The distributed ledger technical architecture came into existence almost a decade ago, with Bitcoin as its first and by far the most popular implementation. Since its inception, cryptocurrency has been fast becoming mainstream as a medium of exchange like fiat money. Crypto market cap surpassed $3 trillion for the first time on November 13, 2021. However, governments worldwide have mixed reactions to cryptocurrencies and their legal use.
Cryptocurrency, also known as crypto, can be traded between two parties, converted to other cryptocurrencies or fiat currencies, stored for future use, and secured by a ledger. Cryptocurrencies typically have limited supply and are similar to fiat money. Crypto payments are estimated to be adopted by 45% of customers by 2023, according to Capgemini’s World Payment Report 2021.
In the Payments world, remittances and mobile wallets—the early adopters of cryptocurrency—benefited tremendously from crypto payments. El Salvador accepts Bitcoin as legal tender. In 2020, it received $6 billion (equivalent to 23% of its GDP) in Bitcoin remittance. Nigeria, Vietnam, and the Philippines are among other developing nations receiving remittances in cryptocurrency. Cryptocurrency remittances provide a perfect solution to avoid high transaction fees associated with fiat.
Most of the major payment players are rapidly adopting cryptocurrency. For example, PayPal and Square have started accepting leading cryptocurrencies for payments, while Stripe is re-entering the crypto market.
Like mobile/digital wallets, e-commerce solutions and even crypto payment processors play a crucial role in cryptocurrency adoption in retail payments.
Ripple’s XRP Protocol is touted as the next phase of transformation in the global remittance market. JP Morgan’s blockchain-based settlement network IIIN covers 400 correspondent banks globally. As crypto payments are not regulated by PCI, cut down fraud, enable borderless payments, charge less fee, and ensure privacy, a number of retail merchants, including eBay, are looking at supporting them.
Larger brands and retailers are taking significant steps to start accepting crypto payments along with fiat. Yum! Brands, Coca-Cola, Starbucks, Xbox, and Tesla—all started accepting leading cryptocurrencies or at least one cryptocurrency for payments.
People are using cards to buy crypto assets. Crypto-linked cards are taking the lead in the crypto payments space, thanks to payment networks’ initiative to create a fertile crypto payment ecosystem. However, cryptocurrencies still don’t move through card payment networks. Crypto partners of card companies convert digital assets into traditional currencies at their end and transmit them through payment networks. The biggest advantage will be the wider adoption of crypto payments by merchants as currently, this ability is limited by proprietary methods unique to each digital asset or crypto.
Cryptocurrency payment gateways tend to charge less compared to traditional credit card payment systems. Crypto gateways can integrate with e-commerce platforms, POS systems, shopping cart software, and billing and accounting solutions, among others. Cryptocurrency payment gateways are a direct threat to Visa, Mastercard, Discover, and other global card payment networks that have the lion’s share of the global cards market worth $205.45 billion (as of 2020).
Visa, one of the two largest card payment networks, has more than 50 crypto wallet partners. Its crypto APIs enable issuing partners to offer features such as Bitcoin trading and rewards. Visa is also building innovation infrastructure—Digital Currency Innovation Hub and Fintech Fast Track Program—to develop native digital currency settlement on card networks. Globally, Crypto.com Visa card can be used at over 70 million sellers accepting Visa.
Visa is venturing into crypto remittance through Visa Direct. Crypto.com cardholders can remit US dollars fast or in real time. Clothia partnered with Visa, Crypto.com, and Circle for Clothia to convert international payments (in US dollars) into USDC (using crypto network) that can easily be converted into other fiat currencies by recipients.
In 2020, Wirex was the first native crypto platform onboarded by Mastercard to directly issue payment cards. Wirex payment cardholders can buy, hold, and exchange multiple traditional and cryptocurrencies. Cryptocurrencies can be instantly converted into fiat currency and are accepted by merchants that accept Mastercard.
Mastercard teamed up with BitPay and cryptocurrency exchange LVL to offer crypto cards. It recently launched Bitcoin payments cards (credit, debit, and prepaid) in APAC. In addition, it partnered with three bitcoin service providers—Amber, Bitkub, and CoinJar—to enable customers to pay for regular purchases using Bitcoin.
Mastercard’s global Crypto Card Program offers support to crypto partners, from quick onboarding to market entry to global expansion. It aims to enable all stakeholders to move digital value—traditional or crypto.
With certain pre-conditions applicable to crypto partners, card payment networks may have an important role to play in better regulating cryptocurrencies and bringing them within the purview of traditional financial laws, such as AML, and local regulatory bodies.
Cryptocurrency payments are one of the emerging payment methods. According to the Statistical Global Survey 2019, up to 20% of the population in some countries are holding cryptocurrencies. Furthermore, the World Payment Report 2021 estimates that 45% of customers will use cryptocurrency payments in the next two years, especially for remittances.
Major FinTechs such as Stripe view crypto having tremendous potential to enable faster and less expensive payments, particularly in underserved markets. Cryptos are seen as an investment, a disruptive technology, or a unique financial tool. Crypto is surely making waves, and its real-world applications are now emerging faster than expected.
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