Chargebacks: More volatile & complex than cryptocurrency
Ever had somebody lean in close in the middle of a boring meeting and whisper, “I’d rather get a root canal than sit through the rest of this?” It’s a relatable sentiment, and entirely hyperbolic. No matter how deathly dull the presentation—even if they’re at 15 out of 100 PowerPoint slides, each one more enervating than the previous—nobody’s really serious about wishing they had some more painful engagement to attend instead. On the other hand, when merchants tell you what they’d rather do than learn how to fight chargebacks, they’re usually not joking...
At Chargeback Gurus, we’ve dedicated ourselves to understanding chargebacks inside and out. This way, we can provide expert analysis and advice to our clients no matter what kind of chargebacks they’re dealing with. Sometimes, though, we have to remind ourselves what the typical merchant’s perspective on chargebacks is—namely, that any time you have to spend thinking about chargebacks is a bad time.
That’s why we weren’t surprised to learn that some merchants have latched on to an electronic payment solution that avoids chargebacks entirely: cryptocurrency. Understanding how to use Bitcoin and other cryptocurrencies can be quite challenging. The technical details of how cryptocurrencies are “mined” and how the blockchain records and encrypts every transaction can be baffling, and even if you have the technical side figured out, implementing cryptocurrency acceptance on an ecommerce platform can be a daunting project.
And then there is the question of what a unit of cryptocurrency is actually worth in dollars and cents at any given moment. In 2017, a single Bitcoin might have been worth $750 or $17,900, depending on what month you were in.
Nevertheless, some merchants see cryptocurrency as safer and less volatile than a payment system that allows chargebacks. That should certainly tell us something about how chargebacks are perceived, and how they are impacting merchants.
Can cryptocurrency prevent chargebacks?
Yes. It is impossible in most cases to initiate a chargeback if the transaction was made with cryptocurrency. Chargebacks aren’t the only reason merchants are getting into cryptocurrencies, but with chargebacks costing businesses tens of billions of dollars each year and growing, they are undoubtedly a significant factor.
Accepting cryptocurrency payments is no longer a stunt or proof-of-concept exercise. Huge companies like Microsoft and Tesla take cryptocurrency as payment, and many small businesses are following suit. JP Morgan Chase is currently implementing their own coin (JPM Coin) with the goal of making cryptocurrencies accessible to businesses of all sizes.
Most cryptocurrencies aren’t backed by any central authority like a bank or government though. Instead, exchanges are carried out peer-to-peer, with the blockchain serving as an objective ledger that authenticates each transaction. In this system, there’s simply no way for chargebacks to be carried out. The buyer has no bank or card network to appeal to and no way to force a reversal of the transaction. If a consumer wants their money back and the transaction happened over the blockchain, they are entirely at the mercy of the merchant.
Should my business accept cryptocurrency?
There’s another big benefit of conducting transactions on a peer-to-peer basis: there’s nobody in the middle collecting fees to facilitate the exchange. Payment processors take a small percentage of each debit or credit card transaction they handle, which can add up to enormous sums of money for high-volume merchants. For small businesses that operate on tight margins, these fees can take a serious cut out of their profits.
Prior to the advent of cryptocurrency, ecommerce merchants had no alternative but to accept these fees and adjust their pricing accordingly. Now that consumers have more options for electronic payments, merchants may have a little more leverage.
Will cryptocurrency go mainstream?
The payment reversal protection offered on a crypto transaction is invaluable. Furthermore, people are becoming more familiar and comfortable with the idea of cryptocurrency, and cryptocurrency ownership rates have more than doubled over the past year—which means that accepting cryptocurrency also expands your potential customer base. While the segment of consumers who use crypto but not cards may be relatively small right now, those people are out there and their numbers will only grow. The only way for merchants to convert these customers is to accept their preferred payment methods.
Something else merchants like about cryptocurrency is that it’s immediate. Payment card settlements can take several days to hit a merchant’s bank account, but a cryptocurrency transaction can be converted into cash via an exchange platform almost as soon as it has been completed. For merchants who struggle with cash flow issues, this can be a very attractive benefit.
Of course, once a merchant comes around to the idea that accepting cryptocurrency is a good business move, the question becomes how, exactly, to take all that Bitcoin and Ethereum that their customers are so eager to fork over. For the most part, merchants can rely on the same kind of third-party point-of-sale systems and web applications that process regular card payments.
Is cryptocurrency safe?
Nothing is truly safe. The wild west days of cryptocurrency are behind us, and merchants who once worried that accepting cryptocurrency payments meant setting up ad hoc payment systems—and then racing to find a way to exchange the crypto for fiat currency while exchange rates were still favorable—can now rest assured that powerful, secure, easy-to-use solutions are lined up and ready to be implemented.
We would advise merchants to be careful about some of the non-technical aspects of cryptocurrency that may not yet be on their radar, such as the tax implications and the ways in which crypto security differ from payment card security. Fraudsters follow the money, and the more people use cryptocurrencies, the harder they’ll be working to find ways to game and exploit the system.
Cryptocurrency may circumvent the chargeback problem, but crypto alone is no solution to the underlying issues that lead to transaction disputes—issues such as products that don’t deliver on their promises, or customer service that isn’t responsive to customer needs.
We believe cryptocurrency is a powerful alternative to traditional payment methods that many customers will appreciate, but even if it was in wide enough use to supplant credit and debit cards, you’d still have to address the root causes of your disputes. If customers have no remedy for fraudulent or deceptive transactions, they may just take their business elsewhere. Eventually, market pressures may force the cryptocurrency community to introduce a chargeback mechanism into the blockchain. Merchants who were hoping for an end run around chargebacks might rage at this, but merchants who analyze and manage their chargebacks properly will be able to take such changes in stride.