The Evolution of Crypto Payments in E-Commerce
I try to use crypto often when paying stuff online. I found some great online shops where you can pay with crypto, and I like doing it to support the idea as a whole. Recently, however, I was checking the conversion prices against the Bithumb price and became a bit surprised. The retailer added a substantial premium for paying with Bitcoin. I found it weird, the payment provider advertised low fees. Was it retailer adding a premium to the price? I had to look deeper.
Digging down a bit more, I found the root cause. It was not the merchant who was at fault, but indeed the crypto payment provider the merchant used. I compared different providers, looking not only at the advertised rate, but going through each one from one end to another (purchase to settlement). The data I gathered was shocking – here is a summary table for you to check, exposing all these facts I uncovered.
It looks like I will need to update my old article about crypto payment providers and their pros and cons. Although not cryptocurrency payment providers, I have included PayPal, Stripe, and Square as a reference to compare traditional and crypto providers, further illustrating the stark differences – this is important to provide a glimpse of how profitable this business payment segment can be and how often people pay outrageous fees, even without knowing it. As an e-retailer, I often view offerings in e-commerce from two perspectives: the merchant’s and customer’s point of view. And with these both views in mind, I will state my findings in this article.
The Crypto Payment Provider Landscape
At some time, you have to look back and review your own words. When I wrote the last article about crypto payment providers for merchants, I was perhaps a bit too enthusiastic. I wanted to offer crypto as a payment method in our online store and wanted to find a provider who could deliver. Once you decide to take a certain step, the real deep research starts and if you are digging deep, you’ll find rust particles, even on platinum. What I found, though, was that it is no platinum at all, but simple copper.
The Buyer's Perspective
Let’s take a look at the most common/popular crypto payment providers, along with some new entries in this segment and see how they do they fare from the end customer’s point of view – as this is where the real value lies:
- Coinpayments has no buyer protection and is unregulated
- Coingate turns out to be very expensive, unregulated and has no buyer protection
- Bitpay is the actual reason why I ordered my hardware Ledger wallet with fiat currency. I have no Bitpay-compatible wallet, and their service works only with a few selected ones.
- Utrust is the only one that combines offers full protection to customers, has fair market rates and is regulated
Basically, we have to deal with three problem pillars. The buyers
- …often get less USD value than the actual worth of their cryptocurrencies they want to use for the payment
…they get basically no protection and have to bear the full risk
…have often to deal with a terrible UX and/or suffer through compatibility issues
Personally. I think the most unfair fact though is that many providers seem to hide very high market rates for buyers:
Most of the crypto payment solutions present the end customer with very high rates, well above the market average. They make a profit on this arbitrage and often hide this from the users under false pretenses. Do yourself a favor and check the price of the cryptocurrency you are paying for the most current market price.
…and the Merchant's View
It will soon be 2020 and we still mostly rely on the venerable 12-year old Bitcoin as the primary avenue for crypto payments. Despite this, merchants that want to offer the option of crypto payments…
- …pay ridiculous fees for doing so
- …still have to suffer/enjoy volatility issues, which makes accounting a nightmare
- …deal with missing regulations for most providers
- …become exploited once they want to convert to fiat (hidden conversion fees appear for merchants once the bank settlement happens)
And, yes there are new contenders trying to fill this payment-centric gap – the most recent one being Facebook’s own LibraCoin. Is this the answer? No, far from it. While I acknowledge this is another important step towards mainstream adoption of crypto payments, putting cryptocurrency in the minds/roadmaps of many retailers and companies, it does come with compromises in terms of centralization and governance.
It’s not a magic bullet, nor a replacement, just another stablecoin in the ecosystem (assuming it is not platform-locked and its monetary policy actually works), with more contenders coming along. It is not the true universal crypto payment solution that most merchants are seeking. And I’m not even touching upon data protection, privacy or buyer protection. I’m sure we can all trust Facebook with our most precious data right?
A Light on the Horizon
In my old article about crypto payment gateways, I have to admit that I missed some important findings and listing one particular provider, which tackled these specific issues (or was about to do it by the time of article release). If you go back to the table with the data about all these payment providers, you will find that utrust as the latest addition on the bottom. With the help of their token, they are able to provide a very good service when it comes to Crypto payment solutions. We made a test transaction in the new Benfica store (and filmed it, will be published in a new piece soon) and can conclude the following:
- Fair crypto market rates for the buyers (you get more USD value for your cryptocurrency than with other providers)
- Direct fiat conversion, taking out the volatility risk for the merchant
- Their solution is very fast (with their wallet solution there is no need to wait for multiple confirmations like others)
- The merchants pay a 1% fixed rate (fiat conversion included)
- There is dispute management available (like with PayPal), the only provider with a complete buyer protection
- The payment provider is regulated under VQF supervision
So far, this looks like the best thought-through solution to me, tackling all the ecosystem, problems one by one, while being straightforward and transparent with their customers. We are going to give utrust a try in one of our smaller shops with an international customer base. Let’s see how this will work out! I am very excited to try this and will report back in the future.