Written By: Jared McClure
Advocates for cryptocurrency adoption seemed to have scored a major win recently when the state of Ohio announced it would be accepting businesses’ 2018 tax payments in bitcoin. The intention, state Treasurer Josh Mandel says, is to give taxpayers better, easier options for paying their taxes. The retailer Overstock seems to agree and announced its intention to pay its Ohio taxes using cryptocurrency.
This was arguably bitcoin’s best bit of news in a year. While most taxpayers will certainly continue to use other forms of payment for the near future, Ohio’s actions casually put cryptocurrency in the same company as credit cards.
Cryptocurrency’s breakthrough in Ohio also demonstrates that methods of payment continue to evolve, whether that means mobile payments or other actual bitcoin applications. Another example is Microsoft leveraging cloud solutions to create an open and regulated ecosystem for digital assets in which Starbucks plans to play a key role. True, these do not necessarily signal an incipient cryptocurrency revolution, but they do sound a bell for increasing interest in exploring crypto’s practical uses.
Incentives Drive Consumers
Given their dominance as a form of payment, it’s hard to remember credit cards seemed as unfamiliar, unnecessary, and unreliable in the 1970s as cryptocurrency feels to most people today. Unusable, even, until Visa transformed the payments industry by putting their cards into people’s hands with money already on them. Having money to spend and only one way to spend it meant customers demanded that businesses accept those cards, thus driving demand even further.
By the mid-1980s, credit cards were normalized, and the market was more crowded. This is when credit card companies started offering loyalty programs that rewarded consumers for using the cards with airline miles and cash back. The success of both innovations demonstrated that people are willing to adopt new habits if there’s something in it for them.
More recently, consumer behavior is being targeted to shift from credit cards to mobile payment apps. Just as with credit cards, financial incentives are driving this change in habit. Venmo, the standout peer-to-peer payment network, gave away free money in its rollout and still gives a cash reward for referrals. In addition to the financial motivation, there have also been increasing social incentives to use the app.
Cryptocurrency can take the same route to widespread adoption, provided it has sufficient liquidity. A crypto advocate, for example, could offer to take 20% off consumers’ purchases at 80,000 locations nationwide. If people can shop for brand-name clothes and electronics or eat at restaurants and pay with cryptocurrency while getting value for it, it’s not hard to fathom their willingness to give crypto a try. Trying it out will also teach consumers how — and where — to spend crypto.
Consumers Drive Demand
With both credit cards and mobile payments, financial incentives drove consumers to adopt. It’s also crucial to note that once consumers had greater access to spending money, they wanted places to spend it. Their demand spurred businesses to accept credit card payments. It was a stark choice: Businesses could either take credit cards or watch their customers siphon business to competitors that were already doing so.
Businesses must remain competitive, which is the primary reason that large national brands jumped onboard with the release of Apple Pay. That hasn’t taken off as anticipated, simply because it lacked sufficient incentive for consumer adoption. It’s also the reason we’ll see more retailers accepting cryptocurrency — provided consumers have been sufficiently incentivized to adopt it.
It will take a strong financial incentive to drive initial curiosity, but once consumers have tried paying with cryptocurrency, smaller incentives can reinforce the behavior until it’s locked in as a habit. The history of credit cards tells us that convenience is a factor, but we can also see that convenience alone has not been sufficient for consumers to form new payment habits. Mobile payment apps are similarly convenient, and the rise of Venmo over others further teaches us that social modeling must also be a consideration. The combination of convenience and social norms, combined with the right financial incentive, can move consumers beyond the current payment status quo. I suspect we will see exactly that process with cryptocurrency adoption.
As for businesses, switching over to crypto could cut fees and remove card-related expenses. It’s true that there are multiple benefits for its acceptance: Crypto is run on blockchain, which documents transactions anonymously on a public ledger and can reduce fraud. Transparency. Security. Convenience. It all sounds great, but businesses must also have a solution for the problems around the lack of liquidity before they’ll willingly agree to accept crypto as a mainstream currency.
Charting a Path to Adoption
The way we pay for goods and services changes over time. Tracing the history of payments and noting the patterns that drive human behavior shows us how to plot the course for mainstream use of crypto as currency.
Keeping an eye on the progress of cryptocurrency will prepare consumers and businesses for the coming adoption. Crypto mostly has been in the news for the wrong reasons — from the rollicking price of bitcoin to the scandalous (and unseemly) characters who have used it to buy drugs and/or weapons to the security breaches that give the public pause. Look beyond the sensationalism toward the blockchain technology on which crypto rests; it remains the precursor to a revolutionary change in how we bank and conduct payments.
The ultimate question for anyone trying to introduce something new is, “What can we give you to change your behavior? How can we pull you out of your comfort zone?” The past adoption of new payment methods clearly outlines the need for financial incentives. If cryptocurrency is to become more than a novelty, there must be incentives for people to adopt it, most specifically to use when purchasing goods and services. The benefits of blockchain in payments are too great not to apply these historical lessons to cryptocurrency as the next payment method in our future.
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