Crypto has come a long way in a remarkably short time. It's matured from a fringe concept and the idealistic dream of cypherpunks and anarchists to become a mainstream asset and topic of conversation in most corporate boardrooms.
That said, much of the talk in the boardrooms remains just that: talk. Few businesses are yet to take action and make a move to use crypto.
This isn't because there isn't an appetite. On the contrary, our research finds some 66% of financial leads are interested in holding crypto assets on their balance sheet. Their reluctance to adopt stems from concerns around the volatility of crypto assets, the absence of robust regulatory frameworks, and, in many cases, a general lack of understanding about the implications of holding crypto assets.
It's a fascinating moment in time. We're certainly at a crossroads, and it cannot be underestimated what impact institutional adoption of crypto will have on the future of crypto and the digital economy at large.
To build a deeper understanding of the institutional adoption of crypto at this pivotal moment in its development, we surveyed 3,000 businesses and 30,000 consumers. Here are three key trends uncovered that illuminate the path forward for businesses considering taking advantage of crypto assets.
1. Accepting crypto as a payment
Consumer demand to use crypto as a payment method is growing. Our data finds that 40% of 18-35-year-olds plan to pay using crypto in 2022.
Businesses are recognizing this demand. Microsoft, Etsy, Whole Foods and Starbucks are just a handful of household brands that now accept crypto payments. And many more are likely to join them: almost a quarter of the businesses we surveyed plan to offer crypto payments by 2024.
These merchants aren't simply riding the crest of a wave. They're seeing real value from offering crypto as a means of payment, telling us how it's attracting new customers, increasing payment volumes, minimizing chargebacks and boosting cross-border sales.
Additionally, their approach to adopting crypto shows that you don’t need to know everything to get started. The majority (75%) take a “hands-off” approach, where they never actually touch crypto. Instead, they use a third party to process the payment and convert it into fiat. Though this approach is easier to implement, it is not without risks. Merchants must pay careful attention to anti-money laundering (AML) and know your customer (KYC) requirements. There is also the danger of price volatility — a feature of many non-pegged cryptocurrencies.
Another challenge comes with regulation and tax complexity. Taking payments in crypto but not holding crypto on the balance sheet seems to have created some confusion for treasurers. And it's a top reason for them not offering crypto as a payment method.
But for those who offer — or plan to offer — crypto payments, the benefits outweigh these issues. Analysis of bitcoin payments by Forrester suggests it can generate an ROI of 327% for merchants and that 40% of customers that pay with crypto are new.
2. Settling in crypto
The next rung up the crypto ladder for a business is to settle a payment in crypto and hold it as such on the balance sheet. This is a far more “hands-on” approach that requires businesses to research the various options for storing different cryptos carefully.
Most businesses see stablecoins as the best crypto for this, and 36% of them would like to make that a reality. Their motivation is to achieve faster settlements around the clock because of the profound impact on liquidity and working capital levels. That remains unachievable with many fiat transactions, with their defined settlement windows and reliance on multiple clearing systems. Stablecoins provide a solution to this problem of timezone and location-dependent availability of liquidity.
So what’s holding businesses back from settling more payments with stablecoins? Scale, for one. The full utility of stablecoins for corporate treasury depends upon their widespread adoption. Their utility starts to stall if the stablecoin cannot be monetized easily and so needs to be converted back to fiat before it can be spent.
Unfamiliarity is another issue. It is one thing buying a coffee with crypto; quite another moving around billions of dollars worth of it. Aside from the risk, any new payment technology will create operational and cultural upheaval. There are also unresolved accounting questions; should a stablecoin be classed as cash, another highly-liquid asset, or an intangible asset? This matters hugely to liquidity ratios, which in turn matter to regulators, investors, creditors and rating agencies.
None of these are insurmountable problems. The finance and payments world has an excellent track record of overcoming obstacles to deliver innovations; see AML, KYC and SCA as recent examples of what can be achieved with time and dialogue.
There is every reason to be confident that payment settlement with stablecoins can be performed with a solid and reliable system, trusted by businesses and regulators alike, and built for scale and durability.
3. Using crypto for payroll
Customers are not the only stakeholders that businesses must care about. Employees are just as important and have their demands. And for a growing number, that is to get paid in crypto. Over half (51%) of businesses say that some workers have asked to be paid in cryptocurrency.
This shouldn’t be surprising. The benefits of crypto are not exclusive to businesses. Individuals also want the certainty of speedy payment, to hold an asset that can beat inflation better than cash, and to exploit the high yields that can be secured from ‘DeFi’ lending instruments.
To see where crypto payroll may take hold first, we should see where fiat payroll struggles the most. Look no further than the gig economy. Gig workers expect to get paid for their work immediately or multiple times a month. Also, they're proportionally more cut off from the traditional banking and financial ecosystem. Crypto addresses both issues.
The case for crypto is not so straightforward for businesses with predominantly full-time staff. Alas, for these employers, not every employee thinks the same. For starters, there will be those who would balk at being paid in anything but fiat. Others may want to split their salary between the two but differ on the ratios. Complicating things further is the type of crypto they prefer. We found a reasonably equal split between those wanting to get paid in non-pegged crypto versus a stablecoin (42% to 47%, respectively).
None of this is impossible, but it does make payroll a more challenging exercise. Most payroll systems aren’t set up to deal with this amount of variation. And, as they tend to be a module of a broader HCM software suite — or at least highly integrated with one — replacing it with a ‘better’ solution is not a simple matter.
There is also a question of volume. Salary payments, including bonuses, pension contributions and expenses, are one of the highest costs of any business. If you want to do payroll in crypto, you must be comfortable holding that amount on your balance sheet, even if only for a short time.
But the crypto space is nothing if not innovative. We are already seeing players offering end-to-end crypto salary disbursement, taking on everything from conversion of the fiat to making the payment.
Move quickly but sensibly
Whether offering crypto as a ‘surface’ payment, following that through to settlement, or paying your people in crypto, first-mover advantage can reap big rewards.
As with other developments in payments, the advice is to move quickly but sensibly. Third-party partners that promise to cut through the complexity and take on the risk may be tempting, but the first-mover advantage won’t stand for much if you find you are moving in the wrong direction.
Crypto is still young and excitingly unpredictable. Businesses should be looking to find partners with a track record of navigating change and creating sustainable payment solutions that scale securely.