Crypto payment processing
What is crypto payment processing?
As payments in cryptocurrency are slowly replacing payments in fiat money, traditional payment providers are also beginning to give way to crypto payment processing.
Crypto payment processing means processing transactions made in cryptocurrencies.
Crypto processor is a service that allows merchants to accept payments in crypto currencies. It acts as an intermediary and carries out 6 main functions:
- Registers the payer's data;
- Converts the amount at the specified exchange rate (if necessary);
- Executes verification (for example, via 3DS);
- Accepts payments from a buyer;
- Sends transaction data to the blockchain and registers confirmations from nodes;
- Converts the received coins into fiat money (at the merchant’s request);
- Transfers payments to a merchant;
- Provides confirmation of payment processing for both parties.
How does a crypto payment gateway work?
To make a crypto payment only the recipient's blockchain wallet address is required. The payer must copy this address into the appropriate field in their own wallet, enter the amount, and confirm the transaction. While using a QR code, the process is even easier.
Types of crypto processors
Generally, there are two models of crypto processing:
- Crypto-fiat. In this case, the merchant receives fiat money into his account as a result of conversion. The commission is on average 1% or more, but this adds regulatory, banking, and exchange risks; also, additional counterparties arise. This kind of business is more profitable and more difficult to run.
- Crypto-crypto. Purchasers pay in crypto and merchants receive payments in it. The processing service does not use the banking infrastructure, but at the same time earns very little, because the commissions are about 0.5%, of which about 0.1% is spent on trading costs during the exchange.
In both cases, crypto processing assumes the conversion, exchange rate risks and payment to the seller's wallet, while the store gets the opportunity to attract a new potential audience.
Tricky points of crypto processing
One of the main features of cryptocurrencies is volatility. It is almost impossible to sell and buy, for instance, Bitcoin or Ethereum at the same price. That is why, by accepting crypto payments, merchants run the risk to receive less than they intended.
The speed of cryptocurrency systems lags behind their fiat counterparts. The Bitcoin network processes 4-5 transactions per second. The throughput of the Ethereum network is up to 30 transactions per second. The Ripple system allows processing up to 1,500 transactions per second and EOS — up to 4,000. At the same time, Visa can process up to 24,000 transactions per second.
Cryptocurrency is not a legal tender in most jurisdictions, so accepting such payments sometimes comes with legal difficulties for the merchants. Problems also arise when paying taxes on income or profits that have been received in cryptocurrency.
Why do businesses need crypto processing?
The popularity of processing as a business is growing along with the demand for fast electronic payments worldwide. And the strong demand for cryptocurrency payments is driving the growth of crypto payment gateways quantity, although this niche is still open to new players.
Here are the main reasons:
- Geographic coverage. Crypto payments solve the problem of payment landscape fragmentation. Users from almost any country can pay for the services or products of companies located in another country. With cards and e-wallets, this is often not possible.
- Reliability. Traditional processors or banks may decline a transaction for many reasons, such as a payment on a casino website. In such cases, cryptocurrency is the optimal solution: a blockchain wallet cannot block a transaction.
- Cost-efficiency. The cost of a crypto transaction is about 1% of the amount.
- Withdrawal speed. Processing of an e-wallet withdrawal can take about a week in some industries. Withdrawing in crypto happens several times quicker.
How to accept bitcoin payments
For contractors and merchants, creating their own crypto processing is a colossal waste of effort and money. A more profitable and quicker way is to integrate a ready-made solution from a supplier who will take over the burden of service development, adding new cryptocurrencies, and supporting users.
Corefy enables you to accept payments and make payouts in 400+ methods, including cryptocurrencies, via 650+ providers. Get in touch with our team to know more.
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