By Ehsanul Hoq
Something surprising happened in 1950 when Ralph Schneider and Frank McNamara found a popular payment method called Charge Card, father of the Credit Card. To use a charge card users must pay the entire balance off each month.
70 years passed since then and now we have sophisticated technologies like magnetic strips and EMV chips dominating the business transactions around the world. Popular credit card brand Mastercard now earns $12.497 billion each year serving the global population.
However, credit cards are not the only payment methods serving the payment market. New technologies are entering the payment industry with the hope to make life easier for buyers and sellers.
In the new age, digital currencies are now competing with cards to become dominant in this lucrative industry. In 2009, the world’s first cryptocurrency Bitcoin was invented by an inventor called Satoshi Nakamoto. Since then the popularity of cryptocurrency as a digital currency is becoming widespread. On the other hand, the complex algorithm of it also known as the blockchain is creating scopes for entering the payment system race to beat the already established credit card market.
Here’s an infographic from visualcapitalist which you should have a look before going through the entire blog.
Clearly, we can see that digital currencies have commercial possibilities to overthrow traditional payment systems. Digital transactions are easier, safer, and cheaper than any other previous option.
So a shift towards retail digital currency payment can be a big opportunity for us. Instead of carrying cash currency or a plastic card, you can easily pay for your favorite product using the digital wallets built for it.
The popularity and the active user numbers of cryptocurrencies are also going high. Numbers might reach 5.8 million which was only 0.8 million in 2013. The most exciting news is that many retailers are already accepting virtual cash transactions ranging from Subway to Cannabis sellers. So can we anticipate a major shift in business transactions within a few years? Let’s start digging.
What is Digital Currency Transaction?
Many recent researchers are trying to understand how business transactions will happen in future days. For instance, they are expecting that in 2025 you might go to a retail shop and purchase some daily necessities using digital coins.
Digital currency transactions happen when the stored balance of virtual money is used to make payments or buy products/services from the seller.
The great thing about virtual currency is that it has no physical existence. You only hold a portfolio of currencies in a virtual form. The wallets will be digitized so you can use your mobile or computer to transfer currency in other accounts. Both online shopping and physical product buying will be easier than ever.
You can buy any kind of goods unless the seller doesn’t find it useful to accept digital currencies. Transforming retail market payment methods can be a way for digital currencies can reach to the mass global population.
Many top global retailers have already understood the future of digital currencies and accepting crypto payments on a test basis. Shops like Whole Foods, Nordstrom and Starbucks are accepting Bitcoin payments.
Nonetheless, bitcoin is a volatile currency making it a risky digital asset to use in day-to-day purchases.
Hence, many other digital currencies are making their way through in the payment method industry by keeping the price stable as well as providing all the modern features Bitcoin offers.
So, what is our stats to justify the bright future of digital currencies in business transactions? Our study suggests Global E-commerce was a $3.53 trillion market in 2019 where more than 60% of customers used mobile devices. However, the payment method technology hasn’t upgraded that much in recent years comparing to the growth in the business.
So we have a shortlist of digital currencies that are already trying to enter the global payment system by replacing other older payment methods like credit cards. The features of each currency are different from another and let’s see which factor might give us the world’s first virtual currency with a stronger payment network.
| Digital Currencies offering payment services | Factors to determine the success |
|---|---|
| Bitcoin | Highest market cap |
| Ethereum | Smart contracts, secure digital contracts and popular in the business world |
| Litecoin | Affordable than others |
Now as we have gone through the digital currency transaction possibilities, let’s learn how digital currencies will transform the business transactions in the following quick guide.
Five reasons to transform the business transactions
- Boosting Global remittances.
- Safe money for the poor.
- Potential for e-commerce.
- Smart contracts.
- Faster, cheaper transfers.
1. Boosting Global remittances
The migrants of developing nations send $550 billion remittances each year in their own countries. Many of these nations rely on the inflow of remittance to boost up their economy.
However, remittance channels can be very expensive. The transaction cost of sending money varies depending on the amount sent. The charges can range from 6%-10% which is a lot for a remittance dependent family.
In the migration data portal, we have found that due to the distortion of the actual cost data, World Bank is trying to estimate the remittance transaction costs. The purpose is to monitor and reduce transaction costs as low as 3%.
What if we can introduce a new currency that can transfer remittances around the world quickly at a cheaper price than the regular payment gateways?
This is where digital currencies can take over the billion-dollar global remittance market using the cheapest transaction costs. Migrants can easily send back digital money to their families by using a mobile phone.
Since the capital requirement for digital currency is lower due to the quick movement of currency, the cost will be reduced drastically. As a result, we will see many new opportunities for business transactions using virtual money technologies.
2. Safe money for the poor
Unfortunately, most of the businesses are targeted to serve the middle class and the rich. Most of the time, the poor get left out.
Undoubtedly, modern payment systems have no incentives for including poor in their ecosystem. But if we can ensure cheap transaction costs for the poverty-stricken people they can also increase the flow of global business transactions.
We can take the example of Africa.
Most of the nations in Africa are in a developing stage. So they have one of the poorest communities in the world. But when the poor Africans were introduced with mobile transfer technology in Kenya they showed better results.
In Kenya, around 60% of the business transactions happen using just a cellphone. They store, buy, and transfer fiat currencies inside their mobile payment module. So it is also possible for the poor to use digital currencies similarly for making business transactions like paying for food, cloth, and rent.
In another example, we will talk about Bangladesh, one of the rising economies in South Asia.
The country went through a difficult phase after its liberation in 1971. Millions got poor and had to rely on agriculture for years.
In recent years, the country moved from an agriculture-based nation to a modern industrial economy. With the help of mobile payment systems, many needy people in Bangladesh can now perform smaller business transactions. Those who are working in large cities in Bangladesh can now send products or money to their families living in a village.
So, when digital technologies like cryptocurrency and blockchain will start serving the poor, it might provide a better, cheaper, and safer way to do business transactions for the global poor community.
3. Potential for e-commerce
The biggest change that digital currency will make is becoming the payment method for e-commerce businesses.
We have already seen a boom in e-commerce due to the COVID-19 pandemic. People are now trusting shops that support virtual currencies.
The use of mobile shopping has also increased in the last few months. Social distancing forced 72% of retail shoppers to use mobile devices to purchase products. So the use of faster and cheaper means of payment methods can boost the overall shopping experience many times.
Mobile devices are the most popular device for online shopping by a wide margin. 72% of consumers are using mobile devices to shop in stores
PYMNTS’ 2020 Remote Payments Study
On the other hand, the digital currency can provide a lot to e-commerce businesses. For instance, the scope of e-commerce will increase as the it can be used borderless at any corner of the world. The processing of payments will be faster since digital currencies can process transactions immediately unlike credit cards that take a few days to process. Once the transaction processing time is lowered the processing fees will also decrease sharply. So retailers can offer better prices to attract more customers.
All of these will be responsible for improving the business transaction process we know today. The e-commerce transactions will happen at a rapid and global scale allowing you to buy and sell products and consume more media contents online in a better way.
4. Smart contracts
To make a currency digital we need a digital wallet. Generally, digital wallets for the cryptocurrencies are designed to serve different platform users. Although you can easily use the wallets virtually to make payments, you might face the hackers taking advantage of the technology.
This is where smart contracts might be a useful option. The definition of smart contract in Investopedia is-
A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
Investopedia
So the blockchain network is an important factor to understand the use of smart contracts. Blockchain is the record-keeping ledger for the digital currency which is updated simultaneously on a global scale.
To make sure all your transactions that are happening inside the blockchain network are safe, smart contracts create a programmable currency and keep the currency inside an escrow account until the product or service is obtained. Hence, the problems of dishonoring the payment can be solved which is a big worry for traditional currency systems. On the contrary, smart contracts can be used to force the transaction to seek multiple authorizes making the transaction safer.
The use of smart contracts can be a game-changer for business transactions. For example, complex financial contracts and borderless transactions can be implemented without questioning the security of the funds. The programmable currency can execute automated actions for purchasing stocks, goods, and services at a certain price. So the future business transactions will be optimized using digital smart contracts.
5. Faster, cheaper transfers
It is true that business transactions evolved much more in the 20th century with the introduction of cash checks, cards, and other forms of banking tools.
Instead of carrying cash people could use a page of check to transfer a lot of money. But the problem was in the processing time.
Processing of checks and cards require a lot of time. As the businesses needed more sophistication regarding the transfer of money, no one could solve the problem for years. In previous times, checks needed 1-2 days to clear whereas lack of funds means the check will be dishonored. From a business perspective it can create a shortage of capital and trust.
Similarly, your favorite credit card has also a complex processing system. When you do a business transaction, for instance, paying for your groceries in the retail shop it goes to an acquiring bank. Then an issuing bank deposits the amount to the retailer’s account with the help of a payment network like Visa or Mastercard.
Due to such a clearing procedure, the cost of business transactions rises thanks to the multiple networks taking a charge for the transaction. So with the introduction of digital technology, digital currencies can break all the barriers and create an instant and cheaper transaction we badly need today in the fast-paced business world.
Final thoughts
The digital trend is gradually taking over the world. Companies are allowing virtual tools and remote employees whereas businesses are thinking about embracing digital techniques to increase their sales and profit.
Digital currencies like Bitcoin, Ethereum, Verge, and litecoin are already making an impact in the business world. With novel coronavirus taking over the world, these currencies will perform better in 2020 to serve millions. Digital currency is becoming a worldwide pandemic time vocabulary. People are using more and more virtual payment ecosystems to save time and money.
The time has come for us to observe the rise of digital currency in business transactions in the next 5-10 years.
Please follow our blog to learn more about digital currencies as we will publish more content in the next few weeks. If you agree or don’t agree with our thoughts please leave a comment below.
Next Episode: 10 Hottest digital currencies in the world.
Ehsanul Hoq
Ehsanul Hoq is an independent financial researcher and freelance content writer/Blogger
Finance Tomorrow 
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