People have a lot of opinions when it comes to cryptocurrency. It’s a big topic in boardrooms and on the news — and payment processors are frequently asked if this is something they will ultimately want to support.
Each time I’m asked why my company will or won’t support crypto, I cringe a little, as my head of risk and compliance freaks out when I bring the topic up and the conversation seems to end there. After reaching out to many other processors in our space, I’ve discovered they feel the same, because there are too many unknowns currently for us to integrate it as a payment solution.
The No. 1 challenge we see for adult merchants and content creators is the ability to open a bank account to receive their [crypto] funds.
Merchants are the ones who don’t seem to have an issue adding crypto as a direct payment solution and many large players in our space have added it as a payment option. This made me think that maybe we should look into the mystery behind this currency type and really dig deeper into why some are moving forward with it while others are not.
Major card brands have put crypto solutions in place as part of their strategic plans. Both Visa and Mastercard offer crypto cards, allowing consumers to convert their crypto funds to fiat on a branded card to spend them. PayPal also allows consumers in the U.S. to buy and sell crypto through its wallet; they can also buy and sell Bitcoin, Litecoin and Bitcoin Cash. One thing a consumer can’t do, however, is move the coin out of their PayPal wallet.
So why don’t more processors move forward and accept crypto as a form of payment? One answer I received that makes the most sense is “FUD,” which stands for Fear, Uncertainty and Doubt. Our compliance team says there are several reasons for FUD. For example, the fear of the unknown, the amount of time and resources needed to thoroughly vet a provider and the need to develop proper KYC — “Know Your Customer” — and transaction monitoring solutions. Having all these in place would allow processors to really know that all transactions were valid.
Our compliance team has identified six roadblocks slowing crypto currencies from becoming accepted as mainstream payments:
- Anti-money-laundering (AML) risk: With transactions being anonymous, how would they validate the source of the funds to be sure they have not been earned in a shady way or through criminal activity?
- Financial fluctuations: Companies would not want to hold on to crypto funds due to the fluctuations in valuation.
- Sufficient volume: Would there be enough processing volume driven by crypto to be worth it? So far, crypto has been an investment tool and not really a payment tool for low-dollar purchases.
- No recourse: So far, there is no way for a customer to request a refund on a transaction, leaving no recourse if there is an issue.
- High risk: There is both cyber and fraud risk using crypto because of its open and unregulated nature. This leaves users susceptible to hackers who can go into exchanges and place malware on computers to drain crypto wallets.
- Illegal activity: Crypto has been used to support illegal activities on the dark web for things like CSAM, guns and more.
The good news is, there has been headway in making crypto transactions more secure and regulated. Cryptocurrency exchanges are considered legal in the U.S., U.K. and European Union. In the U.S., crypto exchanges fall under the regulatory scope of the Bank Secrecy Act. This means that the cryptocurrency exchange supervisors must register with FinCEN and with the Counter Financing of Terrorism program, implement an AML policy, maintain appropriate records and submit reports to the authorities. In the EU, although crypto transactions are legal, each member state has its own regulations around crypto. Last year, a broad proposal was submitted to the EU to strengthen regulations regarding the transfer of funds and certain crypto assets, to protect EU citizens and the financial system from money laundering and terrorist financing.
What does the future of crypto look like for our company? Adding crypto as an additional payment option for consumers is a little way off for us, but I feel strongly that there is ultimately a need to have it as a settlement option for merchants and content creators. The No. 1 challenge we see for adult merchants and content creators is the ability to open a bank account to receive their [crypto] funds. As part of our onboarding process, one of our due diligence requirements for merchants is that they have a settlement account in the authority (EU, U.S. or U.K.) in which they are processing. What about the possibility of settling our merchants’ funds to a regulated exchange? Currently our U.S. acquirers are saying no, but they did suggest that the future was heading towards crypto and this is something they’re looking to build a strategy around, especially since card brands are now dabbling in crypto. It may happen abroad first, as one of our EU/U.K. acquirers is seriously looking at adding crypto — specifically stable coin as an alternative payment. They see the benefits of settling in crypto and using it to fund content creation.
One thing is for sure: the call to use crypto will continue to build and when the time is right, payment processors will adapt and find ways to address any concerns.
Cathy Beardsley is president and CEO of Segpay, a merchant services provider offering a wide range of custom financial solutions including payment facilitator, direct merchant accounts and secure gateway services. Under her direction, Segpay has become one of four companies approved by Visa to operate as a high-risk internet payment services provider. Segpay offers secure turnkey solutions to accept online payments, with a guarantee that funds are kept safe and protected with its proprietary Fraud Mitigation System and customer service and support. For any questions or help, contact sales@segpay.com or compliance@segpay.com.
