Payment Platforms and Cryptocurrencies
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The way we pay for things has changed quite a bit in the last couple of decades. The 1950s saw the arrival of credit cards and the 70s the arrival of debit cards, but things really kicked off in the late 90s with internet banking. As we spend more and more time on our smartphones, this has also played a part in how we process payments. Today, we can pay our bills simply through the internet, swipe our smartphones at the grocery store, and even have digital currencies.
The rise of online purchases saw two problems to be solved: the need to increase security for payment information and the need to centralize the various payment methods available. Payment platforms found a way to kill both birds with one stone. Meanwhile, there has also been a strong desire to take banks out of the financial equation, which is where cryptocurrency comes in. In this article, we’d like to explore how the various digital payment platforms work and what cryptocurrency has brought to the table.
Digital Payment Platforms
What is a Digital Payment Platform?
We’ll start with the basics. A digital or online payment platform is a platform that offers two or more online payment technologies, benefiting both buyers and merchants. Typically, a payment platform includes a payment gateway, a payment processor, and a merchant account. Let’s take a look at what these are below.
What is a Payment Gateway?
A payment gateway is like an online point of sale. It is a type of cloud-based software through which payment information is read and transferred from a client to a merchant’s account. A payment gateway acts as a mediator between online transactions and the payment processor.
What is a Payment Processor?
A payment processor is a company or financial institution that manages the backend logistics of accepting debit or credit card payments. When a purchase is made, the payment gateway sends the information to a processor who is then in charge of sending it to the relevant card network for approval. A payment processor is, essentially, in charge of handling transactions between the customer’s bank and the merchant’s bank.
What is a Merchant Account?
A merchant account is a business bank account that allows merchants to accept and process electronic payments. Businesses can request merchant accounts from payment processing companies, large banks, or independent contractors.
How do Digital Payment Platforms Work?
In the previous section, we took a look at the essential concepts involved in digital or online payments. Now, it’s time for an in-depth look into how online payment platforms work. Let’s begin with the parties involved: the customer, the business/merchant, the payment gateway, the payment processor, the customer’s bank, and the business/merchant’s bank.
Standard Online Payment Process
Let’s look at the standard online payment process step by step:
1. A customer chooses to purchase a product or service from a website. They provide the business/merchant with their details.
2. The business/merchant submits the transaction through the payment gateway.
3. The gateway then sends the transaction to the payment processor.
4. The processor verifies and approves the transaction (if it doesn’t, we skip to step 7).
5. The customer’s bank sends the relevant amount to the payment processor.
6. The processor is then in charge of sending the money to the business/merchant’s bank.
7. The payment processor then sends the status of the transaction to the gateway (approved or declined).
8. The business/merchant is notified whether the transaction was approved or declined.
9. The business/merchant receives the money for the product or service sold.
We now know the basics of the online payment process, but how does offering a payment gateway, a payment processor, and a merchant account all together simplify things?
Process Through Digital Payment Platforms
To explain how online or mobile payment platforms simplify the payment process, we’ll take a look at Braintree’s process. We’ll also look into this payment platform in more detail in the next section and you can check out its website if you want more information. As you’ll see below, we are jumping from a nine-step process to just five.
1. The front-end requests a client token from the merchant’s server and initializes the client SDK.
2. The server creates and sends a client token back to the client using the server SDK.
3. The customer submits their payment info, the client SDK sends that info to Braintree and returns a payment method nonce.
4. The front-end sends the payment method nonce to the server.
5. The merchant’s server code receives the payment method nonce and uses the server SDK to create a transaction.
Top Digital Payment Platforms Worldwide
This payment platform is full-stack, meaning it takes care of the three main payment technologies needed to process online payments (i.e., the payment gateway, the payment processor and a merchant account), simplifying the process for businesses. You can integrate Braintree through their Drop In UI or Custom UI, which adds a full-featured checkout to your website or app, requiring just a few lines of code. You will also need to set up a production Braintree account to use the platform.
Stripe also offers a complete payment platform and it prides itself on providing powerful and easy-to-use APIs. Just like Braintree, this payment platform also offers a fixed checkout option as well as the possibility to customize your own through Stripe components. Some of Stripe’s features include data security and encryption, regulatory licenses worldwide, invoice support, client libraries and SDKs, and comprehensive testing tools. When it comes to programming, Stripe’s front-end is available in HTML, React and Next.JS, while the back-end is available for Ruby, Node, PHP, Python, Go, .NET, and Java.
You can find sample integrations here and more libraries for other programming languages here. Also, if you want to look over a project that integrates Stripe, dive into how Showcast was developed here. Stripe supports more than 135 payment methods and currencies in 35 countries. The payment platform does not only work online through websites and mobile apps, but also by using the Stripe Terminal at points of sale. Payment options include cards, wallets, bank debits and transfers, cash-based vouchers, and bank redirects, among others.
This incredibly popular online payment system is used to make online and in-person purchases, as well as send money to friends and family. PayPal is available in over 200 countries, supports 25 currencies, and is used by more than 30 million merchants worldwide. The online and mobile payment platform supports various payment methods, including debit or credit cards, PayPal balance, PayPal credit, a bank account, and rewards balance.
Alipay is an online and mobile payment platform founded in China in 2004 by Alibaba. The platform has over a billion users (most of them in China) and processes more than 8.5 million transactions every day. Alipay supports both online and in-store payments through static QR codes, POS terminals, cash register software and mobile apps. On the developer side, Alipay offers SDKs for Java, Python, PHP and .NET. You can see the full documentation here.
This payment platform was founded in 1996 and acquired by Visa in 2010. Authorize.net is highly customizable and supports point-of-sale, mobile and eCheck payments, among several others. The service is available to merchants registered in the US, the UK, Canada, Europe and Australia, and almost half a million businesses have chosen to use it. The digital payment platform is efficient, has a mobile-optimized design, and integrated customer profiles, among other features. Authorize.net won the Best API Integration award from The Strawhecker Group’s Annual Developer API Awards in 2018 and 2019. The platform offers SDKs for Java, Python, PHP, Node.JS, .NET, C#, Objective-C and Ruby. You can take a look at them here and also check out all the relevant documentation here.
Launched in 2003, Mercado Pago is a growing digital payment platform in Latin America. As the number one fintech company in the region, it covers eight Latin countries, including Mexico, Argentina and Brazil. Mercado Pago offers point-of-sale, QR and online payments, in addition to customized payment methods that vary from country to country. It even offers the option to pay in installments in some cases.
Mercado Pago’s front-end is written in HTML and its back-end is available in PHP, Java, Node.JS, Ruby, .NET, and Python. You can check out its repositories here. The platform is an excellent digital payment solution for countries such as Argentina, where options such as Apple Pay, Samsung Pay and Google Pay are not currently available. In 2020, Mercado Pago joined forces with PayPal for Mexico and Brazil. This payment platform offers both a standard payment gateway UI and one customized with the merchant’s logo and aesthetics.
How do Payment Platforms make money?
Well, as you may have seen if you browsed through the website of any of the digital payment platforms we mentioned above, they make money by charging a fee. This fee is usually a fixed amount plus a set percentage of the transaction value. For example, in the US, Stripe charges 2.9% + 0.30 USD per authorized transaction. Some payment platforms vary their fees depending on the payment method and others may charge just a percentage of the transaction and no fixed amount.
What is a Cryptocurrency?
A cryptocurrency is a digital currency, a medium of exchange value that has no physical form. This currency relies on encryption for security. Why does cryptocurrency exist? Well, to put it simply, it’s a way to cut out the middleman. Instead of going through a bank, for example, you can send payments directly to the intended receiver.
Created in 2009, Bitcoin (BTC) is the most famous cryptocurrency to date. Bitcoin works as a computer program or mobile app that provides you with a personal wallet you can use to send and receive bitcoins. Every transaction processed through Bitcoin is recorded on a public ledger called “blockchain” that helps verify and validate transactions through digital signatures. Other popular cryptocurrencies include Ethereum, Tether and Binance Coin.
Cryptocurrencies in Online Payments
There are many companies such as Microsoft, Wikipedia and Burger King, which accept cryptocurrency in online payments. Moreover, a 2020 HSB Survey found that over 30% of small businesses in the United States accepted Bitcoin. You can use this search engine if you want to find out which businesses accept digital currencies. Cryptocurrency’s disruption of the traditional financial systems has made it very popular.
The total market capitalization of this type of currency was about $2.3 trillion in 2021, surpassing what fintech companies brought to the table by about half a trillion dollars. Lower fees, higher transparency, and efficiency are some other reasons why this currency is gaining ground when it comes to online payments. So, where do cryptocurrency and payment platforms meet, if at all?
Payment Platforms + Cryptocurrency
Payment platforms are not a requirement when it comes to dealing with cryptocurrency. You can simply use your crypto wallet to operate. However, crypto payment platforms offer the added feature of exchanging cryptocurrency and managing your wallet for you. Moreover, they function as a bridge between crypto owners and merchants when it comes to processing payments. This gives an added security layer to those merchants who don’t fully understand or trust this type of currency.
That said, cryptocurrency in payment platforms is fairly recent. From the ones we’ve mentioned, only PayPal currently deals in cryptocurrency (it accepts Bitcoin, Bitcoin Cash, Ethereum and Litecoin). You can find more information about how PayPal works with crypto here. Stripe and Braintree used to accept Bitcoin and are open to doing so again in the near future, so we’ll have to wait and see. Meanwhile, there are crypto payment platforms and crypto payment gateways created specifically to support online payments with this digital currency. We’ll take a look at some of them in the following section.
Crypto Payment Platforms and Gateways
Coinbase is one of the largest and most popular crypto payment platforms available. It has traded over $372B in more than 100 countries with over 73M users. For online payments, Coinbase offers a wallet to control your crypto and a Visa debit card to spend it. You can take a look at all the crypto Coinbase supports here and find out more about how to integrate the platform here.
CoinGate allows you to trade, accept, list, and buy with crypto. The gateway supports over 70 cryptocurrencies and has accrued almost 2M transactions to date. CoinGate also has an extensive merchant and gift card directory that shows you all the options you have when it comes to spending your crypto. If you want to integrate it into your business, you can find more information here.
BitPay is another tool to buy, store, swap, and spend cryptocurrency. The payment gateway offers a Mastercard debit card to handle purchases. BitPay has processed over $5B in crypto through more than 10M transactions since 2011, accepting 13 different cryptocurrencies. If you want to learn more about how it all works, you can see the relevant documentation here.
Online payments have revolutionized the way we buy products and services. We have moved from cash to card to the web and mobile apps, and we even have digital currencies that can be used worldwide. Digital payment platforms are simplifying and cutting the cost of transactions for both merchants and buyers, rendering online purchases effortless and convenient.
When it comes to cryptocurrency, this digital currency is revolutionizing traditional financial systems and changing the way we carry out transactions. Crypto is also diving into the world of payment platforms, creating new specialized ones where there are no available “traditional” options. What do you think will happen next? Will we see crypto completely take over and traditional currencies and payment platforms disappear?
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