Before getting onto crypto, let's weigh up the five legacy modes of payment. In no particular order, these are:
Wire transfer – an inter-bank transfer method where Bank A directly transfers funds to Bank B. Wire transfers are relatively fast and reliable, although international transfers can take up to seven days to arrive in the payee's account). They also come at a premium as fees are typically charged by both banks. These fees can add up if a payment fails as additional charges are usually levied to investigate the cause. Common wire transfer services include SWIFT and Credit Transfer.
Automated clearing – Automated clearing enables banks to settle payments between parties. Clearing houses are either domestic schemes such as the Automated Clearing House in the US or BACs in the UK, or regional schemes such as SEPA (Single European Payments Area). These systems can be stitched together to enable global payments, but this is a highly complex process as no formal standards exist. Clearing can take several days, and the approach is not available in all countries.
Cheques – Essentially the analogue form of automated clearing, in this approach a payer provides a payee with a cheque instructing the payers bank to release funds to the payee's account (or in some cases allowing them to cash the cheque). The process is inconvenient, much slower than automated alternatives, and can lead to lost payments if the cheque is misplaced or stolen. Cheques hark back to a much earlier age and are, frankly, ill suited to the digital business environment.
Prepaid debit cards – In this approach a payer sends funds via a debit card network to a payee's account. The funds then appear for use by the payee through their debit cards. Prepaid debit cards can come with service charges, such as an annual fee or charges for using ATMs.
PayPal – One of the latter legacy approaches to emerge is PayPal. Here, funds are directed to a payee's PayPal account using automated clearing. Payees can then choose to spend the funds directly from their PayPal account, where retailers allow them to, or they can transfer the funds to a regular bank account. PayPal is useful for paying suppliers on highly digitised marketplaces, but fees may be comparatively higher for payers and payees alike.
Cryptocurrency: a payments challenger emerges
With the proliferation of cryptocurrency over the past decade, businesses have an alternative method for making payments, and one that offers significant advantages over these legacy methods. One increasingly popular approach is to convert fiat into cryptocurrency using the services of crypto-payments specialists like BVNK. The payer on-ramps fiat into crypto and then transfers the crypto to the payee, where they off-ramp it into fiat (or keep it in crypto if preferred). The approach is fast and simple as crypto is kept off the corporate balance sheet.
Businesses may wish to take a more hands-on approach to the use of crypto and integrate it more fully into their treasury operations, here, businesses can rely on a registered crypto asset services provider like BVNK.
Whichever option a business takes, crypto payments provide significant benefits over legacy payments options:
Improved liquidity management. When transferring fiat over any of the legacy methods, even through wire transfers, money becomes inaccessible for many hours, or even days. For payees, this inaccessible money can mean missed opportunities. With crypto, payments are immediate, meaning that businesses can improve liquidity management and increase the capital they have at their disposal.
Better forecasting and planning. Another benefit of payments being settled in real time is that finance teams are empowered with a more accurate understanding of their business' financial health, enabling them to forecast, budget, and plan far more effectively.
Reduced costs. The fees for transacting payments through cryptocurrencies are generally much lower than with traditional payments options. Overtime, this amounts to a significant reduction in overheads for businesses.
Simplified international payments. Crypto can be used to remit payments anywhere there's an internet connection. That makes it easier for businesses to pay partners based in counties with poor or complex payments systems. What's more, the approach removes the significant fees that are usually accrued when exchanging payments into local currencies.
Crypto payments are nothing short of revolutionary. The approach is a complete break from the past and offers businesses a simpler, faster, more flexible, and more cost effective approach to managing payments. Given the strength of cryptocurrency and the underlying blockchain technology, it is in our opinion only a matter of time before it becomes the de facto payments system for businesses large and small.
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