Consumer adoption of crypto payments: CryptoRefills shares key trends from their new 2022 report

CryptoRefills' Massimiliano Silenzi shares with The Paypers the main findings of the Cryptocurrencies in Retail Consumer Adoption Report 2022

Differently from many reports in this sector that focus on the merchants’ adoption of crypto payments, our research focuses on the consumer side. So, our visibility is limited to what people making purchases with crypto think about merchants accepting crypto. And according to these ‘Cryptoshoppers’ the answer is clearly not enough merchants accept crypto.

Concerning merchant reluctance, I can only give my opinion based on our B2b2C interactions with some large brands and retailers. I see a combination of a limited understanding of the technology and its potential at different departments and higher levels of the company, and some reputational concern. The technology and providers to process crypto payments securely and protect from any type of AML risk are widely available. Payment departments seem to be quite knowledgeable and even have crypto dedicated managers and teams. This is one of the reasons we publish our yearly report, to educate at all levels about the potential of crypto for shopping.     

According to our research, absolutely yes! In our 2021 research the number one issue for shoppers (for 49.3% of them) when paying with Crypto was the high transaction costs (Bitcoin fees, gas on Ethereum, etc). Instead in 2022 the high fees issue now ranks second (with 35.3% of users complaining of the issue) and the number one problem incurred by Crypto-shoppers (40.5%) is the unavailability of merchants and brands that accept Crypto.

I see a huge untapped potential for stablecoin payments over Ethereum Layer 2 or highly scalable blockchains like Avalanche or Fantom. For those less familiar, and very generally speaking, layer-2s generally work by blocking funds on the underlying blockchain, transacting on a dedicated high-speed network, and then resettling the funds on the original blockchain periodically or when parties agree to do so.  We were the first in the world to ever launch these on an ecommerce checkout, almost two years ago, when layer 2s were only used for Defi or games. It was a great success. Imagine paying with USDC over the Polygon, Arbitrum, or Avalanche networks, with almost zero fees, and transactions confirmed immediately. This mighty combination resolves two important issues for both merchants and customers, by avoiding the exchange rate volatility, confirming the transaction immediately, and avoiding costs for the parties transacting. I also believe Bitcoin Lightning Network payments will surprise us in the future, especially in emerging markets.

This year we have significantly extended the depth of our research to understand with better detail the demographics, needs, and preferences of the users. In fact, in our 2022 edition, we include for the first time a multivariate statistical methodology (K-prototypes cluster analysis) where we basically analyse how different responses influence each other to define identifiable segments of users. In our previous report, we didn’t make use of such detailed analysis and we described crypto shoppers as belonging to two broad groups. The first group sees crypto shoppers from more emerging and fragile economies using crypto for financial inclusion and as defence against local currency debasement or other issues. The second instead is from advanced markets, comprising sophisticated, young, and usually highly educated and high-spending crypto enthusiasts.

This interpretation in the 2021 report was not incorrect but was likely a too broad generalisation with respect to the new information we can infer from our new cluster analysis. In our new analysis we identify seven global customer segments, and we go into great detail describing their demographics, their knowledge and enthusiasm about blockchain, their preferences (for example in terms of cryptocurrencies, technologies, and products), and their shopping habits.   

My first advice would be to take the time to understand the technology (not simple, I know) and to truly assess its potential for growth. With respect to the technology, besides really serious and licensed processors which can greatly help, it is important to understand how blockchains work to overcome the scepticism, especially in relation to AML concerns. For example, fewer experts might not be aware that there are tools (also integrated by any serious processor) that monitor the incoming funds and analyse customer wallets to detect and block any suspicious transaction (e.g. sources from ransomware, scams, sanctioned entities, etc).

To assess the potential, I sincerely encourage them to read our report (even the free version is packed with data), to understand how the merchant’s offer and marketing strategies can meet the specific demands of a growing number of crypto-shoppers; whether it is serving the unbanked, targeting the highly engaged crypto communities, reaching high earners and spenders, etc.

Lastly, my recommendation is that there are ways to tip your toes in the water, to get a feeling and learn more, without going ‘all in’ on crypto. We are working with a couple of large brands that want to get their product out to crypto consumers through our store and we help them understand the market and technology better.

I would say that today there are mainly three ways to go about accepting crypto. The first is to self-process the transactions. This is technically possible, there are even open-source payment servers, but it comes with enormous complexities, likely unsurmountable technical and financial complexities unless blockchain is not the core of the business model.

The second approach is to look at crypto payment processors which will process the blockchain transactions and settle the amount in fiat to the merchant performing all the necessary KYC.

The third option is to integrate payment APIs from large crypto exchanges. The transactions will be processed off chain meaning the exchange will move crypto funds from their KYC’d user account into the merchant’s account without interacting with the blockchain. The disadvantage of this solution is that this makes crypto payments only possible for the customers of the specific exchange, but it is generally a fast user experience, and maybe offers some comarketing opportunities.

The availability of specific technologies (e.g. Lightning Network,) and supported currencies (Bitcoin, Eth, Stablecoins etc.) will greatly depend on the service provider’s offering.   

The first and most important one for me, especially at this moment for the crypto industry, is that we see increased demand for crypto payments and there are many customers from all corners of the earth that for very different reasons are demanding a wider acceptance of crypto payments. We see this also in the increased frequency with which crypto shoppers spend their crypto (83.4% spend crypto at least on a monthly basis, 39% on a weekly basis). Consumers that have spent crypto for shopping at least once but claimed they did so rarely or almost never dropped from 25.4% in 2021 to 16.6% in 2022. I also find quite interesting the stronger demand for stablecoins, probably driven by market circumstances but also layer 2s.      

About Massimiliano Silenzi

Massimiliano Silenzi is an Italian American Entrepreneur with +15 years of experience in Payments and Technology. He is the founder and CEO of CryptoRefills, former CEO of Onebip (mobile payments), and has covered innovation, leadership, and international management roles in mobile payment and commerce startups as well as in telco companies such as Ericsson Enterprise and Telecom Italia Mobile. Massimiliano holds a BA in Business Administration, MA in Marketing Management, and a PhD in Business and Finance.

About CryptoRefills

CryptoRefills was born with the idea that there are tremendous opportunities around blockchain for creating better money and financial inclusion, freedom, privacy, and fairness.