Afterpay Tells Senate Inquiry Crypto Could Slash Merchant Payment Costs

The Australian buy now, pay later (BNPL) giant, Afterpay, has ignited a fascinating debate within the Australian financial landscape. In a compelling submission to the Senate inquiry examining Australia as a Technology and Financial Centre, Afterpay boldly stated that embracing cryptocurrencies could significantly reduce payment processing costs for local merchants. This isn't just a pie-in-the-sky idea; Afterpay believes that leveraging blockchain-based transactions could eliminate the hefty fees traditionally levied by card networks, banks, and other payment intermediaries. This move could potentially revolutionize the way Australian businesses handle transactions, creating a more competitive and efficient marketplace. The submission also went a step further, urging the Australian government to proactively develop a regulatory framework for an AUD-backed stablecoin. This framework, they argue, would foster innovation and provide a secure, reliable digital currency for domestic use. The potential cost savings and enhanced efficiency presented by cryptocurrency solutions are substantial, prompting a serious consideration of their role in Australia's financial future. The question is, how realistic is this vision, and what steps need to be taken to make it a reality? Could this be the beginning of the end for traditional payment systems?

The Australian firm, Afterpay, told the Senate in a submission that cryptos could cut costs for retailers and merchants. The firm said that using blockchain-based transactions would also cut other fees in the common payment methods. This includes card issuer, network operator, as well as banking fees.

The Potential for Cost Savings: How Crypto Can Help Merchants

Afterpay's central argument revolves around the potential for significant cost reductions for merchants. Traditional payment systems involve a complex web of fees charged by various entities, including card issuers, network operators like Visa and Mastercard, and banks. These fees can eat into a merchant's profits, especially for small businesses with tight margins. Cryptocurrencies, particularly those operating on decentralized blockchains, offer a fundamentally different model.

Australian buy now pay later (BNPL) firm Afterpay believes that local merchants can slash payment costs by utilizing cryptocurrencies. In a submission to the Senate inquiry into Australia as a Technology and Financial Center, Afterpay stated that the use of blockchain-based transactions would cut

In its pre-inquiry submission, Afterpay stated that: ""Merchants stand to benefit considerably from the cryptocurrency model, as card network fees are entirely removed from the equation and the customer/payer bears the transaction costs."" This highlights a key advantage of cryptocurrency transactions: the elimination of intermediary fees.

cointelegraph.com: Afterpay told the Australian Senate that using crypto could cut payments costs for merchants, and that the government should work to create a framework for an AUD-backed stablecoin.

Let's illustrate this with an example. Imagine a small coffee shop in Melbourne. Currently, for every $4 latte sold, the shop might lose between 1.5% and 3% to transaction fees, potentially costing them several thousand dollars per year. If the shop were to accept payment in cryptocurrency, these fees could be drastically reduced, potentially to a fraction of a percent, depending on the specific cryptocurrency and payment processor used. This translates to real savings that can be reinvested in the business or passed on to customers.

This potential for cost savings extends beyond just the fees themselves. By accepting cryptocurrencies, merchants can also potentially reduce their exposure to chargebacks, which can be a significant source of financial loss. Cryptocurrency transactions are typically irreversible, reducing the risk of fraudulent chargebacks.

Afterpay's Vision for an AUD-Backed Stablecoin

Beyond simply advocating for the adoption of existing cryptocurrencies, Afterpay's submission also emphasized the importance of developing an AUD-backed stablecoin. A stablecoin is a type of cryptocurrency whose value is pegged to a more stable asset, such as the Australian dollar. This peg aims to mitigate the price volatility that is often associated with cryptocurrencies like Bitcoin and Ethereum, making stablecoins more suitable for everyday transactions.

Why is an AUD-backed stablecoin important? Here are a few key reasons:

• Price Stability: It offers a stable, predictable value compared to volatile cryptocurrencies.
• Ease of Use: Australians can transact in a digital currency that reflects the value of their local currency.
• Integration with Existing Systems: It can be more easily integrated with existing financial systems and accounting practices.
• Reduced Reliance on Foreign Currencies: It provides a local alternative to stablecoins pegged to other currencies, like the US dollar.

Afterpay specifically suggested that the Australian government should work with the crypto sector to determine what an optimal environment for an AUD-backed stablecoin should look like. This collaboration would be crucial to ensure that the stablecoin is designed in a way that is both innovative and compliant with regulatory requirements.

The Senate Inquiry: Australia as a Technology and Financial Centre

The Senate inquiry into Australia as a Technology and Financial Centre is a critical initiative aimed at exploring opportunities to foster innovation and growth in the Australian financial sector. The inquiry is examining a wide range of topics, including:

• The regulatory landscape for cryptocurrencies and other digital assets.
• The potential for blockchain technology to improve efficiency and transparency in financial services.
• The opportunities for Australia to become a leading hub for fintech innovation.
• The risks and challenges associated with emerging technologies.

Afterpay's submission to the inquiry is a valuable contribution to the debate, highlighting the potential benefits of cryptocurrencies for merchants and the importance of a clear regulatory framework. The inquiry is expected to produce a report with recommendations for the government, which could have a significant impact on the future of fintech in Australia.

Addressing Potential Concerns and Challenges

While the potential benefits of cryptocurrencies for merchants are significant, it's also important to acknowledge the potential concerns and challenges that need to be addressed.

• Volatility: The price volatility of some cryptocurrencies can be a deterrent for both merchants and consumers. This is where stablecoins play a crucial role in mitigating this risk.
• Regulatory Uncertainty: The lack of clear regulatory guidelines for cryptocurrencies can create uncertainty and hinder adoption. A well-defined regulatory framework is essential for fostering innovation and protecting consumers.
• Security Risks: Cryptocurrency transactions can be vulnerable to hacking and fraud. Robust security measures are needed to protect users' funds.
• Complexity: The technical complexity of cryptocurrencies can be a barrier to entry for some merchants and consumers. User-friendly wallets and payment platforms are needed to simplify the user experience.
• Adoption Rates: Widespread adoption of cryptocurrencies requires education and awareness among both merchants and consumers.

Overcoming these challenges will require a collaborative effort from governments, regulators, industry participants, and consumers. Clear regulatory guidelines, robust security measures, and user-friendly platforms are essential for fostering trust and driving adoption.

Comparison with Existing Payment Systems

To fully appreciate the potential impact of cryptocurrency payments, it's helpful to compare them with existing payment systems.

Traditional Card Payments

As previously discussed, traditional card payments involve a complex web of fees, including:

• Interchange Fees: Fees paid by the merchant's bank to the card issuer.
• Network Fees: Fees paid to the card network (e.g., Visa, Mastercard).
• Processing Fees: Fees paid to the payment processor.

These fees can add up to a significant percentage of the transaction value, eating into the merchant's profits. Moreover, chargebacks can be a costly and time-consuming process for merchants.

Buy Now, Pay Later (BNPL)

BNPL services like Afterpay have gained popularity in recent years, allowing consumers to split purchases into installments. While BNPL can be convenient for consumers, it also comes with fees for merchants.

• Merchant Fees: BNPL providers charge merchants a fee for each transaction, typically higher than traditional card processing fees.

While BNPL can drive sales and increase customer loyalty, the higher fees can impact merchant profitability.

Cryptocurrency Payments

Cryptocurrency payments offer a fundamentally different model. By eliminating intermediaries, they can significantly reduce transaction fees.

• Lower Fees: Transaction fees can be a fraction of a percent, depending on the cryptocurrency and payment processor used.
• Reduced Chargebacks: Cryptocurrency transactions are typically irreversible, reducing the risk of fraudulent chargebacks.

However, cryptocurrency payments also come with their own set of challenges, including price volatility and regulatory uncertainty, as previously discussed.

Real-World Examples of Crypto Adoption by Merchants

While cryptocurrency adoption by merchants is still in its early stages, there are already numerous examples of businesses that are embracing this technology. These examples demonstrate the potential benefits of cryptocurrency payments in various industries.

• Overstock: One of the earliest major retailers to accept Bitcoin, Overstock.com has been accepting cryptocurrency payments since 2014. They allow customers to pay for furniture, home goods, and other products using Bitcoin, Ethereum, and other cryptocurrencies.
• Shopify: This e-commerce platform allows merchants to easily integrate cryptocurrency payment options into their online stores through various third-party apps and integrations. This makes it easier for smaller businesses to accept crypto payments.
• AMC Theatres: The largest movie theater chain in the United States, AMC Theatres, now accepts Bitcoin, Ethereum, Litecoin, and Dogecoin for online ticket and concession purchases.
• Microsoft: For a long time, Microsoft accepted Bitcoin to add funds to their Microsoft accounts.

These are just a few examples of the growing number of merchants that are embracing cryptocurrency payments. As the technology matures and adoption increases, we can expect to see even more businesses offering this payment option.

Senator Bragg's Response and the Broader Debate

While Afterpay's submission has generated considerable interest, it has also sparked debate. Senator Bragg, a prominent figure in the Senate inquiry, responded by questioning the value of Afterpay's registration with AUSTRAC (the Australian Transaction Reports and Analysis Centre) to banks. This highlights the ongoing scrutiny surrounding the regulatory compliance of cryptocurrency businesses.

The broader debate surrounding cryptocurrencies in Australia encompasses a wide range of perspectives. Some see cryptocurrencies as a revolutionary technology that can transform the financial system, while others view them as a speculative asset with inherent risks. The Senate inquiry is playing a crucial role in facilitating a balanced and informed discussion about the potential benefits and challenges of cryptocurrencies.

How to Prepare Your Business for Accepting Cryptocurrency Payments

If you're a business owner considering accepting cryptocurrency payments, here are some practical steps you can take to prepare:

1. Educate Yourself: Learn about different cryptocurrencies, blockchain technology, and the regulatory landscape.
2. Choose a Cryptocurrency Payment Processor: Research and select a reputable cryptocurrency payment processor that meets your business needs. Popular options include BitPay, Coinbase Commerce, and CoinGate.
3. Set Up a Cryptocurrency Wallet: Create a secure cryptocurrency wallet to receive and store your cryptocurrency payments. Consider using a hardware wallet for added security.
4. Determine Pricing and Conversion Rates: Decide how you will price your products or services in cryptocurrency. You can either set fixed prices in cryptocurrency or use real-time conversion rates to convert prices from fiat currency.
5. Integrate with Your Point-of-Sale (POS) System: Integrate your cryptocurrency payment processor with your existing POS system to streamline the payment process.
6. Train Your Staff: Train your staff on how to accept cryptocurrency payments and handle any customer inquiries.
7. Promote Your Cryptocurrency Payment Option: Let your customers know that you accept cryptocurrency payments by displaying signage in your store and promoting it on your website and social media channels.
8. Stay Compliant: Ensure that you are complying with all relevant regulations and reporting requirements.

The Future of Payments in Australia

Afterpay's submission to the Senate inquiry is a clear indication that cryptocurrencies are gaining mainstream attention in Australia. While the adoption of cryptocurrencies by merchants is still in its early stages, the potential benefits are undeniable. The ability to reduce transaction fees, streamline payment processes, and reach a wider customer base makes cryptocurrencies an attractive option for businesses of all sizes.

The development of an AUD-backed stablecoin could further accelerate the adoption of cryptocurrencies in Australia. By providing a stable and reliable digital currency, an AUD-backed stablecoin could bridge the gap between traditional finance and the world of cryptocurrencies.

Ultimately, the future of payments in Australia will likely involve a combination of traditional payment methods and emerging technologies like cryptocurrencies. Businesses that are able to adapt to these changes and embrace innovation will be best positioned to succeed in the evolving financial landscape.

Common Questions about Crypto Payments for Merchants

What are the risks of accepting cryptocurrency payments?

The primary risks include price volatility (addressed by stablecoins), regulatory uncertainty, security vulnerabilities, and complexity.

What types of businesses are best suited to accept crypto payments?

Businesses with low profit margins, those operating online, and those targeting a tech-savvy customer base are particularly well-suited.

How do I handle accounting for crypto payments?

Consult with a qualified accountant to ensure you are properly tracking and reporting cryptocurrency transactions.

How do I convert crypto payments to AUD?

Cryptocurrency payment processors typically offer options for automatically converting crypto payments to AUD.

Conclusion: A Potential Paradigm Shift in Merchant Payments

Afterpay's message to the Senate inquiry is clear: cryptocurrencies offer a compelling opportunity to slash merchant payment costs in Australia. The potential for cost savings, coupled with the efficiency and innovation that blockchain technology can bring, makes a strong case for embracing cryptocurrencies as a viable payment option. While challenges remain, particularly regarding regulation and security, the benefits are significant enough to warrant serious consideration. The call for an AUD-backed stablecoin is particularly noteworthy, as it could provide a stable and reliable digital currency for domestic use, further accelerating adoption.

The Senate inquiry's findings and recommendations will be crucial in shaping the future of fintech in Australia. A clear and supportive regulatory framework is essential for fostering innovation and ensuring that Australia can capitalize on the opportunities presented by cryptocurrencies. For merchants, the message is clear: start exploring the potential of cryptocurrency payments. Educate yourself, choose a reputable payment processor, and prepare your business for the future of finance. The journey towards a more efficient and cost-effective payment landscape may be just beginning, but the potential rewards are substantial.

Are you ready to explore how crypto payments can benefit your business? Take the first step today!