In this digital age, the face of payment systems has been transformed significantly. The emergence of cryptocurrency payment services has added a new dimension to the financial industry. This article elaborates on the concept of a Cryptocurrency Payment Gateway, its functioning, advantages, and disadvantages, along with providing insights into the potential of cryptocurrency in the payment services sphere.
Understanding Crypto Payment Gateway
A Cryptocurrency Payment Gateway is a catalyst for digital currencies, playing an equivalent role as payment processors gateways for credit cards. These gateways empower merchants to accept digital payments, converting them into fiat currency instantly. With the increasing acceptance of cryptocurrency at various merchant points, these gateways alleviate the apprehensions a merchant may have about cryptocurrency, thereby extending the range of payment options.
Note: Using a Cryptocurrency Payment Gateway is optional. It is perfectly valid to use your personal wallet to process cryptocurrency payments.
Functioning of a Crypto Payment Gateway
Payment gateways are firms assuming the alleged risk of cryptocurrency payments, utilizing their wallets to mediate transactions between merchants and their customers. The procedure for this is as follows:
- The customer chooses to transact in cryptocurrency at checkout.
- They make a payment equivalent to the fair market value of the digital currency at the time of the transaction.
- The cryptocurrency payment service instantly converts the payment into the selected currency.
- The money is credited to your account with the provider and then deposited into your designated bank account according to the decided intervals in your service contract.
This process is transparent to merchants as they do not have to worry about handling cryptocurrencies; only that the cryptocurrency service provider will deposit the appropriate funds into their account.
Advantages and Disadvantages of Payment Gateways
Cryptocurrency, by its nature, is designed to be decentralized and anonymous. However, certain merchants might be apprehensive about accepting payments in digital currency. Therefore, it’s crucial to understand the pros and cons of payment gateways.
Advantages
- Payment gateways eliminate the anonymity of the transaction parties while preserving the customer’s preference for it.
- They provide a point of contact for payment issues.
- They allow accepting payments from anywhere in the world, in any cryptocurrency that the provider accepts.
- They reduce volatility risk by paying the market rate for the tokens at the time the transaction was conducted.
Disadvantages
- Cryptocurrencies were originally designed to bypass third parties like payment gateways.
- The provider’s ability to maintain continuous services is critical as payments might be received from different time zones.
- Gateways are service providers, so they may advertise their services as indispensable when realistically they are not.
- Higher transaction fees are incurred when using a cryptocurrency payment gateway compared to a cryptocurrency wallet.
- There is a risk of funds being lost if the payment gateway is hacked.
The Case for Introducing Crypto Payment Services
Cryptocurrency remained a marginal element for established payment providers until the pandemic forced consumers to shift their transactions online, triggering an appetite for new, fast, and flexible digital payment methods. Cryptocurrency payment services have the potential to enhance the overall efficiency of payment systems and promote financial inclusion.
Advancement of Cryptocurrency Payment Services
Recognizing the shift, some early adopters have added cryptocurrency payments to their portfolio of offerings. A prominent US bank launched its crypto-based rail—one of the first bank-led, peer-to-peer blockchain networks, and major card networks have announced plans to offer crypto payment options to customers, merchants, and businesses.
Emergence of Stable Coins
The volatility in crypto prices has led to the development of stable coins that are usually pegged to a dominant fiat currency. The use of stable coins, particularly in the business-to-business segment, is gaining traction.
Central Bank Digital Currency (CBDC)
The rising demand for flexible payment options, including cryptocurrencies, has led to serious discussions and research at various central banks about issuing a Central Bank Digital Currency (CBDC). Most major central banks believe that CBDC will become a reality in this decade.
Use Cases for Cryptocurrency Payment Services
Despite the skepticism and reluctance of established payment providers to offer cryptocurrency payment services, there are several areas where crypto payments can be successfully adopted in the financial services industry.
Benefits of Crypto Payments
Crypto payments have faster settlement cycles and can be cheaper due to lower transaction costs compared to credit card payments. They maintain transparency in the highly dynamic exchange rates between the cryptocurrency and the fiat currency. Moreover, crypto payments can help merchants access new customer segments.
Conclusion
Crypto payments are poised to rapidly scale in the near future given their ability to lower the cost of transaction processing, reduce the risk of fraud, and enhance transparency sought after by customers. As a business owner, understanding how cryptocurrency works is crucial to deciding whether or not you need the services of a gateway provider.