It's interesting all the "how is this useful" examples she gives are for international commerce: money transfers, doing business with international customers, countries where cards are harder to accept.
I'm still waiting to hear concrete examples of how Bitcoin would compete with credit cards in a First World market. There's a lot of talk about how "expensive" and "inefficient" the credit card system is (it's almost a mandatory part of any intro to Bitcoin). But so far I've heard nothing concrete. Anyone have a good link I should read?
Some weeks ago I tried to buy a mobile top-up online - my bank card was repeatedly rejected for some unknown reason (after having to re-enter my entire address and card numbers multiple times). More recently, I decided to try Bitcoin for this, and was able to buy a top up voucher code with no problems.
This may be a rare example, but it highlights something key: The merchant is getting cash. They have no need to perform fraud checks. They have no worries, and can make the customer's life easier as a result.
I've struggled with traditional card payments many times in the past. Using Bitcoin is pure bliss in comparison.
I see a future where Bitcoin wallets are browser add-ons, and payments really can be one-click on any website.
Kids who may not have bank cards yet is also a hugely overlooked area imo.
Of course merchants would prefer cash. It doesn't have the consumer protections cards have. But that's not a reason for consumers to adopt it. Just the opposite.
I agree with you that your example is probably a rare one. Which is why I'm still searching for an answer as to how this is all supposed to supplant the card system.
It's not simply a question of what the consumer wants. Look at it from the other side.
The merchant may be very strongly incentivized to use Bitcoin because it cuts payment fraud to zero. This saves the merchant the direct cost of payment fraud, which averages 1-2% of revenue in the US (therefore up to 50% of profit margin in some industries). Note that 1-2% is an average -- some industries have higher rates of payment fraud, and they will therefore have greater savings.
As Bitcoin payments require no fraud prevention, they also save the merchant the cost of lost business from customers deterred by cumbersome fraud prevention methods, and losses due to legitimate customers who are rejected when fraud prevention gives a false positive.
Therefore, merchants will have the option of reducing prices for items purchased with Bitcoin.
This leads to a simple question: do there exist any industries where the merchant's savings could be big enough that they could reduce prices sufficiently to encourage a significant number of customers to pay with Bitcoin, while still earning a higher margin than they would from other payment methods? I think there probably are, but we're a long way from seeing this question answered by the market. Relatively few merchants accept Bitcoin, and many of them offer no special discounts.
Source? Wikipedia summary on credit card fraud puts it at just 0.07% [1] The "2%" figure is more what average card processing fees are. But most of that is passed back to the consumer in the form of rewards and benefits. Part of the reason it's hard for cash to compete for significant purchases, or anywhere cards are accepted.
As for the idea that merchants will do differentiated pricing for cards... couple problems with that.
First, it's historically a really tough case. It's generally not worth the risk of losing a sale. But let's put that aside.
Second, you've got the competitive landscape wrong. The Durbin amendment changed everything. Did you know that debit card interchange is now regulated down to 21 cents + 0.05%? And they come with some consumer protections and are "built in" to most bank accounts and all the infrastructure's in place. That's what Bitcoin or any new method that competes on price is competing with. So that narrows the opportunity to almost nothing.
>Wikipedia summary on credit card fraud puts it at just 0.07%
Yes that's true, Wikipedia does say that, but please think about that number for a minute.
0.07%
With all the wailing and moaning we hear about credit card fraud and identity theft every day, does that figure sound plausible? Would anyone really care about fraud if the cost was actually that low?
Certainly it's true that Bitcoin has none of the consumer protection features of credit cards, and that will be a major deterrent to consumers in many situations. It's also true that differentiated pricing isn't something that every merchant will just want to casually drop in.
As for the Durbin Amendment, you seem to know more about this than me, so I'll ask you a question: Since it was introduced, has there been any significant reduction in the percentage of revenue that merchants lose as a result of identity theft (card not present) or 'friendly fraud' (chargebacks)?
Thanks for reading the report behind the Wikipedia summary. I just did as well and I agree it's more the in ballpark of 1%. You should update Wikipedia.
The bigger question here is whether bitcoin can actually improve on this or just change the type of fraud that happens. If for example it shifts the burden from merchants (who absorb most of it with cards) to consumers (who can never recover lost bitcoins) then it's not going to gain traction. It's got to appeal to both sides of the market.
Yes, to gain traction, Bitcoin would have to be used in a way that appeals to both sides of the market. Both sides have to somehow share in any savings that it brings.
It also has to be significantly better than the status quo. There are many markets where using Bitcoin currently doesn't have a significant advantage over the existing payment options, I think. In fact, I'm fairly sure there is often a net greater cost spread across both parties if they use Bitcoin, if you consider the case where someone exchanges other money for bitcoins in order to pay with bitcoins, and the merchant exchanges the bitcoins for other money.
However, and this is an important point, Bitcoin does not have to be suitable for all markets worldwide to establish a presence in some markets. In fact, it doesn't even have to appeal to every merchant operating in a market - just to some of them, perhaps those with the lowest profit margin. If Bitcoin is to succeed as a method of payment, then I expect a scenario where Bitcoin gains a small bridgehead in niche markets, which then slowly expands to some other markets.
Markets that suffer the largest burden of ID theft/chargeback fraud as a percentage of profit seem to be the most promising candidates for that bridgehead. An online merchant with a 4% net profit margin, who is also in a high risk market where they're losing 1% of revenue (i.e. 25% of profit) to fraud, might consider offering a 10% discount to customers who use Bitcoin, for example.
I'd guess the reasons that we don't see so this happening very often, so far, are: lack of familiarity with Bitcoin on the part of merchants, lack of sufficient volume to make it worthwhile to add a new payment method, and finally, some early adopters are still willing to spend bitcoins for ideological reasons or because they made an enormous profit by buying in early, so there's no need to offer those people an incentive.
I've always wondered this too. Everything else being equal, a credit card seems like the better choice - cashback, the option to perform a chargeback if the transaction goes south, and sometimes an extra long warranty. It costs the store an extra ~3%, but I'm not paying that, they are, so unless they directly pass the savings onto me, there isn't really any benefit currently.
There is a real world cash based economy. A lot of person to person trust exists in that world too. Not everyone is middle class and above, drinking their Starbucks coffees paid for on their credit cards, even in this "first world"... Have you never been to a local market? Stallholders generally much prefer cash, even to the extent of causing the customer inconvenience. Bitcoin is the internet equivalent of this.
I don't actually think it will be of huge benefit to people like you who are happy with their credit cards. What Bitcoin will (and is already doing) is enable new applications and a new internet economy where location and real identity is no longer important.
(In this sense, I suppose I'm kind of agreeing with you, since I don't necessarily think there are any absolutely concrete examples of Bitcoin supplanting CCs. I think Bitcoin's greatest potential is elsewhere in untapped areas.)
Hold on, cash-based transactions work in the real world because you can inspect goods beforehand or you're paying for services already received. It doesn't require a lot of trust.
That doesn't hold in the mail order or online world. Consumer protections are more important.
Firstly, there's a debate on whether BTC is closer to FIAT or to an asset (e.g. Gold).
Let's say we skip that part. Until a world-wide bank like say UBS or a country decides to implement an infrastructure for bitcoin, it won't cut it.
Why a country would want to do that, is beyond me - and probably beyond anyone with a basic understanding of macro-economics - and so we're left with other possible implementations of the protocol.
Until we find a way for average Joe to switch from USD/EUR to BTC and back easily and without fear of money loss, I don't think we'll see any widespread adoption as a payment system.
ps. The argument about using bitcoin in societies where finance is not well evolved, is as ridiculous as it is dangerous. Imagine bitcoin-driven banks in Addis Ababa handing out loans (in bitcoin or the local ETB currency?!) and financial products based on bitcoin. Then imagine that an unknown, early adopter, from the other side of the world decides to withdraw 100.000 bitcoins at once: There you go, you got Ethiopians playing wall-street pranks!
Because otherwise ordinary people will not have access to BTC and you can't achieve adoption without them.
A Bank has an infrastructure that could make BTC virtually omni-present in the physical world. Any other non-gov institution, would have a hard time setting up an infrastructure in large scale. A bank has also the knowledge to protect herself from bitcoin itself, because (supposedly) understands the financial (and social) ramifications of every choice made AND should be held accountable if things get out of hand.
If UBS (as in the example above) starts accepting BTC transactions, it means that thousands of hundreds of average Joes get instant access to the system. Otherwise, it's just you me and a couple of bleeding edge technophiles.
The big one is micro transaction. Card fees make it inefficient to work with a high number of small (say $0.25 or less) transactions, Bitcoin solves that.
I totally agree. Consumers won't miss their protections and rewards there either. But at the same time, it's a relatively small niche. So if that's "the big one" then it's hard to see Bitcoin competing with cards more broadly.
There are a couple cases of underserved merchants based in the US where Bitcoin would compete with CC in a first world market.
The first is marijuana merchants in CO and WA. Marijuana is legal at the state level but not federally. These merchants have a hard time using the banking and credit card systems and transacting in BTC would help them do e-commerce.
The second is very low denomination transactions (like 10c). It may become profitable for compensate people at scale for doing some very small amount of work. Like giving someone who finds a typo some small amount of compensation. Credit cards are very poor for this.
As for replacing CC, that is a tall order. They are expensive and inefficient, but accepting credit cards does increase top line revenue if a merchant accepts them. If a payment method is going to get adoption it needs to grow revenue (vs. reduce cost) for a merchant if the merchant accepts it.
Some of the first world benefits are not necessarily related to the immediate use for customers. However in a situation, such as the Target breach, that released peoples credit card and personal data to thieves, if you used bitcoin you would not even have to go to any effort to see if you were affected. If you used Traget and paid by CC then you need to check if your email was one of the compromised ones, check statements for unusual purchases, deal with reclaiming that if necessary and also fixing your credit report (potentially). If you paid by bitcoin all they have is the address you paid from and your delivery address (which they have if they get your personal info anyway).
Tough sell. You wouldn't get the rewards and consumer protections that cards offer. Those include pretty good protection from fraud like that.
Plus, Bitcoin has its own security nightmare scenarios, like customer wallets getting hacked. And unlike cards, there's no recourse for recovering your bitcoins stolen by fraud.
Read about multi-signature transactions. That's something you can't do with fiat, and libertarians (or any other conscious person) will gladly use that.
I'm still waiting to hear concrete examples of how Bitcoin would compete with credit cards in a First World market. There's a lot of talk about how "expensive" and "inefficient" the credit card system is (it's almost a mandatory part of any intro to Bitcoin). But so far I've heard nothing concrete. Anyone have a good link I should read?