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Despite Bitcoin’s recent travails, the fledgling digital currency has begun to win support from some of the nation’s best-known merchants.
This week came news that department-store chain Lord & Taylor will start accepting Bitcoin through a mobile app called Pounce. The news followed upbeat Bitcoin results released by online retailing giant Overstock.com, which started accepting the currency two months ago.
Salt Lake City-based Overstock announced it has sold more than $1 million worth of goods to Bitcoin users, or more than $18,000 a day. Average order size for Bitcoin users is higher by more than a third compared to dollar users, $226 vs. $168. And some 58% of the Bitcoin customers were new to the merchant.
Transaction cost for Bitcoin is averaging less than 1%, Overstock said, compared to 2.2% plus 20 cents for sales on credit cards, the most common method of payment for e-commerce sellers. Overstock uses San Francisco-based processor Coinbase Inc., which offers a Bitcoin wallet for consumers and handles transactions on the currency for 26,000 merchants overall.
Bitcoin’s performance on all measures “has been better than we expected,” Jonathan Johnson, executive vice chairman at Overstock, tells Digital Transactions News. “We’ve been really pleased with the uptake [of Bitcoin].” So much so, in fact, that the merchant now projects the currency will account for somewhere between $10 million and $15 million in sales this year, compared to an initial estimate of $3 million to $5 million.
As a fraction of total sales, Bitcoin usage accounts for about 0.5%, a number that hasn’t budged in recent weeks. But Johnson says he expects that fraction to begin rising again soon. “We’re on the front end of a curve that’s going to hit a tipping point,” he says. “I liken this [Bitcoin trend] to the early ‘90s and the Internet or the early 80s and the PC. That’s where Bitcoin is going to go.”
Right now, where it’s going to go could be anyone’s guess. Tokyo-based Mt. Gox, one of the largest Bitcoin exchanges in the world, collapsed last month and filed for bankruptcy. Meanwhile, the currency, under attack by regulators around the globe, has seen wild price swings in recent weeks. It was trading at $646 in the early afternoon Thursday, representing something of a recovery from the year’s low so far of $545 but still well below the all-time high of $1,151 reached in December.
Overstock tempers its currency risk by having Coinbase convert its Bitcoins instantly into dollars, though Johnson says the merchant will soon start leaving 10% of its Bitcoin haul as Bitcoin. This, he says, is not meant to be an investment in the digital currency, but rather the beginning of a cash account. “We have employees who have expressed an interest in being paid in Bitcoin,” Johnson says. “And we have vendors who are interested in being paid in Bitcoin.”
Unlike Overstock, Lord & Taylor will not accept Bitcoin directly from customers. Instead, customers will use the Pounce app, from Israeli technology company BuyCode Inc. BuyCode has also signed up Best Buy, Toys R Us, and other merchants for Pounce, though so far only Lord & Taylor has agreed to accept Bitcoin, according to a spokesperson for Coinbase, which is enabling the Pounce Bitcoin transactions at Lord & Taylor.
With Pounce, a consumer can scan a product featured in a retailer’s ad and have the same product appear on her mobile screen. The screen features a “buy now” button that lets the consumer purchase the product immediately using payment credentials stored in a digital wallet on the phone. Once she taps this button, Pounce places the order through the merchant’s e-commerce system.
Overstock’s Johnson predicts more major merchants will follow Lord & Taylor and his own company in accepting Bitcoin. Indeed, he predicts the currency, for all its recent troubles, will enter the mainstream of payments sooner than most expect. One factor that will motivate merchants to take Bitcoin, he says, is that they will fear losing sales if they don’t accept it. “No retailer wants to give up market share,” he says. “Candidly, I’m surprised Amazon hasn’t started accepting Bitcoin.”
