As the adoption of cryptocurrency continues to accelerate, it should be easy for users to understand how to purchase cryptocurrency with the fiat currency of their choice. But that is currently not the case, especially in decentralised finance (DeFi).
As an application developer, without a fiat-to-crypto gateway, interested users would have to leave your platform in search for a fiat-to-crypto gateway to buy cryptocurrency, while you hope that they’ll return to complete their purchase on your crypto platform.
With fiat on-ramps, you’ll be able to integrate the purchase of crypto with fiat money into your platform, improving your conversion rate and reducing the risk of users leaving before they’ve completed their purchase.
What are fiat “on-ramps” and “off-ramps”?
An “on-ramp” is a service that facilitates the exchange of fiat money (e.g. US dollars and Pound sterling) to cryptocurrencies (e.g. Bitcoin, Ether). It essentially acts as an “on-ramp” to the cryptocurrency space. Because fiat, or government-issued money, is the most commonly used type of currency across the world, exchanging fiat money for cryptocurrency is the most accessible way to enter the digital asset ecosystem.
The opposite of a fiat on-ramp solution is a crypto off-ramp gateway, which streamlines the exchange of cryptocurrencies to fiat currencies. While cryptocurrency on-ramps are crucial for widespread adoption, the availability of an off-ramp demonstrates to users that they are not tied into a cryptocurrency for a long period of time and may leave (i.e. trade crypto for fiat) at any time they want. Therefore, crypto off-ramp gateways complement fiat currency on-ramps and play a vital role in connecting the traditional, fiat-backed banking system to the decentralized world of cryptocurrencies.
Ramps for fiat are also critical in the context of entering and operating in DeFi. Naturally, the more convenient it is for consumers to buy cryptocurrencies using their bank account or debit card, the larger the DeFi space becomes over time.
Developing fiat on-ramps and crypto off-ramps are critical to bringing fresh capital and new users into DeFi and the Web3. It is also essential for bridging the gap between the conventional financial system and the digital world. The ability to simply go to a cryptocurrency exchange and purchase bitcoin or other digital assets using a bank transfer or a credit card makes the world of cryptocurrency accessible to anybody familiar with e-commerce.
In the same way, the ability to exchange crypto back into fiat currency makes buying cryptocurrency more appealing to new users since they know they can sell the digital asset whenever they need to. This adaptability removes some of the mystery cryptocurrency and makes them more like other commodities in the market.
Greater access to OTC markets and similar services also provides financial institutions with confidence that they can buy and sell digital assets with adequate liquidity in the market. When it comes to institutional purchases of cryptocurrencies, crypto exchanges must be able to support large sums of fiat currency. If not, exchanges may find difficulty in handling the volume of institutional purchases, and the impact of one order on market prices could be significant and impact others. A robust fiat on-ramp solution can help even large crypto exchanges handle large volumes of institutional capital.
It is clear that fiat on and off ramp gateways are the future of growing DeFi from both a retail and institutional point of view.
Why would youneed a fiat on and off ramp solution?
Today, more companies than ever before across the globe are integrating cryptocurrencies into their businesses as the global adoption of digital assets continues to gather speed.
The global crypto population increased by 178% in 2021, with crypto users totaling almost 300 million. The number of crypto users is expected to surpass one billion by the end of 2022, according to Crypto.com.
Whether you’re building a crypto platform or a traditional financial institution with crypto capabilities, implementing the right infrastructure to securely handle cryptocurrency and fiat transactions is critical to pleasing customers and keeping their assets and data secure. For example, adoption of a powerful fiat to crypto on- and off-ramp solution mitigates risk and makes customer onboarding painless.
Many companies need a fiat on-ramp solution. Without a fiat on-ramp gateway, wallets have to send users away to buy crypto elsewhere and hope that they return after they acquire their crypto. Crypto-to-crypto exchanges face the same problem as many of them don’t have the proper anti-money laundry (AML) and know-your-customer (KYC) processes and licensing in place to take fiat currencies as a payment. Handling fiat without the proper compliance controls and licensing can result in severe legal and financial penalties.
For crypto-businesses, fiat on-ramping equals increased user acquisition.
For other apps or websites, fiat on-ramps can be an easy way to monetise users. Digital companies that incorporate a fiat on-ramp gateway allows them to set a referral fee to earn commission on every transaction.
Without the right partner who has a reliable and scalable infrastructure solution, it can be challenging to navigate the regulatory, compliance, and technical landscape – especially in multiple jurisdictions.
The question also becomes: Why can crypto do for my business?
Diversification of assets and payment options is key to increasing customer accounts and sales. In addition, providing your customers new ways to pay and invest can lead to a more diverse customer base and increase your business’s access to funds:
- Bloomberg reported that as of June 2021, companies offering crypto services have attracted a record-setting $17 billion worth of VC and institutional capital.
- According to a 2020 study conducted by Forrester Consulting, businesses that accepted bitcoin found up to 40% of customers that paid with crypto were new to the business.
- Offering crypto services broadens your access to the more than 46 million Americans who now own Bitcoin, which is about 17% of the adult population (and mostly millennials) – a number that has spiked over the last two years.
There are also many other reasons why your company should embrace crypto. Some of the other key reasons are that by accepting cryptocurrency as a payment method, you can reduce your transaction processing costs, protect your business from chargebacks, cater to new consumer preferences and expand into new markets.
How to select a fiat on-ramp solution for your platform?
There are many important factors to pay attention to when choosing a fiat on-ramp. The most vital factors are:
- User experience
- Ease of integration
- Integration cost
- Supported fiat-currencies and cryptocurrencies
- Supported payment methods
- Fee structure
- KYC & AML processes
How do you compare fees when selecting a fiat on-ramp solution for your digital business?
Comparing fees of different fiat on-ramps can be difficult, because they all use different conversion rates between fiat currencies and cryptocurrencies. You will want to ensure that the fiat gate-way you select for your crypto platform provides your users with crypto at some of the most competitive rates in the market.
Let’s say there are two fiat gateways that a user can use to buy Bitcoin for $1,000:
1.The first says it only has 2%, but uses a conversion rate of $21,000/Bitcoin.
2. The second quotes 3% fees, but uses a conversion rate of $20,000/Bitcoin.
While the first seems cheaper when only judging based on fees, the user would only receive 0.0467 Bitcoin, compared to the 0.0485 Bitcoin that the user would receive when using the second on-ramp.
The first gateway is about 3.7% more expensive than the second, while quoting a lower fee.
Some fiat on-ramp gateways are notorious for quoting low fees while providing terrible conversion rates, so pay close attention to this. This is why fiat on-ramp aggregators such as Onramper allow the user to compare gateways based on the cryptocurrency that the user would receive. Keep in mind that many on-ramps charge $5,000 to $10,000 to integrate with your platform also.
Always ensure that the fiat on-ramp solution has robust KYC and AML capabilities to ensure that everyone is on the right side with the law. Both international and local regulations require all fiat on-ramp solutions to implement effective internal procedures and mechanisms to prevent money laundering, terrorist financing, drug and human trafficking, corruption and bribery and to take action in case of any form of suspicious activity from its users.
A robust fiat on-ramp solution will have strong AML/KYC processes in place that consist of:
- Verification procedures
- AML screening & monitoring
- Real-time global sanction screening
- Know-your-transaction software
The reality is that many crypto companies are not fully licensed and only a few of them have proper AML & KYC programmes in place that enable them to satisfy the due diligence requirements performed by banks and e-money institutions (EMIs). Therefore, it is difficult for the majority of cryptocurrency exchanges and cryptocurrency related companies to open bank accounts and work with EMIs.
With some platforms, you as a company owner, regardless if your firm is a NFT business or a crypto exchange, do not have to worry about KYC and AML demands, as these solutions handle global regulatory demands effortlessly.
This way, KYC processes and onboarding procedures have instant verification and allow you to eliminate common pain points for your users when they want to use their fiat to buy currency on your platform through their gateway. Your users will never have to verify twice.
For businesses looking to improve conversions, there is an array of payment infrastructure solutions on the market, that let your users buy and sell crypto within your platform, at the industry’s most competitive prices.
As a fully integrated fiat gateway solution, your platform’s customers will enjoy a seamless experience from depositing and purchasing crypto with fiat money, to withdrawing their digital assets in the fiat currency of their choice.