Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.
In late January, I attended two conferences in Miami Beach related to payments and currency: the Miami Beach Bitcoin Conference and the Mobile Payments conference.
I came away with a strong and profound feeling that the payment industry is ripe for disruption. The combination of a sense of inevitability in the existing providers contrasted with the enthusiasm and excitement felt in the newer group led me to think we could easily see a disruptive change agent. Is Bitcoin going to be that disruptive agent? It's hard to tell at this point.
I can say that even the new mobile payment exchanges — ISIS, MCX and others — have a similar sense of entitlement to them. Sort of like, "We're new, but we're the same." I don't see any disruption happening there.
I can also say that Bitcoin, a digital crypto-currency, is certainly different. Digital currencies are trustless rather than trusted, digital rather than physical, and irrevocable rather than chargeback-friendly. At the moment, transacting with them is about as close to "free" for retailers as it gets.
It's hard to explain exactly what Bitcoin is in one paragraph, but basically it's a cross between a stock and a form of payment. A few retailers (including Overstock.com and Tigerdirect.com), casinos and small businesses have started using it as a form of payment. But it's like a stock because there is a fixed number of "Bitcoins" in the universe and the value of each Bitcoin tends to fluctuate based on the law of supply and demand.
With regard to value fluctuation, much has been made of the rapid escalation of Bitcoin's value against traditional currencies, as well as its association with illicit transactions. Venture capitalists at the Bitcoin Conference were very clear that some regulations must be established before they place big bets on the currency.
Saving those hurdles for another day, the important thing to note here is the very, very low fees associated with Bitcoin transactions. The other is that Bitcoin is exempt from PCI standards, as it doesn't pass through traditional payment gateways. It's completely encrypted and "trustless", and the transactions are irrevocable.
Now I'm not prophesying the end of traditional payment gateways. But there are several things worthy of note here: 1) the Target data breach seems to have been the straw that broke the consumer camel's back on privacy and data security. The notion of "trustless" is likely to become more interesting to consumers; and 2) retailers know prices are high for payment processing. That's what spawned the notion of MCX — let's keep a slice for ourselves. Finally, 3) mobile payments are not gaining the traction retailers and tech providers expected. Consumers just don't see the benefits.
So here we are. Payment processors are convinced of their inevitability. Consumers aren't happy. Retailers believe they are paying too much for too little. What do you think? Is there an opportunity to disrupt the ecosystem entirely?
What's the likelihood that Bitcoin or other digital currencies will significantly alter traditional payment systems?