Web3 and blockchain technology for small businesses: utopia or soon reality?

Stakeholders deeply engaged in the technological aspects of Web3, or passionate about its transformative potential, will often acknowledge, at least in whispers, the public relations challenges. The natural human tendency to approach new technologies with cautious scrutiny is only reinforced when the innovative realm is seemingly aligned with a culture of quick cash gains, accompanied by an atmosphere of frenzied speculation and an alarming lure of dubious characters.

However, this characterization should not overshadow the truly transformative potential of Web3. It is important to move beyond this reductive narrative and recognize Web3 as a powerful tool capable of revolutionizing the world of small businesses, and in doing so, become more grounded in the possibilities of the technology itself, rather than primarily as a means to get rich quick.

Web3 has been instrumental in meeting some of the more pressing challenges facing small and medium-sized enterprises (SMEs), and is on its way to providing even more tools for these organizations, which, according to the World Bank, represent approximately 90% of businesses and more than 50 % of employment worldwide. The integration of blockchain technology and decentralized payment systems can lead to a more cost-effective, transparent and autonomous business environment and is the new frontier for leveraging the technology in real life, rather than primarily as a platform for speculation.

Swipe fees – the disproportionate burden on SMEs

According to the National Retail Federation, small businesses are hit hardest by swipe fees. These are the fees that credit card providers such as Visa and Mastercard charge merchants to process payments. For some retailers, it even exceeds total operating costs, including perishables and frozen goods.

In FY 2021-2022, swipe fees increased 25% to pass $138 billion, representing merchants’ most important operating expense after labor costs. This also increased average annual spending by $700 in the US, which has the highest credit card fees among leading economies worldwide.

US businesses pay approximately 7x and 5x swipe fees compared to their European and Chinese counterparts, respectively. One reason for this is the monopoly of Visa and Mastercard. They held 80% of the payment processing market and imposed a fee increase of $1.2 billion in April 2022 despite widespread criticism. But more generally, they also make smaller merchants pay more fees than larger firms with national networks and millions of transactions.

Promote greater parity and autonomy with Web3

The scenario with swipe fees shows how the balance is constantly tipped towards SMEs in traditional industry models. However, Web3 provides the tools to solve this crisis, not only in theory but also in practice.

Revolutionary platforms are already using blockchain technology, digital currencies and decentralized payment networks to help smaller businesses eliminate swipe fees. Removing intermediaries promotes direct, transparent interactions between firms and customers, reintroducing control and autonomy to SMEs.

Web3-native merchants can transact directly with consumers without third-party payment processors because such transactions are settled and recorded securely on the underlying blockchain ledger. These decentralized peer-to-peer models give SMEs control and autonomy, empowering them against unfair monopolies.

Moreover, the community-oriented nature of Web3 platforms provides stakeholders with meaning in decision-making. This means that small and medium-sized businesses can participate actively in determining fees such as fees or subscriptions, where relevant. Their interests are fully preserved in this way, protecting smaller firms from the kind of manipulation usually found going on in traditional setups.

Expand your horizons with Stablecoins

Not only do new Web3 platforms provide the framework and tools for building non-mediated relationships, but they also offer alternative currency systems. Stablecoins, like USDC, bypass the volatility typically associated with cryptocurrencies and present a stable peer-to-peer payment channel for businesses.

Unlike cryptocurrencies such as bitcoin and ether, stablecoins – as the name suggests – allow sellers and consumers to bypass volatility and uncertainty. This is particularly beneficial in economies struggling with weak fiat currencies, high inflation and regulatory obligations.

Stablecoins used with Web3 technologies can also reduce transaction fees by nearly 99%, promoting a viable alternative to credit card addiction by freeing both individuals and SMEs from perpetual high-interest debt cycles.

Randal Quarles, deputy chairman for oversight of the US Federal Reserve Board, told citizens “not to fear stablecoins” and to give “strong consideration” to their potential benefits. Similarly, the Digital Euro Association emphasized the role of stablecoin-based micropayments in increasing digital competitiveness in Europe.

Prominent figures such as Randal Quarles, Deputy Chairman for Supervision at the US Federal Reserve Board, and entities such as the Digital Euro Association, have supported the potential benefits of stablecoins. Such endorsements suggest an impending favorable regulatory environment for stablecoins, offering additional support for their integration into SMB payment offerings in the long term.

The cultural driving force for Web3 and SMB

So much for the specific, somewhat technical problems that Web3 helps SMEs tackle. But there is also a solid cultural (even moral!) case for connecting the two. Web3 provides the toolset for highly transparent businesses – something consumers under 50 in particular value enormously.

Ambiguity has been a major problem in older systems for both sellers and consumers. Companies can act as they please – maximizing profits no matter what – because of the opacity that currently permeates all levels of business interactions. And as shown by the swipe fee case, SMEs are always the worst hit when this happens.

Web3 brings a progressive philosophy based on truth, justice and fairness. Businesses can remain profitable – in fact more so – without placing an undue burden on other stakeholders. The motive to balance collective progress with individual self-interest is perhaps Web3’s biggest plus for SMEs.

Thanks to community orientation and user-centricity becoming the norm with Web3, smaller firms can finally take advantage of innovative technology without facing obstacles from the big players. If done well, which is highly likely, it will make anti-competition a thing of the past.

Therefore, from a broader perspective, Web3 is anything but a futile dream or a trap to continue the status quo while introducing new challenges. Instead, it is the source of opportunity; a means of correcting not one but many historical wrongs facing smaller businesses. And thanks to dedicated innovators, Web3 is becoming a reality.