The parallel development of payment processors for digital currencies is taking place along with the implementation of blockchain technology in variou
The parallel development of payment processors for digital currencies is taking place along with the implementation of blockchain technology in various industries like healthcare, academics, supply chain and among others. Businesses willing to accept cryptocurrencies as a payment method rather than fiat currencies rely upon crypto payment gateways to operate.
Without the trouble of needing to keep a cryptocurrency wallet and convert digital currency into fiat money, a crypto payment gateway can offer a straightforward solution for a merchant to adopt crypto. This facilitates the broader acceptance of digital currencies and makes it simpler for a vendor to provide cryptocurrency payment options.
This article will highlight the role of crypto payment gateways in the cryptocurrency market, their advantages and disadvantages and how a crypto payment gateway works.
What is a cryptocurrency payment gateway?
Crypto payment gateways like BitPay, PayPal and Coinbase Commerce handle and facilitate the processing and receipt of cryptocurrency payments for merchants. In return, businesses receive fiat currencies in their bank accounts. Therefore, companies can offer alternative payment options to customers, removing uncertainties concerning cryptocurrencies.
However, crypto payment processors are not mandatory to receive digital currency payments. That said, merchants can use their personal wallets to accept cryptocurrencies. Nonetheless, crypto payment gateways make it simple for businesses to accept cryptocurrency as payment alongside fiat money and settle transactions in real time.
In addition, custodial and non-custodial are two types of crypto payment gateways. In the case of custodial crypto payment gateways, the profit made by the merchants is placed into their accounts, at which point they can start withdrawing funds to their wallets. Noncustodial crypto payment gateways, on the other hand, do nothing more than process the payment and promptly transfer the profit to the merchant’s wallet.
On the contrary, a bank account and the appropriate payment system are linked through a fiat payment gateway, which is restricted to accepting only national currencies like the United States dollar, euro, etc., and cannot serve as a fiat-to-crypto payment gateway. Fiat payment gateways approve or reject bank card and electronic wallet payments based on customers’ bank card details.
How does a crypto payment gateway work?
Businesses can use the crypto payment gateway if they want to offer a demanding form of payment method but aren’t yet ready to enter the cryptocurrency market completely. In return, they charge a service fee from the customers to stay operational in the long run. The providers also incur a fee for facilitating the transfers levied by the transaction validators or miners of the cryptocurrency network.
The work of payments executed by cryptocurrency payment gateways looks like follows:
- When a customer selects a good or service from a merchant’s website, app or in-store, they choose to pay with cryptocurrencies through a cryptocurrency payment gateway.
- The customer will then be locked into a transaction window during which the market conversion rate of the cryptocurrency they want to spend vs. preferred fiat currency, such as the British pound, would also be frozen.
- The payment is instantaneously converted into the fiat currency of your choice by the crypto payment gateway.
- The funds are then deposited into a merchant’s account for withdrawal or other purposes.
Related: How to pay your bills with cryptocurrency?
Advantages and disadvantages of crypto payment gateways
Among the advantages of crypto payment, gateways include instant transaction settlements at the cost of a small network fee (to be borne by the service provider) and a service charge (to be paid by the customers). Moreover, only one intermediary, i.e., the crypto payment processor, is involved in the process, improving the overall customer experience.
In addition, merchants are protected against chargeback fraud thanks to transparent blockchain networks. However, in the case of fiat payment gateways, there might be some instances when businesses do not get their money after it leaves the buyer’s card. Moreover, crypto payment gateways support multiple cryptocurrencies and reduce volatility risk for the merchants.
Nonetheless, crypto payment gateways are the intermediaries between merchants and customers; therefore, the settlement does not take place in a fully decentralized manner. Also, if the service provider’s business is uninterrupted, merchants may be affected, such as delayed payments, until issues with crypto payment processors are fixed. Or if a crypto payment gateway gets hacked, merchants also lose their funds.
Another drawback is that using a crypto payment gateway is more expensive than making payments directly on the blockchain because they operate as middlemen and tack on their own costs to the transaction fees incurred on a…
cointelegraph.com