Analysis

Are Crypto Payment Apps Really Boosting Adoption?

Flexa and a number of other crypto payments apps have been expected to boost crypto adoption--but is it really happening?

Crypto payments applications have been around for some time now. BitPay, CoinGate, and a number of others have allowed hodlers to pay for their goods and services at a number of retailers, most of them online. However, only a handful of big-name retail companies were willing to interact with these payment providers or with crypto at all.

Then, in May of this year, the collective crypto news media lit up with reports that an eye-popping list of US-based retailers would now accept crypto payments through a company called Flexa, a crypto payments app issuer partnered with Gemini, the Winklevoss-owned cryptocurrency exchange.

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Flexa’s app, dubbed ‘Spedn,’ was slated to allow hodlers to pay for their groceries, cups of coffee, and ice-cream cones with crypto, all at major US retailers: Baskin Robbins, Whole Foods, Dunkin Donuts, Gamestop, and many others listed among them.

The launch of Spedn was the moment that many had been waiting for–after all, the adoption of crypto payments in US-based retail giants would surely bring the big bang to crypto that the industry had been waiting for.

“The idea of living on crypto is now a reality. You can now do it,” Tyler Winklevoss said to Fortune. “For the consumer, it amounts to being crypto conscious. It’s like being green.”

However, did the launch of Flexa–in addition to the growing number of other crypto payment apps–amount to the massive upswing in adoption that many hoped it would?

Caveats

Well, kind of. While reports that these US-based retail giants were accepting cryptocurrency payments were indeed true, there were a few important caveats: for one thing, while anyone can download the app, one must have an “invite” code in order to actually begin using it.

For another thing, Flexa app users are limited to just $100 in payments per week, and payments that Flexa deems as suspicious can be delayed indefinitely.

The criteria for what ‘suspicious’ means was not plainly explained in Flexa’s legal terms, which say that “Spending on the App is currently limited to $100 per week for all App users. Flexa reserves the right to temporarily delay, hold, or return deposits in order to prevent money laundering, fraud, or terrorist financing, and Flexa may prevent a user from generating Flexcodes™ for this reason as well.

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Who’s gonna use this?

Additionally, there isn’t much incentive to start using the app if you’re not a die-hard crypto enthusiast already. Fortune reported that although “the Flexa system opens the door to an easy way to spend crypto at stores around town” on the consumer end of things, “this doesn’t mean, though, that more than a handful of people will actually do this—especially given that other payment methods work perfectly well.”

One Reddit user also pointed to the number of steps involved in getting to the point where the app can actually be used. After ensuring that one is a resident of either the US or Canada, one needs to:

 

  • “…Download the SPEDN app.
  • Go to the Flexa site and try to get an enable invite.
  • Enable SPEDN.
  • KYC into SPEDN or Flexa (not clear which)
  • Wait X many days / weeks for KYC to process.
  • Deposit BCH into SPEDN app after KYC completes
  • Wait X many days / weeks for BCH [or another cryptocurrency] to be ‘available to spend/spedn’
  • …Go get groceries but make sure it will total to less than $100”

 

And even at that point, one needs to be sure that the store locations that they are patronizing have correctly configured their cash registers to be able to accept payments from the Spedn app. This is the basis of how Spedn has gotten its foot in the door with so many national retailers: “what Flexa has done is persuade the retailers…to configure their scanners to recognize payments from its cryptocurrency app,” Fortune explained.

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At that point, things should continue smoothly: “the customer simply holds up their app to pay. The store cashier will typically be unaware the customer is paying with crypto, while the merchant receives a real-time payment in the form of their choosing (crypto or dollars).”

Interestingly, the retail providers that Flexa has partnered with have remained strangely silent on their decisions to adopt Flexa. Fortune explained that this might be because “retailers don’t want to discuss them until they gain a better understanding of the technology and consumer demand.”

Are crypto-to-fiat payment apps ultimately hurting crypto?

There has been also some controversy in the cryptocurrency community over the payment channels that apps like Flexa use.

After all, Flexa makes it possible for retail companies to “accept” cryptocurrency payments in such a way that the companies don’t ever have to dirty their fingers with cryptocoins themselves: the app allows customers to pay in crypto, but that crypto is converted into fiat before it is deposited with the company.

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Therefore, while cryptocurrency is technically used in Flexa transactions, the app–and other crypto payment apps that have similar functional models–could ultimately be considered as an off-ramp for crypto.

Here’s why–the people who are most likely to use Flexa most likely fall into two categories: first, casual crypto enthusiasts who maybe have a small portfolio of coins on Coinbase or another easy-to-use, high-fee exchange app; second, the individuals that Tyler Winklevoss described–those that have the financial and circumstantial flexibility to try and be “crypto conscious.”

So, in other words, Flexa and similar payment apps–including BitPay, CoinGate, and many others–are essentially facilitating the exodus of capital from crypto markets: when using one of these payment apps, people who have enough crypto to live on are slowly leaking money that is stored in crypto into fiat markets.

Casual enthusiasts are doing the same thing, but they are often paying neat little sums in fees to crypto exchange apps before they do so–for example, if a person wanted to spend $100 in Bitcoin on Flexa’s app, but needed to use an exchange (Coinbase, for example) in order to secure the $100 in crypto in the first place, said person would pay a $2.99 base trading fee in addition to 0.50% of the funds exchanged.

(That fee is paid with fiat, by the way.)

And does Flexa itself store any of its own assets in crypto? Finance Magnates reached out for commentary but had not heard back at press time.

The regulatory and technical infrastructure to support big companies in receiving native blockchain payments just isn’t there

However, Flexa pointed out in a blog post that accepting native blockchain payments on a national scale is an accounting nightmare–there simply isn’t the infrastructure to support the logistical and compliance steps that would need to be taken on a daily basis.

“Today, if merchants can “‘accept’ cryptocurrency while dealing in fiat, then they can avoid all of the regulatory and accounting uncertainty presently related to digital assets — not to mention, the IT and security headaches involved with the management of private keys and wallet addresses,” a blog post from the company reads.

The post also points out that even if retail companies did accept crypto payments themselves, they would be responsible for converting it to fiat in order to pay their vendors, employees, and for other business-related costs. While some retail companies have the financial flexibility to store a portion of their assets in volatile cryptocurrencies (or non-volatile stablecoins), opting to store their assets in fiat or other, more stable and more regulatory-friendly kinds of assets is a much simpler undertaking.

Essentially, “until the consumer side of the equation moves forward significantly, most medium and large merchants simply cannot justify the effort and cost required to coordinate each of the cross-enterprise teams necessary to integrate cryptocurrency payments natively,” the blog post continued, “and this often means the difference between launching and not launching a product in this decade.

Privacy may also be a concern for companies that are thinking of accepting native blockchain payments. Flexa argues that “merchants who settle in fiat”–in other words, merchants who use Flexa’s product to accept crypto–”can maintain their own transaction privacy by keeping economic data off of the blockchain.”

Big companies are still getting into crypto with their own coins

While retail companies may have shown hesitance toward Bitcoin and other major cryptocurrencies, a number of them are still making strides toward the cryptocurrency industry in other ways. Facebook is still fighting regulatory battles to launch Libra, its global crypto payments network; Walmart famously filed a patent for a coin of its own in early August.

Additionally, banks in the US and abroad have shown a vested interest in blockchain technology, which powers cryptocurrency, if not crypto itself. JPMorgan Chase is working on the launch of JPMCoin; Bank of America has filed a number of patents related to cryptocurrency.

But these manifestations of cryptocurrency adoption may also not be exactly what crypto enthusiasts have been hoping for–instead of using blockchain technology to create decentralized systems that place power in the hands of the consumer, these companies are essentially creating internal financial systems that bring more power to themselves.

Imagine: RetailGiantX creates RGX, a native cryptocurrency that can be used to buy and sell goods and services from its stores–and hey, you can also send and receive RGX from your friends and family. The super-extra-great thing about RGX is that if you use it, you get a lot of discounts on things that you need every day! And it’s so convenient!

So, you (and millions of other shoppers) take money out of your bank account and store it instead in your RGX account. Now, RetailGiantX has large amounts of its customers capital–money that they haven’t even technically spent yet–to invest and expand its own business.

Indeed, when it comes to crypto retail adoption it seems as though crypto hodlers can perhaps have their cake: increasingly, crypto payments are accepted at retailers around the US and the world–but they certainly can’t eat it too.

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