One of the main features of contemporary life is credit cards, which allow you to make purchases on credit and make payments over time or later. Naturally, there are penalties and charges for missing payments, and interest accrues at a rapid pace. A company gives you a credit limit and a card, and they want you to return the money according to their rules. Stiff penalties can follow for breaking the rules. For example, if you play slots that accept credit cards, you must only use cards that authorise transactions with the casino.
Rather than using cash or other conventional payment methods, cryptocurrency is a payment technique that is similar to the digital transactions that are utilised today. Although cryptocurrency was created to displace regulated and government-issued money, in its brief existence, it has found many applications.
Cryptocurrency vs. Credit Cards: A General Comparison
Cryptocurrency is not replacing credit cards in the traditional sense, but it is emerging as an alternative payment method in certain contexts. The role of cryptocurrency in the financial ecosystem and its comparison with credit cards can be understood in several aspects:
- Adoption and Usage: Credit cards are widely accepted and have a well-established infrastructure globally. Cryptocurrency, while growing in popularity, is still not as universally accepted for everyday transactions.
- Transaction Mechanism: Credit cards operate on a “promise to pay” model, where the card issuer pays on behalf of the cardholder, who then pays back the issuer. What kind of securing credit cards is very important here. Cryptocurrencies operate on a direct transfer model, where value is transferred directly from one party to another without the need for an intermediary.
- Security and Privacy: Cryptocurrencies offer a higher level of anonymity and security (through blockchain technology) compared to credit cards, which are tied to personal information and are susceptible to fraud and identity theft.
- Costs and Fees: Credit card transactions often involve fees, such as processing fees, which can be higher for international transactions. Cryptocurrency transactions may offer lower fees, especially for cross-border transactions.
- Accessibility: Cryptocurrencies can be accessed by anyone with an internet connection, making them potentially more accessible than credit cards, which require a relationship with a financial institution.
- Regulation and Stability: Credit cards operate within a highly regulated financial system, whereas cryptocurrencies are still in a phase of regulatory development, leading to potential volatility and uncertainty.
- Innovations and Integrations: Some financial services and tech companies are integrating cryptocurrencies into their payment systems, allowing for crypto credit cards, which combine features of both.
In summary, while cryptocurrencies are not replacing credit cards outright, they are providing a new form of transaction that appeals to a segment of consumers and businesses. So far, the cryptocurrency has been referred to as “fool’s gold“, which is quite extensive. The future could see more convergence and integration, depending on regulatory developments, technological advancements, and shifts in consumer preferences.
Cryptocurrency Deals
Peer-to-peer transactions using cryptocurrency eliminate any middlemen and only involve the two individuals involved in the financial exchange. You own and manage a digital wallet where Cryptocurrencys are kept. You can designate a third party, such as an exchange, to hold your money on your behalf; but, you are not required to rely on a financial institution for this service.
Payments are “pushed” straight from one party to another without passing via a third party financial institution, much like cash transactions. A public blockchain records every transaction made through a private network of computers used for payment processing. But for as long as you’d like, you can stay anonymous.
Personal identification, like your name and address, is not required when completing a cryptocurrency transaction. This implies that no one keeps an eye on your money dealings or places restrictions on what you are allowed to do.
Through the use of financial intermediaries, a merchant is authorised to “pull” a payment from your account when you use a credit card. The credit card network, the merchant, the acquirer (the financial institution that permits payments to the merchant), the issuer (the cardholder’s bank), and the actual cardholder are, for instance, the five parties that are typically involved in a Visa transaction. The payment processor is a sixth party that might occasionally be involved, however many are also the acquiring bank.
Fees are assessed by each company participating in the transaction and subsequently passed on to the cardholder, hence increasing prices. Additionally, credit cards need to be physically kept safe and secured. Though technology is advancing, card numbers remain vulnerable to theft, particularly if you permit retailers to store them for convenient access in the future. Even if you don’t, card information can be stolen by hackers who gain access to merchant records.
Important Variations
A public key, which is an anonymous alphanumeric address that your wallet uses, and a private key are used to conduct cryptocurrency transactions. Quick response (QR) codes associated with your wallet can also be used to make payments on mobile devices. Mobile devices can also be used to make credit card purchases, however before the payment is processed and authorised, it must pass through multiple businesses.
Finality
Unlike credit card transactions, which are cancelable, cryptocurrency transactions are irrevocable and can only be reimbursed by the recipient. This implies that when businesses accept cryptocurrency payments, there are no automatic chargebacks. When a client challenges or reports a fraudulent payment, the credit card company requests that the store reimburses them for the loss. This is known as a chargeback.
Charges
The costs you choose to pay the network with cryptocurrency are entirely up to you, however the smaller your fee offering, the longer it will take for the transaction to be confirmed. In addition, network traffic, the current price schedule at the time of the transaction, and any services you may be utilising are also factors. When you start a transaction, many wallets will display the most recent fee rate or provide you the option of regular or quicker rates. On November 3, 2023, the average transaction cost was $3.92; however, by November 7, 2023, it had increased to $7.17.1.
On the other hand, credit card costs might vary from 0.5% to 5% in addition to a fixed fee of $.20 to $.30 for every transaction.
Advantages of Cryptocurrencies Over Credit Cards
Cryptocurrencies offer several advantages over traditional credit cards, which contribute to their growing popularity. Here are some key advantages of cryptocurrencies:
- Security: Cryptocurrencies use advanced cryptographic techniques to secure transactions, making them highly secure and resistant to fraud and hacking. In contrast, credit card transactions can be susceptible to data breaches and identity theft. However, despite the high degree of protection, there are still instances of fraud.
- Anonymity: Cryptocurrency transactions can be conducted with a higher level of anonymity since they don’t necessarily require the disclosure of personal information. Credit card transactions, on the other hand, are tied to cardholder information, making them less private.
- Lower Transaction Fees: Cryptocurrency transactions often have lower fees compared to credit card transactions, especially for international payments. Credit card companies typically charge processing fees and foreign transaction fees, which can add up.
- Global Accessibility: Cryptocurrencies can be accessed and used by anyone with an internet connection, making them accessible to people in regions with limited access to traditional banking services.
- Quick Transactions: Cryptocurrency transactions are typically processed faster than credit card transactions, which may require approval from multiple intermediaries.
- Borderless Transactions: Cryptocurrencies enable borderless transactions without the need for currency conversion. This is particularly advantageous for international trade and remittances.
- Ownership and Control: Cryptocurrency users have full ownership and control of their digital assets. With credit cards, users rely on third-party financial institutions and are subject to their policies and restrictions.
- Inflation Hedge: Some cryptocurrencies, like Bitcoin, are often considered a store of value and a hedge against inflation. This is in contrast to fiat currencies, which can lose value over time due to inflation.
- Financial Inclusion: Cryptocurrencies have the potential to bring financial services to unbanked and underbanked populations who may not have access to traditional banking systems.
- Smart Contracts: Some cryptocurrencies, like Ethereum, support smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. This can automate and streamline various financial processes.
- Decentralization: Cryptocurrencies operate on decentralized blockchain networks, reducing the risk of a single point of failure or control. Credit card systems are centralized and controlled by financial institutions.
It’s important to note that while cryptocurrencies offer these advantages, they also come with risks and challenges, such as price volatility, regulatory uncertainty, and the potential for misuse. Users should exercise caution and be aware of the specific characteristics of each cryptocurrency when using them for transactions.
Payment Trends in e-Commerce: The New Standard
While there has been a significant shift in the e-commerce scene recently, the COVID-19 epidemic was the catalyst that really solidified the “new normal.” After the first crises, consumers quickly adjusted to internet purchasing and developed new routines and behaviours that have lasted ever since.
Perfect Payment
In the world of online shopping, customer expectations have never been higher. When it comes to payment processing, people want flawlessness – speed, safety (also called security), and simplicity – upported by trust, interoperability, and a seamless payment process. The desire for “payment perfection” is what propels consumers to accept new payment methods, according to the FIS Worldpay Global Payments Report 2023. In this context, trust and loyalty have become essential elements that need to be present at all times during the user payment experience (UPX).
Growth of Electronic Payments
The explosive growth of digital wallets is one of the most prominent developments in e-commerce payments. With a whopping 49% of the e-commerce market share and 32% at the point of sale (POS), companies like Alipay, PayPal, and Apple Pay have amassed a whopping US$18 trillion in revenue. This domination indicates a substantial shift in customer preferences in favour of these safe and practical digital payment options. The proliferation of digital wallets is similarly noteworthy in Latin America (LATAM). The digital wallet market is very competitive, with a wide range of participants, including fintechs, banks, neobanks, super applications, and device manufacturers. This forces retailers in every consumer-facing segment to accept wallets.
Credit Cards and Buy Now, Pay Later (BNPL) schemes
Buy now, pay later, or BNPL, is expected to grow at a spectacular 16% CAGR globally through 2026, making it a sustainable growth story. The so-called “BNPL 2.0” will witness increased rivalry as other participants, such as Super Apps, Card Networks, and Banks, join the market in addition to Fintechs.
Credit cards continue to be incredibly relevant even in the face of the growing popularity of alternative payment methods; in 2022, credit card transactions will total over a whopping US$13 trillion. In both POS and e-commerce environments, the value of credit card transactions is expected to increase at a consistent 4% CAGR in the future. Furthermore, credit cards are a vital source of finance for POS financing, BNPL services, and digital wallets. Twenty-two percent of users worldwide finance their digital wallets with credit cards. This pattern suggests that even while credit card spending overall is increasing, through 2026 it is anticipated that credit cards’ proportional share of transaction value would decrease.
Cryptocurrencies and Payments in the Future
Although they are not yet widely used in e-commerce, cryptocurrencies provide a lot of room for innovation, especially when it comes to platforms that convert fiat currency (C2F). A meagre $11.6 billion of the value of worldwide e-commerce transactions was made up of cryptocurrency transactions as of 2022. However, estimates suggest that this amount is about to increase significantly, with bitcoin payments predicted to reach about $39 billion by 2026 – or just less than 0.5% of the value of all e-commerce transactions worldwide. Peer-to-business (P2B) payments using cryptocurrencies have a lot of potential, especially as more approachable and user-friendly crypto solutions are created.
The Cash Decline
The use of physical cash in payments is rapidly declining as Central Bank Digital Currencies (CBDCs) take their place. It is predicted that by 2026, cash’s percentage of global POS transaction value will fall to less than 10%. The declining importance of currency is caused by a variety of variables, and this decline is not consistent across all locations. All things considered, it is predicted that the compound annual growth rate (CAGR) for cash use will be -6% through 2026.
It’s also worth noting that many casinos are now also abandoning the use of cash. So far, the full introduction of virtual money can only be found in unlicensed casinos that do not have a UK licence.
In order to provide the finest payment solutions, businesses need to have a thorough understanding of both their markets and customers in order to succeed in the current e-commerce scenario.
It’s critical to comprehend the varying inclinations of today’s diversified e-commerce landscape. The 2023 FIS Worldpay Generation Pay Report provided interesting new information about how different age groups handle internet payments. For example, of the 805 respondents polled in Brazil, who ranged in age from Boomers to Generation Z:
- Technology that allows for checkout without a ticket was desired by 49% of respondents.
- Of those surveyed, 50% said they preferred biometric authentication.
- 43% expressed interest in using cryptocurrencies for payments.
And worldwide:
- Sixty-eight percent stated they didn’t trust internet retailers.
- 44% anticipate using reward points as payment.
- Online shopping is preferred by 50% of respondents, and different payment methods are vital, according to 67% of respondents.
These results highlight how crucial it is to customise payment options to meet the various expectations of customers across generations. As we examine the developments in e-commerce payments in more detail, it becomes evident that accommodating these diverse tastes is essential to being competitive in this dynamic environment.
In summary
In conclusion, there is ongoing change taking place in the e-commerce payments industry. Businesses need to innovate, adapt, and live up to customer expectations in order to succeed in this always changing world. In the words of author Matt Ridley, “The great human achievement is to specialise as a producer of goods or services so that you can diversify as a consumer.” Those who put this theory into practice and create innovative payment solutions and features that promote prosperity and satisfaction for customers, markets, and merchants alike will emerge victorious in the e-commerce arena. E-commerce payments have a bright future ahead of them, and businesses who are open to change will prosper in this fast-paced sector.
As for the direct fight between cryptocurrency and bank cards, things are very ambiguous so far. However, as many financial experts predict, in the next 10-15 years, cryptocurrency will become the most popular in the world (we are talking about developed countries).