Fintech

Crypto payments will definitely, maybe, possibly go mainstream in 2022

Consumer and merchant education, regulatory questions and the state of fiat-crypto onramps are still roadblocks.

2022 with 0 as bitcoin

Could 2022 be the year crypto payments become commonplace?

Illustration: Protocol

Click banner image for more holiday coverage for 2021

The crypto industry exploded in 2021, particularly through individuals and institutions investing in digital tokens.

But crypto payments haven't kept pace with the rest of the industry's growth. Since the earliest days of digital cash, making payments easier has been a key promise of the technology. Yet widespread access and adoption are still missing, which places big roadblocks in crypto’s path to the mainstream.

Broadly speaking, crypto insiders differ from tech analysts and investors in their near-term expectations for crypto payments: Enthusiasts and evangelists think 2022 will be the year, while more skeptical outsiders think the technology will continue to disappoint.

Paying by crypto for everyday purchases faces many challenges. Those include the volatility of the most popular coins; a lack of efficient and cost-effective onramps from fiat to crypto; a dearth of consumer-friendly wallets geared to spending, not trading; regulatory questions about stablecoins; the chicken-and-egg problem of simultaneously educating a base of consumers and a wide range of merchants; and a lack of credit card-like incentives, such as reward points or cash-back offers for consumers.

"We're not at the point where crypto is being used as a regular mode of payment," said Urvashi Barooah, principal at Redpoint Ventures. "We're very far from where we can use crypto to pay a restaurant bill. … We're just not there yet."

To be clear, the technology for consumers to pay with crypto and merchants to accept it is already here — in theory. Coinbase enables merchants to accept crypto, either directly or through automatic conversion of crypto to fiat. PayPal offers a similar service for merchants. Both companies also offer consumers the ability to pay in crypto through their consumer apps. When consumers use the PayPal app, the option to pay with crypto shows up if the user holds crypto.

Square — now Block — was early, but didn’t see a big uptake with paying in crypto. It introduced a feature allowing Square sellers to accept bitcoin in 2014. In 2017, CEO Jack Dorsey told Forbes it hadn’t seen meaningful volume, and references to accepting bitcoin with Square no longer appear on Square’s website. Today, users of Block’s Cash App who hold bitcoin can use the “proceeds” of their bitcoin to spend, meaning after it’s converted back to fiat.

Still, more consumers are trying crypto, and those who hold it are interested in being able to use it for payments, said Roy Zhang, group product manager at Coinbase. “They're always asking us, ‘How can I use it more? How can I actually spend it on a day-to-day basis?’” he said. “Over the course of the next year or so, I imagine that growth trend is going to continue and accelerate even further.”

Accepting crypto

Merchants that accept crypto are more interested than consumers because there are no chargebacks or interchange fees with crypto, saving them costs and headaches, whereas credit cards have higher fees and can have chargebacks weeks later, said Sundeep Peechu, general partner at Felicis Ventures. But that doesn't interest consumers, who benefit from the wide acceptance of credit cards and the protections of chargebacks. “Consumers will end up using it if it's beneficial to them — not to save merchants 1%," Peechu said.

Even if crypto payments cost less and were easy to accept, merchants still have concerns about issues such as the privacy of transactions, said Jose Fernandez da Ponte, SVP and GM of Blockchain, Crypto and Digital Currencies at PayPal.

“A payment is not a transaction,” he said. “If you're a merchant, even if there is a stablecoin that does not have the volatility risk, you still have all the things that are associated with payments: refunds, chargebacks and returns, and integration with the payment stack and reporting.”

Crypto incentives now are not clear for mainstream consumers: Many get 2% cash back from a credit card and don’t understand how or why they can get higher returns on their money by using BlockFi or other crypto services. Indeed, it’s more common to see bitcoin rewards for spending fiat than rewards for spending crypto. But crypto incentives will get better and consumers will soon see the benefits, said Walter Hessert, head of strategy at Paxos Global, which issues a stablecoin and provides crypto services for the likes of PayPal, Meta and Mercado Pago.

“You're going to see incentive programs emerge that are going to help accelerate the adoption of what's just an inherently cheaper and more efficient way to settle, which is moving these dollars on the blockchain versus between a bunch of banks and a card network all taking a toll,” Hessert said.

Crypto is also volatile and, in the U.S., taxable, which makes it tricky to convince consumers to spend it when that transaction could generate tax obligations and forego future gains. Felicis’ Peechu said today’s crypto consumers are "buying because an asset will go up, not for payments."

Stablecoins could be a better way for consumers to adopt crypto payments, said Coinbase’s Zhang, since they’re designed to hold their relative value against fiat, not fluctuate.

To address some of the lack of trust or comfort with crypto, apps could use stablecoins as stand-ins for dollars, Hessert said. Consumers could hold fiat dollars that are converted to pay in crypto, or they could hold stablecoins that look just like dollars.

But there’s another hitch: Many popular DeFi lending programs currently promise a high yield on stablecoins, which is another disincentive to spend the tokens.

And all this assumes that stablecoins have ample, trusted reserves to back their fiat peg — an issue regulators and other observers are increasingly scrutinizing.

In addition, many stablecoins have limitations in terms of scalability or are built on Ethereum’s ERC-20 standard, which is not cheap and not fast enough to make them suitable for payments, PayPal’s da Ponte said. “I don't think that we have seen a stablecoin that works well for payments yet,” he said.

One more roadblock to crypto payments is that the onramps from fiat to crypto are still not robust yet, Redpoint’s Barooah said. Conversions are still not easy enough and there are compliance issues, so banks sometimes reject transactions, she added.

The crucial wallet

One key to winning the battle to own crypto payments is the consumer wallet, Peechu said. "Whoever owns the wallets wins this game," he said. "Like the browser was the gateway product to the front page — Google, Yahoo in the early days — wallets are the way to access Web3 infrastructure being built."

In this scenario, any website or crypto project you go to will accept a wallet that holds your crypto, NFTs and identity credentials. This includes the ability to access certain privileges or enter places or environments through holding NFTs or tokens. Payments are a natural to accompany those identity features. Coinbase appears to be moving in this direction with its recent metaverse announcement.

The problem now is that many wallets and other crypto products are still too complex and not built for mainstream users, Peechu said. "We're a little further away from a true 'aha moment' of onboarding hundreds of millions of users who are not technically savvy," he said.

There are other ways mass consumer adoption could happen beyond crypto wallets, such as messaging apps or other payments apps, said Paxos’ Hessert.

A company with a massive user base could turn on crypto payments and instantly have crypto wallets for millions of users to use for peer-to-peer payments or business payments. One company that intended to launch a cryptocurrency to enable payments, Telegram, shut down its crypto efforts last year.

Longer term, real network effects that will help crypto grow require products that allow people to transact directly in crypto, said PayPal’s da Ponte, who expects crypto payments to take off in 2022 as better payment integrations, better stablecoins and clearer regulation all roll out. “The true promise of crypto for payments is that you can arrive at fundamentally new payment rails and for those fundamentally new payment rails, you should be able to stay on the protocol on the blockchain.”

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins