The Bitcoin Factor

Let's take a look at costs incurred through what I will call a "Bitcoin Business Cycle" for a merchant using a MtGox and a Paxum account, versus a merchant doing business with a typical credit card company.

Assumptions:

I'm using the MtGox market rate at time of posting ($8.88/BTC). In this example, the merchant uses the Paxum Mastercard and withdraws from his account by ATM, once per month over the course of a year. I'm also assuming that over time, a merchant will be able to average out their profits and losses when converting their BTC to USD, such that no additional costs are incurred. I can see how this would be a controversial assumption, but as a Bitcoin trader and investor, I believe a savvy merchant should actually be able to avoid losses on their conversions, especially when using a deflationary currency like Bitcoin (this concept will be more obvious as Bitcoin really starts to catch on). There are already merchant service providers, like bit-pay that charge additional fees (2%, at last report) to absorb the conversion risk, which basically wipes out most of the benefit of using Bitcoin as a merchant.

*Credit card fees are estimated based on the example cited at the bottom of this article from the CBC.

The "Bitcoin Factor" is the ratio of credit card fees to Bitcoin Business Cycle fees. At today's market rate, and using the transaction services cited in my example, anyone doing more than 404 BTC in business is already saving money by accepting Bitcoin. Anything more, and a merchant saves more (because many of the transaction costs are fixed). I haven't even considered the cost of chargebacks, which don't exist in the Bitcoin realm.

Of course, there are already many other ways to convert your BTC to cash. If you're not in a hurry, you could even get the USD mailed to you in the form of a cheque and save the cost of using a Paxum Mastercard and ATM. I haven't looked at Dwolla's fees, but they might be even lower.

In a perfect world, a merchant would be able to cover his costs in BTC and not incur ANY additional fees beyond the 0.0005 transaction fee, but certain costs will inevitably remain payable in cash only (taxes and utilities, for example).

In conclusion, every merchant setup is a little different. Whether or not it is beneficial to accept Bitcoin will depend on the services used and the volume of transactions accepted. I hope that I've shown, however, that overall, there is a benefit for merchants to accept Bitcoin.

If anyone wants to use my spreadsheet to make their own calculations, here it is.

Posted in: bit-pay,Bitcoin Factor,merchants,paxum