That was quite a rough start for Bitcoin and other cryptocurrencies in 2018. The price for one Bitcoin recently dropped below $7000 after investigations against the cryptocurrency Tether had been started, following accusations that it was used to inflate the value of Bitcoin. Bad news continued with the announcement of facebook to restrict advertising for Initial Coin Offerings (ICO). Despite all of this, cryptocurrencies boomed in 2017. Their global market cap has never been that high. In addition, the number of unique active users of cryptocurrency wallets is now around 2.9 million to 5.8 million. The total number of wallets has increased more than 4x from 8.2 million in 2013 to nearly 35 million in 2016. These are strong signs that in near future blockchain technology will have a great impact on many business fields. This will include the payment industry as well. We want to be part of this change, because it will ease the payment process and provide a better user experience for all participants.
The current system of payments is broken
Making smooth payments possible for both customers and merchants is a hard task. This is caused not only by local regulations and different currencies to support. The many different payment methods with their associated risks require a lot of effort for payment service providers, as well.
Direct Debit payments for example are a great way to do payments. However, for a European merchant they only work in a subset of countries. In addition, they bear the risk of losing the money on the way as customers are able to dispute payments and receive a refund. Offering direct debit payments for a PSP means managing risk, storing a whole bunch of data and processing transactions using legacy banking technology.
Credit cards are a popular alternative. They support more currencies than the SEPA system. Thus, many merchants use them to sell to customers coming from other countries. However, the current payment scheme for credit card transactions consists of at least four different parties and the process is quite complex: Issuers – oftentimes banks or other financial institutions – provide the customer with the plastic card and means for online payments. After a merchant receives a payment from the customer, the payment data is forwarded to the merchant’s acquirer, which then requests the money from the issuer. The issuer will now charge the credit card and transfer the money to the acquirer, who will make it available to the merchant. However, to be able to process credit card data, merchants must take the effort of securing their systems to be compliant to the Payment Card Industry Data Security Standard (PCI-DSS). Therefore, payment service providers have emerged that provide software to merchants enabling them to forward payment data to their acquirer. This complex system with many stakeholders involved has severe downsides for merchants. All of these intermediate players apply fees for their services, summing up to as high as 6 percent. And, even worse, it can take up to 14 days until merchants finally receive the funds in their bank account.
Don’t get it wrong. There has been tremendous innovation within the payments industry by players like PayPal, Klarna or Stripe regarding the process on the merchant side. However, in the end the payment process remains bumpy for the merchant as well as for the customer. It seems like the payments industry is continually engaged in plugging holes in the sinking ship of our payment system as it is today. Some try to make payments a bit faster, whereas others try to set merchants free of risks associated with customer disputes. Stripe is making a great job at simplifying integration work for developers. However, at some point fixing bugs becomes so exhausting that it starts to make more sense to rebuild the ship from scratch. That is exactly what cryptocurrencies have to offer.
Rebuilding the payment system
Processing payments is the most popular use case for what blockchain technology has been invented in the first place. This might have been to some extent caused by the financial crisis and the lack of trust in the financial system that emerged afterwards. However, one reason is more obvious: In theory, payments are actually quite simple. It is just as easy as writing numbers into a ledger. If A wants send money to B, we simply check if A has enough on their balance, subtract the amount from A’s balance and add it to B’s. In practical applications it becomes difficult because you need to trust the one doing the calculations. That is quite an easy use case for a distributed ledger technology, which can provide this trust. So what is the advantage of blockchain technology in comparison to our current payment system? By using a blockchain protocol, payments are sent directly from A to B, meaning from customer to merchant. There are no intermediary players anymore. Because of this, both fees and transaction times are significantly lower. For the Ethereum blockchain, transaction times are around 30 seconds on average. Transaction fees are more volatile, but they are fixed cost and therefore not dependent on the transaction amount. They should be around €0.2. That said, payments with cryptocurrencies have the possibility to be 10x faster and 10x cheaper than payments within the current system.
We are launching CASHLINK Crypto Payments
Regarding all this and after requests came in from a lot of merchants, we decided to add support for payments via several crypto currencies by mid 2018. Merchants will be able to get paid via cryptocurrencies by creating payment links for invoices, products and subscription plans. For the end customer the checkout flow remains simple. Besides credit card and other means of payment, crypto can be selected. Customers simply choose their preferred coin and submit the transactions with their client wallet. After the transaction has been written to the network, customer and merchant both get a notification about the successful payment.
We will soon be publishing our roadmap for crypto payments. If you don’t want to miss any updates as well as details about the upcoming closed Beta, feel free to subscribe here:
We would also love to hear your feedback. So do not hesitate to get in contact or comment to this post. We are looking forward to making our contribution for rebuilding the payment system for better.
For more than two years we have been dedicated to building payment products people love to use. We have been the only company to launch a Person-to-Person (P2P) payment system in Germany without the need for any authentication mechanism. We then opened the system for small and medium-sized businesses to allow them to get paid easily by offering modern payment methods online–without the need to write a single line of code. All products and features we build heavily rely on customer feedback, which we believe is key to designing great products.