The sections focus
on the following aspects:
What is a Crypto
Benefits of Crypto
and how to improve
for your crypto
Intro: What is a Crypto Payment Solution?
Just a few years ago a crypto payment solution was a term you would attribute to science fiction domain. Nowadays, the mechanisms allowing investors to both pay with crypto and accept crypto payments have become a reality.
This crypto payment solution implementation guide is targeted at
- individual merchants that consider accepting crypto payments;
- large-size companies and platforms that would like to add crypto payment solutions to their omni-channel offerings.
In it we will demonstrate 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. Finally, we will take a look at crypto payment processing costs and describe the industries, in which crypto payments work best.
So, a cryptocurrency is an encrypted and decentralized digital exchange means. Cryptocurrency operations (unlike operations with conventional currency) do not involve any authorities to manage and maintain the currency value. These tasks are performed by a multitude of cryptocurrency users and miners worldwide.
Now let us move on to the strong points of crypto as payment and investment vehicle.
Benefits of Crypto Payment Solution Support
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 the so-called stablecoins, pegged to a specific currency, namely 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 in worldcoinindex. These coins are pegged to US dollar rate. So, they do not suffer from major price fluctuations, unlike more well-known currencies such as Bitcoin or Ether.
Consequently, several companies started offering saving accounts and other investment vehicles, denominated in these stablecoins. On these accounts they offer up to 16% of annual yield.
Under the current financial circumstances, it begins to make sense for a lot of people to keep their savings in stabelcoins, as opposed to US dollars. Some of these companies are even accepting conventional currencies, such as US dollars or euros, and still offering 8% or more of annual yield.
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.
Existing Crypto Payment Solutions and How to Improve Them
Signs of growing popularity of crypto as a payment means
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 are 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. 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 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
From crypto-only to omni-channel solutions
Multiple cryptocurrency payment gateways have emerged in recent years. Coingate, Shopify Gateway, Coinpayments, NOWPayments, CoinsBank are just a few examples.
Most of existing crypto payment gateway solutions are focused solely on cryptocurrency payment support. Plus, many of these solutions are not yet targeted at payment facilitators. 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. So, gateway providers should enable them to accept cryptocurrency payments only in addition to conventional payment means.
The listed gaps leave plenty of space for payment technology improvement. So, gateway providers that want to add cryptocurrency support to their products, should focus on 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-time 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. That is why it might be difficult for them to integrate with some separate crypto payment gateway products. So, 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 (besides other functions).
Crypto payment solution options
How to accept crypto payments within my business model? More and more online businesses are looking for optimal answers to this question. To accept and process crypto payments, you have to choose a crypto payment gateway solution, that suits your business paradigm. Options range from your own custom solution to open-source crypto payment gateway product to an omni-channel gateway platform. As always, each scenario has its pros and cons. So, 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.
- 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.
- 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.
- 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
- 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 the pure crypto payment gateway solution.
Businesses that can 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 under the crypto payment gateway scenario, you will need to go through an integration process. That is, you must integrate your platform with the omni-channel crypto friendly payment gateway using its API. As a result (and reward), in addition to blockchain payments, you will be able to support all other payment methods.
- 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
- 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
Crypto payment solution implementation for platforms
Cryptocurrency payment gateway solutions available at the market are plentiful. However, most of them are targeted at merchants and not payment facilitators (PayFacs) or SaaS platforms. That is why when you are choosing 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 appreciate the respective differences between merchants and platforms we will go through both respective hypothetical scenarios.
For this initial scenario, let’s assume that you are running a business selling T-shirts online. You are already accepting credit cards. At a certain point you need to add cryptocurrency support to your existing payment options. Here are the main conceptual phases of the process.
- After some research of the best crypto payment gateway solutions available at the market, you choose the most suitable service provider.
- This provider is required to perform KYC procedures. So, as a merchant, you have to submit all the mandatory forms and documents. In essence, these are the same documents that you previously submitted when signing up for credit card processing.
- After background verification, you have 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.
- You will have 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. Thus, you will have to separately maintain two independent logins.
Now let’s assume that your business is a shopping cart platform. Your customer base consists of many smaller businesses selling clothing and apparel online.
The above 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.
- Research the crypto payment gateway solutions available at the market.
- Choose the crypto solution that offers the best service from the standpoint of the merchants from the portfolio.
- Go through background verification.
- 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.
Optimal blockchain selection for your crypto payment solution
Support for stablecoins
Some examples of the present-day blockchains include Bitcoin, Ethereum, Binance Chain, Polygon, Avalanche, and Fantom. As a merchant, you have to define, which currencies you intend to support. Some businesses might be unwilling 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. The price of stablecoins is pegged to conventional currency rates and, thus, they are immune to sharp fluctuations.
Not all blockchains support stablecoin transactions, though. For instance, Bitcoin blockchain mostly 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
An additional concern is high “gas fees”. Just like a credit card transaction, each transaction on blockchain has its price. On some blockchains, such as, again, Ethereum, transaction fees are rather high. So, it makes sense to process only high-ticket transactions on this blockchain. Indeed, there is no point in processing a crypto payment worth $30 and pay a $60 fee.
Fantom, Polygon, Binance Chain, and Avalanche blockchains have lower per-transaction fees than Ethereum. However, it might be more challenging to convert stablecoins to fiat if you operate through these blockchains. In the next section we briefly explain why.
Crypto-to-fiat conversion tips
When it comes to cryptocurrency acceptance, crypto to fiat currency conversion is, actually, one of the main challenges. Presently, there is no universal solution or some “payment environment” allowing easy crypto to fiat conversion. That is why, it is extremely important to choose the right blockchain for your business, based on your target currencies.
Essentially, there are two mechanisms of crypto to fiat conversion: a crypto card and a centralized exchange (CEX). A crypto card allows you to purchase products and services for cryptocurrency. The respective 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).
Every blockchain charges gas fees in some specific currency. Examples include Ether for Ethereum, BNB for Binance Chain, AVAX for Avalanche, Matic for Polygon, FTM for Fantom. Most exchanges support deposits and withdrawals on a particular blockchain only for the currency used to pay gas fees.
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 for the whole transaction to make sense.
Binance Chain has its own exchange, supporting multiple currencies, including different stablecoins, such as USDC, BUSD, USDT, DAI. So, if you use Binance brokerage service, then you can accept payments on this blockchain for a relatively low fee. Moreover, you can deposit cryptocurrency to Binance exchange to be further converted into fiat, again, with minimum expenses.
Coinbase “issues” USDC, so the cheapest way to convert USDC into fiat is to use this brokerage. Similarly, Binance “issues” BUSD, so their brokerage service offers the cheapest conversion of this currency to fiat.
So, beside blockchain selection, it is important to select an optimal exchange. Sometimes, it might be 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.
Crypto payment processing costs revisited
Before implementing a particular solution for accepting crypto payments, it is important to clearly estimate the cost of processing.
On the one hand, 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 made in crypto. So, at some point you will have to convert crypto to fiat currency.
Like we said, there are two major ways of handling this task.
- Using a crypto card for payments.
- Transfer your capital to a special brokerage account and convert it to crypto.
If you choose to use a card, you might have to pay 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, it is, usually, one native currency per exchange.
For example, if you have an account with Coinbase exchange and get 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 might additionally cost you up to 0.5% of transaction amount.
Most probably, a crypto payment solution will still cost less than a conventional credit card-based solution. However, before making a final decision concerning implementation of this or that model, you should consider all potential costs.
Experience shows that crypto payments are more suitable for certain types of markets.
- 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 our approval. Ironically, such a mechanism would compromise the whole cryptocurrency security paradigm.
- As crypto is one of the most secure payment mediums, crypto payments suit industries, where confidentiality is a top priority. Examples of businesses include pharmaceutical vendors and VPN providers.
- Another important aspect is that there is no chargeback concept in crypto world. So, cryptocurrency payments might be an option for industries, where chargeback levels are traditionally high, such as tech support.
- Finally, crypto works well for purchases that do not require instant payment confirmation or approval (such as online purchases). In a retail situation such payments might not work so well, because if the blockchain is overloaded, confirmation takes longer.
Implementation of a crypto payment solution is a challenging task for both merchants and (especially) platforms.Your choice of a specific solution will depend on many factors, such as target currencies and type of business.
In this guide we have provided generic crypto payment implementation tips. However, if you want more specific advice, feel free to consult our payment experts. You are also welcome to watch our short video guide on crypto payment solutions available to businesses. UniPay Gateway has now become a crypto-friendly omni-channel payment management platform. So, we will be happy to share our experience and help you with your use case.