Crypto Payments Accelerating, Says New Research

April 21, 2022
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As the adoption of cryptocurrencies surges, US consumers are increasingly keen to use their digital assets to pay for goods and services.

As the adoption of cryptocurrencies surges, US consumers are increasingly keen to use their digital assets to pay for goods and services.

Although cryptocurrencies are still largely considered a form of investment, US consumers are ramping up use of their digital assets to make payments online and in-store, a trend accelerated by the wide variety of market solutions and the favourable US regulatory environment.

Crypto as a viable payment alternative

Crypto adoption has reached record levels in the United States, according to a survey by BitPay and PYMNTS. Estimates claim around 23 percent of US consumers, or an estimated 59.6m people, have owned at least one type of cryptocurrency in the past year and 16 percent, or roughly 41.2m people, still hold them.

Although over half of the crypto owners view crypto as a form of investment, a growing number of this cohort has started to use digital assets to make payments.

The research estimates that 16.1m people had used crypto to make an online purchase within the last 30 days, whereas 7.1m had used it for in-store shopping.

Meanwhile, around 40 percent of Gen Z, millennials and bridge millennials see crypto as a viable alternative to pay for goods and only around 20 percent of them rule out its use for payments.

The majority of the crypto transactions took place via crypto wallets and crypto-based debit cards.

The funds were most likely spent on everyday items, such as groceries and clothing, or on online gaming and gambling services, with around one-third of those surveyed saying they spent some of their cryptocurrencies on one of these products within the last 12 months.

Jim Preissler, managing partner of Tritaurian Capital cautioned: "Online gambling has approximately a 25 percent penetration rate in the US, and 60 percent of all Americans have gambled in the last year. Probably a good metric to keep in mind when looking at this market right now."

Mushrooming market solutions

Cryptocurrencies are behind some very appealing promises to democratise finance and cut out the middlemen in financial services. This lured in many early adopters; however, to penetrate the mass market such ideological benefits are unlikely to cut it.

Soaring valuations of crypto-assets led to a mini gold rush as people flocked to various currencies as an investment opportunity.

Crypto adoption was further accelerated during the pandemic and later by the emergence of non-fungible tokens (NFT), a new type of digital asset.

"The NFT boom has crossed over into mainstream awareness through entertainment, sports, fashion, art, and will expand further. This has increased adoption as the amount of collectors increases,” said Nisa Amoils, managing partner at A100x and advisory board member of Global DCA.

Despite the emergence of stablecoins, the significant volatility in the price of many cryptocurrencies makes the product a less viable option for use in payments.

The tide began to turn when renowned payments processors and card networks entered the space opening up the market to a larger group of people, increasing merchant acceptance and making it easier for new users to buy crypto.

PayPal was arguably the first big market player in October 2020 to enable US customers to use bitcoin and other large cryptocurrencies to pay at its 32m merchant network.

Soon afterwards, card giants Visa and Mastercard also came up with their own solutions to enter the crypto race.

In early 2021, Visa announced a partnership with Anchorage, the first federally chartered digital asset bank, to enable payment settlements in USD Coin (USDC). Since then, Visa has partnered with Coinbase, Circle, BlockFi and crypto.com to allow its cards to access crypto wallets on those platforms.

On its latest earnings call in January, Visa revealed that customers made $2.5bn in payments using its crypto-linked cards in the fiscal first quarter of 2022.

Similarly, in 2021, Mastercard announced that it will start supporting select cryptocurrencies directly on its network.

In April 2021, the company partnered with crypto exchange Gemini to launch the Gemini Credit Card, which allows users to earn 3 percent back in bitcoin or other cryptocurrencies on each fiat spend. The partnership enables residents in all 50 US states to spend their crypto holdings wherever Mastercard is accepted.

Meanwhile, global payments giant Stripe has also developed a solution to offer fiat payments API integration to process crypto-to-fiat currency payments, opening up its infrastructure for crypto businesses.

"Customers are asking for it and small businesses think accepting it will be a competitive advantage,” Amoils noted.

The exchanges have been facilitating this activity, and these recent announcements help clients navigate the world of cryptocurrencies reflect this need, she added.

Nonetheless, there are still challenges that crypto must overcome to become a preferred payment method.

There are security issues around keeping the holdings safe and its efficiency needs to be improved for certain transactions.

“For anything less than several hundred, if not $1,000 per transaction, crypto fees are not competitive yet,” Preissler said.

“Crypto is still limited to mostly big-ticket purchases,” he noted.

“While things are slowly inching closer to daily use, the market probably still has some time to get there."

Favourable regulatory environment

As crypto adoption is growing steadily, with the private sector facilitating this growth, last month President Joe Biden signed an executive order, establishing that the US must lead the global race of crypto regulation.

The first-of-its-kind statement shows that the Biden administration expects the United States to maintain technological leadership in the rapidly growing space, supporting innovation on one hand, and mitigating the risks on the other hand.

These words were subsequently echoed by Treasury Secretary Janet Yellen later this month.

These statements, and the overall friendlier government regulatory tone by most of the agencies, play an important role in supporting further acceptance of the emerging technology and building the trust necessary for mainstream adoption.

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