Using cryptocurrency as a payment option for your SME
Remark : This article is not giving an advice on how to do it in practice but rather present an idea on how it may be done.
At first glance, this may look like a hustle. You may wonder, for example, which the transfer method should you use, how are you going to set the price for your product or how will you approach the accounting. We’ll take the approach of first looking at the user and business journey, decide what kind of questions we should ask ourselves and then go through the solution.
Let’s start with Why
There’s a couple of reasons you may want to start accepting cryptocurrency for your business.
- Fashionable : You want to approach new customers in the cryptocurrency community or just to look fashionable.
- Like cash but better : The good thing about cryptocurrency is that the transaction settles almost immediately. It also skips the hustle of keeping cash physically or paying the fees demanded by credit card companies.
- Tax : Some countries do not yet tax cryptocurrency. By accepting payment you may not need to submit a tax declaration (please check with your accounting team first!).
- Future Proof : We crypto enthusiasts believe that the world will eventually be able to exchange all goods and services using cryptocurrency. Now is the time to start your journey of what it is and how it can replace fiat currency.
The User and Business Journey
Before we touch the solution, let’s first list the questions we need to ask ourselves by taking a closer look at the user journey when they are buying a product.
- The user visits your webpage, scrolls through the product list and selects a product.
- The user looks at the price and decides whether they want it or not. Question : How are we setting the price since cryptocurrency price fluctuates heavily all the time?
- They add the product into the cart and head to payment. The user selects payment with cryptocurrency. Question : Which cryptocurrency transfer method is the easiest for the user? Are we supposed to sponsored the transfer fee or is it at the user’s own expense?
- The Business Owner now sees a new order being pops up and waits for confirmation on the transfer. Question : How can we make sure that the transfer is actually successful?
- The Business Owner now has confirmation on the transaction and begins the process of delivering the product or service. Question : How can we approach the cost and profit calculation on that product sold since it is not in local currency but in cryptocurrency?
Now that we have an overview and questions from the whole journey of selling a product or service in an SME’s point of view, let’s see how we can find a solution for each problem.
The Solution Overview
We’ll tackle this question by question.
Question 1 : How are we setting the price since cryptocurrency price fluctuates heavily all the time?
Before we sell any product, we should be able to price it right? There’s two ways to approach this
1.We set the price based on stablecoins.
If you don’t know what a stablecoin is, it’s a type of cryptocurrency that is backed by a Fiat Currency and provides price stability. For example, 1 USDT (Tether) or BUSD will be equal to 1 US Dollar. The advantage of doing is that your price will never fluctuate since it is stable. It will be a lot easier to calculate profit/revenue for your accounting team.
2. We set the price based on a non-stablecoin token/coin.
Examples of this is include Bitcoin (BTC), Ethereum (ETH) and Cardano (ADA). So why would you want to price it as a non-stablecoin? This is because tokens like BTC and ETH can appreciate over time. You are essentially buying the coin with your product. For example, in 2021 you may set the price of a cup of coffee at 1 ADA or ~$2. If you keep that ADA without selling it, the user may end up paying that cup of coffee for $10 in 2024.
Now for the hard part, if it’s a non-stablecoin how do we set the price? The first part is picking the coin that most people will have on hand and with a high market cap since we don’t want our coin to go towards $0 in value.
The next step is setting the price. What I personally recommend is choose a time for each day to do the crypto to fiat settlement and product pricing. For example, at 6pm everyday, you set the price the price of your product for the next day and go over the accounting part for that day.
Question 2 : Which cryptocurrency transfer method is the easiest for the user? Are we supposed to sponsored the transfer fee or is it at the user’s own expense?
Let’s first select the blockchain to accept our payment. Let’s go over the 3 main chains available today.
- Ethereum : A popular choice since many cryptocurrency investors will have an address on the Ethereum network. However, the fee is unpredictable and $30 transfer fee for a cup of coffee or a meal is probably too much of an overhead.
- Bitcoin [Lighting Network] : Highest market cap cryptocurrency along with the lighting network as a channel of cheaper and faster payment method than the normal Bitcoin network. However, not everyone with cryptocurrency may have an access to lighting network and it is still a fairly new technology.
- Binance Smart Chain (BSC) : Most crypto investors will at one point have or used the Binance trading platform, not to mention those who invest in DeFi on the BSC . In addition, the fees on BSC is fairly predictable and cheap compared to the other options (around $0.01 to 0.03 per transaction). If the user wants to send the bitcoin via their Binance Mobile App, the can even scan the QR code for the address.
Now for the gas fee. Personally, this is up to you really. For the BSC or the Lighting network, since the gas fee is very low, you may want to sponsor it or just let the customer absorb the gas fee. However, if it’s on ETH, you may need to consider sponsoring the gas fee for your customer since it can be volatile at times.
Question 3: How can we make sure that the transfer is actually successful?
For Ethereum and BSC network, you can use the EthScan or BscScan to look up your address and the transactions. In addition, to do your accounting, you can even download the transactions in CSV format. You can learn more on how to use those here. However, at the end of the day, the fact that we know our transaction has settled for certain is one the main reasons we want to use cryptocurrency.
Remark : Transfer confirmation user interfaces vary from each lighting network implementation, therefore we will skip in this article.
Question 4 : How can we approach the cost and profit calculation on that product sold since it is not in local currency but in cryptocurrency?
There are two main ways you could go with this depending on your transactions in cryptocurrency and need of cash flow.
Option 1 : In need of cash flow and settlement in fiat currency
What you could this at the end of the day or as soon as you receive the cryptocurrency, transfer it to an exchange and sell it for fiat currency (or P2P which ever you prefer). This will make all the calculations in fiat currency possible and easy.
Option 2 : Not in need of immediate cash flow and want to save profit as crypto
Now, what if you don’t need immediate cash flow? What you can do and what would really benefit in the long term is keep the revenue as cryptocurrency or sell the amount just to cover the cost of your product/service and keep the profit as cryptocurrency.
Adam’s Fruit Shop Example
Now that we answered the major questions, let’s see how it may play out with an example.
Adam owns a small fruit shop and wants to accept cryptocurrency as payment. He starts by creating a wallet with an address on the Binance Smart Chain. Adam decides that he will accept BUSD, BTC, USDT and ETH on the Binance Smart Chain. On the first day, before his store opens, he sets the price for each fruit according to the current price of the cryptocurrency. For example,
1 Apple = $2 = 2 BUSD = 2 USDT = 0.000036 BTC = 0.00056 ETH
As a customer approaches the counter and decides to pay with crypto, Adam gives the customer his address on the Binance Smart Chain and instructs the customer to only send the cryptocurrency on the correct chain. After the transaction has settled on the chain, Adam can record it in his order book. At the end of the day, Adam decides that he will only cash out the cost and keep the profit as cryptocurrency. He calculates the cost for all the orders sold that day, cash out using P2P and transfers the rest of the cryptocurrency to his Hardware Wallet in order to keep it secure.
Summary
Cryptocurrency is the future currency. Preparing and understanding it now will make you future proof as both an investor and as a merchant. As we can see, accepting it as an alternative payment method is not complicated and can be done by any merchant. As for those of you who are dealing with more than 50–100 transactions per day, contacting the exchange for a special account may be an alternative solution. Thanks for reading!
