It is not surprising to see all kinds of companies trying to get a piece of that pie: traditional finance, mobile payment apps, specialized crypto-native firms, crypto exchanges… all developing solutions to help merchants and their clients use crypto and facilitate crypto transfers between peers.
Why do people need crypto payment apps?
Some crypto afficionados could wonder why payment apps are necessary, when a simple crypto wallet can easily send and receive crypto.
It could suffice to a point, especially in case of Lightning Network wallets (those that help reroute BTC from Bitcoin mainchain to its layer-2, enabling cheap and fast transactions). Lightning Network wallets can generate invoices in form of a QR code, which comes in handy for accepting payments in real-world outlets like restaurants and shops (many already do).
However, often merchants need more than just a cashier interface. They need e-commerce payment option that updates BTC price according to its dollar exchange rate, shopping cart plugins to websites, automatic conversion of Bitcoin into stablecoins or fiat to avoid volatility traps, possibility to send invoices in a variety of different cryptos, and of course, clean record-keeping. The last point is important not only for merchant’s accounting, but sometimes for their clients too: paying in Bitcoin could be considered a taxable event if the coin has gained value since its purchase.
From the client perspective, the possibility to spend their crypto at merchants who don’t yet accept it is provided by a variety of crypto cards. Those are akin to regular credit or debit cards linked to a crypto service provider, which automatically converts crypto to fiat at the time of payment. Even simple peer-to-peer transactions can be enhanced by payment platforms, especially for people who do not feel comfortable managing their own crypto.
The competition between crypto payment firms is about any combination of these services.
The state of crypto payments
Most popular type of crypto payment services are still the custodial ones – those that manage their clients’ funds. They dispense their clients from taking care of their private keys and they are also the only ones which can ensure fiat-crypto conversion, still crucial for most businesses.
One of the first crypto-native companies to provide a merchant payment app was BitPay, which was soon joined by crypto exchanges developing their own merchant services: Binance Pay, Coinbase Commerce, Crypto.com among others. They are now proposing all kinds of features one can think of: crypto cards, online payments, zero-fees remittances, merchant apps, cashbacks... To encourage merchants, they also provide plugins and integrations with website-building services like Shopify and Wordpress.
Traditional finance is keeping the pace: Swiss stock exchange SIX has its own crypto solution for merchants, allowing them to accept crypto and automatically convert it into Swiss Francs.
Among payment apps developed primarily for peer-to-peer transfers, Cash App and PayPal enable crypto payments, together with Lightning Network-native Strike.
Crypto cards have become ubiquitous, with neobanks like Revolut and Wirex among the first providers. They have since been joined by all types of crypto firms: from CeFi lenders like Nexo and BlockFi to crypto exchanges like Binance, Coinbase, and most recently – FTX.
The cards are issued by Mastercard and VISA, which have been competing for the crypto payments market since 2020. So far VISA seems to lead with over 70 partnerships, while Mastercard is focusing more on providing crypto services to other financial institutions. This Monday the latter announced the launch of a new program: Mastercard will help financial institutions get a crypto exposure by bridging their systems with Paxos, a crypto trading platform.
Despite being easy to use, there’s a major downside to custodial crypto payment apps – they are not censorship-resistant. The recent PayPal’s decision to stop servicing League of Social Democrats – one of the last active pro-democracy groups in Hong Kong, is just another reminder.
This opens the door to non-custodial payment apps like BTCPay or Nowpayment - self-hosted payment processors with a set of related services, such as point of sale interface, invoice generation, clean bookkeeping etc.
Crypto adoption is in early stages, and custodial services are still important: people need crypto-fiat conversions, and many just aren’t ready to take the responsibility of managing their own wallets. However, the non-custodial part of the market is likely to gain more importance progressively.
Written by D.center
