CryptoRefills’ Massimiliano Silenzi shares key findings from the 2022 Cryptocurrencies in Retail Consumer Adoption Report with The Paypers
What is currently happening in crypto payments: are merchants accepting them? What are your biggest concerns when it comes to crypto payments?
Unlike many reports in this sector that focus on merchant acceptance of crypto payments, our research focuses on the consumer side. So our visibility is limited to what people who shop with crypto think about merchants who accept crypto. And according to these “cryptoshoppers,” the answer is unequivocally that not enough merchants accept crypto.
Regarding merchant reluctance, I can only offer my opinion based on our B2B2C interactions with some big brands and retailers. I see a combination of a limited understanding of the technology and its potential in different departments and higher levels of the company and some reputational concerns. The technology and vendors to securely process crypto payments and protect against any type of AML risk are widespread. Payments departments seem to be quite knowledgeable and even have cryptocurrency managers and teams. This is one of the reasons why we publish our annual report to educate at all levels about crypto’s potential for shopping.
Do customers ask for that?
According to our research, absolutely yes! In our 2021 research, high transaction costs (Bitcoin fees, gas on Ethereum, etc.) were the main concern for buyers (for 49.3% of them) when paying with Crypto. Instead, the problem of high fees in 2022 now ranks second (with 35.3% of users complaining about the problem), and the number one problem faced by crypto buyers (40.5%), is the unavailability of merchants and brands that accept crypto.
What is the untapped potential behind crypto payments?
I see huge untapped potential for stablecoin payments via Ethereum Layer 2 or highly scalable blockchains like Avalanche or Fantom. For those less familiar, and speaking more generally, Layer-2s generally work by blocking funds on the underlying blockchain, transacting on a dedicated high-speed network, and then periodically or when the parties agree, the funds transfer to the original blockchain. We were the first in the world to introduce these at an ecommerce checkout almost two years ago, when Layer 2s were only used for defi or gaming. It was a great success. Imagine paying with USDC over the Polygon, Arbitrum or Avalanche networks with almost no fees and with instant confirmed transactions. This powerful combination solves two important problems for both merchants and customers by avoiding exchange rate volatility, confirming the transaction instantly and avoiding costs for the transaction parties. I also believe that Bitcoin Lightning Network payments will surprise us in the future, especially in emerging markets.
Could you please profile the crypto buyers you encountered in your survey?
This year, we significantly increased the depth of our research to better understand user demographics, needs, and preferences. In fact, in our 2022 edition we are incorporating for the first time a multivariate statistical methodology (K-prototype clustering analysis), where we essentially analyze how different responses influence each other to define identifiable segments of users. In our previous report, we refrained from such detailed analysis and described crypto buyers as belonging to two broad groups. The first group sees crypto buyers from emerging and more fragile economies using crypto for financial inclusion and as a defense against local currency devaluation or other problems. The second instead comes from advanced markets, made up of sophisticated, young, and usually highly educated and spend-happy crypto enthusiasts.
This interpretation in the 2021 report was not wrong, but it was probably an over-generalization in relation to the new information that we can derive from our new cluster analysis. In our new analysis, we identify seven global customer segments and go into great detail about their demographics, knowledge and enthusiasm for blockchain, preferences (e.g. related to cryptocurrencies, technologies and products) and shopping habits.
What advice would you give to merchants who are skeptical about adopting crypto payments?
My first advice would be to take the time to understand the technology (not easy, I know) and really appreciate its potential for growth. In terms of technology, besides really reputable and licensed processors that can be very helpful, understanding how blockchains work is important to overcome skepticism, especially regarding AML concerns. For example, less experts may not be aware that there are tools (also incorporated by any reputable processor) that monitor incoming funds and analyze customer wallets to detect and block suspicious transactions (e.g. sources of ransomware , fraud, sanctioned companies, etc.). .
To assess the potential, I sincerely encourage you to read our report (even the free version is packed with data) to understand how the merchant’s offering and marketing strategies can meet the specific needs of a growing number of crypto buyers; whether it serves the unbanked, targets the highly engaged crypto communities, reaches high earners and donors, etc.
Finally, my recommendation that there are ways to dip your toes in the water, get a feel for it, and learn more without going all-in on crypto. We work with some big brands who want to bring their products to crypto consumers through our store and we help them to understand the market and the technology better.
What technological solutions are there that can enable them to accept crypto payments, e.g. E.g. Lightning Network, stablecoins?
I would say that today there are mainly three ways to accept crypto. The first is to process the transactions themselves. This is technically possible, there are even open-source payment servers, but it involves enormous complexities, probably insurmountable technical and financial complexities, unless blockchain is not the core of the business model.
The second approach is to look at crypto payment processors that will process the blockchain transactions and settle the amount in fiat to the merchant who will do any necessary KYC.
The third option is to integrate payment APIs from major crypto exchanges. Transactions are processed off-chain, meaning the exchange transfers crypto funds from their KYC user account to the trader’s account without interacting with the blockchain. The downside of this solution is that crypto payments are only available for the customers of the respective exchange, but is generally a fast user experience and may offer some co-marketing opportunities.
The availability of certain technologies (e.g. Lightning Network) and supported currencies (Bitcoin, Eth, stablecoins, etc.) depends heavily on the service provider’s offering.
What are the main conclusions of the report?
The first and most important for me, especially at this moment for the crypto industry, is that we are seeing an increased demand for crypto payments and there are many customers from all parts of the world who are demanding wider acceptance of crypto payments for very different reasons. We also see this in the increased frequency with which crypto buyers spend their crypto (83.4% spend crypto at least monthly, 39% weekly). Consumers who spent crypto to shop at least once but claimed to have rarely or almost never done so have fallen from 25.4% in 2021 to 16.6% in 2022. I also find the stronger demand for stablecoins quite interesting, probably driven by market conditions but also layer 2s.
About Massimiliano Silenzi
Massimiliano Silenzi is an Italian-American entrepreneur with over 15 years of experience in payments and technology. He is Founder and CEO of CryptoRefills, former CEO of Onebip (Mobile Payments) and has held innovation, leadership and international management positions in mobile payment and commerce startups as well as in telecom companies such as Ericsson Enterprise and Telecom Italia Mobile. Massimiliano has a BA in Business Administration, an MA in Marketing Management and a PhD in Economics and Finance.
About CryptoRefills
CryptoRefills was born with the idea that there is tremendous opportunity related to blockchain to create better money and financial inclusion, freedom, privacy and fairness.
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