REFLETS MAGAZINE - Revue d'information et de réflexion économique - n°100 - 66

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Bit Coin

Virtual currencies :
taking out the middleman
E-commerce is booming, growing at around 20 % per year according to a recent
report. But despite these changes in our consumption behavior, most online
payments are still made with the good-old credit card, a technology
that hasn’t much evolved in decades. Consumers are familiar to this technology and
tend to forget some of the drawbacks to the credit card, not least the fees and
privacy issues. So is it time to explore new payment options ?

nter digital currencies. Although they’re not
entirely new, digital currencies have been
on the rise in recent years – and in particular
since the arrival of the Bitcoin in 2009.
Indeed, Bitcoins and other digital currencies resolve
some of the drawbacks of using traditional currencies or credit cards. In the wake of financial and
economic crises, many announced that the Bitcoin
could revolutionize the financial landscape or even
one day replace the dollar. That said, while signs are
encouraging, marketing professor Ashwin Malshe
believes that their time to « take over the world »
hasn’t quite yet arrived.
So what are some of the benefits of using a digital
currency and what’s holding them back ?

The up side : saving on transaction fees
« One of the clear benefits of digital currencies is
that they help both companies and clients save
money », he explains. « For companies using virtual
currency, they take out the credit card company
middleman : they no longer need to pay a fee every
time a customer uses a credit card and they can
easily pass this savings onto the customer. »
« Currency exchanges can also cost companies –
pay an employee in a virtual currency and they won’t
need to worry about losing a cut every time a check
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changes hands. Facebook is already using its digital
currency to pay its developers. »
Closed corporate ecosystem currencies, like Facebook Credits – whose value is decided by the company –, are starting multiply. After Facebook’s success with the technology, Amazon launched the
Amazon Coin just last month, to positive reviews.
And according to professor Malshe, adoption is
easier in this environment because clients are
already fairly familiar with the system : similar systems like air miles and loyalty points have already
been around for years.
And the Bitcoin – the most popular, floating cryptocurrency, which acts much like a traditional currency
– is also growing in popularity, particularly amongst
small businesses : saving on transaction costs can
make a big difference to their bottom line.
So if digital currencies are helping everyone save
money, what’s holding them back ?
« Above all, traditional monetary entities like credit
card companies and banks are going to be major
obstacles to the scaling up of digital currencies », says
professor Malshe. « They’re standing in the way of
change and they won’t be easy to convince. »
The down side : volatility
With corporate virtual currencies, corporations

N° 100 - juillet/août 2013

REFLETS MAGAZINE - Revue d'information et de réflexion économique - n°100

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