Cryptocurrency Payments for Your Business

Let’s start by answering the question: why does your business need to carry out payments in crypto? Today there are many developed payment services in the world. They are aimed at both retail consumers and businesses, and there is simply no need to resort to creating a settlement channel in crypto. If so, then this material is not for you.

For some verticals, especially internet services and advertising, providing clients with a cryptocurrency payment method is becoming a must-have competitive advantage. Having a cryptocurrency payment method in a company’s payment methods can truly increase its customer base and become a factor in increasing turnover. This is due to the increasing popularity of cryptocurrencies among individuals and the availability of transactions in crypto for individuals.

In our practice, we often come across the popular opinion that a company conducting payments in cryptocurrency is something “dubious”, “grayzone”, and “illegal”. Actually this is not true. Yes, in many jurisdictions there are regulatory restrictions for banks on making payments in cryptocurrency. The reasons are clear. This is, first of all, the impossibility of reliably verifying the source of funds in accordance with AML procedures, the possibility of potential business evasion of taxes and conducting transactions with jurisdictions that are under various kinds of sanctions. In many jurisdictions, in addition to restrictions on the part of banks, at the legislative level, businesses are prohibited from holding liquidity in the form of cryptocurrency on their balance sheet. But if a business does not have such illegal goals, and there is a desire to use cryptocurrency as a channel for intracompany transactions and settlements with counterparties, then the picture takes on completely different colors. In addition, there are cases where by integrating a cryptocurrency settlement channel into a business’s cash flow system, it is possible to achieve significant cost savings on commissions of banks and payment systems.

Let’s take a step-by-step look at the limitations that companies face when trying to build a payment system in crypto.

What is the trigger for banks to detect payments in cryptocurrency?

This may be obvious and banal, but let’s say it anyway. In order to operate with crypto, a company must have a wallet and an account on a crypto exchange. Business accounts are provided by all leading platforms, such as Coinbase, Kraken, Binance and others. Almost all of them also provide a wallet service for businesses. To topup or withdraw cryptocurrency by fiat account, the company must make a transaction from your current bank account with the payment agent of the crypto exchange. This kind of operation is a red flag for the bank about the activity in cryptocurrency payments.

Many neobanks have the ability to carry out transactions with agents of cryptocurrency exchanges. But you should not expect that this can be a way to escape banking control. Any self-respecting bank will sooner or later ask you for statements of transactions with counterparties of the payment system associated with it. The auditor will do the same in jurisdictions where holding balances in cryptocurrency is prohibited.

Thus, in order to legally make payments in crypto, the bank must allow, at the level of its compliance, transactions with payment agents of cryptocurrency exchanges. These, first of all, are banks that are focused on servicing the cryptocurrency trading business as such.

What is easier and more difficult for businesses to do with cryptocurrency?

The answer to this question follows from an understanding of the reasons for the restrictions imposed on operations with crypto.

Small retail receipts from individuals have become commonplace in many jurisdictions and small retail receipts in crypto from individuals are completely legal. There are pubs in the UK where you can pay with crypto. Major eCommerce providers like WooCommerce, BigCommerce and Shopify accept crypto payments through digital wallets. Casino and betting operators accept bets in cryptocurrencies, which is legal in accordance with gaming licenses.

It is clear that collecting small amounts from individuals does not pose a significant risk of money laundering on a large scale. Hence the prevalence of retail crypto collection.

Banks are also more relaxed about paying out cryptocurrency to suppliers. They know your business as a source of your funds. Therefore, converting fiat currency for payment on a crypto exchange is also increasingly acceptable for many banks.

Difficulties and limitations arise when accepting cryptocurrency from businesses. Here everything is more complicated: the amounts of payments are larger, confirmation of the source of large funds is not obvious.

Well-established process of the KYC procedure

As we noted above, the main requirement for banks to complete a transaction is to understand the source of funds for a given payment. Accordingly, in order to accept payments from clients, the company must have a process for collecting, verifying and submitting supporting documents about the counterparty to the bank. In order for the crypto payment process to function stably, the requirements for compiance of counterparties must be no less, and perhaps even more stringent, than for fiat payments.

It is important for the bank to see that the company has processes in place to identify risks associated with potential money laundering and terrorist financing, and that these processes are clearly established in accordance with regulatory guidelines. Do not neglect internal compliance processes, they must be documented and actually implemented. The presence of such a process is the key to finding a common language with the bank on the issue of transactions on the crypto exchange.

Structuring cash flow in cryptocurrency

Depending on the type of business, in practice there may be a situation where there may be an excess of income in cryptocurrency and difficulties in converting it into fiat. On the other hand, there may be a need to make payments in cryptocurrency, but there may not be a sufficient amount of crypto receipts. Both can be equally problematic.

Cash flows will ultimately be determined by the Legal and Financial Business Scheme, which can be deployed simultaneously in several jurisdictions.

In order to build a financial and legal system that will allow your business to use cryptocurrency as a settlement channel, assess whether creating a settlement channel in crypto will be profitable for business, and finally model a new cash flow, you can use our financial consulting service.