Stripe backs crypto…again. Should you trust it?
Apr 18, 2022 3 minute Read
The global payments company has been on and off about its point of view regarding crypto seemingly since crypto’s inception. Now, it seems the payments giant Stripe is firmly stepping back into the game. But is it safe for your business, or do Stripe’s same ol’ catches still apply?
Stripe, the US-based fintech company, is going back into the crypto business.
The San Francisco-based firm is partnering with FTX, a crypto exchange based in the Bahamas to provide payment processing services for crypto businesses. FTX US president, Brett Harrison, has been making many deals recently in the banking space.
The company has processed bitcoin payments before but stopped when it decided that bitcoin was more of an asset than a currency in 2018. Stripe’s chief technology officer, David Singelmann, said they had been taking a second look at cryptocurrencies and came to the conclusion that “maybe it is actually time to try again”.
Just last year, in 2021, Stripe announced interest in supporting crypto again.
Stripe is aiming to support NFT marketplaces, crypto exchanges, and web3 businesses. Co-founder John Collison announced the features on Twitter.
It’s an interesting perspective for a payment aggregator to take, seeing that their service relies so heavily on the processors they partner with. Not to mention a lot of flip-flopping between supporting crypto startups and flatlining.
The company previously stopped accepting bitcoin in 2018, but has partnered with FTX to offer payment processing for crypto businesses.
Stripe has gotten back into the world of cryptocurrencies, after previously halting business with crypto companies in February 2018. The company recently announced its partnership with the exchange FTX US based in the Bahamas.
The move could be a big step for the evolution of cryptocurrency and its mass adoption by consumers. Last week, Stripe’s chief executive, Patrick Collison, said that the company would begin offering fiat API integrations for Bitcoin, Ethereum, and other cryptocurrency withdrawals and deposits. This will allow consumers to pay for goods and services using cryptocurrency as well as traditional payment methods like credit cards and debit cards, which Stripe supports as-is.
Here’s the catch: cryptocurrencies will always be converted to fiat, meaning you, as a merchant, won’t be able to hold crypto. Specifically, Stripe is building fiat-to-crypto on-ramps for businesses. Payouts are always in fiat currencies.
While many people are asking whether or not you should use Stripe for cryptocurrency movements, the service is actually more aimed at crypto businesses.
A quick refresher on the way payments work: there are four key components to a payment. There’s the person with the credit card, a merchant, who’s trying to sell something. Then there’s a payment processor who makes sure that they take your money from your account and give it to the merchant. And then there’s an acquirer or bank, who’s responsible for actually moving money between accounts.
Stripe handles all of this for merchants (save for the money-moving part), which allows them to focus on their product instead of their customers’ payments. But Stripe isn’t a payment processor, it’s a payment aggregator. When you use stripe, you don’t have a merchant account, you just have a sliver of their merchant account. That means you have to abide by all the rules that all the payment processors Stripe actually works with, and—newsflash—none of them are ready to support high risk businesses like crypto exchanges or NFT sellers.
If you run a business and want an easy way to accept crypto payments, Stripe won’t be competing directly with top crypto payment processors just yet either.
The rise in popularity of NFTs as well as the increased security of the crypto industry in terms of KYC, anti-money laundering, and other requirements make cryptocurrency more appealing to Stripe.
It’s no wonder then that Stripe has returned to its crypto support after a brief hiatus. The rise in popularity of non-fungible tokens, or NFTs, is one of the main factors driving the cryptocurrency trends. Non-fungible tokens are a type of cryptocurrency that allows you to buy and sell digital goods in a blockchain marketplace. Some examples of NFTs would be digital art, rare collectibles, land deeds for Decentraland, trading cards for Gods Unchained, and much more.
In addition to the rise in popularity for NFTs as well as other cryptocurrencies like Bitcoin, Ethereum, and Dogecoin (the most popular cryptocurrencies), there have also been more regulations put into place around businesses that use crypto than there were when Stripe initially stopped supporting crypto payments.
Companies must now follow Know Your Customer (KYC) requirements which allow them to verify the identity of their customers and Anti-Money Laundering (AML) requirements which prevent criminals from using businesses like casinos or money launders to launder illegally obtained money into other accounts in order to hide it from law enforcement agencies.
The crypto industry is increasing its stability and security with KYC, AML, and fraud prevention through techniques like identity verification.
It specializes in helping businesses to develop internet payment systems, so most of its customers will be businesses and merchants rather than individuals.
In short, Stripe’s crypto re-entry is not aimed at the average consumer. Instead, it specializes in helping businesses to offer online crypto payment solutions and support crypto businesses. While consumers may end up using Stripe’s new system indirectly through some of their favorite merchants and websites, there are no plans to make it available directly to consumers in the same way that they can use Venmo or PayPal.
Stripe may help move cryptocurrencies forward but it’s not aimed at regular day users.
Though Stripe will be adding support for crypto, it’s important to note that this is not a crypto wallet, nor is it intended to be used as one. If you’re looking for a place to hold your cryptocurrency purchases, or a means of exchanging your bitcoin into other coins and tokens like ether, neo or tron, you’ll have to look elsewhere. In fact, the whole Stripe process is designed so that customers never actually see their cryptocurrencies at all; rather than being transferred into their accounts as a digital asset like ether or litecoin, the value of the coin will immediately be converted into fiat currency and deposited directly into the merchants bank account.
An interesting aspect of this development is that many merchants use Stripe with WooCommerce (the most popular eCommerce platform on WordPress), which has partnered with Coinbase Commerce for cryptocurrency payments integration since 2018. The two may eventually work together in tandem to provide an integrated solution for purchases with crypto assets.
Stripe is still a payment aggregator. Even if they allow more crypto businesses to use their platform, businesses can expect strict limitations along the lines of what Stripe already places on their users.
Stripe is a payment aggregator, not an autonomous crypto wallet.
Even though Stripe accepts some crypto payments for itself, businesses that plan to use Stripe to accept crypto shouldn’t expect to receive their funds in cryptocurrency. As a payment aggregator and not a true merchant account, Stripe doesn’t have the ability to hold or transfer your funds. Instead, you’ll need an external wallet to receive and store your payments.
While this may be convenient if you’re already using one of these services, it also means that you aren’t really accepting cryptocurrency; instead, you’re accepting fiat currency via Stripe. And if there’s anything we’ve learned about bitcoin over the past decade, it’s that holding your funds in fiat as opposed to BTC can be costly: just look at any altcoin exchange hackings or Mt Gox’s collapse (not to mention the other exchanges that have since followed suit).
A high-risk business needs a high-risk processor, plain and simple.
As a crypto merchant, you fall under the same umbrella that’s ever-prevalent when using Stripe (or any aggregate provider like PayPal and Square). You’re a high-risk business. Stripe doesn’t support high-risk businesses. Even when they make plans to support traditionally high-risk merchants like NFT sellers or dropshippers, they’re still at the beck and call of the payment processors they partner with.
If anything, this new partnership is a ploy to get payment processors on board with Stripe so the company doesn’t fall as a powerhouse of the 2010s and nothing more. It’s for Stripe’s own longevity.
Your best solution is to open your own merchant account. DirectPayNet provides crypto businesses with merchant accounts and connects you with payment processors that back your business for the long-term. Chat with us to open yours.