What are crypto payment gateways and how do they work?

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The parallel development of payment processors for digital currencies is happening alongside the implementation of blockchain technology in various industries such as healthcare, academia, supply chain, etc. Businesses willing to accept cryptocurrencies as a method of payment rather than fiat currencies rely on crypto payment gateways to operate.

Without having to maintain a cryptocurrency wallet and convert digital currency into fiat currency, a crypto payment gateway can offer a simple solution for a merchant to embrace crypto. This facilitates wider acceptance of digital currencies and makes it easier for a provider to offer cryptocurrency payment options.

This article will highlight the role of crypto payment gateways in the cryptocurrency market, their pros and cons, and how a crypto payment gateway works.

What is a Cryptocurrency Payment Gateway?

Crypto payment gateways like BitPay, PayPal, and Coinbase Commerce manage and facilitate the processing and receipt of cryptocurrency payments for merchants. In return, companies receive fiat currencies in their bank accounts. Therefore, companies can provide alternative payment options to customers, removing the guesswork from cryptocurrencies.

However, crypto payment processors are not required to receive digital currency payments. That said, merchants can use their personal wallets to accept cryptocurrencies. Nevertheless, crypto payment gateways make it easy for businesses to accept cryptocurrency as a form of payment alongside fiat currency and settle transactions in real time.

Moreover, custodians and non-custodians are two types of crypto payment gateways. In the case of custodian crypto payment gateways, profits made by merchants are placed in 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 quickly transfer the profits to the merchant’s wallet.

Rather, a bank account and the appropriate payment system are linked through a fiat payment gateway, which is limited to accepting only domestic currencies like US Dollars, Euros, etc., and cannot serve as fiat-to-crypto payment. bridge. Fiat payment gateways approve or reject bank card and e-wallet payments based on customers’ bank card details.

How does a crypto payment gateway work?

Companies can use the crypto payment gateway if they want to offer a demanding payment method, but are not yet ready to fully enter the cryptocurrency market. In return, they charge service fees to customers to stay operational for the long term. Providers also incur fees for facilitating transfers taken by transaction validators or cryptocurrency network miners.

The work of payments performed by cryptocurrency payment gateways looks like this:

When a customer selects a good or service on a merchant’s website, app, or in-store, they choose to pay with cryptocurrencies through a cryptocurrency payment gateway. The customer would then be locked into a transaction window during which the market conversion rate of the cryptocurrency they want to spend against the preferred fiat currency, such as the British pound, would also be frozen. Payment is instantly converted into the fiat currency of your choice by the crypto payment gateway. The funds are then deposited into a merchant 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 paid by the service provider) and service fees (to be paid by customers). Moreover, only one intermediary, namely the crypto payment processor, is involved in the process, thus improving the overall customer experience.

Additionally, merchants are protected against chargeback fraud through transparent blockchain networks. However, in the case of fiat payment gateways, it can happen that companies do not receive their money once it leaves the buyer’s card. Additionally, crypto payment gateways support multiple cryptocurrencies and reduce volatility risk for merchants.

Nevertheless, crypto payment gateways are the intermediaries between merchants and customers; therefore, settlement does not occur in a fully decentralized manner. Additionally, if service provider business is uninterrupted, merchants may be affected, such as delayed payments, until issues with crypto payment processors are resolved. Or if a crypto payment gateway is hacked, merchants also lose their funds.

Another downside is that using a crypto payment gateway is more expensive than making payments directly on the blockchain, as they operate as intermediaries and add transaction fees incurred on a crypto network at their own expense. blockchain.

Moreover, since crypto payment gateways are centralized organizations, there must be a certain level of trust, which requires merchants to confirm that the payment processor can provide a high quality, reliable and sufficiently secure service. to fend off potential cyberattacks.

Do Binance and Coinbase have a payment gateway?

Binance and Coinbase (centralized crypto exchanges) offer crypto payment gateways. Additionally, merchants can create their own payment page with full design control using application programming interfaces (APIs) provided by both exchanges. A software intermediary called an API allows communication between two applications.

Related: Binance vs. Coinbase: How Do They Compare?

Binance offers the Binance Pay payment option method to crypto-friendly businesses. By displaying the shops unique QR code, merchants can set up Binance Pay in their physical location for a secure and contactless cryptocurrency payment experience. They can also integrate Binance Pay into their online store for a borderless transaction process, giving consumers more payment options.

Members of the Binance Pay merchant program only need to create a merchant account to accept crypto payments. Alternatively, businesses can receive cryptocurrencies via Binance Pay with the help of distribution partners.

Coinbase’s crypto payment gateway is called Coinbase Commerce, supports ten digital currencies, namely Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH), USD Coin (USD), Dogecoin (DOGE), Tether (USDT), Litecoin (Lite), Shiba Inu (SHIB), ApeCoin (APE) and Dai (DAI).

Payments are automatically converted to USD by Coinbase Commerce, and Coinbase has no access to funds received from merchants, meaning if a 12-word seed phrase is lost, Coinbase cannot recover the funds. Additionally, before disbursing funds to merchant accounts, Coinbase charges a 1% transaction fee for receiving crypto payments.

Are crypto payment gateways safe?

Before selecting a cryptocurrency payment gateway, merchants should do due diligence on how service providers store cryptocurrencies and subsequent fiat payments. Other factors they may consider include transaction fees, supported cryptocurrencies, and a history of hacks and scams experienced by the platform.

Additionally, checking to see if a crypto payment gateway provides customer support is key to getting a quick resolution in the event of a disruption. Moreover, checking the reputation of each candidate is another crucial step one can take when researching crypto payment processors. To achieve this, go to specialized websites and read what others say about their interactions with various service providers and choose wisely.

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