It sounds like something out of a popular post-apocalyptic videogame, where a character can make purchases using bottlecaps, scrap, Eddies, or nuyen as currency. With billions of dollars a year either paid in fees to credit card companies or lost as potential interest income due to slow transference, some major retailers are considering taking a page from games like Fallout by accepting existing stablecoins or creating one of their own.
As legislation addressing cryptocurrency and blockchain technology slowly but surely makes its way through Congress, large retailers may be waiting to see the final forms of the new laws and guidelines before acting. Can a company legally issue its own form of currency in the United States, and if so, are we ready for legal tender with a picture of Jeff Bezos on it?
Digital Dollars and Corporate Cents
Cryptocurrency has positioned itself as one of the possible futures of money, but it's still an evolving mix of funds and technology. The use of blockchain technology has affected just about every industry imaginable, including the legal field. A basic understanding of how it works helps to explain why it's increasing in popularity.
Blockchain creates an immutable digital ledger for transactions. This decentralized database is shared, ensuring transparency. A transaction becomes a block, which is then chained together with other related financial transactions. This is done without the necessity of involving traditional banks and other financial institutions.
The visible record of transactions is designed to be accessible and not subject to fees from credit card companies and banks. Like all forms of cryptocurrency, there's always the danger of being hacked. While bills were introduced to create a government cryptocurrency reserve, nothing has occurred yet.
Retailers are said to be looking into stablecoins, which use blockchain technology. Fiat-collateralized stablecoins, which are backed by traditional currencies such as the U.S. dollar, would allow merchants to bypass paying credit card fees (usually about 3%) in purchases while offering relative stability. Even if they accept non-company-specific stablecoins, the economic windfall would likely be sizeable.
Why would retailers like Amazon and Walmart spend the time and expense creating their own stablecoins instead of using existing ones? A stablecoin branded to a merchant would have the same advantage offered by the company's gift cards — a captive consumer.
Once the money for a gift card is collected, it can only be used at that retailer's store. It's estimated that billions of dollars in gift cards go unused each year, which is found money for the merchant. Unused stablecoins would hold the same advantage for the companies, which are unlikely to make it easy, or even possible, to switch their digital currency back to hard cash.
Given the potential financial rewards, it's not surprising that the biggest retailers would be interested in embracing the usage of stablecoins. Will their customers be as enamored?
How Do You Punch a Digital Rewards Card?
While the federal government is still working out the details, it seems unlikely that there will be legal issues with a company either accepting or creating a stablecoin. Unlike the days of employees being paid in company scrip that was only redeemable at the company store, consumers wouldn't be forced to use the stablecoin for purchases. Trying to do so would be financial suicide for a retailer.
While merchants despise having to pay the credit card companies on each purchase, they might encounter difficulty getting their customers to make the switch. Consumers don't feel the credit card fee when they make a purchase, and they have a month to actually transfer the funds out of their account. Why would they be willing to tie up their unspent money with a retailer?
Enticing the general public to switch to company-branded stablecoins may require a robust rewards system, such as cash back on purchases or bonuses for frequent shoppers. A program like that may face a counter from credit card companies and banks, who won't let those fees vanish with a shrug. The only thing certain is that nothing is certain.
Related Resources
- What Are Digital Assets? (FindLaw's Estate Planning Basic Resources)
- Credit Card Rules and the CARD Act (FindLaw's Debt Relief)
- Gift Cards (FindLaw's Legal Guide to Consumer Transactions)
