Whether you’re buying tickets for a baseball game, booking a flight, getting a cab, or ordering yourself a coffee, you’re taking part in a multi-trillion-dollar digital economy. Global retail e-commerce sales exceeded $3.53 trillion in 2019, and are expected to reach $6.54 trillion by 2022, according to Statista. And, perhaps most intriguingly, these numbers exclude travel, transportation, and special events. While the internet has been in widespread use for almost 25 years, the opportunities for internet-native commerce continue to be enormous, and demand for digital-first goods and services continues to grow. This does not diminish, however, the reality that digital-first businesses confront particular set of challenges.
Payments are arguably one of the most challenging issues the internet suffers from today.
While Businesses may accept payments online and allow customers to make purchases using the legacy digital networks; however, they’re unable to handle all of the transactions that digital-first organizations face.
Micropayments, for example, are difficult to implement. Music streaming businesses that compensate musicians on a per-stream basis must manage thousands of micro-transactions daily. However, using existing digital payment channels presents numerous challenges.
Another challenge is global reach. Most payment providers and Fintech solutions operate on a local level and frequently work with old payment rails. As a result, internet businesses are finding it difficult to attract a global audience. A new musician in a third-world country without a bank account utilizes mobile money instead of a bank, which is why newer musicians often struggle to obtain royalties from an internet streaming business that only uses old banking rails.
Cross-border transactions are also a serious obstacle for businesses. For instance, an online store in one part part of the globe that has to pay a supplier in another part of the world often needs to conduct at least one wire transfer, utilize a digital payment provider, and pay currency conversion costs, which makes payments costly and time-consuming.
Although new innovations in business structures and digital markets have raised new questions about how to optimize and channel cash across platform users, traditional bank accounts and service providers frequently lack the flexibility to tailor to the specific demands of each client, leaving ledger and money routing operations to the operators of these digital markets.
Luckily, stablecoins and blockchain technology can overcome all of these problems.
Stablecoins and Micropayments
Stablecoins, allow for the seamless transfer of US dollars over the internet. Anyone, everywhere in the world, can store, transfer, and receive digital dollars, independent of their location or access to traditional financial services.
Legacy digital payment systems often necessitate banking links or KYC processes, which excludes a sizable portion of the global community. Keeping in mind that the majority of the leading online payment platforms do not work globally.
Stablecoins, on the other hand, are available to everybody because they function on permissionless ledgers. That implies that anybody with access to the internet can go online, convert fiat money into stablecoins, and then begin transferring digitized dollars all over the globe as soon as they choose.While there are numerous advantages for consumers, stablecoins can be even more beneficial to businesses.
Internet-native enterprises can use stablecoins in addition to or instead of traditional online payment systems. Before we go into use cases that show how businesses may use global stablecoins, let’s take a look at the advantages of stablecoin integration for enterprises.
- Borderless payments
- International payouts
- Dollar account top-ups
- Internet-native payment processing
- Cost reduction
- Global customer reach
- Internet-native payment processing
- No need for traditional banking relationships
Stablecoins allows businesses and people to send and receive digital cash from anywhere in the world. For example, a US-based e-commerce company might accept borderless payments from clients all around the world via stablecoins, boosting its customer reach.
Furthermore, online retailers may execute large-scale payments in stablecoins to suppliers, employees, and freelancers all around the world. An internet business can pay out stakeholders in both fiat currency and digital dollars by using the various services and solutions proposed by respective stablecoins.
Stablecoin integration can also help businesses save money because digital dollar transfers are often less expensive than traditional payment methods. On-chain stablecoin transactions often cost a few cents to a few dollars. Leading digital payment providers, on the other hand, charge up to 3.5 percent of the transaction amount plus bid/offer on currency translation.
For internet-based payment processing solutions, stablecoins may be incorporated into any e-commerce platform, online marketplace or mobile application. You can build out complex transaction flows between buyers and sellers and process payouts to marketplace participants globally across those same rails by utilizing the Payouts and Accounts products in a digital marketplace. These products accept traditional payment methods (such as debit or credit cards, and ACH) and stablecoin payments.. Online marketplaces can effectively use stablecoins in conjunction with different product portfolios as a plug-and-play payments infrastructure.
For the convenience of its customers, global markets may accept fiat currency payments in local currencies, such as debit or credit cards, to quickly fill up their dollar accounts. Stablecoins can efficiently replace traditional banking infrastructure for internet-native firms in emerging market countries where there is a dearth of banking services.
Use Cases for Digital Dollars in Commerce
While stablecoins are still in their early stages when it comes to the digital economy, the possible use cases for digital dollars indicate that we are likely only a few years away from widespread acceptance among internet-native firms.
Here are three use scenarios to provide insight into the prospects and benefits of digital dollar stablecoins in commerce:
A Ride-Sharing Service
A Ride-Sharing Service is an example of a solid use case. Stablecoin integration, for example, would be ideal for an app-based ride-sharing service that connects drivers and customers. A ride-sharing sharing economy platform contains multiple stakeholders and multi-dimensional payment streams.
Customers would typically pay drivers, drivers would pay a portion of their earnings to the platform, and the platform would pay staff and third-party service providers. That would imply several payment suppliers and banking partners for ride-sharing firms, especially if the platform would operate abroad.
It is possible for a ride-sharing business to build a plug and play internet-native payments infrastructure that takes fiat money and stablecoin payments, handles a large number of payment flows, and processes worldwide payouts utilizing DeFi products and Stablecoins.
Case Study: An Online Marketplace for Freelancers
Another great application for stablecoins is an online marketplace for freelancers and cross-border workers. Freelance job marketplaces often connect businesses and startups with freelancers from across the world. Furthermore, freelancers are frequently located in areas with poor banking penetration and restricted access to traditional online payment providers, making it difficult for job hunters to find them.
Using a digital dollar stablecoin, in conjunction with DeFi services, an online job marketplace could accept and process worldwide payments without the need for a conventional banking connection, but the platform’s transaction currency would continue to be the US dollar.
Anyone with a basic smartphone and an internet connection can receive stablecoin payments, which are nearly quick and less expensive than standard digital payment options.
Stablecoins owned by vendors or received by freelancers may be kept in yield-generating accounts on the Internet, where they can generate a greater interest rate in US dollars than they would if they were maintained in a traditional bank account. This provides a significant value-addition for both businesses and individual consumers. Moreover, businesses who have stablecoins in their wallets may be able to utilize their coins as collateral to borrow money for other business purposes.
Future of Stablecoins in the digital economy
Cryptocurrency enthusiasts frequently highlight the potential of cryptocurrencies to improve the efficiency and reach of e-commerce. While the current financial system is clearly functioning, it has its share of inefficiencies, such as its reliance on middlemen, which frequently take the shape of credit card companies that charge up to 3% on every transaction. Payments can be made directly between buyers and sellers using blockchain technology, bypassing the conventional system and lowering costs for both businesses and consumers.
Blockchain also enables the automation of the transaction verification process, which most banks currently rely on for costly manual verification. According to Santander InnoVentures, “blockchain technologies might lower banks’ infrastructure expenses by $15-20 billion per year by 2022.” These benefits will result in speedier settlement times and lower international transaction costs.
Stablecoins’ better efficiency is expected to translate into broader reach, as evidenced by Square’s astounding success in recruiting small firms with lower costs. Merchants who include those fees in their prices may be more eager to sell their products online as a result of the cheaper fees.
Similarly, customers may choose to preserve their balances in digital currencies and conduct more purchases online without ever returning to fiat currency or needing a credit card account. Lower fees and fewer entrance barriers may be game changers for the 25 percent of U.S. households that the Federal Deposit Insurance Corporation (FDIC) has identified as unbanked or underbanked.
Finally, millennials’ general distrust of financial intermediaries, which drives them away from traditional banks in favor of Fintech and challenger banks, suggests they’d be eager crypto users. Stablecoins require corporate supporters as well as imaginative outsiders if they are to become popular, and they are beginning to win over important insiders.
The failure of Facebook’s Libra launch has been crucial in drawing attention to this opportunity and has encouraged comparable efforts elsewhere. JP Morgan and other financial organizations have identified the necessity for a digital currency for payment. Finally, the entire financial ecosystem is developing — for example, challenger banks such as Revolut adopting cryptocurrency — making future advances and integration more possible.
Stablecoins are emerging with an unsurmountable speed and there’s nothing there we can do except embrace it and make our lives easier.