If I were a merchant and sold something with a 20% gross margin, I would like you to convert 80% of the BTC I got into USD and keep 20% of them as bitcoin. So why not offer the choice to your client? If only black or white choice, as a merchant, they will get running-out-of-working-capital problem if keep all the money in the bitcoin they get paid.
If you offer the partially-exchange offer to the merchants, it will easily get them to keep some of them. later, They will spend more time to know about bitcoin and may try to use bitcoin themselves. This will make it a more widely accepted currency.
Yes, I agree...we are initially offering either BTC or USD payout, but merchants will want more flexibility than that. The hard part is doing it in a way that doesn't thoroughly confuse people. That's a great point you make about it enabling merchants to dip their toes in the bitcoin pool so to speak.