I have spent the last few months investigating on Bitcoins trying to understand the way they work and the related business opportunities. Beyond the fascination for a disruptive innovation in the payment industry, for macroeconomics theories that dump whatever you learned in business schools, for the anarchic dream of getting rid of centralised governance authorities in favour of self regulated systems, I have basically asked myself a simple question: why should my mum use them?

Which means, what are the key benefits for consumers? and for merchants? To which extend are these benefits easy to get and solve mass market problems?

While for merchants I have found a pretty compelling reason why, in the case of consumers I am still struggling to find a good one that would justify a mass market adoption. I will start from merchants to then share some food for thoughts on consumers.

A merchant accepting Bitcoins will mainly have three benefits:

1) Save on card payment fees: from 2-4% to almost 0%.

Why? Bitcoins shorten the payment value chain reducing the large amount of stakeholders, each one taking a share of the fee for providing its specific service.









Bitcoins replace the above long list of stakeholders with a public blockchain ledger: a sort of log where all the transactions are registered. The only third party involved is the so called Miner who actually validates the transaction. Many transactions are typically processed without paying any fee. However, for transactions which draw coins from many bitcoin addresses and therefore have a large data size, a small transaction fee is usually expected (more on https://en.bitcoin.it/wiki/Transaction_fees).

The impact on merchant's P&L can be considerable. Imagine an average consumer electronics online retailer with 5% profit margin. Credit card fees (≈ 2.5%) would half the margin. As a result, accepting Bitcoins would result in doubling the margin for those specific transactions.

The main risk is however the currency volatility. In order to offset that, companies accepting bitcoins (e.g. Expedia) convert them immediately in local currency.

Another direct consequence of 0% payment fees is that micro-payments can now be profitable. Standard fee structures usually include a fix component on top of the variable part (e.g. $0.30 per transaction) which usually kills the profitability for items sold for less than $1.00. None of this would happen with Bitcoins.

2) By accepting Bitcoins, merchants have access to a 4.8 billion euros economy (today's Bitcoin market capitalisation) and can become the preferred option just for opportunity of paying with them. Therefore they can be a differentiating factor.

For instance, I have to book a hotel and I have Bitcoins in my wallet. When deciding where to buy I might choose one website as opposed to another, only because there I can pay with my Bitcoins.

3) Bitcoins eliminate risk of credit card fraud: they are like "digital cash" or, better said, a digital bearer instrument where the receiver of a payment does not get any information from the sender that can be used to steal money from the sender in the future.

Credit card fraud is a big thing for both banks and merchants. Many regular transactions are often denied for fraud risk just because they don't meet certain rules of an algorithm. Bitcoins could therefore increase also checkout conversion rates.

From the consumer's perspective, the main benefits are:

1) No bank account is needed: people without a conventional bank account (there are entire countries), pay huge fees for transferring money through alternative services. Bitcoins could therefore be a big disruption, for instance, in the international remittance market ($400 billion value - World Bank) and preserve the value of low-income people which now pay up to 10% for sending money to their families.

2) Privacy: Bitcoins sit in between cash and credit cards when it comes to privacy. They are less anonymous than cash since they are linked to a unique public key but they are more private than credit cards since no details that can be reused later, such as the credit card number, is given.

This does not mean that Bitcoins are a tool for criminals. Indeed they are pseudonymous but not anonymous and the public blockchain ledger structure allow to track where the money comes from.

And here comes my question: based on these two key benefits, why should my mum use them? or in general an average customer should have any interest in it?

At this stage, unless you are a geek, I don't really see why you would use Bitcoins on daily basis and really challenge the status quo. While for merchants there is a clear massive incentive, on the consumers side the proposition is still pretty niche.

In order to boost the adoption on the consumer side, I believe that part of the merchant's benefit (savings on fees) should be given back to customers. What I have in mind is a loyalty program that would use Bitcoins as a "loyalty currency" instead of points. Loyalty programs & cripto-currencies have a lot in common. They are both becoming non-conventional payment tools and the growing number of merchant accepting loyalty points or bitcoins is increasing their liquidity.

Loyalty programs are however pretty expensive. Companies need to invest on average 0.5-1.0% of their revenues for a loyalty scheme and this goes on top of the credit card fee when the transaction does not happen in cash. Connecting the two worlds we could imagine the following:

1) A retailer accepts Bitcoins and saves on payment fees

2) Savings are used to finance a generous loyalty program (1.0-1.5% of the revenues)

3) The retailer is still saving while investing in a loyalty scheme and retain its customers

4) Customers get 1.0-1.5% back when they pay in Bitcoins and develop a loyal attitude towards the retail

5) The Bitcoins given back can be spent at any time in the thousands of stores (online and offline) accepting Bitcoins

So what about my mum now? I think she is still struggling with Bitcoins but now she gets a very straight forward message: "if I use Bitcoins I save money and I can spend this savings in thousand of stores. A bit like the points I used to collect with loyalty cards at the supermarket. But now, I get much more!"