There has been a lot of news in the press recently about big companies accepting Bitcoin, like Tesla. Companies are starting to recognize that accepting Bitcoin is a good move for business, opening up new markets and customers. And this brings up a question, what does the Bitcoin payment processor industry look like? What types of companies facilitate these Bitcoin transactions?
What is a Traditional Bitcoin Payment Gateway?
When thinking about a payment processor, PayPal or Stripe probably comes to mind. Traditional Payment Gateways operate like most fiat gateways. Any payments made are placed into a wallet on their website, it is controlled by them. These companies serve as a collection point for funds, serving as a middle man, keeping a merchant’s funds and having them transfer the funds off the platform after the transaction. Bitcoin’s payment processor industry is controlled by giants like this, like BitPay and Coinpayments. PayPal has also entered the market. You can do minor things with that Bitcoin on these platforms (well, not PayPal), however you do not control it yet, because you do not own the keys. These services charge you a fee when you withdraw the Bitcoin into your own wallet. Sometimes this is on top of a transaction fee as well. Essentially, there are many hoops you have to jump through before you can use that Bitcoin.
What Are the Pros and Cons of a Traditional Payment Gateway?
There are many pros and cons. These processors are often easy to set up and use, they often have plugins, and many have options for in person purchases as well. Because these processors are similar to fiat processors the set up time and knowledge curve is low, most merchants are already used to it. However, KYC is needed, and can slow down the process of setting up as the company checks your private details.
They are also often larger than more established businesses. This can be good because they are more able to enter into more complex business contracts with big companies that want to provide Bitcoin payments. But, this, combined with their centralization of funds and the lack of self-ownership of funds makes them tempting targets to hackers. That means funds held on their centralized wallets are in danger of being hacked, you can’t control your own security, you have to depend on the company.
What Are Direct to Wallet Payment Gateways?
These are the main alternative to traditional payment gateways. These companies like Blockonomics and BTCPayServer offer a better alternative. Rather than serving as a middle man, they allow merchants to receive Bitcoin from their transactions directly. The payments go, well, directly to their wallet. There is often more customization control allowed, and there’s less centralization. These companies are often built by and run by people who love Bitcoin and are willing to put in the extra mile to make sure the payment gateways work exactly how customers want them.
What Does This Mean?
This means several things:
- Be your Own Bank: With direct to wallet you have control of your funds and sales, you don’t have to worry about where your money is being held, and the security of another. Instead, you have complete control, and feel good knowing your funds are secure.
- It is a lot quicker: Going direct to wallet means you don’t have to wait for the transaction to go through, and then wait even longer for the transaction to go from the payment processor to your actual wallet. That takes up a lot of time.
- It is a lot cheaper: Most traditional payment processors will drown you and your customers in fees. Fees for the initial transaction, fees to remove the Bitcoin from their service... Direct to Wallet payment processors often just charge a single low transaction fee, so they can keep their servers running.
Direct to Wallet payment processors are starting to saturate the market. Tesla, for example, is using a Direct to Wallet (and that’s a big wallet) processor for their Bitcoin payments. As Bitcoin continues to enter the mainstream, small businesses and e-commerce stores are going to have to ask themselves if they can afford to not enter the Bitcoin payments sphere. When they do, the next question they will have to ask is what type of processor to use. Many will choose Direct to Wallet because it is, quite simply, the better option.
What Should You Use?
That should remain up to you. There are several pros and cons for each, and in certain scenarios, a traditional payment gateway might be more preferred. But more often than not Direct-to-wallet payment gateways offer more security and more peace of mind. This makes them a top choice for a lot of small businesses and e-commerce merchants.