What is a Crypto Payment Solution?

Just a few years ago a crypto payment solution was a term belonging to the realm of science fiction. Today, the technologies allowing investors to both pay with crypto and accept crypto payments have become a reality. That’s why we’ve put together this guide on implementing crypto payment solutions for SaaS and other companies worldwide.

This crypto payment solution implementation guide is targeted at two types of businesses:

• individual merchants that are considering accepting crypto payments and
• large-size companies and platforms looking to add crypto payment solutions to their omni-channel offerings.

We will start by demonstrating why payment platforms should support cryptocurrencies. Then we will show the benefits of omni-channel crypto-friendly payment solutions. After that we are going to analyze several crypto payment solution implementation options for merchants and platforms. Besides that, we will cover the most important aspects and principles of blockchain selection. Lastly, we will take a look at crypto payment processing costs and describe the industries, in which crypto payments work best.

For those unfamiliar with cryptocurrency, it is an encrypted and decentralized digital exchange medium. Cryptocurrency operations (unlike operations with conventional currency) do not require any authorities to manage and maintain the currency value. Instead, these tasks are performed by a multitude of cryptocurrency users and miners worldwide.

Now let us move on to the strong points of cryptocurrency as payment and investment vehicle.

Cryptocurrency as an investment vehicle

So, the main benefits of cryptocurrencies are as follows.

• Crypto operations do not involve any clearing authorities.
• Blockchain and distributed ledger technologies ensure cryptographic protection of crypto.
• Additionally, crypto can be a lucrative investment vehicle in times when conventional currencies are under the pressure of inflation.

So, why don’t all merchants switch to crypto? Well, the reason is crypto’s high volatility.

Stablecoins – immune to volatilities?

Indeed, people always considered cryptocurrency market, or crypto market, an extremely risky and volatile environment. So, cryptocurrencies, traditionally, were a high-risk investment. However, in recent times several companies introduced stablecoins, pegged to a specific currency, namely the US dollar. Examples of stablecoins include USDC (US dollar coin), BUSD (Binance USD), USDT (Tether), PAX (Paxos standard token), and others. You can easily find them on WorldCoinindex. As these coins are pegged to US dollar rate, they do not suffer from major price fluctuations, unlike more well-known currencies such as Bitcoin or Ether.

As a result, these and other companies are now offering saving accounts and other investment vehicles, denominated in stablecoins. Annual yeald on such accounts can reach up to 16%.

Given the current financial circumstances, it makes sense for many people to keep their savings in stabelcoins, as opposed to US dollars. Some of these companies even accept conventional currencies, such as US dollars or euros, and still offer yields of 8% or more per annum.

Crypto protection mechanisms

The concept’s founder, Satoshi Nakamoto, defined crypto as “an electronic payment system based on cryptographic proof instead of trust.” Cryptographic proof is based on blockchain principle. A blockchain is an encrypted thread or log, into which all transactions completed by all users are recorded. This mechanism ensures strong cryptographic protection of cryptocurrency assets.

Signs of growing popularity of crypto as a payment medium

Nowadays, many signs indicate that cryptocurrencies are becoming a common payment medium and investment instrument. Let us list just a few of them.

• Back in 2019, way before the pandemic-driven economic turmoil, Visa allowed transaction settlement in crypto through its Anchorage service.
• In May 2021 PayPal allowed its US customers to pay for products and services using their crypto accounts.
• Multiple decentralized finance or defi platforms and projects are rapidly developing. 221 out of 237 existing DeFi projects (as of 2021-22) were built on Ethereum ecosystem. Binance blockchain currently supports several dozens of DeFi apps. The most well-known examples include UniSwap, AAVE (Ethereum), Pancakeswap, Venus (Binance), and many more.
• Many large companies started accepting cryptocurrency as payment method in one format or another. Besides PayPal and Visa, they include Starbucks, Expedia, and several major airlines.
• Several new currencies, pegged to conventional currency rates, have emerged in recent years. These include USDC, USDT, BUSD, and others. As we’ve already noted, thanks to the peg, stablecoins are immune to sharp rate fluctuations. That is why they are a beneficial low-risk asset, compared to other cryptocurrencies. Also, stablecoin investments generally allow you to earn relatively high annual yield compared to conventional savings accounts.
• In June 2021 El Salvador became the first country in the world that acknowledged Bitcoin as a legal tender.

All these factors speak in favor of cryptocurrency as a conventional payment medium of the present and future.

That is why, development of cryptocurrency gateway solutions is a top priority for modern payment companies
and platforms.

From crypto-only to omni-channel solutions

In recent years, multiple cryptocurrency payment gateways have emerged, including Coingate, Shopify Gateway, Coinpayments, NOWPayments, and CoinsBank.

However, most of the existing crypto payment gateway solutions are solely focused on cryptocurrency payment support. Plus, many of these solutions are not yet targeted at payment facilitators. This means, that PayFacs and their sub-merchants that want to accept crypto must go through additional background verification procedures. Even if they already submitted all the documents to accept credit card payments.

Besides crypto, merchants need to keep using traditional payment methods, such as credit, debit cards, and direct debit. Therefore, gateway providers should enable them to accept cryptocurrency payments only in addition to conventional payment means.

These gaps leave plenty of space for payment technology improvement. So, gateway providers looking to add cryptocurrency support to their products, should focus on filling them.

As we know, the key functions of a payment gateway are to ensure payment security and harmonize the formats of payment data sent from merchant or PayFac to processor. So, developers of cryptocurrency payment gateway solutions should stick to these primary functions.

Basic payment methods modern payment gateways support, include credit and debit card payments, direct debit, as well as mobile and in-app payments.

Most modern platforms are not ready to go through radical changes. Especially, changes required to support payment methods, for which the workflow differs significantly from basic payment handling cycle they are used to. This may make it difficult for them to integrate with some separate crypto payment gateway products. Therefore, an easier option for them might be to use some omni-channel payment gateway solution. A truly omni-channel solution should support blockchain payment gateway features, in addition to other functions.

How to accept crypto payments within my business model? This is a question that more and more online businesses are asking. To accept and process crypto payments, you need to choose a crypto payment gateway solution that suits your business paradigm. The options available range from your own custom solution to an open-source crypto payment gateway product to an omni-channel gateway platform. As always, each scenario has its pros and cons. Conceptually, the three main options are as follows.

Building a crypto payment solution from scratch

This approach is the most flexible, yet the most challenging one.

You’ll need to write your own custom logic to accept payments. Besides that, you will have to support smart contracts to be able to implement transaction processing on a blockchain. Using your own solution allows you to save on transaction fees. However, complex development works discourage many businesses from choosing this option.

Pros

• Full control over the payment process. You control all aspects of payment handling and merchant lifecycle. From merchant underwriting to funding to chargeback handling.
• No merchant underwriting limitations. You can tailor your solution so that it supports all your target MCC codes.
• No transaction processing fees. As you are not relying on any third-party processors, you don’t have to pay them anything.

Cons

• Liability, in case of smart-contract exploits. As the developer of your solution, you assume full liability for its operation. Financial liability included.
• Upfront development and ongoing maintenance costs. According to rough estimates, development of your own custom solution from scratch costs at least $150-200K. Moreover, development process might take 6 to 18 months.
• Need for an additional solution for non-crypto payments. Cryptocurrency payment method is unlikely tore place fiat currency during the nearest decade. So, you will need to have fiat to fiat, crypto to fiat, and fiat to crypto payment gateway solutions at hand.

Using a third-party crypto payment solution

This is the most popular option among businesses wanting to accept crypto payments online and at POS. The choice of cryptocurrency payment gateways is wide and growing. Examples include Coingate, Shopify Gateway, Coinpayments, NOWPayments, CoinsBank, and many others.

Under the third-party scenario, you integrate your platform with a cryptocurrency payment gateway through its API. If you choose this option, you delegate all blockchain processing to the third party. This approach significantly reduces your time to market and has no significant upfront cost. However, it requires you to pay fees for each transaction you process.

Pros

• Fast initial setup and integration process. Under ideal-case scenario, you might be able to start processing in just 3 to 4 weeks.
• No significant upfront cost. Your development and integration efforts are relatively small. So, your upfront costs are also minimum.
• Limited liability in case of smart contract exploits. As the third-party crypto payment processor or gateway controls most of the process, it also assumes most of the liability

Cons

• Limited control over payments logic and the underwriting process. You can only underwrite merchants, whose MCC are supported by the crypto-currency payment gateway provider.
• Per transaction processing fee. As you do not own the solution, you have to pay transaction processing fees to the third party. Amount of these fees depends on the terms of your particular agreement. In case of each specific third-party crypto gateway solution, you should negotiate the fees with the provider.
• Need for an additional solution for non-crypto payments. As in the case of the previous option, the solution is not an omni-channel one. So, if you need to accept credit card and crypto payments, a crypto payment gateway solution will not suffice.

Using a crypto-friendly omni-channel solution

This is the most flexible approach for businesses. However, it is not as widely available as a pure crypto payment gateway solution.

Businesses that need to accept only crypto payments are few. Most need to accept other, fiat-currency-based forms of payment. These include credit cards, bank payments, as well as mobile and in-app payments. The latter ones mostly involve popular digital wallets such as PayPal, GooglePay, or ApplePay.

Just like with the crypto payment gateway scenario, you will need to go through an integration process. That is, you will have to integrate your platform with the omni-channel crypto friendly payment gateway using its API. As a result, you will not only be able to support blockchain payments, but also all other payment methods. This provides a significant benefit and reward for your business.

Pros

• Single integration process for all (or most) payment forms. As you integrate your platform with the omni-channel gateway solution, you get support for all payment methods at once. Integration process takes much less than development of a custom solution.
• No significant upfront cost. You might go with a classical or white-label omni-channel gateway solution. You might also license an open-source omni-channel gateway product and get an opportunity to further customize it. In each of these cases the costs are much lower than in the case of custom solution development from scratch.
• Limited liability in case of smart contract exploits or system hacks. Most of the responsibility is assumed by the third party. If the omni-channel gateway provider delegates greater control over the process to you, it entails greater liability

Cons

• Limited control over payments logic and the underwriting process. If you use a third-party omni-channel gateway solution, this third party controls most of the processes. Besides, the third party might not support some of your target MCC codes. So, you won’t be able to underwrite the respective merchants and, consequently, lose part of your revenues.
• Per transaction processing fee. Transaction fees will be different for all payment methods supported by the omni-channel payment gateway solution.
• Dependence on a single processing partner for all forms of payment and MCC codes

The market offers a variety of cryptocurrency payment gateway solutions. However, most of them are targeted at merchants and not payment facilitators (PayFacs) or SaaS platforms. Therefore, when you selecting a crypto payment gateway for your platform, you need to be careful. Otherwise, you might choose the solution that is not optimized for your specific operational model. As a result, you might experience serious architectural issues with the solution down the road.

In this section we consider the common options for a business deciding how to create a crypto payment gateway solution. In order to understand the differences between merchants and platforms we will walk through both hypothetical scenarios.

Merchant-centric scenario

Let’s consider an initial scenario where you run an online business selling T-shirts and already accept credit cards. At some point, you decide to add cryptocurrency support to your payment options. Here are the main conceptual phases of the process.

1. After researching the best crypto payment gateway solutions available at the market, you choose the most suitable service provider.
2. This provider is required to perform KYC procedures. So, as a merchant, you’ll need to submit all the mandatory forms and documents. Essentially, these are the same documents that you previously submitted when signing up for credit card processing.
3. After background verification, you’ll need to integrate the chosen crypto gateway platform with youre-commerce website. For this purpose, you can follow one of the two paths.
   • You can integrate with the platform using some ready-made plugin.
   • You can develop a custom API integration. This option will require some development effort.
4. You will also need to maintain a separate login for your crypto payment gateway to access reports and statements. This will be in addition to the login that you already have for your credit card solution. This means you will have to separately manage two independent logins.

Platform-centric scenario

Now let’s consider a scenario where your business is a shopping cart platform. Your customer base consists of many smaller businesses selling clothing and apparel online.

The previous scenario works well if you only need a single merchant account for your business. A PayFac or SaaS (in our example – shopping cart) platform is an entity, servicing a portfolio of customers.

For such a platform implementation of a similar scenario might be a problem. Key reason: a platform needs to be able to manage the whole portfolio of merchants at the same time.

The platform has to provide merchants with simple user experience. Particularly, from the standpoint of underwriting, subsequent payment reconciliation, and generating of merchant statements.

Features to support

In essence, you need a unified centralized API to onboard merchants, process crypto payments for them, and generate informative merchant statements. The platform management should be able to control these basic features. That is, the SaaS, shopping cart, or PayFac platform needs a mechanism to

• collect the necessary data from the merchants,
• automatically send it for MID provisioning (to enable both card and crypto payments),
• process payments on behalf of merchants, and
• generate integrated merchant statements. This means getting all reconciliation information, needed to generate consolidated statements on both crypto and card payments for customers.

Otherwise, overall merchant experience will be very inconvenient, and the platform might be unable to manage, brand, and control it.

Steps to perform

So, the scenario for a platform looking for a crypto gateway solution will differ from the above merchant-centric scenario. The key steps the platform has to take are as follows.

1. Research the crypto payment gateway solutions available at the market.
2. Choose the crypto solution that offers the best service from the standpoint of the merchants from the portfolio.
3. Go through background verification.
4. Organize the process, preferably through integration with the chosen solution through respective custom API. Again, the critical features you need at this point are: automatic onboarding, processing, reporting, and, potentially – reconciliation.

Support for stablecoins

Some of the most popular blockchains currently in use include Bitcoin, Ethereum, Binance Chain, Polygon, Avalanche, and Fantom. As a merchant, you’ll need to determine, which currencies you intend to support (i.e., what would be the best crypto for payments in your case). Some businesses might be hesitant to accept cryptocurrency payments, because crypto is an extremely volatile and risky asset. However, presently, special cryptocurrencies, called, stablecoins are becoming increasingly popular as an investment and payment vehicle. Examples include Tether (USDT), DAI, BUSD, USDC, and others. Their value is pegged to conventional currency rates and, thus, immune to sharp fluctuations.

Not all blockchains support stablecoin transactions, however. For instance, Bitcoin blockchain primarily supports Bitcoin payments and not stablecoins. Ethereum blockchain, built on Ethereum Virtual Machine, does support many stablecoins, such as USDC and DAI.

Dealing with high gas fees

Another concern when it comes to blockchain transactions is the high “gas fees.” Just like credit card transactions, each blockchain transaction comes at a cost. On certain blockchains, such as Ethereum, transaction fees can be rather high. Therefore, it makes more sense to process high-ticket transactions on this blockchain. There’s no point in processing a crypto payment worth $30 and paying a $60 fee.

Blockchains such as Fantom, Polygon, Binance Chain, and Avalanche have lower per-transaction fees compared to Ethereum. However, it might be more challenging to convert stablecoins to fiat if you’re operating through these blockchains. In the next section, we’ll briefly explain why.

Crypto-to-fiat conversion tips

One of the main challenges when it comes to accepting cryptocurrencies is the conversion of crypto to fiat currency. Presently, there’s no universal solution or “payment environment” that allows for easy conversion. That’s why it’s crucial to choose the right blockchain for your business based on your target currencies.

There are two mechanisms for crypto to fiat conversion: a crypto card and a centralized exchange (CEX). With a crypto card, you can purchase products and services using cryptocurrency. The corresponding amount of crypto is sold for fiat. A brokerage service or CEX allows you to convert crypto to fiat through the brokerage account or wallet.

Each blockchain charges gas fees in a specific currency. Examples include Ether for Ethereum, BNB for Binance Chain, AVAX for Avalanche, Matic for Polygon, and FTM for Fantom. Most exchanges support deposits and withdrawals on a particular blockchain only for the currency used to pay gas fees.

Examples

Many exchanges support withdrawal of AVAX to Avalanche and deposits of this same currency to Avalanche network. However, they will not support deposits of stablecoins using this network. Most exchanges support deposits and withdrawals of stablecoins using Etherium blockchain, where transaction fees can be high.

So, technically, it is impossible to deposit USDC directly through Avalanche. In order to do that, you would have to bridge USDC from Avalanche to Ethereum. Then you’d have to do an Ethereum transaction to fund your brokerage account. The problem is: while conversion from Avalanche to Ethereum might not be that costly, the Ethereum transaction will require you to pay high gas fees. So, depending on the amount that you are dealing with, the cost might be prohibitive. That is, transaction amount should be really high in order to justify the costs.

Binance Chain, however, has its own exchange, supporting multiple currencies, including different stablecoins, such as USDC, BUSD, USDT, DAI. Therefore, if you use Binance brokerage service, you can accept payments on this blockchain with relatively low fees. Moreover, you can deposit cryptocurrency to Binance exchange to be further converted into fiat with minimum expenses.

Coinbase issues USDC, so using their brokerage service is the cheapest way to convert USDC to fiat. Similarly, Binance issues BUSD, so their brokerage service offers the cheapest conversion of this currency to fiat.

Therefore, selecting the optimal exchange is just as important as selecting the right blockchain. Sometimes, it is beneficial to convert all proceeds from crypto payments into specific stablecoins. Then, you can convert them to fiat using the respective exchange or brokerage service at minimum cost.

Before deciding on a particular solution for accepting crypto payments, it’s crucial to estimate the cost of processing.

The benefit of accepting payments using crypto rails is that all the fees are paid by the customer. If you are using a third-party or white-label crypto payment gateway, then you will have to pay a fee for using its services. These fees, usually, do not exceed 1% of payment amount.

At the same time, you always have to remember about crypto-to-fiat conversion. Indeed, payments for many commodities (such as rent or insurance) cannot be paid in crypto. So, at some point you will have to convert crypto to fiat.

Like we said, there are two primary to handle this conversion.

1. Using a crypto card for payments.
2. Transferring your capital to a special brokerage account and converting it to crypto.

If you choose to use a card, you might face additional fees of 1 to 2%. If you use a brokerage or exchange service, you might also face additional expenses, depending on the currency.

Many exchanges have their own native currencies (GUSD for Geminy, BUSD for Binance Chain, USDC for Coinbase). However, typically, there is only one native currency per exchange.

For example, if you have an account with Coinbase exchange and receive a deposit in USDC, then crypto-to-fiat conversion is free. At the same time, if you get a deposit in a different currency, including stablecoins, then crypto-to-fiat conversion may cost you up to 0.5% of the transaction amount.

Most likely a crypto payment solution will still be cheaper than a conventional credit card-based solution. Nevertheless, before making a final decision on the implementation of a particluar model, you should consider all potential costs.

Experience shows that crypto payments are more suitable for certain types of markets.

1. For instance, crypto works for one-time payments, but does not work for recurring payments. Reason: currently, there is no mechanism, allowing payment systems to automatically withdraw funds from your crypto-wallet without your approval. Ironically, such a mechanism would compromise the whole cryptocurrency security paradigm.
2. As crypto is one of the most secure payment mediums, crypto payments are ideal for industries, where confidentiality is a top priority. Examples of businesses include pharmaceutical vendors and VPN providers.
3. Another important aspect to consider is that there is no chargeback concept in crypto world. Thus, cryptocurrency payments might be an option for industries, where chargeback levels are traditionally high, such as tech support.
4. Lastly, crypto is well suited for purchases that do not require instant payment confirmation or approval, such as online purchases. In a retail situations, such payments might not work as well because if the blockchain is overloaded, confirmation might take longer.