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Should retailers begin accepting Bitcoins in-store and on mobile?

The growth of Bitcoins, which now has a Google Glass payments app, reflects how mobile is driving alternative payment solutions and challenging retailers to keep up with how payments are evolving. As Bitcoin becomes a more legitimate currency, retailers are considering whether to accept Bitcoin on a mobile site and application or via the Bitcoin mobile wallet in-store.

“More merchants need to start accepting them,” Ed Barton, an analyst at Strategy Analytics, Newton, MA. “Currently a handful do, the most prominent being Baidu, Reddit and okcupid.

“When Amazon and iTunes start accepting them, Bitcoins will have graduated to the mainstream but this is far from a given,” he said.

“If you are a mobile app developer and your customers like using Bitcoins it would make sense for you to accept them.

Bitcoin 101
Bitcoin is a decentralized digital currency that lets consumers exchange money over the Internet. It is a person-to-person payment that does not involve banks, but some retailers have begun accepting the currency as well.

Bitcoins are accepted in every country, and there are very few regulations in terms of limiting spend for example.

Consumers can download a free application called a Bitcoin miner to generate Bitcoins. Bitcoins are then stored in a digital wallet.

To pay with Bitcoins, a consumer opens the Bitcoin wallet app, displays the QR code and lets another consumer or retailer scan the code. Bitcoin can also work via NFC technology.

When consumers transfer Bitcoins, an electronic signature is added, a miner verifies the transaction, and the transaction is permanently and anonymously stored in the network.

The Bitcoin software is open source, so anyone can review the code.

Consumers can currently use Bitcoins to purchase video games, books and servers. They can also trade Bitcoins in for dollars and Euros.

There is even a Google Glass app that lets consumers pay with Bitcoins. GlassPay lets consumers scan a UPC of a product in-store, create a virtual shopping cart, complete payment with Bitcoins and walk out of the store without waiting on the checkout line.

There is also a Bitcoin mobile wallet available for download in Google Play.

Despite the fact that Bitcoin is slowly becoming more legitimate, it still has a somewhat seedy reputation and is often associated with illegal goods and services, mainly due to its anonymity. The currency is most notorious for its involvement in the Silk Road, the online black market for drugs that was recently shut down by the police.

According to Mr. Barton, Bitcoin is slowly gaining legitimacy and becoming more trusted. However, he thinks that more retailers need to start accepting them for the payment system to truly stick.

“Bitcoins tend to be used by technically literate people who care about privacy and don’t tend to like regulators and governments, if that describes your typical customer you probably should,” Mr. Barton said.

Mobile payments
The mobile implication of Bitcoins plays out in two different ways.

First, developers can accept bitcoins directly from a mobile site and app. They need only add four lines of code to collect a Bitcoin payment through the Bitcoin Payment Gateway API.

This also provides an easy payment method for consumers who have Bitcoins. They can easily pay on a mobile device without having to type in all of their billing information.

The second outlet for Bitcoins is mobile payments in-store. Retailers can accept Bitcoin payments by integrating a QR code scanner or NFC terminal into their POS.

Consumers can then easily open their Bitcoin mobile wallet to pay in-store.

Jordan McKee, an analyst at Yankee Group, Boston, MA, sees a specific niche for Bitcoins within the mobile space.

“I think we are not that far off from seeing Bitcoins becoming an option for in-app purchases in mobile games,” Mr. McKee said. “As for merchant apps and sites, notable adoption will not occur in the near term. Many merchants are still very unsure about Bitcoin and have a lot of questions that need answering.”

Similarly, Brian Stein, managing director at Pervasive Path, Cleveland, OH, does not think that retailers need to integrate Bitcoins in mobile sites and apps in the near future, but he does see why the currency could be beneficial in the mobile space.

“Because of the transaction fee structure that Bitcoins provides, they work very well for micro-payments,” Mr. Stein said. “Lowering the threshold for purchase volumes allows for more buying opportunities on the mobile channel.

“Additionally, the easy integration of Bitcoins into a mobile app, and the fact that the security is handled by third parties, lowers the barriers to adding Bitcoins to mobile applications and for merchants to accept Bitcoin payments.”

Low transaction
If appealing to consumers’ needs is not enough of a reason to accept Bitcoins, there is even an added benefit for retailers. Transaction fees for Bitcoins tend to be much lower than other forms of payments.

Bitcoin transactions rely on peer to peer processing, so no banks or regulatory authorities are involved, hence very low transaction fees.

It does not cost retailers anything to start accepting Bitcoins, and there are no chargebacks or fees.

“The benefit of Bitcoin is very much around its cheap transaction fees,” Yankee Group’s Mr. McKee said. “Compared to bank-issued currencies, it’s considerably more cost effective for things like international money transfers. Bitcoin is also policed by its users – there is no concern over a central bank failing. This is why conversations around Bitcoin exploded during the financial crisis in Cyprus.”

Overtaking mcommerce
While Bitcoin may be gaining steam, it is unlikely that the payment system will overtake the leaders in the mobile payment space such as PayPal and Google Wallet. Retailers need not throw out an Isis terminal or stop accepting PayPal.

However, Bitcoin does seem to be a valid alternative form of payment for many consumers, especially those who want to maintain anonymity. It would therefore make sense for retailers to get a better understanding of what its target consumers want to decide whether or not it is worthwhile to accept Bitcoin in addition to the major payment methods.

“If Bitcoins continues to gain traction, I see it being adopted as a back-end payment method for other wallet solutions,” Pervasive Path’s Mr. Stein said.

“For example, Google or PayPal may choose to provide you to check-out using PayPal, or Google Wallet, the funds would be withdrawn from your Bitcoins account rather than a traditional bank account or credit card,” he said. “I don’t see Bitcoins gaining the critical mass required in terms of merchant acceptance to grow beyond that as an independent alternative to the big guys.”

At the end of the day, retailers need to meet the needs of their consumers. If their consumers want to pay via Bitcoins, then they should accept Bitcoins.

“Retailers are very interested in alternative payments,” said Nikki Baird, managing partner at RSR Research, Miami, FL.

“I think some of it stems from trying to get out from under transaction fees and the reliance on major card networks,” she said. “But some of it is a genuine interest in keeping up with the payment alternatives that consumers are interested.

“Retailers want to take payments however consumers want to pay, and if they want to pay in Bitcoins, retailers will figure out how to take them.”

Final Take
Rebecca Borison is editorial assistant on Mobile Commerce Daily, New York