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Mainstream interest in cryptocurrency is becoming increasingly evident as major online payment systems such as PayPal begin to offer support for digital currencies. While it is a revolutionary step for both the crypto space and the traditional financial space, meeting regulatory requirements is critical for such companies to support cryptocurrencies.
This year, PayPal secured its first cryptocurrency conditional license from the New York State Department of Financial Services, allowing the purchase of Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC) .
On the surface, it would appear that PayPal has undergone the basic requirements to support digital currencies. However, what’s really noteworthy is that to ensure the delivery of its cryptocurrency service, PayPal, a company with a market capitalization worth over $ 127.58 billion as of December 2019, has chosen to partner with Paxos. a regulated financial institution specializing in digital assets.
Bob Reid, CEO and co-founder of Everest, a fintech company that provides regulatory compliance for financial institutions, told Cointelegraph that it’s impressive for a company as big as PayPal to have partnered with Paxos. “PayPal looked into the implementation of digital currencies and decided they had to partner with a digital asset company to do so,” he said. Moving forward, Reid believes PayPal will eventually need to partner with a cold storage cryptocurrency custodian, adding:
“I think we will begin to see many traditional players such as banks and major payment service providers partnering with cryptocurrency custodians. PayPal will be first and then other banks and financial institutions will follow.”
As another example of the cooperating crypto and traditional sectors, Everest recently partnered with BRI Remittance, a subsidiary of one of the largest Indonesian banks, to provide users with a blockchain-based platform that allows Indonesians and Europeans to easily trade value across international borders. Reid also shared that the company is now also working with the Bank of Papua New Guinea.
Businesses are getting regulatory support for cryptography
While it’s noteworthy that PayPal has partnered with Paxos to ensure regulatory compliance for digital currencies, it’s also important to point out that smaller payment providers around the world are following suit. However, these companies have a different method of ensuring regulatory compliance.
South Korean payment provider Danal Fintech, a subsidiary of Danal, one of South Korea’s largest payment companies, recently announced that its Paycoin digital app will integrate Icon’s cryptocurrency (ICX). This will allow Paycoin users in Korea to pay using ICX at one of Danal’s 60,000 business partners, including major retailers such as 7-Eleven, KFC and Domino’s Pizza.
Ted Hwang, CEO of Danal Fintech, told Cointelegraph that the subsidiary initially launched its Paycoin service in April 2019, becoming one of the first companies to use virtual assets for retail payments in Asia. Hwang shared that although Danal holds about 50% of the market share for mobile payments in Korea – equivalent to $ 5.5 billion annually – it was difficult to get retail merchants to accept crypto:
“There are several factors and problems, such as whether encryption is accepted as a legal payment method in that country or whether a local micro-payment license is required to provide such a service.”
To circumvent these challenges, Hwang explained that Danal Fintech has chosen to provide fiat currency settlements to their partner traders. “Local merchants and our local partners will receive legal tender deals through Danal, whether or not crypto is used,” he said. Hwang further explained that this process is no different from existing payment solutions in terms of settlement, noting that this has helped address the regulatory hurdles faced in regions such as Asia.
Interestingly, allowing retailers to accept cryptocurrency payments while having settlements paid in fiat appears to be a preferable concept. Merrick Theobald, vice president of marketing at blockchain payment service provider BitPay, told Cointelegraph that although cryptocurrency payments are gaining ground, many companies still prefer to trade exclusively in fiat. However, Theobald explained that many customers, employees, affiliates and contractors see the value of cryptocurrency, especially when it comes to payments, as there is a “growing demand for faster, easier and cheaper payment options.”
BitPay recently launched a service called BitPay Send to allow businesses to pay employees in cryptocurrency and ensures that a company never has to buy, own or manage crypto alone. But a company’s employees will still be able to receive payments in cryptocurrencies such as Bitcoin. “Businesses continue to trade in the fiat currency they feel most comfortable with satisfying the demand for cryptocurrency payments from their customers, employees, affiliates and more,” Theobald said.
As for regulations, Theobald shared that BitPay Send leverages a process identical to the one the company uses for its payment service, which has already processed nearly 100,000 transactions per month this year. When using this service, regulatory and compliance reviews are performed on businesses and consumers in accordance with applicable laws. As BitPay is based in the United States, the company is also regulated by the Financial Crimes Enforcement Network.
Understanding the regulations for new technologies that use cryptography
It is also interesting to point out that new technologies using cryptocurrencies are being implemented and used by financial institutions. For example, Hong Kong-based fintech firm XanPool just launched a product called XanPay.
Jeffery Liu, CEO of XanPool, told Cointelegraph that XanPool is customer-to-customer software that allows people to automate their financial transactions within their bank accounts, e-wallets, and cryptocurrency wallets. “Users are also able to automate their cryptocurrency trading and even earn profits from such transactions,” Liu said. He further explained that once users connect their financial infrastructures to XanPool, a network is enabled that can route and regulate capital without borders.
According to Liu, XanPay is used by various payment service providers and markets in a white label fashion. It said that XanPay’s parent company, XanPool, is currently awaiting license approval in various offshore jurisdictions for activities such as enabling e-wallets and payment systems.
