How are you incorporating blockchain in your eCommerce strategy? Blockchain technology helps online retailers build an edge in a highly competitive marketplace, since it enables the management of very large quantities of transactions at low costs, while maintaining data privacy.

Global retail e-commerce sales in 2021 amounted to around US$ 5.2 trillion, and is expected to grow to US$ 8.1 trillion by 2026. As such, blockchain is likely to be essential to managing these huge transaction volumes and values while keeping costs under control.

Blockchain offers a way to maintain an unalterable chain of records of all transactions completed, stored on a distributed network of computers. While it gained fame as the technology that underlies cryptocurrencies, that’s just one use-case out of a vast array of possible applications of this game-changing technology.

In this blog, we study the major areas where blockchain technology will play a role in eCommerce payments – blockchain payment processing, using crypto assets like cryptocurrency for payments, reducing transaction fees and increasing data privacy.

Blockchain in payment processing

Of the greatest relevance to eCommerce is the application of blockchain technology to payment processing. When eCommerce platforms use payment gateways to process payments via credit cards, the associated transaction fee increases operation cost.

With blockchain, secure payments become possible at high speed and minimal cost, since blockchain enables a lower ‘cost of trust’ thanks to its distributed and immutable ledger. Additionally, it also eliminates the need for payment intermediaries, which reduces cost and transaction processing time.

Blockchain-based payment processing may be of different kinds. Important choices to make include deciding whether to build your own system or to use a cryptocurrency payment gateway – and, if the former, whether to build your own blockchain network and cryptocurrency or make use of existing options.

How do blockchain-based payments work?

Traditional payment processing is highly complex, especially when it crosses jurisdictions and currencies. It involves multiple bank locations and intermediaries, different currencies and exchange rates, taxes and fees. The process is time-consuming and expensive but was the best option available… until now.

Blockchain payments on the other hand are much simpler. Let’s say a customer based in the USA is buying online from a merchant based in Vietnam and needs to make a transfer. Both banks are linked to the same blockchain network.

Once the transaction is confirmed by the bank with the merchant, and approved, the amount is deducted from your customer’s bank account and converted into the blockchain network’s native cryptocurrency, such as Stellar Lumens (XLM) and Ripple (XRP). The XLM or XRP are then moved to the Stellar or Ripple payment network, respectively, where they are converted into the currency of the merchant’s bank account at the best available exchange rate, and this amount is then credited to the merchant’s bank account.

There are no intermediaries involved in this process, and yet complete and verifiable trust is maintained thanks to the encrypted distributed ledger of the blockchain with real-time verification of transactions. This is what makes the process secure, fast and inexpensive.

Crypto assets, powered by the blockchain

Blockchain burst onto the technology scene with the original cryptocurrency, Bitcoin, and cryptocurrencies remain the best-recognized types of blockchain assets globally.

Bitcoin is only one of nearly 10,000 cryptocurrencies that exist today, though it’s also worth noting that the top 10 cryptocurrencies make up the bulk of the total market.

Investment into, and ownership of, cryptocurrencies are exploding globally. What this means for eCommerce businesses is that this is a mode of payment that simply cannot be ignored.

Cryptocurrency payment enablement in eCommerce

A recent study conducted by Forrester revealed a significant positive economic impact related to accepting Bitcoin using BitPay: 40% increase in new customer sales, 2x rise in average order values, real revenue increase and impressive ROI. What this means is that you cannot afford to ignore cryptocurrencies as a payment method for your online store.

The easiest way to offer cryptocurrency as a payment option alongside the more traditional options (credit cards, payment wallets, etc) is to choose a payment processor that supports payment in cryptocurrency. Customers can then select the cryptocurrency payment method and make their payment as they would do with any other mode of payment.

Does it help businesses to accept payment via cryptocurrency? Cryptocurrency owners and non-owners alike are more likely to make a purchase from a merchant that accepts cryptocurrency and are also more likely to spend more if they’re using cryptos rather than more traditional payment methods.

Cost saving through lower transaction fees

McKinsey found that using blockchain in the financial sector “reduces the operational cost of international transactions from USD 26 to 15, lowers annual operational costs for companies by an average of USD 15 billion, and lowers investment risks by around USD 1.6 billion”.

Transaction fees for cryptocurrency payments are extremely low compared to other payment methods. In the current scheme of things, payments pass through different layers of intermediaries. This payment process is time-consuming and expensive. Thanks to its decentralized consensus mechanism, blockchain reduces payment settlement time from days to seconds, resulting in a corresponding drop in costs.

The head of retail at Walmart said that VISA, for example, charges 3% of order value as transaction fee. The retailer passes this on to the customer by default. Blockchain architecture can significantly reduce this burden since all participants in the transaction are connected without intermediaries.

The blockchain can reduce the cost of financial transactions since it reduces intermediaries, automates transparency, and significantly speeds up each transaction. However, to optimize the utilization of the blockchain, intelligent adaptation is required, with suitable changes to the business model. One research paper found that 80% of operational challenges are represented by business models, and only 20% are related to the use of technology. Investment in the blockchain without updating business practices, therefore, may not be optimal.

Improved data privacy

Data privacy is increasingly important to eCommerce businesses, and the use of blockchain allows customers to make purchases without sharing personal information. In a traditional setup, user data is stored in a central node. A trusted third-party database must be identified and set up. Any breach in this database can cause issues of data privacy and security.

Since blockchain is a decentralized distributed database, the database stores data blocks, each with several transaction records, in chronological order. Blockchain technology can reduce privacy and security issues caused by human factors, as it “can store the data of different merchants’ transactions on the chain uniformly through the same data format, so as to realize data security cross-platform and cross-organization sharing.”

Transaction data stored on the blockchain is unmodifiable and highly credible, solving the problem of trust caused when the eCommerce platform maintains its own databases. It also improves “the authenticity of the product information on the e-commerce platform and the ability of customers to protect their rights when shopping online”.

To further reduce data privacy risks, you can use permissioned blockchain to authorize a selected number of approved participants and reduce the amount of personal data processed by participants. You can limit the amount of personal data stored in the blockchain and further restrict access to the data by using one-time addresses. A private blockchain is likely to offer better data privacy features than a public blockchain.

Some additional benefits of cryptocurrency payments in eCommerce

  • You can tap into the rapidly growing pool of upwardly mobile cryptocurrency users
  • These cryptocurrency users are more likely to become loyal long-term customers of online businesses that accept cryptocurrency as a payment option
  • Transactions for cryptocurrency payments are faster since they do away with intermediaries and immediately, accurately and transparently capture data
  • As a result, fund transfer is instantaneous, benefiting both merchant and customer
  • Since crypto payments are permanently recorded on the blockchain, you eliminate charge-backs from payment gateway providers
  • Blockchain-based cryptocurrency transactions are considered to be some of the safest available technologies, helping companies and consumers avoid security risks
  • There are several reasons to accept cryptocurrencies as payment at your online store, including a reduction in costs and stronger data privacy. On the other hand, there’s only one against – the initial technological and financial investment in installing a cryptocurrency payment processor in your eCommerce store.

    Allow us to help you enhance your eCommerce presence with modern payment modes. Contact our team to learn more about how Ziffity can help you with your eCommerce platform-specific blockchain and cryptocurrency payment integration. Talk to Us!