The session explored how B2B invoice payments, and expense reimbursements in cryptocurrency can be managed from an operational, and accounting perspective.
Disclaimer: This article is to be considered as general advice only. The opinions contained herein should not be relied upon as providing specific advice for you or your clients. The information contained within this presentation is based upon our understanding of the relevant legislation, regulations and other materials as of May 2022.
Why More Companies Are Using Crypto
Critics of cryptocurrencies often say that these privately-issued forms of digital money lack real-world utility. But the numbers seem to tell a different story. Within just sixteen months of launching, over 1,700 companies have paid more than $200m in invoices using the enterprise crypto payments platform, Request Finance. Zooming out, the volume of cryptocurrency transactions globally grew to $15.8 trillion in 2021, up 567% from 2020.
Two compelling reasons can explain the growing enthusiasm of enterprises for crypto: operational efficiencies, and financial gain.
Faster, Cheaper Global Payments in Crypto
For starters, crypto payments can offer cheaper, faster, round-the-clock payments as compared to traditional banks. The reason lies in their design. Blockchains are global ledgers that are tamper-resistant, always accessible, and decentralized. That gives cryptocurrencies one crucial feature - they do not require an intermediary to process transactions. No bank branches, no card processors, no payment gateways.
The benefits of crypto payments are less evident for domestic money transfers. This is especially true if you live in a major city, in an advanced economy where accessibility of digital banking services is high. However, crypto payments are still incredibly attractive for countries where digital banking infrastructure is unavailable to large swathes of the population.
But when it comes to global money transfers, blockchain-based payments are nearly always superior - in nearly every measure of efficiency, cost, and speed - to the present system running on SWIFT interbank messages, card processors, and PDF invoices.
Thanks to the internet age, more businesses today are born global. Consider software companies that make apps, or perhaps even marketing and creative agencies. Such businesses are increasingly commonplace in an internet age. They serve customers from anywhere, and likely also hire team members and service providers globally. All of these businesses require a system of global payments that is fast, cheap, and accessible. That’s where crypto payments really shine.
The rise of stablecoins - cryptocurrencies whose value is pegged at a fixed rate to fiat currencies like the US dollar - has also accelerated the enterprise adoption of crypto payments. Data from Request Finance shows that USD-denominated stablecoins made up more than half (56%) of the crypto invoices paid by enterprises in April 2022.
The popularity of stablecoins for enterprise payments, as opposed to more volatile cryptocurrencies like Bitcoin or Ethereum can be explained with many of the same reasons why most people do business in fiat, rather than settling payments in shares of tech companies listed on the NASDAQ. Their stable prices make them ideal as a medium of exchange, and unit of account - two of the three defining uses of money.
Corporate Treasury Management with DeFi
The second driver of enterprise crypto adoption is financial gain. Having a portion of your company’s cash reserves in cryptocurrencies opens up access to decentralized finance,or DeFi platforms. These platforms are pieces of software that replicate the functions of traditional financial institutions like lending, borrowing, insurance, and derivatives.
Replicating the core functions of financial institutions using several hundred lines of code, translates to very attractive yields. With decades of declining, and even negative interest rates, DeFi is growing in popularity among companies looking for liquid instruments that can deliver higher returns on their corporate treasuries rather than bank deposit accounts, or money market funds.