Payments Briefing: Stripe launches fiat-to-crypto widget to simplify Web3 purchases
- This week, we take a look at Stripe’s new fiat-to-crypto payment offering and what it means for the crypto industry.
- We also discuss the potential benefits and pitfalls of implementing the Federal Reserve’s instant payment service, FedNow, for B2B transactions.
Last week, Stripe launched a product that will facilitate fiat-to-crypto payments for Web3 companies. The new offering is a customizable widget that can be embedded into a decentralized exchange, NFT platform, wallet, or decentralized app, and allows customers to instantly purchase crypto in Web3 apps.
Currently, if consumers want to onramp fiat-to-crypto, they need to buy cryptocurrencies through a centralized exchange like Coinbase, Binance, Kraken (or FTX, once upon a time). They then have to transfer the crypto assets to a third-party wallet in order to buy Web3 services.
Stripe’s new offering helps make this process much simpler. “We built our fiat-to-crypto onramp to remove this complexity,” wrote Jennifer Lee, product manager at Stripe, in a company blog post. “Consistent with our focus on simplicity and developer experience, you can integrate it with just 10 lines of code.”
The firm says it will also handle KYC, payments, fraud and compliance issues, removing the need to integrate multiple third-party services.
The new product is currently only available for US customers, but will be offered in other countries over time. The onramp has already been deployed by 16 partners, according to Stripe. These include blockchain-based music streaming platform Audius, NFT marketplace Magic Eden, and Ethereum wallet Argent.
Lee acknowledged in the blog post that the crypto industry has been in a tough spot over the last few weeks, but maintained that Stripe remains optimistic about its potential and future prospects.
“It’s been a difficult few weeks in the crypto ecosystem. However, despite recent events, we remain excited about the underlying prospects for innovation,” she said. “Overall, we maintain fundamental optimism about how crypto can help to facilitate a more globally accessible financial services ecosystem.”
Stripe isn’t the first company to come up with a fiat-to-crypto onramp — a few other firms like MoonPay and Ramp are already offering similar services. However, as a major industry player that processes payments for brand names like Apple and Walmart, Stripe’s entry into this space could serve as an important step in increasing the accessibility of DeFi for mainstream consumers.
The timing of the launch also seems consequential. Ever since FTX imploded, centralized exchanges have been under heightened scrutiny, and are faced with dwindling investor confidence. By making it possible to circumvent centralized exchanges, this type of offering could allay investor fears and bring a broader audience into the space.
FedNow’s potential pitfalls for B2B payments
In the next six to eight months, the Federal Reserve will start rolling out FedNow, its newest instant payment service. Unlike its pending CBDC project, FedNow services will use the existing financial infrastructure to help FIs enable real-time payments.
Right now, over a hundred banks and payment processors are participating in FedNow’s pilot program. Upon release, the Fed’s countrywide RTP network initiative is expected to become one of the biggest payment and clearance settlement systems in the world.
Poised to play a pivotal role in the future of payment transactions, the initial rollout, as with any new tech, has a few wrinkles that need ironing out. Tearsheet sat with Balaji Devarasetty, CIO at Paya, to discuss the benefits and potential pitfalls of implementing FedNow’s RTP for B2B transactions.
Devarasetty says FedNow offers an alternative to payment solutions such as Automated Clearing House, which has been around since the early ‘70s. ACH is currently the preferred B2B payment method because of its cost-effectiveness. Although it moves close to $50 trillion annually within the United States, the system is over 50 years old.
In essence, ACH is a ‘file-based’ system – modeled after paper-based filing systems – which explains why it takes three to five working days to process transactions. It is not instantaneous and is thus considered cumbersome.
FedNow would address the pitfalls of a file-based system by incorporating the clearing functionality into the payments settling process. Using the existing payment rails, it aims to increase accessibility and efficiency in payment transactions. Its mission is to boost the economy by enabling FIs of every size and in every town in the US to offer secure and effective instant payment services.
Instant transactions will help businesses manage their cash flow, and consumers will benefit in times of emergency expenses, among other things. But most compellingly, FedNow will operate 365 days of the year, including on weekends and bank holidays.
In reality, however, execution can make or break the perfect tech solution. Thinking months ahead, Devarasetty identifies the potential problems around implementing FedNow services in B2B transactions.
The first issue is that only 121 out of the 4,236 FDIC-insured commercial banks in the US have joined the FedNow pilot program. That means adoption could take some time – Devarasetty suggests it could take well over two years post-launch to onboard all the banks into the new system.
The second issue is that FedNow will only roll out to registered banks. In other words, merchants, consumers, or non-bank payment service providers will have to access the service through bank partnerships. And that means fintechs will have to jump through technical hoops to enable FedNow as a payment alternative for their customers.
Finally, the most challenging aspect of FedNow for B2B payments providers is the initial $100,000 credit limit set by the Fed, adjustable up to $500,000. “Today, when you look at B2B payments, the average transaction is about $1,500. And then our [Paya’s] highest tickets are as high as a million dollars per transaction,” says Devarasetty.
Having thought through some of these issues, reserve banks will offer a liquidity management tool alongside the FedNow Service. This will allow non-banks and consumers to transfer funds instantly amongst each other. In addition, they will waive customer credit transfer fees for 2023.
Paya is a dominant player in government payments, serving about 2000 municipalities, cities, and townships, and processing over a billion dollars in payments for the government sector. The company is compelled to provide FedNow as a payment option to its clients.
However, looking six to eight months into the future, Paya is exercising caution, careful not to jump head-first into the race. When it comes to enabling FedNow payments, the company aims to be a ‘fast follower,’ in an effort to avoid the blows often absorbed by first movers.
Highlights from our recent coverage
Power of Payments Ep. 19: Stripe’s Josh Ackerman on the changing nature of online checkout
Josh Ackerman, Product Lead at Stripe, joins host Ismail Umar on this week’s podcast. He talks about the existing gaps between consumer expectations from online checkout and what most merchants currently offer, as well as how the checkout experience has evolved over the years.
Quick take: Behind Wise and Deel’s new feature for global payroll
Wise recently partnered with payroll and HR platform Deel to create a feature that would help the latter’s customers transfer funds for payroll more efficiently. The product announcement may feel like just another drop in the bucket, but it does point to an emerging trend regarding cross-border payments.
‘Everything else is just digital, digital, digital’: Wells Fargo’s Ulrike Guigui on enterprise payments trends
New rails and changing customer demands are challenging enterprise payments players. At Money 20/20, we sat with Wells Fargo's Ulrike Guigui, head of enterprise payments strategy, to discuss where the industry and her firm are headed.
What we're reading
- Galileo debuts BNPL service for banks and fintechs (PYMNTS)
- Thales releases voice payment card for the visually impaired (Finextra)
- Block ordered to comply with CFPB probe (Reuters)
- AvidXchange takes B2B payments cross-border (PYMNTS)
- Klarna launches platform to connect retailers and influencers (Finextra)