Mobile Payments — A Blockchain Utility Ripe with Opportunity
By: Evan Schindler
Tags: News, Credit Cards, Payments, Cryptocurrency, Bitcoin

Opportunity vs. Adoption: Paying your barber with bitcoin?

There are dozens of solutions in the marketplace offering crypto-backed credit and debit cards, and while this is convenient for crypto-users, the solution is simply converting crypto to fiat and running the payment through the same old network.

True universal crypto payments would mean that the barber, the grocer, your niece on her 8th birthday and that cop who just wrote you a parking ticket all accept some form of crypto as payment.

Those are some lofty hurdles to leap over.

Hurdle 1: Merchant Adoption

Partnering with Kroger-sized companies is one thing. Unlike the fragmented merchants on main street, they have uniform POS systems, processors and banks. Ask anyone who has ever tried opening a restaurant or boutique shop — there are hundreds, if not thousands of POS, processing providers, loyalty add-ons, banking solutions and options to choose from.

Moreover, owners of coffee shops on main street are concerned about keeping their lights on and paying their employees. Anything that might add friction to how their business accepts payment is especially worrisome, and simply developing blockchain or crypto payment platforms doesn’t guarantee a broader acceptance from society.

Not all is bleak, however. We’ve seen some strong signs of willingness to adopt cryptocurrency as payment from small merchants using Square. The results of this survey are particularly exciting because of Square’s execution in defragmenting the small merchant POS space. Additionally, with flexible APIs, it’s possible that developers could battle it out to deploy the best crypto payments solution. Please note that the CEO and founder of Square, Jack Dorsey, has also been bullish on bitcoin as of late.

Hurdle 2: Payer Adoption

If merchant adoption is the chicken, then payer adoption is the egg. Although mobile payments haven’t hit their stride yet in the U.S. or Europe, there is reason to believe that crypto-payments could expose the technology to more adoption.

According to a 2017 Global Cryptocurrency Benchmarking Study from Cambridge, 81% of wallet providers are based in North America and Europe, [and] 61% of wallet users are based in these two regions. If a large portion of crypto wallets are held in the U.S., then the logical next step would be to convert those wallets into a tool for payment. And there are plenty of crypto-based startups planning to do just that.

Hurdle 3: Payment Volume

Processing payments is a voluminous endeavor. According to The Nilson Report in 2017, credit and debit cards were used for 102.5 billion transaction in 2016. That’s over 3,000 transactions per second, every second of the year. This is volume that current blockchains aren’t equipped to handle.

Plenty of folks in the blockchain space have heard of the bottleneck on the Ethereum platform caused by the popular crytopkitties application. Vitalik Buterin, founder of Ethereum, has described the scalability issues as a trilemma.

The “Scalability Trilemma” as seen on Ethereum’s github:

This sounds like there’s some kind of scalability trilemma at play. What is this trilemma and can we break through it? The trilemma claims that blockchain systems can only at most have two of the following three properties: Decentralization (defined as the system being able to run in a scenario where each participant only has access to O(c) resources, ie. a regular laptop or small VPS) Scalability (defined as being able to process O(n) > O(c) transactions) Security (defined as being secure against attackers with up to O(n) resources)

Alas, there are platforms claiming to have the technological firepower to beat the trilemma. For more information on those, and how they could potentially be leveraged into a payments system, check out Peter Keay’s series entitled “The Ethereum Challengers” wherein he covers the newest renditions of blockchain 3.0.

Hurdle 4: Compliance

In 2015, Americans were introduced to the “joyous” technology of EMV chips and the process of inserting cards into chip readers. The new method of payments was so enjoyable that CVS simply shut it off during the holidays, exposing themselves to potential liabilities associated with card skimming and fraud.

The new wave of EMV rollouts was costly for small merchants who needed to replace their card readers to prevent card-skimming. Some of the larger gas retailers still haven’t gotten around to replacing them yet; opting instead for mobile wallets and tokenized NFC payments. Now where have I heard the term “token” before?

Is EMV a hurdle for crypto payments? Not really. But continual additions of safety mechanisms for payments imposed by governments are making it harder and riskier for merchants to ignore upgrading their systems. It could turn out to be an opportunity. The hurdle will be whatever future regulations come down from the high and mighty governments of the world.

Guessing what kind of regulations might come out of crypto payments at this point are speculative at best. I reached out to members of the Payment Card Industry Data Security Standard Council (or PCI for short) for comment on how they plan to adjust to blockchain and mobile payments, but all I got was the run-around. It could be that I’m not important enough to warrant an answer, or it could be that they don’t have a plan. Because blockchain doesn’t need to use cards, and it doesn’t need a council of people telling it how to stay secure.

Conclusion

Every challenge is an opportunity. With the growing amount of headaches and risk surrounding card payments, and the explosion of crypto adoption, we may have the perfect recipe for a change in the way payments are made.

My Bold Prediction: Ubiquitous crypto payments by June 2026.