Crypto payments for business explained

Let’s start with a few basic definitions of the key components needed to make a cryptocurrency payment. 

Blockchain

A blockchain is a shared database, or ledger, distributed among nodes (computers) on a network. It is separate from traditional banking and card networks, and so is not subject to their operating times and geographical constraints. A blockchain is territory agnostic, with a single currency and transparent protocol for every user, wherever they are in the world. Users on a blockchain can pay each other directly, eliminating the need for third-parties, and so minimising cost and settlement times. 

Cryptocurrency

A cryptocurrency, also known as a crypto-currency or crypto, is a type of digital currency that is exchanged across blockchains. Strictly speaking, cryptocurrencies are digital assets, but they are increasingly being used as payment instruments. The oldest and most popular cryptocurrency is bitcoin (BTC), with a market cap of $521tr, accounting for almost half the value of all cryptocurrencies. A popular sub-category of cryptocurrencies are stablecoins, such as tether (USDT) and USD Coin (USDC). The key difference of stablecoins is that their price is pegged to a fiat currency (typically the US dollar) or a physical asset (such as gold). You can learn more about stablecoins with our new publication.

Nodes and miners

Most blockchains are decentralised, meaning no one organisation is in charge of their running. Instead, responsibility is shared amongst users. The two main roles are nodes and miners, which are both undertaken by coin owners. Nodes (or more specifically, computers) witness and verify transactions. They also store copies of the cryptocurrency ledger. If a user tries to double spend their coins by making two payments at the same time, the network nodes will reach a majority consensus on which payment was sent first. This is the payment that gets verified and confirmed on the blockchain, while the other payment will be rejected. Miners are network participants that dedicate computing power (known as ‘hash power’) to verifying new blocks, in exchange for newly minted coins and a transaction processing fee. 

Public addresses and private keys

On a blockchain, coins are exchanged between users via public addresses (also known as public keys). Think of these as bank account numbers. A public address is a unique string of cryptographically generated characters, frequently displayed in QR code format for mobiles. A private key, however, is a one-off. A private key is paired with all the public addresses a user has transacted with. The private key gives the user access to their funds, which are stored in wallets (see next section). Just as with a public address, a private key is a long list of alphanumeric characters. But unlike a public address, it should never be shared. A private key is like a pin number; in the wrong hands, someone can take everything you own.

Wallets

A crypto wallet is the combination of a user’s private key and public addresses. Both are needed for a user to view their balance and send and receive crypto transactions. Creating a new cryptocurrency wallet is like creating a new set of private and public keys—essentially creating a new user on the blockchain. A single wallet can hold a range of different crypto coins, or users may prefer to have a distinct wallet for each currency. A range of wallet applications are available that make it easier for the user to manage their coins. The main distinction is the level of responsibility a user wants to have over the cryptocurrency. For example, a custodial wallet is managed by a third-party, often a crypto trading exchange. As the user doesn’t have the private key, it is the third-party that ultimately owns the crypto.

Alternatively, with a non-custodial the user has the private key, and therefore has ownership of the coins. But if they lose the private key, they are unable to access their crypto. Another key difference is in the hosting. A ‘hot’ wallet application lives online, and so is easy to access, but is subject to the security protocols employed by the wallet provider. A cold wallet is a physical piece of hardware, similar in size to a USB stick that can be secured with traditional measures, such as by storing it in a safety deposit box or a bank vault. Hot wallets are typically used for payments.

Cryptocurrency payment gateway

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A cryptocurrency payment gateway, also known as crypto payment processing provider, is a payment processor that enables merchants to accept digital payments. Most cryptocurrency gateways enable merchants to receive fiat currencies immediately in exchange, so the merchant doesn’t need to hold cryptocurrencies on their balance sheet. Gateways do the work of enabling the technology, creating the perfect customer payment experiences, maintaining regulatory know-how, exchanging cryptocurrency and managing a wallet, so merchants can focus on their customers.

You can dig deeper into all of these concepts with our Merchants’ Guide to Blockchain Payments.

How to accept cryptocurrency payments as a business
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Time to go from theory to practice, and explain how merchants can enable cryptocurrency payments. As with traditional payment methods, you'll need a third party payment provider to process cryptocurrency transactions.

As well as the benefits of offloading technical complexity and regulatory obligations, the crypto payment gateway provider can also keep volatile cryptocurrencies off the merchant’s balance sheet. They do this by immediately exchanging a customer’s crypto payment for a fiat currency and depositing this with the merchant’s business bank account, or in a virtual account on their platform.

In the following example, we’ll look at the step-by-step flow of a crypto transaction involving a crypto payment processor.

Step 1 - Select your provider

You'll want to make sure you select a provider with the the right technology, global network and compliance and risk controls to deliver effectively on your needs. Take a look at this practical checklist, for key evaluation criteria and questions to ask potential crypto processing providers, covering:

• Fees and rates
• Processing and settlement times
• Operational redundancy
• Compliance and risk
• Additional features like reporting, integrations and IBAN accounts

Once you've selected your provider, you'll need to go through onboarding and verification to set up your business account which can take a few weeks.

Step 2 - Integrate into your website

To add cryptocurrency payments to your checkout or deposit page, you'll need to integrate your chosen payment gateway provider. Depending on your setup and provider, you can do this through plugins, hosted payment pages, APIs or other software tools provided by the gateway service. It can take anywhere from 2-8 weeks depending on your setup and internal resource.

For in-store payments, retailers will also usually require a physical device (similar to a card reader), which integrates with their POS system. 

Step 3 - Optimise for conversion

If you're using a hosted payment page it should be optimised for conversion, ensuring that the most popular or highest converting cryptocurrencies are prominently featured and the payment experience is easy. If you're building a custom payment journey, your provider should be able to advise you on how to optimse them for the best experience and conversion rates.

Step 4 - Payment selection

‍Once your new crypto payment experience is live, your customers can select to pay with cryptocurrency at your checkout from the list of available payment options. They choose which cryptocurrency they want to pay with, and they're shown the exchange rate by your provider. They accept the exchange rate price, triggering an API request to your crypto payment processor who returns a payment link, restating the value of the payment and the cryptocurrency that the customer has requested to pay in.

Step 5 - Checking payment details

The payment link will show the customer the amount of cryptocurrency they need to send, and the wallet to send it to (often represented by a QR code).

Step 6 - Making the payment

To make the payment, your customer needs to open their own cryptocurrency wallet. Your payment provider should have integrations with popular crypto wallets making this step of the journey easier. Once they've connected their wallet, the customer confirms the payment and sends funds to the merchant's public address. In practice, the payee wallet may be owned by the crypto payment processor, removing the need for you to hold any crypto assets on your balance sheet. If you don't want your customer to pay the processing fees, ensure that your provider take its fees directly from you.

Step 7 - Payment processing

When the payment is initiated, your payment provider submits it to the blockchain and it's checked by nodes to ensure the customer has enough funds to make the payment. Once verified, the transaction is submitted to a block, awaiting miners to validate it. A transaction is typically approved after a validated block has been certified by 12 nodes, taking up to five minutes. The transaction is then completed and recorded on the blockchain. Some providers offer to guarantee settlement at this point so that you receive instant confirmation.

Step 8 - Confirmation

Once the transaction is confirmed on the blockchain network, the crypto payment processing provider notifies both the customer and the merchant about the successful payment.

Step 9 - Settlement

If the retailer has chosen to receive payment in a cryptocurrency, the payment gateway provider will forward the funds to their wallet directly, minus fees. For fiat settlements, the crypto payment processor will convert the cryptocurrency and send the fiat funds to the merchant’s bank account, minus their fees. Some payment gateways offer instant conversion, while others provide daily or periodic settlements. 

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The flow of funds in a crypto payment: BVNK example

Here's an example of the flow of funds in a crypto payment (with BVNK as payments partner).

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Pros and cons of using crypto payments (including stablecoins) for business

The unique technology of blockchains, and their separation from traditional banking and payment networks, provides businesses with a number of benefits when accepting cryptocurrencies.  

Meeting customer demand

As we read in our introduction, more and more people want to pay in cryptocurrency. This is especially true in emerging countries, where financial exclusion rates are high. Businesses that offer consumers popular cryptocurrencies at the checkout are likely to be more competitive in these markets.

Fast, always-on settlement

Though many national banking networks enable fast payments within a country, this is not the case when merchants are selling abroad. Most payments today rely on the international banking system  Swift, and can take several days to settle, particularly when moving funds in and out of emerging markets. Finance teams may have to resort to pre-funding or suffer cash flow pressures. Settlement on blockchains using digital currencies can be near instantaneous and carried out 24/7 (though you’ll need to add time if you want to convert the cryptocurrency for fiat), eradicating the cash flow gap between the costs of selling and the revenues from sales.

Cost efficiency

Merchants can expect to pay up to 3.5% in fees to process credit card payments; and more in chargeback penalties and associated costs if a transaction is queried. Cross-border consumer payments can carry an extra cost from the role of intermediary banks (also known as ‘corresponding’ banks) that are required to support the path of a payment. In comparison, cryptocurrency payments are less expensive. Most cryptocurrency payment processors charge just 1%, and sometimes less. The payer also pays a network fee, which depends on blockchain network congestion (in July 2023 for example, someone making a payment via the bitcoin blockchain would pay an average of US$1.3.15).

High average transaction value

BVNK merchants in industries like FX trading, report that average deposit value for cryptocurrencies can be up 5-10x higher in some markets, than it is for other payment methods like credit and debit cards.

Predictable

Blockchain settlements are full and final, with no facility for customers to request chargebacks, therefore eliminating friendly fraud and the associated costs and administration. The predictability of cryptocurrency transactions also makes financial reporting and planning easier, giving merchants confidence in their numbers.

‍Reliability

The leading cryptocurrencies have been proven over many years as a method for securely making transactions. The volumes being transferred daily on the most popular cryptocurrency blockchains shows that they are a reliable and trusted medium of exchange.

Adoption ease

As we illustrated in the previous section, merchants can easily adopt cryptocurrencies payments. An entire cryptocurrency-enabled payments operation can be outsourced to a third-party, giving a business all the benefits with none of the risk or compliance obligations of holding them as assets on its balance sheet.

Transparency and traceability

While blockchains don't directly reveal payer and payee information, they do allow for the traceability of transactions through public addresses and the publication of immutable records. This provides a high degree of visibility on the status of a payment, and aids payment reconciliation, financial record-keeping and analysis. A blockchain also provides a powerful tool to track the provenance of funds, and detect and prevent illicit payments activity. 
 

Now let’s look at some of the main challenges for businesses of their customers paying in cryptocurrencies.

Payer experience

The cryptocurrency payment experience is still maturing. While merchants in many industries often report high conversion rates for crypto payments because of its utility (for example, in some countries customers don't have access to international credit cards), the industry has some work to do to replicate the 'one-click' payment experience that consumers have come to expect in ecommerce for example.

Price volatility

If you’re holding digital assets on your balance sheet, fluctuating prices of cryptocurrency can be a problem. For example, bitcoin, the largest cryptocurrency by market cap, has been as high as $31,446 and as low as $15,814 in the last 12 months. But in reality, most businesses who accept crypto don’t hold on to it. Instead they work with partners who collect it on their behalf, and settle them into fiat.

Stablecoins like USDT and USDC are increasing in popularity around the world and a good alternative for payments, because they provide far greater price stability. Payments worth billions of dollars are made every day using stablecoins, with settlements reaching approximately $8 trillion in 2022, surpassing volumes of major card networks like Mastercard and American Express.

Navigating regulatory compliance

In recent months, we’ve seen policymakers and regulators around the world clarifying their approach towards digital assets like stablecoins, and we’re starting to see greater harmonisation of the rules globally. But a lack of clarity today has left many businesses uncertain about how to move forward. The global picture is mixed, and continually evolving. For example, a very recent court ruling in Shanghai may reverse the outright ban on bitcoin in China and pave the way for it to become legal tender.

Partnering with crypto payment providers who have a strong focus on regulatory compliance and risk management is critical.

Interoperability

Achieving interoperability between different blockchains, or between blockchains and other financial systems, can pose a challenge. Some fintechs offer a proprietary blockchain (eg Ripple) and/or token (eg XRP), while other providers integrate with multiple blockchains and are token and currency agnostic (eg BVNK). Providers like BVNK address the challenge of interoperability by providing an API layer that allows businesses to move funds seamlessly between networks.

FAQs

How many businesses accept crypto?

While it is difficult to get an accurate global total for businesses that accept crypto payments, it is clear that the number is growing. According to the Cryptocurrency Payments Report by Cointelegraph Research, around 30,000 merchants worldwide currently accept Bitcoin. Well-known brands processing cryptocurrencies from customers include Subway, Starbucks, BMW and Microsoft. There are an estimated 420 million owners of cryptocurrency globally in 2023. While overall adoption has slowed worldwide in the current bear market, it remains above pre-bull market levels, according to Chainalysis. Demand to use cryptocurrencies is particularly strong in countries where people don’t have access to traditional financial services and where local currencies suffer from inflation.

What are the risks of accepting cryptocurrency?

The risks of accepting cryptocurrency payments include price volatility if you're holding it on your balance sheet and the challenge of navigating an inconsistent and fast-evolving regulatory environment. On the issue of price volatility, stablecoins are becoming an increasingly popular for payments because they provide far greater price stability. In addition, many merchants who choose to accept crypto don't hold on to it. Instead they work with a payments partner who collects it on their behalf and settles them in their preferred fiat currency. Experienced crypto payments partners can also take on much of the burden of regulatory compliance.

Can small businesses accept crypto?

Yes, small businesses can accept cryptocurrencies. Cryptocurrencies operate outside of traditional banking systems, meaning any business with an internet connection and cryptocurrency wallet can accept crypto payments. In practice, businesses work with a crypto payment gateway provider to manage the various aspects of a crypto payment, such as the checkout experience, processing transactions on blockchain, wallet management, and converting crypto funds into fiat currencies.

Can my business have a crypto wallet?

Yes, any business can have a crypto wallet, or multiple wallets for different cryptocurrencies. They should be aware of the different types of wallets available. For example, a custodial wallet is managed by a third-party, often a crypto payment processor or a trading exchange. As the user doesn’t have the private key, it is the third- party that ultimately owns the crypto. Alternatively, with a non-custodial the user owns the coins, but they are responsible for managing the wallet’s keys (similar to a pin number). If they lose the private key, they are unable to access their wallet and the crypto inside. Another factor businesses should consider when selecting the most appropriate wallet solution is how easy it can integrate into the checkout flow. This is another advantage of offloading wallet management to a crypto gateway provider.

Why is it difficult for most businesses to accept bitcoin as a form of payment?

While it is not technically difficult for any business to accept bitcoin as a form of payment, some will be put off by its price volatility (which can make it difficult to price products and services effectively) and the evolving regulation around the world, which creates unpredictability. In practice, many businesses who choose to accept crypto don't hold on to it. Instead they work with a payments partner who collects it on their behalf and settles them in their preferred fiat currency.

How much does it cost to accept cryptocurrency payments?

Most businesses will use a payment processor to facilitate crypto payments from customers. Most cryptocurrency payment processors charge around 1%, sometimes less. Costs do vary by provider, with most offering volume discounts, as is the case with fiat payments. The payer also pays a network fee, which depends on blockchain network congestion (in July 2023 for example, someone making a payment via the bitcoin blockchain would pay an average of US$1.3.15).

Wrapping up: get started with taking crypto payments for your business 

As we have read in this article, there are a range of benefits for merchants that enable crypto payments. These include meeting customer payment preferences, settling funds fast, and lower processing costs compared with cards.

These benefits can result in significant competitive advantages, such as making it easier to enter new markets and optimise cash flow. The fastest way for businesses to get started with taking crypto payments is to work with a trusted crypto payments partner. They can manage every aspect of set up and the ongoing operation, from checkout integration to settlement and regulatory compliance.

BVNK is a leading  payment partner for an increasing number of businesses worldwide. BVNK supports hundreds of merchants to process billions in transactions every year. Our global payments platform makes it easy for businesses to accept and send payments in 13 different cryptocurrencies, without making changes to treasury operations.

Our product has been built over many years, working with customers to understand their needs and expectations of an effective payment journey. We prioritise regulatory obligations and risk mitigation – which is why around a quarter of our team work in risk and compliance roles. With licences in Europe, the UK and South Africa, and a licensing roadmap in Africa and Asia, BVNK is placed to become one of the most regulated cryptocurrency payment processors anywhere in the world.