BitPay's recent decision to eliminate its fees for small merchants sacrifices some of the company's revenue to boost the larger Bitcoin economy.
The Atlanta, Ga.-based company's investors are in support of the move as part of BitPay's efforts to demonstrate that a large market exists for Bitcoin payments, said Tony Gallippi, co-founder and CEO of BitPay.
"Our investors want us to build products and acquire customers; they aren't really concerned about the short-term revenue," he said.
Previously, smaller merchants using BitPay could opt in to one of two starter plans, either paying a 1% fee on all transactions or a $30 monthly fee. Larger merchants doing high volume can purchase the business plan for $300 a month or an enterprise plan, which doesn't have a listed price.
On July 29, BitPay dropped the 1% fee model and $30 a month package. Merchants that were using these plans were moved to the free plan.
"Feedback has been positive," Gallippi said. "Within our first day, our number of merchant signups in a typical day was triple than the week beforehand."
BitPay also makes a "little bit of money" on the spread of Bitcoin price, said Gallippi.
Currently BitPay works with about 37,000 merchants. Dropping the transaction fee is an added motivation to get more merchants accepting Bitcoin.
"We really want more transactions moving through our platform," Gallippi said. "We're on a mission to sign up one million merchants by the end of 2016; to reach that we have to increase [our number of merchants] by a factor of 30 over the next two years."
The freemium model has been popular in the software as a service industry, providing a base level of features for free and then charging customers for more advanced functionality.
"Merchants can choose whether they want to pass those savings on to their customers or save it for themselves to promote with advertising," said Gallippi. Newegg, one of BitPay's merchant clients, is giving sizable discounts to consumers that purchase with Bitcoin, he said.
Merchants using BitPay's business package pay a monthly fee to receive live phone and email support, assistance for integrations and Quickbooks support. Enterprise customers receive 24/7 live priority phone support and full integration support with BitPay developers. Merchants on the enterprise plan also often get chosen to participate in case studies and marketing campaigns, said Gallippi.
The free service is a fit for the same types of retailers who accept card payments on tablets or e-commerce sites, said Gallippi. The free model would also work for smaller e-commerce merchants who use Shopify, which BitPay supports through a plug-in.
BitPay's strategy to cut transaction fees may seem like one to make merchants happy, especially smaller merchants, but other payment providers have faced resistance for dropping their transaction fees.
Square introduced a pricing option in 2012 that had no per-transaction fee. Instead, Square charged a flat monthly fee, but set certain restrictions on which merchants qualified for this rate (those who did not qualify had to pay Square's standard transaction fees). Square eventually removed the option to pay a monthly fee because merchants found it too limiting.
SCVNGR's LevelUp has similarly experimented with its own pricing. When it launched its Interchange Zero initiative in July 2012, the company did not charge for individual transactions but assessed a 40% fee when consumers redeemed offers. LevelUp reinstated the 2% transaction fee about a year later, saying its merchants wanted flexible pricing options.
But LevelUp is still set on lowering interchange, earlier this year dropping the fee to 1.95% after it started using transactions aggregation. It's also pushing consumers to link debit cards in an effort to cut its own transaction fees.