NEW YORK — While status as a mainstream payment system might be a ways off — if ever — Bitcoin may soon have a larger place in the retail world.

This story first appeared in the March 14, 2014 issue of WWD. Subscribe Today.

In January, the Hudson’s Bay Co. department store group, which includes Hudson’s Bay and Lord & Taylor department stores, launched a new mobile shopping application called Pounce for both divisions. Pounce is a consumer-facing app for m-commerce, enabling shoppers to buy merchandise displayed in print media using tablets and smartphones by scanning the image. Pounce accepts Bitcoin by working with Coinbase, a bank for Bitcoin. When a customer makes a purchase using Bitcoin, Coinbase converts the Bitcoins into U.S. dollars, which are passed on to Pounce and to Hudson’s Bay and Lord & Taylor. HBC does not directly accept Bitcoin, though the use of Bitcoin is facilitated through Pounce’s partnership with Coinbase.

While having no definite strategy to roll out Bitcoin as a payment method, “the Pounce app allows us to study and understand the market,” said an HBC spokeswoman.

RELATED STORY: China Halts Virtual Credit Card, Mobile Payments >> was the first major retailer to start accepting the currency as a mode of payment — and earlier this month said it surpassed $1 million in sales with Bitcoin.

The stateless, electronic currency — not governed by a central bank — can be acquired through a number of central Bitcoin exchanges and then spent either directly or indirectly at retailers or through third-party services or service providers, Alanna Klassen Jamjoum, director of A.T. Kearney’s Digital Business Forum, told WWD Thursday. There are major issues with it, however, ranging from questions of its legality to how widely accepted it will be to who the founder is. The perils of the currency were illustrated late last month when the largest Bitcoin exchange, Mt. Gox, suddenly filed for bankruptcy protection in Japan and its owner disappeared. The exchange at the time reportedly had about 850,000 Bitcoins worth about $474 million and it is now questionable whether investors will ever get their money back.


“It’s actually a currency in the sense that it’s traded, it has volatility, it’s subject to global and economic drivers — but it doesn’t have any physical manifestation,” Klassen Jamjoum explained, adding that Bitcoin differs from Google Wallet, for example, which is linked to a user’s bank account.

“Retailers can see it as a way to add to a mix of services and convenience they provide to consumers, but the extent that it will become a mainstream payment won’t happen anytime in the near future,” Klassen Jamjoum said.

Nebo Djurdjevic, chief executive officer of payments network Cardis International and an electronic payments expert, is also on the fence about whether Bitcoin will be widely accepted. While the fact that Bitcoin currently has no transaction costs for parties using it — an upside for retailers — eventually users will hit a ceiling on their usage.

The foundation of Bitcoin is a blockchain, what Djurdjevic referred to as a “decentralized, continuously updated public ledger detailing the history of all transactions on the Bitcoin network.” The blockchain doesn’t live on a single server, and is maintained globally by processors mining this activity.

“They race with each other to solve a fairly complex mathematical computation which is necessary to record the latest block of transactions in the blockchain. The prize for winning the race or completing first is freshly minted Bitcoins. New Bitcoins are created for this individual,” Djurdjevic said. “For someone running computers to process transactions for a blockchain, their motivation is that ‘I’ll get new Bitcoins awarded to me.’ That’s how they’ll make money.”

Based on the premise that only a finite number of Bitcoins will be made, a problem will arise when that number is reached. With no more being produced, Bitcoin processors will have to start charging transaction fees to fuel their operations to cover their costs.

So while he acknowledges that there has been some acceptance and there is more to come, Djurdjevic cautions retailers to analyze whether or not to veer into Bitcoin territory very cautiously.

“If you’re a retailer and you start accepting — it’s hard to stop accepting if it becomes popular —and if you have no guarantee on what the cost will be you’re exposing yourself,” Djurdjevic said. “Yes, you can subsidize it for a while but the music will stop, and at that point, the question is: what will be the transaction fees for retailers and consumers?”

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