Crypto Merchant Account
Oct 26, 2020 8 minute read
Are you operating a crypto exchange? Read on to find ways to get solid payment processing.
The markets may be volatile, but that hasn’t stopped demand for cryptocurrency exchanges or merchants inquiring about crypto merchant accounts.
The pandemic has sent interest in cryptocurrencies such as Bitcoin and Ethereum into overdrive. Website visits to cryptocurrency exchange websites have recently increased to over 144.3 million visits per month this past August alone. That represents a 30.5% month-on-month increase. It appears the recent spike in volatility has piqued investors’ interest.
For cryptocurrency merchants operating in the EU market, this presents an opportunity. With curiosity at all-time-high levels, smart operators will be making the necessary preparations to take advantage of current market conditions.
For most of you, that will mean sharpening up your payment channels. For instance, if you don’t have a cryptocurrency merchant account, you could find yourself struggling to keep up with demand and losing out to competitors. Not to mention suffering huge transaction fees. Do you really want to miss this market opportunity? No, we didn’t think you did.
This article will explain what actions should be taking to secure a cryptocurrency merchant account. You’ll need to jump through a few hoops to get one. However, the payoff is enormous.
EU still offers the best opportunity for cryptocurrency investors
Blockchain-based currencies have never been so popular. While prices might not be at their 2017 peak, recent volatility has drawn investors looking to profit. The pandemic has also piqued interest. The world is currently defined by bailouts and increases in government debt. As a result, many people are looking to buy a blockchain currency that cannot be manipulated by central banks and global financial institutions.
At this moment in time, merchants based within the EU are best-placed to take advantage of this pent up demand. This is because, in the US, regulatory frameworks have stifled cryptocurrency merchants. Despite being an economic powerhouse, the confused and often strict approach has put the brakes on any merchants looking to break into the crypto market’s e-commerce aspect. To give you some understanding of the current mess in the US, all you have to do is look at the several different federal agencies that have a different attitude toward crypto exchanges, crypto merchants, and individuals who accept crypto payments.
The Commodity Futures Trading Commission (CFTC) treats crypto as a commodity. By contrast, the Securities and Exchange Commission (SEC) insists they are securities. Alternatively, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) applies currency rules (often clamping down on cryptocurrency payments between merchant and consumer), and the Internal Revenue Service (IRS) treats digital money as property.
Confused? So are the crypto merchants trying to operate in this space within the US. Resulting from complex legal and tax requirements imposed by several U.S. regulatory agencies, the U.S. still does not have a clear regulatory framework for the crypto industry at the federal level. Merchants who have managed to establish themselves often face enforcement action as described above. Even the head of the world’s third-largest cryptocurrency, Ripple, has threatened to relocate to another country.
On the other hand, Europe is moving forward with clear and strong regulations possibly leading to a fully-functioning crypto market in a few years. The EU was initially alarmed at the threat cryptocurrency posed to their fiat currency, the Euro. However, they have just commissioned a report that aims to implement straightforward regulations by 2024. The new laws will make licensing for merchants much easier. It will also facilitate the “passporting” within the EU that traditional banks currently benefit from.
In Russia, the official legalization of cryptocurrency has been seen as a step in the right direction. But outright banning as a digital currency to pay for goods and services has investors looking across the border at EU member countries for their crypto activities. Meanwhile, Mastercard has launched its cryptocurrency Accelerate program, which will allow selected partners to incorporate MasterCard technology into digital wallets and eventually digital debit cards and credit card payments. Visa has taken similar steps, with more than 25 cryptocurrency wallets now connected to Visa’s systems.
So can you take positive steps towards securing better payment processing, and more specifically, a cryptocurrency merchant account?
Do run an exchange that predominately has fiat currencies as opposed to cryptocurrencies? The process for obtaining a Forex merchant account is slightly different, so why not read our complete guide here?
Obtaining a license to operate is critical to success
While investors are looking to benefit from risk in the crypto markets, acquiring banks and payment processors are looking to do the opposite. While interest may be at an all-time high for cryptocurrency merchants, those offering payment solutions for operators that accept cryptocurrency aren’t quite as enthusiastic.
Acquiring banks view the risk around cryptocurrency as about as high as it gets. Therefore, securing a high-risk merchant account in this space is tricky. However, obtaining merchant services is not impossible. You just need to take the right steps.
First, you will need to register and potentially obtain a license, depending on your country of operation. In January 2020, the EU brought in new laws that govern cryptocurrency exchange providers and digital wallet providers. Today, you must at least register, and in some cases, obtain a license to operate.
The difficulty of this process varies wildly from country to country. For instance, some member states require you to register with their national regulators. This is the case in the Netherlands, Slovenia, and Sweden, for example. However, many others require licensing on top of registration.
In Estonia, for instance, obtaining a license takes five days. You need to sign a few agreements that bind you to international and national AML rules (5th anti-money laundering Directive). Also, you must perform a KYC client identification, properly monitor risks, report suspicious transactions, etc. There’s also a €3,000 fee. On the other hand, Germany sees cryptocurrencies as financial instruments. That means you need to obtain a bank or financial services provider license, which is a pretty time-consuming process.
What isn’t clear at this moment in time is each country’s attitude to foreign companies registering in nations with less onerous licensing requirements. Some countries have indicated that they will levy much larger license fees, whereas others may ban the practice altogether.
Risk still proves the biggest obstacle for EU crypto merchants
Either way, without a license, you are going to struggle in your bid to secure a cryptocurrency merchant account. Acquiring banks will view you as too much of a risk to grant you new, alternative payment methods for your business. The positive news is that much of your license requirements will be the same asked of you by banks looking to provide you with a bitcoin merchant account or payment processing (or any other altcoins).
Given the anonymity problems surrounding crypto payments, you will have to demonstrate your commitment to anti-money laundering (AML) procedures (such as source of wealth checks on bank accounts), as well as carrying out detailed Know Your Customer (KYC) and Combatting the Financing of Terrorism (CFT) checks. For online payments, banks will also want to see age verification at the checkout for merchants offering virtual currencies. Adding 3D Secure v2 to your cart will further add to fraud prevention measures that will help mitigate chargebacks and risk. Read more about 3DS here
Then, of course, you have to demonstrate to payment processors and acquiring banks that you are worth the risk. Processing history is vital in this case. If you can’t prove you’ve had a good track record through the transaction history on your payment gateway and bank account, you’re going to struggle with your cryptocurrency merchant account application. Banks will fear being on the hook related to payouts from chargebacks, without any evidence to prove otherwise.
In other words, you need to prove to acquiring banks that you’ve got the sales volume to overcome the risk of handing you a high-risk merchant account. You may be granted a limited merchant account at first, with a monthly sales cap of €30,000. This won’t always be the case. However, be prepared to operate at lower transaction volumes in the early stages. After three to six months, renegotiation is certainly possible. Provided you haven’t racked up unsustainable chargeback ratios from your customers’ online purchases, of course.
Now you know what you need to be focusing on, what are the next steps you can take as a merchant in the cryptocurrency vertical?
Next steps for securing your cryptocurrency merchant account
Avoid piggybacking off of other preexisting exchanges or digital currency wallet providers. White labeling is not viewed favourably by acquirers. Banks don’t want to provide payment processing for merchants with no direct control over their own products and services. The risk is simply too high.
They would essentially be taking on the risk of two sets of products and services, one of which they cannot effectively evaluate. Banks will also question your business’s ability to scale and increase in value, given that you don’t own any of your own software. A white-labeler could go bust, effectively leaving you without a business overnight.
The first step to acquiring a cryptocurrency merchant account is processing history. Once you have accumulated three to six months of processing, you’ll be ready to start the process. But what do you need?
As mentioned, obtaining a license is crucial. Without one, you’ll be classed as operating illegally in many EU countries before the end of the year. As well as being a legal requirement, they also demonstrate your commitment to AML, KYC, and CFT checks that acquiring banks will appreciate. Also, don’t forget that compliance procedures will extend to your website too. So make sure your site complies with PCI-DSS standards.
Remember that, until “passporting” comes in to effect in 2024, crypto exchanges can only operate within countries that they have obtained licenses within. That means if you have headquarters in another cryptocurrency hotspot such as Singapore, for example, you will need to have an incorporated company, a company bank account, and a local office with local employees in the EU country of your choosing.
Benefit from specialist expertise in obtaining a cryptocurrency merchant account
Europe presents the best opportunity for crypto merchants at this moment in time. While the stifling regulation in both Russia and the US is making things hard for merchants, the EU is paving the way for crypto exchanges and digital currency wallet providers. Improved and straightforward regulations combined with a push from leading card issuers such as Visa and Mastercard make Europe the place to be for providers or crypto-related products and services.
That said, acquiring a high-risk merchant account in this vertical is still challenging. Operators have to pull out all of the stops to convince acquiring banks that they are worth the risk. Licenses need to be obtained, and an incredible commitment to security checks are crucial to securing merchant account processing and scaling your business. However, by taking the steps laid out in this article, you stand a great chance.
Once you’ve made progress on those requirements, it’s worth contacting cryptocurrency merchant account specialists such as DirectPayNet. We have relationships with dozens of acquirers who accept crypto merchants and the expertise to help put together the best application possible. Without that kind of knowledge onboard, you could waste weeks, if not months, trying to secure a high-risk merchant account in this vertical.
So whether you hold bitcoin payments for clients or provide an exchange for traders of altcoins such as ethereum or litecoin, don’t hesitate to contact us today . Find out how we can help you achieve better payment processing and scalability for your crypto business.