Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / How Franchisees Use Cryptocurrency for Royalty Payments
Transcript
- Lucas: Alright Luna, let's talk about something that sounded fringe two years ago but is quietly becoming real: franchisees paying their royalties in cryptocurrency. Luna: Wait, like Bitcoin? For real? I’ve heard of companies holding crypto on their balance sheet, but paying monthly fees in it feels different. Lucas: It is different. I’m talking about a specific case I came across: a multi-unit QSR franchisee based in Dubai with about 50 locations. They’re paying their U.S.-based franchisor monthly royalties in USDC — a stablecoin pegged one-to-one to the U.S. dollar. Luna: Right, USDC. So not the volatile stuff. They’re basically digitizing dollars to avoid wire fees and conversion spreads. Lucas: Exactly. And the numbers are compelling. This franchisee told me they were paying roughly 3 percent in total friction costs per wire transfer — bank fees, currency conversion, intermediary charges. On a $50,000 monthly royalty bill, that’s $1,500 a month, $18,000 a year. By switching to USDC, they cut that to near zero. The transaction cost on the blockchain is fractions of a cent. Luna: Eighteen grand is real money. That’s a part-time employee. But doesn’t the franchisor have to be willing to accept it? That’s a big if. Lucas: It’s a huge if. In this case, the franchisor was already crypto-curious — they had a small treasury allocation in Bitcoin. So when the franchisee proposed paying in USDC, they said yes, as long as the franchisee covered any conversion fees on the franchisor’s end. The franchisee agreed, and they set up a simple smart contract that auto-converts USDC to USD every month. Luna: That’s the kind of setup that could scale. But I’m guessing most franchisors still want dollars in their bank account, not crypto. Lucas: Most do. But the number of franchisors willing to experiment is growing. I spoke with a franchise attorney who represents about 30 franchisors, and she said she’s now seeing a clause in about 15 percent of new franchise agreements — an optional crypto payment rider. It’s not standard yet, but it’s becoming a negotiating point, especially for international franchisees. Luna: And that’s the key — international. For a franchisee in Singapore or Brazil, the savings on cross-border fees are much bigger than for someone in Ohio. The wire costs alone can eat 5 to 7 percent. Lucas: That’s exactly the story. There’s a fitness franchise — boutique studio concept — that has a franchisee in Singapore. That franchisee pays a deposit and ongoing royalties in Bitcoin. Not a stablecoin, actual Bitcoin. The franchisor then immediately converts it to SGD through a crypto exchange. They do it for speed — the Bitcoin transfer settles in under an hour, versus three to five business days for a wire. And the fee is about $2, regardless of amount. Luna: I love that. Speed matters when you’re opening a new location and need to get the deposit cleared to start construction. A three-day delay can mess up your timeline. Lucas: And it’s not just speed. It’s also about banking access. Some franchisees in emerging markets have trouble opening U.S. dollar accounts or face capital controls. Cryptocurrency bypasses that. The franchisee in Dubai, for example, told me he used to keep a U.S. bank account just for royalty payments — minimum balance requirements, monthly fees, all that. Now he doesn’t need it. Luna: So what’s the catch? I mean, regulatory risk has to be the big one. The IRS and SEC have been circling crypto payments for years. Lucas: Catch number one: tax reporting. The IRS treats cryptocurrency as property, not currency. So every time a franchisee pays royalties in Bitcoin or USDC, it’s a taxable event. The franchisee has to report the fair market value of the crypto at the time of transfer, and if they bought it earlier at a lower price, they may owe capital gains tax on the difference. That’s a compliance headache. Luna: Especially if they’re making monthly payments. That’s 12 taxable events a year, per location, potentially. Their accountant is going to hate them. Lucas: Exactly. And catch number two: SEC classification. If the SEC decides that a particular stablecoin is a security, then the whole payment chain could be subject to securities laws. That would be a nightmare. So far, USDC has not been classified as a security, but the regulatory landscape is fluid. Luna: And catch three: the franchisor has to be willing to hold crypto, even for a few minutes. The Singapore franchisor converts immediately, but there’s still a window where they’re exposed to price volatility if they use Bitcoin. One bad swing and that royalty payment is suddenly worth 10 percent less. Lucas: That’s why stablecoins are the more common choice. But even with stablecoins, there’s what’s called 'de-pegging risk' — the stablecoin temporarily losing its dollar peg. It happened to USDC briefly in 2023. If that happens during a transfer, the franchisor could get less than a dollar per coin. Luna: So it’s not a silver bullet. But for a savvy franchisee with a willing franchisor, the cost savings are real. And it’s happening more than most people realize. Lucas: And if these conversations have moved your work forward in some small way — maybe you’re a franchisee yourself, or you’re advising one — listener support is what keeps this show ad-free and independent. If that’s valuable to you, you can buy us a coffee at buy me a coffee dot com slash fexingo. Luna: Totally. No pressure, but it helps us keep digging into stories like these. Lucas: So back to the trend: I wanted to put a number on how fast this is growing. I looked at data from a blockchain analytics firm that tracks corporate crypto payments. In 2024, they recorded about $340 million in franchise-related crypto transactions globally. That’s still tiny compared to the trillion-dollar franchise economy, but it grew 140 percent year-over-year. Luna: Wow. And I’d imagine 2025 and 2026 so far have kept that momentum. The infrastructure is just better now — more exchanges, more stablecoins, more institutional custody solutions. Lucas: Exactly. And the biggest driver might be something we haven’t mentioned yet: the push from franchisees themselves. A lot of younger franchisees — millennials and Gen Z — are already using crypto in their personal lives. They see the traditional banking system as slow and expensive. So when they open a franchise, they ask: can we do this digitally? Luna: That’s a powerful force. Franchisors who say no might lose out on top candidates. It becomes a competitive advantage to offer the option. Lucas: And some franchisors are taking it a step further. There’s a emerging trend where franchisors accept crypto not just for royalties, but for initial franchise fees and even ongoing marketing fund contributions. One mid-sized fast-casual brand I came across now accepts Bitcoin, Ethereum, and USDC for all franchisee payments. They’ve been doing it since early 2025. Luna: How’s that working out for them? Any pushback from existing franchisees? Lucas: They made it optional for existing franchisees. New franchisees have to choose a payment method at signing. About 20 percent of new franchisees in 2025 opted for crypto. The franchisor says it’s helped them attract international franchisees — they now have units in Mexico, Canada, and the UK, where cross-border payments used to be a pain. Luna: So the regulatory piece is still the big unknown. What’s the latest on that? Lucas: The IRS issued a notice in late 2025 clarifying that stablecoin payments for goods and services are treated like any other payment in kind — you report the fair market value. But they didn’t address franchise royalties specifically. And the SEC under the current administration has been more pro-crypto, but enforcement actions haven’t stopped entirely. So it’s still a gray area. Luna: But the trend is clear. More franchisees are going to push for this, more franchisors are going to accommodate it, and the regulatory framework will eventually catch up. It’s another example of technology creating efficiency in a very traditional industry. Lucas: Right. And I think the next frontier will be smart contract royalties — where the payment is automated and verified on-chain. Imagine a franchise agreement where the royalty calculation is coded into a smart contract, and every month the exact amount is transferred automatically based on the franchisee’s reported revenue. No invoices, no chasing, no disputes. Luna: That’s the kind of thing that could fundamentally change the franchisor-franchisee relationship. But it also requires a level of tech adoption and trust that most franchise systems aren’t ready for yet. Lucas: Agreed. But the Dubai QSR franchisee I mentioned? He’s already building that. He’s working with a blockchain developer to create a smart contract that ties royalty payments to his point of sale system. If it works, he’ll never have to manually initiate a royalty payment again. Luna: That’s fascinating. And it’s a reminder that the most interesting innovation in franchising isn’t coming from corporate headquarters — it’s coming from franchisees on the ground solving real problems. Lucas: Exactly. And that’s the story we’ll keep following.