Recurring revenue is a growing revenue business model and will help you plan for the future. Nevertheless, integration of subscriptions introduces new challenges in accepting crypto payments. Now, this article outlines what an e-commerce merchant should do to enable crypto subscription payments.
We’ll cover:
- Benefits of crypto subscriptions
- Crypto payment provider options
- Tax and accounting considerations
- Setting up recurring payments
- Handling price volatility
- Customer authentication
- Security best practices
Ecommerce merchants, especially small and medium businesses, interested in emerging technologies are the target audience. The article is written in a practical, factual tone on how to gain the best implementation of moving crypto subscription payments.
Sommaire
Benefits of Crypto Subscriptions
Enabling cryptocurrency subscriptions can attract new customers and provide advantages over traditional payments:
- Tap into the crypto community. Crypto users are generally early adopters willing to experiment with new technologies. In doing so, merchants give support to the spending power of the demographic that prefers their payment method.
- Global accessibility of cryptocurrencies. This means cross-border crypto payments with Inqud do not require currency conversion and give access to customers worldwide.
- Enhanced privacy and fewer data requirements. There is no personal information, like credit card details, being provided by customers. This can also impress privacy-conscious consumers.
- Lower fees. Since these are lower than credit card payments and bank transfers, more profit is made by the merchants.
Additionally, the market size also highlights great potential. As of today, there are over 500 million crypto users around the world who spent $15.9 billion on crypto payments in 2023. Crypto subscription integration helps merchants to leverage this growing user base.
Crypto Payment Provider Options
To accept crypto online, e-commerce platforms need to integrate a crypto payment gateway. Here are the leading options to consider:
Coinbase Commerce
- Popular U.S.-based crypto exchange
- Free with no monthly fees
- Accepts 9 major cryptocurrencies
- Can be embedded into most e-commerce platforms
NOWPayments
- Specializes in crypto payments
- No setup, subscription fees, or monthly minimums
- Accepts over 100 cryptocurrencies
- WordPress plugin available
BitPay
- One of the largest crypto payment providers
- Flat 1% settlement fee for transactions
- Accepts 6 cryptocurrencies
- Plugs into major e-commerce platforms
CoinPayments
- Digital asset payment gateway
- 0.50% + network fee pricing model
- Integrates with all major shopping carts
- Accepts over 1900 cryptocurrencies
The best option depends on the specific cryptocurrencies and e-commerce platform a merchant uses. NOWPayments stands out for supporting the greatest variety of cryptocurrencies. Coinbase Commerce and BitPay, meanwhile, may suit merchants already using those platforms.
Tax and Accounting Considerations
One complication with crypto payments is tax reporting obligations. Cryptocurrency payments are treated as property by the IRS, subject to capital gains/losses rules. This means transactions must be tracked for cost basis purposes.
Merchants have two options when accounting for crypto subscription revenue:
Real-time conversion
Instantly convert crypto to fiat currency upon receipt. This simplifies accounting and avoids ongoing volatility exposure. However, it may still trigger taxable capital gains.
HODL strategy
Hold the crypto as a long-term investment. This defers tax obligations but adds accounting complexity in tracking gains/losses. Ongoing volatility also impacts revenue amounts.
Generally, real-time conversion is preferable for subscription revenue accounting purposes. Crypto payment gateways that facilitate the automated conversion to stablecoins or fiat currency can be used by merchants.
Payment processors like Coinbase Commerce can offer documentation, such as transaction history, for taxes. Crypto-savvy accounting software or working with advisors for cryptocurrency taxes can also help in fulfilling reporting obligations.
Setting Up Recurring Payments
There is no recurring billing natively supported by cryptocurrency wallets like credit cards. There are additional steps to take in order to establish ongoing subscription payments.
Merchants need to implement functionality allowing customers to check a “Recurring Billing” box during checkout. This authorizes future charges without requiring re-entry of wallet details.
There are three main technical options to enable recurring crypto payments:
- Smart contracts. It is self-executing contracts on blockchains like Ethereum that facilitate repeated transfers. Requires the customer to confirm each billing cycle.
- Server integration. Software, in addition to the payment gateway, stores customer details and programmatically enacts payments. More complex backend setup.
- External services. Specialized third-party tools like Recurring.io, which integrate with crypto gateways to handle subscriptions. They are easier to implement, but they add service fees.
The best approach depends on the merchant’s technical capabilities and ability to cover additional costs if using third-party recurrence handling.
Handling Price Volatility
Cryptocurrency price volatility poses revenue uncertainty for merchants. There are two main methods to address this:
- Dynamic pricing. Bill subscribers in fiat currency rates at the time of billing. This means that the customer bears volatility risk, but gets predictable revenues.
- Crypto-denominated pricing. Set static recurring payment amounts in the cryptocurrency itself. This is simpler to implement but means revenues fluctuate with market swings.
Real-time currency conversion again helps to reduce volatility exposure regardless of the recurring pricing model being used. This also allows merchants to hedge risks by only converting some of the crypto revenue to fiat currency.
Customer Authentication
With crypto wallets being unhosted, self-custodied accounts, merchants can’t rely on traditional identity verification. It is necessary to implement alternative authentication methods, such as:
- Email confirmation. Verify email during checkout to confirm legitimate customer orders.
- Whitelists. Let customers register wallet addresses from which they authorize future payments. Blacklist addresses where issues arise.
- Multi-factor authentication. Require an additional step, like an SMS code sent to a mobile number on file when enacting recurring orders.
- Smart contract wallets. Have customers commit payments through wallets requiring identity verification, like Fortmatic or Torus.
No single method is completely fail-safe. Combining options like email confirmation, whitelists, and MFA provides robust recurring payment validation.
Security Best Practices
Since merchants are now handling valuable cryptocurrency assets, security best practices must be followed. Consider:
- This is why key storage in hardware wallets such as Trezor or Ledger devices is used. Do not leave funds in hot online wallets.
- Disseminating public wallet addresses only and keeping private keys cold-stored (offline). Crypto custody risk must be understood by staff.
- Securing payment gateways behind firewalls and enabling 2FA access to any administrative panels.
- Segmenting networks and wallet infrastructure used for crypto payment processing. Keep separate from other e-commerce systems.
- Contracting security audits of implemented crypto tools and infrastructure from reputable cybersecurity firms.
The safest method to operate a business crypto wallet and integrate payments is to proactively identify and eliminate risks. The attacks targeting cryptocurrency fans have been running rampant.
Conclusion
Cryptocurrency subscription payments have a lot of compelling benefits, but they come with more complexity. With crypto payment gateways that cover accounting for crypto tax obligations and enable recurring billing flows, along with security best practices, the next generation of monetization models will be effectively used by e-shopping merchants.
Since crypto adoption is at an accelerated pace today, consumers are always on the lookout for ways to cash in their digital assets. This spend is unlocked, and predictable recurring revenues are triggered when subscriptions are integrated. As cryptocurrencies are now a part of global finance and payments, online businesses are already required to be prepared for the Web3 future today.
