Merchants do better with Crypto - Do online gambling sites?

30 October, 2020

Cryptocurrency proponents have been saying for years that merchants would do better if they accepted digital currencies alongside fiat. Data from a recently released study seems to back that claim with hard evidence. The study shows that merchants do better, at least from a return on investment (ROI) standpoint, when they accept crypto payments.

This post will explore the results of the study as well as whether or not they apply to online gambling. At face value, gambling site operators could be considered merchants. But gambling is a unique industry in general. Online gambling is even more unique in the sense that it welcomes gamblers from around the world playing with a variety of fiat currencies.

The study in question does not single out any particular types of merchants, though it does seem to emphasize retailers. We can look at its conclusions and extrapolate based on what we know of online gambling and its customer base. So without further delay, let's get to the study.

Retailers and digital currency

BitPay, a well-known cryptocurrency payment platform, partnered with Forrester Consulting earlier this year to study the impacts of cryptocurrency on retail transactions.1 Forrester analyzed data comparing merchants that accept crypto payments with those that do not, using what they call their Total Economic Impact™ (TEI) methodology. The goal was to in some way quantify the financial ramifications of accepting crypto payments through BitPay.

Among the many things they discovered is a 40% increase in new customer sales among pro-crypto retailers. New customer sales refer to purchases made by first-time customers. But that's not all. The data also showed a higher average order value (AOV) among crypto users.

Buyers paying with cryptocurrency had an AOV of $450. Their counterparts paying with fiat had an AOV of just $200. Forrester does not offer any explanation as to why crypto users spend more than twice as much. However, their analysis does suggest that the higher-spending crypto users tracked in their study were new customers that otherwise would not have purchased from those merchants.

The study also looked at merchant spend in order to get an accurate picture of ROI. But before we get to that, let us apply the data about customer spend to online casinos. Imagine two sets of online casino operators: one set that embraced crypto deposits and the other that did not. Would the same results be observed with a similar study?

Attracting more gamblers

Crypto proponents have long asserted that gambling sites would attract more customers by accepting digital currency deposits. As the thinking goes, there are people who want to play at gambling sites but are restricted from doing so because laws in their jurisdiction prevent them from making fiat payments. Cryptocurrency is the logical workaround. Just from that angle alone, it seems reasonable that crypto could attract more customers.

There are also many regular online gamblers who simply prefer crypto deposits and withdrawals for their speed, security, and anonymity. They are more likely to frequent gambling sites willing to take their coin. That being said, it seems reasonable they would seek out crypto and BTC-friendly sites when looking for new casinos to play.

Higher spend at casinos

As for the higher spend, that is a little harder to peg. We can see how crypto users might spend more on a retail site when paying with crypto. They have a certain amount of coin in their digital wallets and are willing to spend it. But it could be that gamblers go into a new gambling session with a different mindset.

It is not necessarily a given that a gambler plans to spend so much, and no more, during a single session. But it is common for gamblers to set loss limits. They do so to prevent losing their shirts. If setting loss limits is prevalent enough in the online gambling world, it is unlikely that depositing crypto would encourage a gambler to spend more.

Merchants saving with crypto

Increased revenues represent just one portion of the ROI equation. A more accurate understanding requires looking at how much merchants are spending as well. That is just what Forrester Consulting did. They looked at how much it costs retailers to accept cryptocurrency payments and discovered what crypto fans have known for a long time: merchants spend less.

There are two things to consider in terms of merchant expenditures: payment processing fees and chargeback. Both contribute significantly to reduced ROI for credit card payments.

A typical credit card company charges anywhere from 2.25% to 5% per transaction. This is how they make their money. At the retail level, merchants have one of two options for covering the fees. They can either absorb the fees themselves or pass them on to customers by way of higher pricing. Neither option is all that attractive.

The Forrester study did not explicitly state the value of the fees paid by merchants when accepting crypto payments. All the report said is that the fees were lower. This is a rather curious assertion given that lower fees are not always guaranteed.

Crypto fees fluctuate

Cryptocurrency users pay transaction fees just like credit card users. Sometimes crypto fees are lower, other times they are higher. This is because transaction fees fluctuate commensurate with network traffic.2 The more transactions waiting to be processed, the higher the fees.

Way back in 2017, when Bitcoin hit its peak, it was not unheard of to pay a transaction fee in the neighborhood of $50. That is not too bad on a $10,000 investment. But on a $100 purchase, that amounts to a robust 50%. The good news is that fees rarely go that high.

Bitcoin's next block transaction fee on 11 February 2019 was $.13. The following day it was $.23, then $.30 the day after that. It finally fell back to $.17 on 14 February. The lesson here is that transaction fees in the cryptocurrency world are not static. That may be one of the reasons some online gambling site operators seem wary of crypto.

Saving money and chargebacks

Inconsistent fees may be offset by fewer chargebacks. If you know anything about cryptocurrency's immutable ledger model, you know that a transaction entered into a confirmed block is permanent. It cannot be reversed or modified. This completely eliminates the ability to chargeback cryptocurrency payments.

Chargebacks are a big problem for credit card payments. No merchant likes to make a sale only to have to refund the customer's money. When they are dealing with cash however, merchants have the opportunity to handle refunds as they see fit. Not so with credit and debit cards. Chargebacks are often forced on merchants by credit card companies looking to make their customers happy first.

According to the Forrester study, merchants willing to accept cryptocurrency payments save approximately 1% against their total sales volume by avoiding chargebacks. That may not seem significant, but 1% adds up over time.

Avoiding chargebacks is attractive to online casino operators. Unfortunately, they are constantly having to watch out for unscrupulous customers looking to make credit card deposits, gamble until they win, and then force a chargeback through their credit card companies. These sorts of chargebacks can cost operators dearly.

Cryptocurrency deposits make the practice impossible. If an unhappy customer wants a refund from a gambling operator, the operator has the freedom to work out a deal rather than being forcibly required to return the customer's money.

Crypto deposits increase ROI

We have discussed the possibility that accepting cryptocurrency can bring in new customers and increase customer spend. We have discussed the fact that merchants may pay lower transaction fees via crypto, along with completely eliminating chargebacks. So what's the bottom line?

Forrester Consulting concluded, after crunching all the numbers, that merchants accepting cryptocurrency payments see an average ROI of 327% on those payments - a staggering number by any measure. That kind of ROI should get the attention of every business owner, online gambling operators included.

The results of the study are impressive enough that PayPal has decided to climb on board the cryptocurrency train.3 The well-known payments company has been reluctant to embrace crypto in the recent past, citing price instability and other concerns. Those concerns have apparently given way to higher ROI for merchants.

In short, PayPal will now allow its customers to hold digital currencies in their accounts. Customers will be able to use PayPal to make cryptocurrency payments to merchants willing to accept them. PayPal hopes to encourage customers to look at a variety of digital currencies in the future, ranging from private cryptos to central bank digital currencies.

All eyes on gambling operators

The results of the Forrester Consulting study, despite just recently being released, are already getting plenty of attention in the media. All eyes are now on the gambling industry to see what they do with the data. Online gambling has traditionally had a very good relationship with cryptocurrency, and there's no reason to believe the report will damage that relationship. Hopefully it encourages more casino operators to consider crypto deposits.

We now know that retail merchants do better when they accept digital currencies. The evidence is strong enough to suggest that gambling operators would do better, too.

1) Merchants who embrace crypto see better results, per new study

2) Bitcoin Transaction Fees: A Beginner’s Guide For 2020

3) PayPal to allow cryptocurrency buying, selling and shopping on its network