Expert Column: Grocers Could Lead on Alternative Payments
In the past year, Bitcoin has come into popular awareness, but limited retailer acceptance of the cryptocurrency continues to prevent consumer use from hitting critical mass. By accepting digital gift cards purchased with cryptocurrencies, grocery stores could be the industry that leads the charge by familiarizing consumers with using digital currencies for everyday goods.
Bitcoin has also struggled with a chicken-and-egg dilemma: While customers are reluctant to begin using it until widespread support is available, grocers have been similarly hesitant to invest in payment solutions that have minimal customer demand.
Navigating an Unfamiliar Payment Playing Field
Costs associated with supporting and securing alternative payments remain large obstacles to Bitcoin adoption in the retail space. The imminent transition from swipe-and-sign to EMV (chip-and-PIN) credit cards, along with the emergence of various mobile payment solutions, put additional pressure on grocers to invest in a plethora of new point-of-sale systems. Due to razor-thin profit margins and the uncertain longevity of these payment methods, businesses have relegated many of these purchasing decisions to the back burner.
This is where digital gift cards emerge as a stepping stone in the new payment landscape. Both grocers and consumers are highly familiar with the digital gift card, and the technology to accept them is already in place. Whole Foods Market and CVS/pharmacy, for example, make their digital gift cards available for payment with cryptocurrencies through third parties. These third parties manage the currency conversion process, dramatically simplifying the Bitcoin processing for the grocers so that they never even touch the Bitcoin.
Digital gift cards can also be stored by consumers on their mobile devices and presented for in-store use at the grocery store. This enables mobile payments without the need for grocers to invest in new, still unproven technology like near field communication (NFC). As such, digital gift cards may be able to drive widespread support for both cryptocurrency and mobile payments.
Simplifying the Payment Process
Digital gift cards can help grocers ease into the world of alternative payments by folding Bitcoin into a more familiar, consolidated solution. With gift cards, grocers need to support only a single digital payment method to accommodate a wide swath of payment options.
From cryptocurrency advocates to customers who prefer the convenience of an all-digital system, gift card-enabled Bitcoin payments present an opportunity to attract a broader audience. Few grocers today would consider spurning debit and credit card payment options at the risk of driving away customers. Digital payments continue to move into the payment landscape, and grocers that lag in adoption may eventually suffer loss of revenue. Grocers that support digital gift cards, and, by extension, cryptocurrency and mobile payments, will be better equipped to identify and react to changes in the payment space before "crunch time." This will allow grocers to more efficiently plan their resource allocation and make informed technology investments.
Tomorrow's Payment Solutions, Today
The venerable credit and debit card payment systems of decades past have served grocers and their customers well, but there's increasing demand to support new, flexible payment methods. The old system is also showing its age, as hacking and credit card fraud add risk for all retailers. The new EMV chip-equipped cards, as well as tokenization schemes, will help, but it's likely to get worse before it gets better, as some large U.S. retailers have found out in the past year. During 2014, chains across the apparel, home goods and grocery industries have reported major credit card breaches, contributing to widespread consumer anxiety about the security of traditional payment methods. Bitcoin and other emerging payments offer not only an answer to fraud, but also come at a lower cost, another major draw for low-margin businesses.
By forming partnerships with digital gift card providers that can accept cryptocurrencies on their behalf and send the digital gift card to a mobile device, grocers and their massive customer base are well positioned to bring cryptocurrencies such as Bitcoin into the mainstream. As the way we pay continues to evolve, grocers carry significant weight as to which transaction solutions stick, and which end up in the bargain bin.