Crypto payment gateways are e-commerce solutions that enable the customer to pay in cryptocurrencies rather than conventional payment methods like cash, credit card, debit card, digital wallets, or bank transfers. They enjoy good popularity among crypto enthusiasts and are integrated to collect payments on several websites, such as Into The Block, Shopify, and several other well-known brands.
Let us understand them in detail.
What are Payment Gateways?
Payment gateways are the intermediaries that collect payments from the customer and transfer those to the vendor’s account after collecting a small fee for their services. They are used because, otherwise, vendors would have to set up payment channels by themselves and take care of digital infrastructure, cloud logistics, and security. Payment gateways take care of all these and offer a package solution to vendors.
Some examples of traditional payment gateways are PayPal, Skill, Stripe, Amazon Pay, etc.
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Crypto Payment Gateways
Crypto payment gateways are similar to traditional payment gateways in function but differ in the mode of payment. Rather than accepting cash or cards, they accept cryptocurrencies. Unlike traditional payment gateways, where each transaction is associated with two individuals, the buyer and the seller, crypto payment gateways are anonymous. They do not collect user information except wallet addresses. However, some require to Know Your Customer data to comply with anti-money laundering laws.
Working of Crypto Payment Gateways
There are 4 basic steps involved in settling a transaction in crypto payment gateways. The above image shows the working of Bitpay, a popular crypto payment gateway.
- An invoice is generated and shown to the customer, who can pay using their wallet’s scanner.
- The exchange rate is locked for the lifetime of the transaction.
- Bitpay converts cryptocurrency into cash.
- The cash is deposited in the vendor’s account.
On-Chain and Off-Chain Gateways
On-Chain gateways transfer cryptocurrencies from one address to another within the blockchain. There is no cash involved here.
Off-Chain gateways are wallet-centric payment gateways that transfer cryptocurrencies from one wallet to another. Cryptocurrencies can be sold by vendors for cash in exchanges or in private settlements.
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Advantages of Crypto Payment Gateways
Several advantages of crypto payment gateways have made cryptocurrency adoption faster. Some of them are:
- Crypto payment gateways facilitate the immediate conversion of cryptocurrencies into fiat for the vendor.
- Very small fees for cross-border payments. PayPal charges around 8-10% of the transaction value.
- They settle transactions in a matter of seconds. PayPal takes up to 2 days for international settlements.
- They help vendors capture a growing market. Cryptocurrency wallets are growing, which shows clear mass adoption.
- Only a few intermediaries are involved, which reduces the cost of transactions.
Disadvantages of Crypto Payment Gateways
However, there are also some disadvantages of crypto payment gateways as well.
- Crypto payment settlements cannot be reversed, unlike traditional payment gateways. But, there was a proposal from Stanford University to make crypto transactions reversible, which would help in the prevention of cybercrime.
- They are very limited in use currently. However, as per a report by Deloitte, 75% of vendors are willing to accept payments. Further, as per PYMNTS, 85% of big retailers accept some form of crypto payments.
- Cryptocurrencies are highly volatile; therefore, the price of sold goods may differ from the payments received. However, stablecoins can easily solve these issues.
- Crypto payment gateways require the knowledge of cryptocurrencies and are complex to use for people who have never transacted in cryptocurrencies before.
Five Innovative Crypto Payment Gateways
Several crypto payment gateways have become major players for e-commerce vendors. We have chosen five crypto payment gateways that we feel are the most innovative in the space.
It is perhaps the most well-known crypto payment gateway. However, earlier, it only accepted Bitcoin. Customers and vendors had requested alternative cryptocurrencies, to which Bitpay responded by adding a few top altcoins such as BCH, ETH, LTC, etc.
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Paystand offers B2B crypto payments. The platform is built on SaaS and blockchain. Payments done using Paystand are recorded in a blockchain and are auditable. They also offer APIs enabling you to develop your payment gateway with cryptocurrencies.
Earlier, it was known as Aliant Payment. This payment gateway offers both traditional as well as crypto payments and offers easy conversion to fiat.
Coingate offers payment gateway services for crypto with WooCommerce and Magento integrations.
Coinbase also offers a payment gateway with integrations with popular cryptocurrency platforms like WooCommerce and Shopify.
Crypto payment gateways are nascent business solutions. But with the growing business environment in favor of blockchain technology, they can soon force traditional players to accept cryptocurrencies. They are faster, cheaper, and more reliable. However, the lack of adoption, non-reversible transactions, and stringent rules of crypto-fiat conversion are making the road difficult for them. But, with further evolution and lenient business regulations, crypto payment gateways will soon flourish.