Small and medium-sized businesses (SMBs) often find themselves battling uphill in markets overshadowed by larger corporations. These giants, particularly payment processors like Visa and Mastercard, levy exorbitant transaction fees on SMBs, pushing them further into a disadvantaged position.
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The odds are mostly stacked against smaller businesses. However, the dawn of digital currencies, comprising cryptocurrencies and stablecoins, offers a potential turning point in this unbalanced narrative.
The Transaction Fee Dilemma
The prevalence of credit card payments in today’s commerce landscape necessitates SMBs’ compliance with this transaction mode. Yet, the processing fees, averaging between 2.6-3.5% processing fees when using the payment solutions like Square, Clover, Stripe etc, can significantly dent SMBs’ profitability. Furthermore, larger entities secure more favorable deals, while small and medium size businesses often accept higher fees.
For instance, a small business selling a product for $100 and paying 3.5% transaction fee would have to let go of $3.50 on every sale. Meanwhile, a large corporation or an e-commerce store selling the same product for $100, but paying only 1.5% transaction fee, only loses $1.50 per sale. Over time and with volume, this disparity creates a significant competitive advantage for larger entities and leaves SMBs struggling.
Emerging Solutions with Web3 Technologies
Enter Web3 technologies: decentralized, open-source systems at the heart of digital currencies. By adopting these innovative technologies, SMBs can substantially minimize their dependence on third-party processors. This would cut operational costs, and then operators could pass savings onto consumers or invest in their own businesses. With over 2.8 billion credit cards being used worldwide, it’s a major method of money transfer.
As CornerMarket CEO Moira Noiseux articulates, “By educating and onboarding small businesses to use blockchain technology, we can help improve operations and the way they interact with consumers and their communities. We hope blockchain tech can help SMBs reduce costs, increase efficiency, and improve security.”
Challenges and the Promise of Stablecoins
Despite the potential advantages, the journey to integrate these cutting-edge technologies is challenging. Cryptocurrencies’ infamous volatility and the steep learning curve associated with blockchain technologies can be daunting. Not to mention the hacks and scams that play out each week.
Stablecoins, digital currencies pegged to stable assets like the dollar or euro, emerge as a fitting answer. By offering the low-transaction-fee benefits of cryptocurrencies without the volatility, they’re fast becoming an appealing option for SMBs. This is also why countries with unstable economies are seeing an increased use of stablecoins.
Randal Quarles, Chairman of Supervision at the U.S. Federal Reserve Board, advocates for stablecoins, encouraging citizens to “not fear stablecoins” but to acknowledge their potential economic benefits. Similarly, the Digital Euro Association, which focuses particularly on the private and the public digital euro, emphasizes the role of stablecoins in propelling Europe’s “digital competitiveness.”
Government Embrace and the Future
Governments, too, are recognizing digital currencies’ utility. Graham Patterson, Chief Operating Officer at CornerMarket, observes, “It is also remarkable that governments are finding digital currencies useful as multi-purpose instruments. Cross-border projects like Project Polaris plan to explore the potential of CBDCs as a means of secure payments.”
In conclusion, digital currencies, especially stablecoins, provide a promising pathway for SMBs to adopt Web3 technologies. This could lead to cost efficiency, fairer economic practices, and a level playing field in markets traditionally monopolized by industry behemoths. As more countries explore stablecoin-based central bank digital currencies (CBDCs), a revolution favoring SMBs might be imminent.