What Are Crypto Payments: How They Work and Business Impacts

Crypto payments are gaining relevance as businesses look for faster settlement, lower fees, and global reach without relying on traditional banking rails. Regulatory frameworks are tightening, stablecoins are reducing volatility concerns, and payment APIs are making crypto easier to integrate into existing systems.

This article breaks down how crypto payments function in practice, where they are used, and the operational, legal, and commercial impacts of accepting them at scale.

Crypto payments are digital transactions using cryptocurrencies like Bitcoin or stablecoins instead of traditional money. They work by sending value directly from one digital wallet to another over a blockchain, which acts like a secure, public ledger to verify and record the transfer without banks or middlemen.

Crypto payments differ from traditional payments in clear ways. The table shows the main differences you should know.

Crypto payments work by sending a cryptocurrency transaction from one digital wallet to another on the blockchain. You make a crypto payment in a digital wallet or app. You put in the recipient’s wallet address and the amount, and confirm the payment. The wallet will also sign it off with your private key and then send it to the network. The network will process the cryptocurrency transaction before it settles.

A number of independent computers will check that you have sufficient funds and that the transaction conforms to the rules of the network. This is known as the validating phase. After validation, the network will add the transaction to the ledger. This is done by grouping multiple transactions into a block. This part of the process is called transaction confirmation.

The crypto payment can settle in almost real-time, depending on the network you use and the fees that you pay. Some networks can settle payments in seconds, while others take minutes. Once it has been confirmed, the payment cannot easily be reversed, and it will appear on the public ledger.

A business typically makes use of a crypto payment gateway or a crypto payment processor to manage the flow of these transactions. A cryptocurrency payment gateway, such as NOWPayments, generates payment requests, tracks confirmations and marks orders as completed. These cryptocurrency payment gateways can save you time and reduce errors.

Crypto payment processors also leverage API integration. With API integration, you connect your website or app with a crypto gateway API. This allows you to automate the pricing of transactions, check for payments, and confirmations. It also allows you to accept a variety of coins without needing to interact with each network personally.

Crypto payments, as a real-time payment infrastructure, use blockchain technology to move value directly from payer to payee without relying on the banking system.

You transmit funds over decentralised, always-on networks without cut-off times or batching.

This makes for a truly global payment system with relatively few intermediaries.

You get instant or near-instant settlement, depending on the network. Most blockchains have settlement times measured in seconds, not days. That reduces settlement risk and improves cash flow for businesses and customers.

Some networks extend this with scaling layers like the Lightning Network to make small or frequent payments off-chain and settle them on the blockchain later, so you can make “microtransactions” for everyday payments while speeding things up and keeping fees low.

The crypto payment infrastructure also supports programmable payments.

You define payments in code and trigger them automatically, often using them for subscriptions, escrow and automated payouts.

You can add crypto rails to existing payment infrastructure using APIs and wallets. Many service providers are bridging the gap between blockchain systems and your local banking rails so you can accept crypto alongside fiat payments.

Crypto payments and traditional payment methods differ in fees, settlement speed, and how much control intermediaries have over each transaction. These differences affect chargebacks, cross-border payments, and how easily you track and reconcile funds.

Crypto Payments vs Credit and Debit Cards

Crypto payments, compared with credit and debit cards, remove many intermediaries used in traditional finance, such as card networks and issuing banks. This structure often lowers processing fees for you, especially on international payments where currency conversion adds extra cost to card transactions.

Card payments allow chargebacks, which protect consumers but expose you to fraud and revenue loss. Crypto payments do not support chargebacks by default. Once confirmed, a transaction is final, which reduces dispute risk but shifts more responsibility to you and the customer.

Settlement speed also differs. Card payments may be authorised instantly, but final settlement can take days. Crypto payments usually settle within minutes. Many providers now offer automatic fiat conversion, so you can receive local currency without holding crypto.

Crypto Payments vs Bank Transfers

Crypto payments, compared with bank transfers, bypass clearing systems and correspondent banks. This reduces delays and removes cutoff times that restrict traditional bank transfers to business hours.

Bank transfers rely on established banking infrastructure and often involve manual checks. Cross-border transfers can take several days and incur high fees from currency conversion and intermediary banks. Crypto payments move value directly between wallets, which lowers friction for international payments.

Transparency also differs. Blockchain transactions provide a public record that you can track in real time. Bank transfers offer limited visibility until the settlement completes. For accounting, crypto payment processors can automate reconciliation and fiat conversion, making them easier to integrate with existing systems.

However, bank transfers benefit from clear regulation and stable fiat currencies. Crypto payments may involve price volatility unless you use instant or automatic fiat conversion at the point of payment.

Types of crypto used for payments include Bitcoin (BTC), stablecoins, and smart contract platforms like Ethereum (ETH) and Solana (SOL). You use all these payment methods to pay for goods and services without bank involvement. Each category serves different use cases and risk profiles.

Bitcoin is the best-known payment method. You commonly see BTC accepted by online merchants and service providers. You transfer it over a public blockchain, so you confirm payments using a blockchain explorer. You may see variable fees and confirmation times due to spikes in network usage.

Stablecoins are for payments that need price stability. Tokens like USDT, USDC, DAI, and EURC peg their value to another fiat currency. You use them to transfer value on a blockchain while avoiding excessive volatility. You still get the benefits of a blockchain transfer. You see many businesses using stablecoins for invoicing and payroll.

Ethereum payments rely on smart contracts. You use ETH to pay gas fees on the Ethereum network to send value. This feature enables different kinds of payments, such as automated payments and application-based payments instead of checks at a cash register. The downside is that fees can spike if the network has high levels of activity.

Solana is the king of fast and cheap payments. You can send value using its native coin SOL with ultra-low fees per transaction. This method makes Solana the platform of choice for high-volume and low-value payments.

You send and receive payments using storage devices like Ledger wallets. These devices securely store your private key as you send and receive crypto.

Crypto payments are used in retail, online services, and peer-to-peer payments where speed and accessibility is needed. You can pay at select online retailers with a crypto wallet. You can usually do it through a platform like Shopify that often involves a crypto exchange that converts funds to fiat. You can use software wallets like MetaMask, Coinbase Wallet, and Trust Wallet to approve these payments.

Crypto payments are also widely used for international payments and cross-border payments. Businesses and individuals send these payments internationally with no bank. This method reduces the cost of transferring value by avoiding intermediaries. You typically see recipients swapping stablecoins for local currency, so you see these payments made using crypto wallets.

You can also use crypto for peer-to-peer payment transactions. Individuals can send crypto from one party to another using a wallet address with no intermediary involved. Your access and ownership of your private key matters here, so it doesn’t matter whether you use a software or hardware wallet to store your crypto.

You can use crypto payments for gaming, digital content creation, and online communities. You can buy in-game items and tip creators with a cryptocurrency wallet built into many apps and software platforms. You frequently see public blockchains processing these payments, which settle in minutes.

There is also an increasing trend of institutional adoption for paying employees, vendors, and treasury operations at firms. Some firms use multi-signature wallets instead of traditional wallets. Exchange services like Binance now have business accounts, so firms have separate wallets in their name they can use to store value instead of cash, thus hedging the risk of paying employees at scale.

Accepting crypto payments gives clear gains to both people who pay and the companies that process payments. These gains focus on cost control, speed, reach, and simpler technical setups.

Benefits for Consumers

Benefits for consumers of crypto payments include lower fees, faster settlement, and more control over how you pay. You often pay less in transaction fees than with cards, especially for cross-border purchases. Many crypto payments confirm in minutes, not days, so you do not wait for funds to clear.

You can also pay without sharing card numbers or bank details. This reduces the risk of data misuse and limits exposure to fraud. Some wallets let you pay with stablecoins, which helps you avoid price swings while still using crypto rails.

Crypto payments work across borders with no need to convert currencies. You pay the same way whether the seller is local or overseas. This makes online and digital services easier to access.

Benefits for PSPs and Developers

Benefits for PSPs and developers of crypto payments centre on lower processing costs, flexible settlement, and simpler global coverage. You can reduce fees by routing payments through crypto networks instead of card schemes. Many setups allow settlement in fiat or stablecoins, based on your risk needs.

Crypto payment gateways handle wallets, exchange rates, and confirmations. This cuts build time and lowers maintenance work. You integrate one system and support many assets and regions.

You also avoid chargebacks, which reduces disputes and support costs. Clear on-chain records help with audits and reporting. For developers, open APIs and standard tools speed up testing and deployment.

Accepting crypto payments has simple legal and tax consequences for your business. You have licensing and due diligence obligations. You have to report all receipts and gains to the relevant tax authority on time.

Legal Nature of Crypto Payments

The legal nature of crypto payments depends on your jurisdiction and its use. The draft law that takes effect in April 2025 in the UK brings most crypto activities within FCA authorisation under the Financial Services and Markets Act. If you deal with payments, if you are a custodian or an exchange, you will likely need authorisation.

You must also comply with AML and KYC obligations. These typically require identity verification, sanctions screening and transaction monitoring. Most jurisdictions appear to be following FATF recommendations and require Travel Rule data for transfers above a threshold.

If you accept payments from businesses, you will be required to perform KYB as well. Payment service providers typically require evidence of ownership and control of the payer.

Common obligations include:

Tax treatment and accounting for crypto payments treat the assets as property in all the major jurisdictions. When you receive a crypto payment, you have to record it at the fair market value at the time of receipt. This value is part of your assessable trading income.

In the UK, events that give rise to tax liability involve selling crypto tokens, exchanging them, or using them as a means of payment for goods or services. Holding them does not give rise to a liability, but future disposal will create a capital gain or loss.

Important tax consequences that you must take into account include:

The HMRC now has dedicated boxes on tax returns for crypto assets that improve the accuracy of self-assessment and matching.

Risks and challenges of crypto payments affect how you use and interact with cryptocurrencies in practice. You are familiar with price volatility. The value of payments can change dramatically within minutes. This risk complicates budgeting for payments, salaries and pricing even if you plan for volatility.

You also face regulatory and legal uncertainty. Requirements differ by jurisdiction and tend to change frequently. You may be obliged to comply with AML and KYC rules, which adds to your cost and increases delays if your payments cross borders.

Security is also a key risk. If someone steals your private keys or you make a payment to an incorrect address, there is no remedy. Many crypto wallets and apps do not have consumer protections comparable to those of your bank.

Transaction costs can increase unexpectedly. During periods of congestion, popular blockchains can charge high fees and can take time to confirm your transactions. This problem affects even small payments for time-sensitive transactions.

Operational complexity can limit the uptake of crypto payments. You may need new software, training and secure locations to store private keys.

Common challenges that you must be prepared to deal with include:

Businesses can accept crypto payments by establishing a relationship that allows customers to pay with crypto securely and legally. You can accept cryptocurrency payments with and without a payment processor through a crypto wallet, depending on your business model.

Most often, smaller businesses will use a crypto payment processor to add this functionality to their operations. This protects you against losing out to changes in cryptocurrency pricing and ensures the customer has a straightforward experience at checkout.

To accept crypto payments, here’s what you may typically do:

You can use a QR code to link crypto payments to online orders, invoices, and in-person payments. Many services integrate with common e-commerce platforms, so it can take you a few hours to a few weeks to get set up, rather than months. The customer pays through their crypto wallet, and you receive the funds in crypto or fiat currency.

It’s also a good idea to establish an internal protocol before you start receiving payments, about what you will do with the cryptocurrency after you receive it. For example, whether you will convert it immediately or hold it for some time. Remember to record transactions since cryptocurrency is treated as an asset for taxation in the UK.