From Libra to Flexa: is it time the franchise world got more on board with cryptocurrency?

Many great businesses have crumbled because they didn’t react to and provide for their customers’ changing behaviors or demands quick enough

The inevitable has happened. For years governments and conventional financial institutions have worried about Silicon Valley doing what it does best – disrupting the status quo. And Facebook did just that with the recent announcement of Libra, its digital currency, which will be launching as early as next year. Since the ambitious plan was unveiled, it has been met by an avalanche of skepticism from regulators around the world.

The UK’s markets regulator, the Financial Conduct Authority (FCA) has proposed a ban on financial instruments linked to digital cryptocurrencies, while Mark Carney, Bank of England Governor states that if Facebook’s currency is successful “it will have to be subject to the highest standard of regulation”.

Across the pond, Democratic members on the House Financial Services Committee are calling on the social media giant to halt its cryptocurrency plan.

“If products and services like these are left improperly regulated and without sufficient oversight, they could pose systemic risks that endanger the U.S. and global financial stability. These vulnerabilities could be exploited and obscured by bad actors, as other cryptocurrencies, exchanges, and wallets have been in the past,” states a letter by the lawmakers to Facebook CEO Mark Zuckerberg and his partners. “Investors and consumers transacting in Libra may be exposed to serious privacy and national security concerns, cybersecurity risks, and trading risks. Those using Facebook’s digital wallet — storing potentially trillions of dollars without depository insurance — also may become unique targets for hackers.”

Given Facebook’s history, this reaction feels warranted. Samuel Leach, FX, stock trader and director of Samuel and Co Trading says: “While Facebook has a terrific userbase and the right tools to make this happen, given its recent data protection and privacy issues it is inevitable that regulators, particularly in the EU, will be looking at this development very closely.

“Libra is one of the most well-integrated and user-friendly cryptocurrencies. If it succeeds, this will have a big effect on the cryptocurrency market. It is going to continue to gain attention, not only within the crypto industry but in mainstream media.”

Although banks and governments have reacted to Libra with skepticism, this project has legs. “Most firms need to see other well-known brands using cryptocurrencies before they take that leap of faith,” says Sukhi Jutla, IBM blockchain developer and co-founder of MarketOrders, a B2B marketplace that uses blockchain tech in the jewelry industry. “In this case, the fact that Visa, Mastercard, and PayPal have confirmed they will be accepting Libra payments is a giant vote of confidence for mainstream adoption.”

Other important reasons for the optimism is that Libra will be able to handle large transaction volumes – and it would need to if Facebook’s 2.4 billion users adopt the digital currency to shop and transfer money.

The big question is…

If this takes off, what does it mean for businesses and consumers?

It would revolutionize consumer behavior, as Facebook plans to release Libra through its Messenger, WhatsApp and Instagram platforms. The currency can then be transacted not only within Facebook’s apps but also with other partners on the project, including Spotify and Uber.

By @cygnetinfotech #smartcontracts #blockchain
pic.twitter.com/WQtBxiL39l

— Aghiath chbib (@AghiathChbib) July 18, 2019

The more mainstream cryptocurrency becomes, the sooner brands and franchise companies will need to adapt to survive. “Companies only survive when they can keep up with changing consumer trends and demands,” explains Jutla. “With more customers wanting to use cryptocurrencies – because they either prefer it or see it as a better way to transact – brands will have no other choice but to give consumers what they want or risk losing business.

“Many great businesses have crumbled because they didn’t react to and provide for their customers’ changing behaviors or demands quick enough. Companies really should be embracing these changes and not risk getting left behind or joining the party when it’s too late.”

As the popularity and use of cryptocurrency grows, it will change the landscape of business forever. For example, Leach points at smart contracts that are made through blockchain as a way to protect against fraud. “One of the biggest breakthroughs of cryptocurrency is blockchain technology,” he says. “Blockchain smart contracts work like this: once both parties agree to the set of conditions, the mutually agreed upon cryptocurrency payment will be transferred. Once a smart contract has been submitted, it cannot be altered, and copies will be given across all the nodes of the blockchain. Since blockchain is both decentralized and immutable, it protects those who would seek to cheat.”

From the financial side, there are two main reasons why franchise brands may want to start thinking about accepting cryptocurrency.

The first is that because cryptocurrency transactions are permanent, they can prevent the dreaded chargeback. A report by consulting firm Javelin Strategy estimates “chargebacks were a $31 billion problem in 2017”.

Crypto exchange and wallet provider, CoinCorner’s CEO, Danny Scott says, “An advantage of using Bitcoin as a payment method is that it completely removes the risk of chargebacks, which is greatly beneficial for any business. It also removes the need for customers to enter debit or credit card information on a website, as you do not need this sort of sensitive information when paying via Bitcoin, making it a much safer option for customers too.”

This is not possible with any other current method. Another benefit is payment processing fees.“Typically debit or credit card costs can be anywhere from 2 to 5 percent. CoinCorner Checkout service charges a flat 1 percent fee for all Bitcoin payments, that can be instantly converted to GBP for the business,” adds Scott.

There is plenty of savings to be made by businesses as a 2017 Nilson report states that the U.S. generated $5.936 trillion in traditional credit card payments which resulted in U.S. merchants paying $88.39 billion in card fees in 2016.

Staying ahead of the curve
High-profile businesses have been using cryptocurrency for transactions for years now. In the first wave, brands such as Microsoft, Reddit, and Expedia started to accept cryptocurrency.

Although not many franchise brands have dabbled with digital currency, in 2018, KFC Canada advertised ‘The Bitcoin Bucket’ complete with a Facebook-based live-tracker to monitor each stage of the order right up to delivery.

However, customers couldn’t just walk into an outlet and pay for a bucket of chicken using crypto. Instead, they would have to pay for their Bitcoin Bucket specifically via BitPay as one of the options through an online check-out page. It would then be delivered directly to their address.

The Subway franchise was another very early adopter of cryptocurrency. Back in 2013, a franchise in Moscow was found to be offering bitcoiners a 10 per cent discount, while another Subway sandwich shop in Allentown, Pennsylvania in the U.S. had its first Bitcoin transaction made by Adam Welsh, who bought a Chicken Bacon Ranch sandwich meal.

Before crypto-enthusiasts get excited, a blanket roll-out seems unlikely for the sandwich giants as Subway in a statement mentioned: “Each local Subway store is independently owned and operated and it is the individual franchisee’s decision to accept this form of payment.”

The pitfalls
Whether a gimmick or an experiment to test its mainstream viability, it is encouraging to see big named brands giving digital currency a try. However, there are a few major pitfalls.

Firstly, price volatility appears to be a major concern. As a consequence of the price of Bitcoin crashing (it fell more than 70 percent in 2018), Reddit, Expedia, and many others stopped accepting the digital currency, stating that the price volatility resulted in a lack of consumer interest.

According to a Bitcoin price visualization from Coin360, since July 10 Bitcoin’s price fell from over $13,000 to the $9,000 mark. Following Facebook’s unveiling of Libra’s white paper on June 18, media outlets are speculating this drop is because of growing calls for regulation of cryptocurrency in general, especially from the U.S. Senate, with even President Donald Trump tweeting that he is not a “fan of Bitcoin and other cryptocurrencies”.

Furthermore, the investor community is beginning to get the jitters, as it seems that the Libra project is fast-tracking regulations for the crypto market.

As the words ‘cryptocurrency’ and ‘volatility’ seem to be joined at the hip these days, a way to keep the benefits of this digital currency without the risks of fluctuating prices is through the creation of ‘stablecoins’. These coins are designed specifically to not be volatile as the value is fixed in the same way as fiat currencies (like USD or GBP). For instance, the cryptocurrency Gemini Dollar is backed by real USD, is stored in a State Street account and built on top of the public ethereum blockchain.

Another major pitfall when shopping with cryptocurrency is that it is extremely difficult to spend the funds. Here is where Libra can hopefully help with its release through Messenger and Instagram.

In the meantime, technology enablers like CoinCorner are attempting to bridge the gap by enabling merchants to serve as cryptocurrency gateways.

“The use of Bitcoin is growing daily, meaning businesses cannot ignore it as a potential payment method for their business. At CoinCorner, we recently launched CoinCorner Checkout, our new service that allows any UK business to accept Bitcoin and receive funds back in GBP,” says Scott.

When a customer purchases with Bitcoin, CoinCorner instantly converts the amount to GBP and pays the business in sterling via the UK Faster Payments Service. Also, CoinCorner Checkout is quick and can easily be integrated with no setup costs and only a one percent process fee per purchase.

This May, payments startup Flexa made quite a splash when it unveiled its app Spedn, through which consumers could use cryptocurrencies at major American retailers. As for the price fluctuation conundrum, Flexa has partnered with Gemini Dollar. Tyler Spalding, the company’s co-founder, stated in a press release that this partnership means “that every Spedn wallet is securely custodied and fully insured on Gemini’s NYDFS-regulated infrastructure. It also means that we’re able to add the Gemini Dollar — the world’s first, regulated, dollar-pegged stablecoin—to the Flexa network so that you can spend cryptocurrency without worrying about volatility.”

Besides Gemini Dollar, the other cryptocurrencies that can be used in transactions are Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC).

And keeping with simplifying crypto payments, Spedn transactions follow an easy process. After adding crypto to the Spedn wallet and selecting a supporting merchant, the app generates a one-time QR code which is scanned by the selected store’s existing scanner. This debits the amount from the customer’s account, while the customer gets a receipt of a purchase as a gift card. Spedn then settles the payment with the company in its preferred currency at a later date. This way merchants don’t have to worry about cryptocurrency exchanges.

As of now, Flexa states that payments via Spedn are available in 39,321 stores. An article by Forbes confirmed that Barnes & Noble, Baskin-Robbins, Bed Bath & Beyond, Caribou Coffee, Crate & Barrel, Express, GameStop, Jamba Juice, Lowe’s, Nordstrom, Office Depot & OfficeMax, Petco, Regal Cinemas, Ulta Beauty and Amazon-owned Whole Foods Market are accepting cryptocurrencies through Spedn. Since its beta launch for iOS users, the brand has been scaling up, announcing that it is extending a beta version of the app to Android users, as well as going international. Flexa’s integration with major retailers indicates that merchants want to tap into the crypto user community, not to mention injecting the economy with some new funds.

For an industry that has been shrouded in anonymity and born in the dark corners of the web, this marks a new phase, the first step towards mainstream acceptance as more and more payment methods using digital currencies emerge in the near future.

The ultimate goal is for this type of currency to be accepted at every point-of-sale device just like the usual fiat currencies, USD or GBP, have always been.

And who knows, you may just be paying for your next Big Mac or Subway sandwich using crypto.

ABOUT THE AUTHOR
Amanda Peters is a staff writer for Global Franchise and What Franchise.

Also read
This augmented intelligence company transforms how businesses engage with data