold placed on money received via wire transfer. However, it may take several hours for the receiving bank to show the wire proceeds in the recipient’s account, even if the money is at that bank. A bank employee may need to complete a few tasks to make the funds available. In comparison, an on-chain Bitcoin transaction can be completed within an hour and a Lightning Network transaction can be completed instantly. An issue with international wire transfers is that they typically don’t provide a decent exchange rate, causing you to lose money in the process. Another cause for concern is that since transfers can be made anonymously and only transaction codes or tracking numbers are required to claim the money, wire transfers are very attractive to scammers.
With these comparisons in mind, Bitcoin is a superior method of payment in terms of settlement time, fees and security. With OpenNode, businesses and individuals can also make use of the Lightning Network so payments can be instantly settled for minimal fees. Because users are able to send and receive Bitcoin with only a smartphone or computer, it is available to populations of users without access to traditional banking systems, credit cards and other methods of payment.
We at OpenNode believe that any business can benefit from accepting Bitcoin payments alongside their current accepted payment methods. As the world continues to move towards adopting Bitcoin as a payment method, we’ll continue on our mission to provide a simple solution for any business that wants to accept Bitcoin. Get started with OpenNode for free and start accepting Bitcoin payments in minutes, learn more about our platform here.