Cryptocurrency, Amazon and when we’ll be paying with Bitcoin at the supermarket

Millions of cryptocurrency fans sat with bated breath on 8 May, as infamous Tesla CEO Elon Musk took to the Saturday Night Live stage as guest host. Their hopes were pinned on the erratic tech billionaire using his spot to send their holdings of meme-based cryptocurrency Dogecoin surging.

Fourteen minutes into the show, Musk indeed began to plug Dogecoin. But his gags sent its price plummeting rather than “to the moon”, as its holders had hoped, wiping a third of its value away amid mass sell-offs.

To cryptocurrency sceptics, it summed up the issue with the market: in its downward pirouette, Dogecoin demonstrated the massive instability and danger in holding digital cash. The Dogecoin forum on Reddit was set ablaze with ordinary retail investors suddenly confronted with huge losses.

But the fiasco – and the press it attracted – also served to highlight how mainstream cryptocurrency has become. According to recent statistics by Finder, almost a fifth of Brits have bought cryptocurrency – some 9.8 million people. That’s a huge increase: as recently as 2018, that figure stood at just 1.5 million.

So does digital cash represent an opportunity for grocery businesses and brands? Who’s already using crypto in their businesses? And to what extent does the industry need to go faster?

The crypto market is certainly gaining ground – as evidenced by the number of ‘currencies’ out there. While Bitcoin is still the largest, a proliferation of rivals (dubbed ‘altcoins’ by those in the know) have come to greater and greater prominence. Ethereum, the second largest, hit a record-breaking high of £3,159 in May – though it was down to c£1,840 at the time of writing. Many pundits are betting on Ethereum as a serious competitor, as a new update promises to make it much quicker, cheaper and more environmentally friendly to use.

Then there is the growing roster of specialist coins. Take Chiliz, for instance, which claims to be the world’s first digital currency exclusively for the sports and entertainment industry.

Despite this growing interest, retail businesses have been slow on the uptake so far. Blockchain – the ledger technology upon which cryptocurrencies are based – has generated a mass of interest in food and drink due to the transparency and assurances it can offer in supply chains. But the list of food and drink businesses that actually take crypto payments and traffic in the currencies themselves is minute.

“What you find at the moment is there are a lot more gimmicks than there are real things”

There’s Lush, which has accepted crypto payments since 2017. And Brewdog, which allowed its Equity Punk Investors to invest in the business using cryptocurrency in 2019, and takes crypto payments at its Canary Wharf bar. In the US, it’s possible to pay in Starbucks and Whole Foods Market with crypto – though it requires a third-party app, which generates a QR code to facilitate the payment.

Amazon plans

This may be about to change in a big way. The price of Bitcoin and other cryptos surged in late July after Amazon began advertising for a digital currency and blockchain product lead role, designed to look at “how Amazon’s customers pay”. City AM quoted an anonymous source who claimed the e-commerce giant “definitely” planned to take Bitcoin payments in the future – though Amazon has denied it has any specific plans.

If there’s weight to these reports, this could be a game-changer for grocery. “As soon as Amazon accepts crypto, everyone is going to follow suit – the likes of Tesco, Walmart and Asda are going to jump on board,” says James Gale, CEO of Koda Cryptocurrency. “They are not going to want to be left behind.”

The desire to use cryptocurrencies in real life retail is strong and growing, adds Wirex CMO Martin Best. “Core crypto fans believe this is a huge opportunity. I ran a focus group recently and there were two people in it who said they had converted all of their pension and ISA into Bitcoin.

“These are not just keyboard warriors but people who really believe this is the next big thing and have put their money where their mouth is.”

Any move into crytocurrency should be a carefully considered one, though. “What you find at the moment is there are a lot more gimmicks than there are real things,” says Best. “Just saying that you accept something in Bitcoin doesn’t mean you have the genuine structural means to do so.”

Zumo marketing director Amélie Arras says many food and drink businesses are making negligible forays into crypto in a bid to drum up headlines, rather than taking its potential seriously. “From a PR perspective, if you accept crypto, you suddenly have access to a huge amount of people that have invested and want to spend it.”

 There may be a reason for this relatively superficial approach: actually spending crypto in stores comes with major issues. One of the biggest problems faced by the likes of Bitcoin and Ethereum, which have seen the greatest uptake by the public, is their volatility. It only takes a quick Google search to find stories of everyday investors who became millionaires overnight, or unlucky enthusiasts who lost their life savings.

In a fast-paced sector like fmcg, in particular, this daily fluctuation in value makes the pricing of everyday goods in those currencies near impossible.

That’s only an issue if the retailer is the one exchanging the cryptocurrency into regular money, of course. There is another way of doing things.

A swathe of businesses have introduced crypto debit cards and ATMs to the market, which transfer the cryptocurrency into pounds at the point of exchange. This means the retailer doesn’t have to worry about volatility – it’s up to the customer whether to spend their crypto with its current value in mind when they make the purchase.

“As soon as Amazon accepts crypto, everyone is going to follow suit – the likes of Tesco, Walmart and Asda are going to jump on board”

Still, it’s not for the faint-hearted. So it’s little surprise that most first movers in the UK have been smaller businesses more able to take risks. “Startups are more likely to try new ways of working/payments, vs large fmcg companies who would have to change entire processes and ways of working to be able to accept cryptocurrency,” says Veena Giridhar Gopal, co-founder and CEO of Salesbeat.

“For a smaller supplier, the investment would not be very high as long as they integrate with PayPal or use open source ERP systems like Odoo.”

Some of the new currencies are even being worked on with smaller businesses like pubs, restaurants and independent grocers in mind (see box, right). Koda is one of these. “We are trying to become the chosen crypto to do trades like that, going down the local shop or a local pub for a pint – there are walls up that we want to bring down around ease of use,” says Gale.

Crucially, he encourages these businesses to trade in crypto, rather than going down the route of debit cards and ATMs. Transferring crypto into ‘fiat’ (a regular currency) at the point of purchase strips the recipient of all the benefits – namely, its potential to increase in value – he says.

“It is a lot more exciting to hold because of the price action and the general outset is that it is expected to rise over time,” he says. “With every transaction we do, an amount is put back into a reward scheme for the existing holders so they earn a passive income for the use of our trading app.”

Plus, the merchant fees on crypto payments for a small businesses can be appealing. “If we did a £100 sale, PayPal would take about £4 of that as a processing fee compared to [crypto platform] Utrust, which takes about £1,” says Joshua Paterson, founder of meal kit delivery service On The Table.

It’s this selling point that has made crypto such a success in Japan, where bitcoin payments are already accepted en masse in high street retailers. “In Japan they have such high card fees that [Bitcoin] had a major advantage,” says Gale.

“It is a lot more exciting to hold because of the price action and the general outset is that it is expected to rise over time”

This glimpse of the future is what makes crypto fans so enthusiastic about its potential. “We want to be part of something that we believe is going to take over the world,” says Gale. “People love it because it’s decentralised and they’re not at the mercy of a bank. The speed, everything is trackable, it’s so exciting.”

While taking over the world may not happen overnight, there are some areas where crypto payments could have an immediate impact. In the case of grocery, Best thinks there is more potential in the supply chain than customer-facing settings.

“Imagine that you are a smallholding farmer in Ghana or Jamaica and you’re selling to a UK retailer,” he says. “The retailer will most likely pay you in pounds or dollars. You’re going to end up paying one fee to accept the payment, one to convert into your currency and then probably another fee to get it into a local account where you can use it. Think about the cost of that transaction. If you were taking £100, you could end up with £88. And then you have the instability of your local currency to GBP or dollars.”

Best has one caveat: “Although everyone in the mainstream talks about Bitcoin, it’s probably not going to be the currency that can do that. The fees can be quite high when there are too many people on the network.”

Stablecoin

Enter the so-called ‘stablecoin’ – cryptocurrencies that are essentially digitised versions of fiat currencies like the pound or dollar – and therefore less susceptible to the volatility of Bitcoin and its ilk.

“If you were to pay the Ghanaian farmer with a stablecoin linked to the US dollar, Tesco could pay them in that currency, there will be no exchange fee and the only transaction cost that will apply is when they eventually cash out,” says Best. “You of course will get into platform fees, but even if those fees are something like 1.5%, that’s far, far better for the farmer.”

And “if the transaction costs are low then everyone gains from that” he adds. “If Tesco knew their recipient was getting 99p rather than 88p in a pound, there is a margin opportunity to increase the price or to split the extra.” Speed is a factor, too. “Let’s say you are putting an order in for 10,000 bottles, for £10,000. To pay your suppliers is an absolute nightmare, because it can take two to three days for it to arrive. But cryptocurrency is instant.”

There could also be benefits for food and drink retailers and suppliers that operate internationally. “If you’re a very big company and you’ve got all these different countries, payment methods and currencies, the payment infrastructure is super complex,” adds Arras.

For that reason, Best would not be surprised “if there are some procurement departments that are seriously looking into stablecoins and investing money into digital assets.”

So it seems cryptocurrency has hit something of a turning point. Until now, it has largely attracted forward-thinking smaller players, who share a belief they are on a verge of something massive that could utterly reshape the way every sector does business.

But the signs suggest digital currency is about to attract a far wider audience in the business world. And if so, grocery could do well to take heed.