What is Crypto Payment Gateways? And how does it work?

Key takeout

Crypto Payment Gateways allows businesses to accept cryptocurrency payments from their customers.

They act as intermediaries and convert crypto payments into business’s preferred currency (crypto or FIAT).

Crypto Payment Gateways reduces transaction fees compared to traditional banking systems and provides access to a global customer base.

These gateways leverage blockchain technology to provide secure, faster transactions with fewer intermediaries, increasing transparency and reducing the risk of fraud.

The cryptocurrency industry faces major challenges, particularly in the field of seamless conversion between digital assets and Fiat currency. This problem makes it difficult for businesses and users to adopt cryptocurrency in their daily transactions.

Crypto Payment Gateways addresses this need by simplifying the process of converting digital currency to Fiat, allowing for smooth and efficient transactions.

In this article, we will explain what Crypto Payment Gateways are, how these gateways work, and their advantages and disadvantages.

Cryptocurrency payment gateway explained

Cryptocurrency payment gateways are digital transaction facilitators that allow businesses to accept cryptocurrency payments while ensuring seamless processing and payments.

These gateways act as intermediaries between customers paying on digital assets and merchants receiving crypto payments, helping businesses navigate the complexities of blockchain transactions. Examples of cryptographic payment gateways include BitPay, Coinbase Commerce, and PayPal cryptographic payment services.

One of the key benefits of using a crypto payment gateway is that companies can receive payments in cryptocurrency while choosing to convert them to Fiat currency, which is deposited into bank accounts. This eliminates concerns about crypto price volatility and allows merchants to offer additional payment options to their customers.

Is a cryptographic gateway necessary to accept digital currency?

Crypto Payment Gateways simplifies the process of accepting digital assets, but it is not the only way companies receive cryptocurrency payments.

Merchants can choose to use their personal wallets to bypass third-party processors and accept ciphers directly. However, if you don’t have a payment gateway, you will need to manually manage transactions, track blockchain payments, and process currency conversions if you want to receive Fiat instead of crypto.

For businesses looking to integrate cryptocurrency payments with traditional methods, Crypto Payment Gateways offers an efficient solution. These services provide real-time transaction processing, automatic conversion to FIAT, and additional security features to protect your business from unauthorized transactions.

However, be aware of the prices. Coinbase Commerce charges a 1% fee for all crypto payments. Once you have completed your payment, this fee will be collected in the transaction’s settlement currency.

For example, if a customer makes a $250 purchase in Bitcoin (BTC) and the payment currency is Euro, they collect 2.5 euros (1% of the payment amount).

Crypto Payment Gateway Type: Management vs. Implicit

Crypto Payment Gateways can be divided into two main types: managed and non-obligatory. The choice of these options depends on your business preferences regarding security, control and ease of use.

Custody crypto payment gateway

A storage gateway works just like a traditional payment processor. They receive payments and hold them temporarily before allowing merchants to withdraw funds into their crypto wallets or convert them into Fiat currency. This model is perfect for businesses who want a streamlined experience without dealing with direct wallet management.

The key characteristics of a custody payment gateway are:

Automated Fiat Conversion: Payments can be converted to local currency instantly, reducing volatility risk.

User-Friendly Dashboard: Merchants can manage transactions, track payment history and withdraw funds via online portals.

Compliance Features: Many management gateway implementations know how to measure customer (KYC) and money laundering anti-money laundering (AML) to meet regulatory requirements.

Non-Legal Crypto Payment Gateway

Non-obligatory payment gateways are provided to merchants who have full control of the funds by quickly transferring payments to their wallets without holding them on behalf of the business. These solutions prioritize decentralization and security, allowing merchants to manage their own private keys.

The key characteristics of non-mandatory payment gateways are:

Enhanced Security: Funds are not stored by the gateway. This reduces the risk of hacking and third-party management.

Direct cryptographic transfer: Payments are sent directly to the merchant’s wallet, which eliminates the sales process.

Improved privacy: Merchants can accept payments without undergoing extensive KYC verification.

Lower fees: No intermediaries are involved, reducing transaction costs for both parties.

Improved transparency: Blockchain records transactions and provides immutable, trackable records.

Full control of funds: Merchants retain full ownership and access to crypto assets.

Did you know? Major banks and fintechs, including Bank of America, Standard Charter, Paypal, Rotation and Stripe, are entering the Stablecoin market to enhance cross-border payments.

How do Crypto Payment Gateways differ from traditional Fiat Payment Gateways?

Traditional payment gateways, such as those used for credit card processing, encourage transactions in government-issued currencies such as the US dollar and the euro. These fiat gateways connect merchant payment systems to the bank and review transactions based on customer bank details before allowing or reducing payments.

Here are the key distinctions between Fiat and crypto payment gateways:

Currency Type: Fiat Gateways only handles domestic currencies, while Cryptocurrency Gateways support digital assets such as BTC, Ether (ETH), and Stablecoins.

Decentralisation: While traditional payment gateways rely on centralized financial institutions, Crypto Payment Gateways leverages blockchain technology for peer-to-peer transactions.

Transaction speed: Crypto payments can be resolved in minutes, but FIAT transactions, especially international payments, can take days to clear.

Chargeback Protection: Unlike Fiat’s payments, which can issue chargebacks, crypto transactions become irreversible when recorded on the blockchain.

While Fiat Payment Gateways is essential for traditional banking transactions, Crypto Payment Gateways expands payment possibilities by integrating blockchain-based financial solutions.

As cryptocurrency adoption continues to grow, businesses need to evaluate their payment strategies and select the right gateway solution for their operational needs.

Pros and cons of cryptocurrency payment gateways

Whether it’s a business transaction or daily personal use, you need to be aware of the pros and cons of cryptocurrency payment gateways before using them.

Pros of Crypto Payment Gateways

One of the main benefits of using cryptocurrency payment gateways is that they can resolve transactions quickly. These platforms typically charge minimal network fees (covered by the service provider) and small service fees to their customers. The streamlined process includes only one intermediary (Crypto Payment Processor) that improves the user experience for both business and clients.

Additionally, crypto payment systems benefit from the transparency of blockchain technology and provide merchants’ protection against chargeback fraud. Unlike traditional Fiat Payment systems, where businesses may not receive funds after a transaction is deducted from a customer’s account, crypto payments provide more certainty. Additionally, these gateways can process a variety of cryptocurrencies and reduce the risk of merchants’ market volatility.

Cons of encryption gateways

However, Crypto Payment Gateways are still intermediaries in the process, meaning that the settlements are not completely decentralized. This centralization can pose risks. For example, if a cryptocurrency processor experiences operational disruption, the merchant could face late payments until the problem is resolved. Similarly, if the gateway is compromised by a cyber attack, businesses could lose access to funds.

Another drawback is that Crypto Payment Gateways can be more expensive than direct blockchain transactions. These gateways act as intermediaries, and add their own fees in addition to the transaction costs of the blockchain network.

As a centralized entity, crypto payment processors introduce a level of trust. Merchants need to ensure that their processors can provide reliable, secure services to prevent potential cyber threats.

Does Cryptocurrency Exchange offer payment gateways?

Centralized cryptocurrency exchanges, Binance, Coinbase and Kraken offer payment gateways to drive crypto transactions.

Additionally, it offers an application programming interface (API), allowing merchants to create custom checkout pages with complete design control. APIs act as software intermediaries that allow a variety of applications to communicate seamlessly.

Binance offers a crypto payment solution called Binance Pay, tailored to businesses open to accepting digital currencies. Merchants can integrate Binance Pay both online and physical stores.

By displaying your own QR code, physical stores can offer secure, contactless crypto payment options, increasing customer convenience. For online businesses, Binance Pay allows seamless cross-border transactions and offers customers a more diverse payment option. Merchants can start accepting crypto payments via Binance Pay by creating merchant accounts or working with channel partners.

Meanwhile, Coinbase offers Coinbase Commerce, its own payment gateway that supports 10 different digital currencies, including ETH, USDC (USDC), DogeCoin (Doge), Tether’s USDT (USDT), and Litecoin (LTC).

Payments processed through Coinbase Commerce will be converted immediately to US dollars to ensure the stability of the merchant. Importantly, Coinbase does not have access to funds deposited in a merchant account.

If a merchant loses a 12-word recovery phrase, Coinbase cannot help with acquiring the lost assets. Additionally, Coinbase applies a 1% fee to the transaction, as mentioned above, before the funds are transferred to the seller’s account.

Kraken Pay is a cryptocurrency payment processor that allows businesses to accept a wide range of digital currencies, providing fast and secure transactions. It offers easy integration with Kraken Exchange wallet, low fees, and the ability to convert Crypto to Fiat, but still relies on centralized trust.

Did you know? In March 2022, MoonPay allowed customers to purchase NFTs directly through the market, simplifying the process by integrating traditional payment methods such as credit cards and Apple Pay.

Is Crypto Payment Gateways safe?

When choosing a cryptocurrency payment gateway, merchants should carefully evaluate how providers manage cryptocurrency and fiat fund storage.

It is important to look at factors such as transaction fees, the diversity of supported cryptocurrencies, and platform history regarding security breaches and fraud. Understanding these factors can help merchants make informed decisions about which gateways match their needs.

Additionally, it is essential to ensure that Crypto Payment Gateway provides reliable customer support. Having access to prompt and effective assistance is important in the event of interruptions or payment issues. Our responsive support team helps you resolve issues quickly and minimize downtime for your company.

Finally, merchants should always check the reputation of the payment gateway before committing. Reading feedback from professional review sites and other users provides insight into the reliability and reliability of the platform. A thorough investigation ensures that merchants choose a safe and reliable payment processor for their business.