Scroll to top
We're on LinkedIn. Let's connect!

US Cryptocurrency Payments

Blockchain-based payments are just beginning to catch on while accelerating the use of cryptos for retail, cross-border remittances, and B2B payments.

Key Takeaways

 

Consumers ages 25–34 will comprise one-third of all US cryptocurrency owners in 2022, per our forecast—a key demographic for crypto payment providers to target.

 

  • Cryptocurrencies have the potential to transform payments. Blockchain, the technology that enables cryptos, lets businesses and consumers transact at real-time speeds, lower costs, and with greater security, among other benefits.

 

  • But with so much attention on cryptocurrencies’ rising and falling valuations, little is known about the maturity and size of crypto payments—until now. New forecasts shine a light on how many consumers are using cryptos and how much they are paying.

 

  • Global crypto payment transaction value is just a drop in the ocean—but its long-term growth prospects are bright. Transaction value will hit $16.16 billion in 2023. That’s less than $1 in every $10,000 in payments made across the globe. But as card and noncard payments innovations improve the experience of paying, adoption is on the rise, rocketing up more than sevenfold in three years.

 

  • Significant hurdles and risks remain. Lack of regulation leaves consumers, crypto payment providers, and the financial system vulnerable. Crypto asset volatility also undercuts its use as a stable medium of exchange—even among so-called “stablecoins.” And real-time payments (RTP) and other emerging technologies could siphon users and industry investment, as they offer similar benefits.

 

  • Remittances will continue to be the most mature use case for crypto payments by 2023, outpacing cross-border B2B as well as noncard and card payments. Crypto’s cost and speed ease remittance pain points, and disruptors and incumbents alike are already leveraging the technology. Going forward, legacy remittance providers should explore using crypto assets that reduce asset volatility.

 

  • Noncard and card payments are setting longer-term groundwork for mainstream consumer crypto payment adoption. We expect crypto noncard payments to drive much of global crypto transaction value growth through 2023. While regulation and asset volatility may limit growth, banks and payment networks can experiment with crypto trading and digital payment options.

Payments Players Are Turning Crypto Ownership Into a Payments Opportunity

 

Crypto payments are in the first inning of growth, driven by consumer demand and payment provider investment. Twenty-one percent of crypto owners cite transactions as their primary objective for owning cryptos, per McKinsey’s 2021 Digital Payments Consumer Survey. In response, payment giants like PayPal and Visa are positioning themselves to translate interest to action by enabling crypto payments between more users and merchants.

 

Four emerging use cases—remittances, cross-border B2B payments, and retail card and noncard payments—present industry participants with unique possibilities and challenges. In this report, we analyze each use case, examine the expected growth of crypto payments, and outline how banks and payment networks should cater to this new era of payments.

Nascent-Stage Crypto Payments Growth Rockets Forward

 

US crypto payment adoption is surging from an extremely low base. We forecast 5.5 million crypto payment users as of 2023—a jump of more than 350% in just three years. However, this represents just 2.3% of US internet users.

 

Global crypto transaction value growth is following a similar path. It will hit $16.16 billion in 2023—up more than sevenfold in three years—making it a tiny but swiftly growing contributor to global payment flows, which totaled $255 trillion in 2021. Virtually all global crypto transaction value is captured by retail card and noncard payments.

 

What’s Driving Crypto Payments Growth?

 

Crypto Holders Are Becoming Crypto Payers

 

2021 was a breakthrough year for crypto ownership, with the number of US crypto owners skyrocketing 85.4% year over year, per our forecasts. More moderate growth is expected through 2023. This is testament to increasing consumer awareness, greater consumer accessibility and related provider innovation, as well as mainstream investment community acceptance of these assets. Payments industry players have thus begun laying the groundwork for crypto owners to translate their holdings into a medium of exchange.

 

Crypto’s Transaction Speed Makes It an Attractive Cross-Border Payment Option

 

Crypto payments can reduce the time it takes to send a cross-border payment from multiple days to 4–6 seconds on average, per Deloitte. This will appeal to consumers and merchants who value quick settlement.

 

Crypto Payments Can Lower Operating Costs

 

Using crypto’s blockchain technology can reduce the average cost of cross-border payments by 40%–80%, as it eliminates intermediaries, per Deloitte. These lower or eliminated fees can generate cost savings that can improve margins for providers, which can pass savings on to customers in the form of more attractive rates.

 

Crypto Security Benefits Extend to Merchants and Consumers

 

Unlike payments using fiat currency, blockchain-based payments cannot be altered or reversed. This allows funds to instantly settle and transfer with trust, adding to their merchant appeal. And its confidential nature also protects users from identity theft, which may make blockchain-based digital payments more attractive to consumers.

 

Stablecoins Are a Reliable Medium of Exchange—in Theory

 

Cryptos in this asset class are pegged to the value of an underlying asset such as the US dollar or gold. This lends them stability as a medium of exchange versus traditional cryptos such as Bitcoin, which can undergo extreme pricing volatility.

 

While primarily used to enable trading, lending, or borrowing of other digital assets, stablecoins are gaining prominence as a payment method. In 2021, 13% of crypto payments made on BitPay used stablecoins like Tether, per Bloomberg. Meanwhile, total circulating stablecoin supply grew from $29.38 billion in January 2021 to over $182.14 billion by March 31, 2022.

 

However, stablecoins may not be as stable as the name implies. TerraUSD, a stablecoin that purported to be pegged to the US dollar, saw the value of each coin fall within days from $1 to only 26 cents as of the time of writing. Other stablecoins, such as Tether, have faced lingering questions about whether their reserves are sufficient to back up the coin. We expect greater government scrutiny of stablecoins as consumer and regulator concerns mount.

 

CBDC Launches Could Normalize Crypto Payments

 

Earlier this year, China became the first major market to launch a central bank digital currency (CBDC), after extensive pilots across the country generated $8.2 billion in transaction volume during H2 2021. We expect major economies to speed up their efforts to avoid getting left behind as geopolitical stakes rise. This government buy-in will help normalize crypto payments and spur more crypto payment integrations. However, the US likely will not launch a CBDC until after 2023, muting domestic impact for several years.

 

The Metaverse Could Position Crypto for Longer-Term Growth

 

There is strong consensus that the metaverse will be based on blockchain tech, positioning cryptos as its natural medium of exchange. But any outcome is purely speculative. The metaverse needs to move beyond hype—and its crypto use case must also overcome significant challenges—for it to meaningfully drive crypto payments growth.

 

What’s Inhibiting Crypto Payment Growth?

 

Burdensome and Uncertain Regulation Creates Adoption Hesitancy

 

US tax law requires cryptos to be treated as property, taxing capital gains when cryptos are bought and sold. Crypto payers must abide by this law when they’re converting cryptos to fiat during the payment process. This can create a complicated and time-consuming process for crypto payers that could result in capital gains taxes.

 

And no consistent, comprehensive crypto-specific regulations exist at the national or global level to address their risks, holding back banks and other incumbents from making long-term investments. Instead, regulators have been cracking down on individual crypto providers. For example, Tether agreed to pay $41 million to settle a dispute with the US Commodity Futures Trading Commission, which alleged that Tether misrepresented the sufficiency of dollar reserves pegged to its eponymous stablecoin.

 

However, regulation is likely around the corner. Several recent developments point to the possibility of significant regulatory changes in 2022, setting the stage for longer-term crypto growth.

 

  • In the US, President Joe Biden signed an executive order in March calling on other federal agencies to help build a regulatory framework for cryptos. The order signals that regulations are on the horizon. And in April, US Treasury Secretary Janet Yellen called for “tech-neutral” regulation of the asset class based on its risks.

 

  • In the UK, a bipartisan group of lawmakers formed the Crypto and Digital Assets Group in January, creating a forum to draft regulation for the industry.

 

  • The Russia-Ukraine war has sped up action on crypto regulations. Concerns that Russia would use crypto to evade sanctions have increased Western countries’ calls to adopt stricter crypto regulations.

 

RTP Systems Solve Similar Pain Points

 

RTP systems undercut the need for fast, low-cost domestic crypto payments innovation. The US government’s FedNow RTP network is expected to be up and running in 2023, well before a digital dollar would launch. The service promises the same key benefits—inexpensive, near-instant interbank payments—as crypto payments. And RTP demand is already evident in the US with the success of The Clearing House’s RTP network. However, this doesn’t diminish the role crypto can play in cross-border payments, where there is little interoperability between different countries’ RTP systems.

 

Crypto Volatility Holds Back Adoption

 

Cryptocurrencies are among the most volatile and risky investment assets—traits that poorly translate to their use as a medium of exchange. For example, Bitcoin’s price started 2022 nearly double its value the year prior—but before January had ended, the asset lost almost all its 2021 gains. And as of the time of writing, crypto market capitalizations shed nearly 40% of their value since the beginning of 2022, plummeting from $2.242 trillion on January 1 to $1.427 trillion on May 10. Volatility will continue to hold back consumers and businesses from using cryptos as a payment method.

 

Crypto Crime Has Tarnished Trust in the Asset

 

Concerns around using crypto for illegal or illicit transactions are creating a reputation problem for the payment method. In 2021, illicit addresses received a record-high $14 billion in crypto value, per Chainalysis. But as a percentage of overall crypto transactions, criminal activity hit an all-time low, signaling that better security measures have been put in place. We expect this to continue improving as the market matures.

Four Use Cases Contribute to Crypto Payments Growth

 

Remittances, cross-border B2B payments, card payments, and digital payments comprise virtually all global cryptocurrency transaction value and will continue to do so through 2023. Weighing their relative maturity across five factors—infrastructure, adoption, regulatory certainty, interoperability, and risk—we expect remittances to achieve the highest degree of maturity by 2023 and digital payments to be the least mature.

 

1. Crypto’s Cost and Speed Ease Remittance Pain Points

 

The remittance space is primed for crypto disruption and will remain the technology’s most mature payments application through 2023. Implementation translates to lower costs and real-time speeds for consumers, which are important to those who rely on remittances to pay for necessities like housing and food. Crypto’s real-time speed also eliminates exchange rate risk caused by unpredictable shifts in the value of transferred funds over a multiday settlement process.

 

Crypto Remittance Disruption Is Forcing Broad Industry Change

 

Crypto remittance disruptors deliver lower costs for consumers and cost pressure that industry participants must adapt to. Many are doing so by integrating the technology into their legacy business operations. Lowering fees will be hardest for players like MoneyGram that have expansive brick-and-mortar networks to maintain. To make up the difference, they must grow volume or diversify into value-added services.

 

Three key crypto remittance players are challenging incumbents for market share:

Ripple’s cross-border payment network RippleNet has been instrumental in creating the infrastructure required for crypto remittances and counts Santander, Bank of America, and American Express among its network partners. Still, its volume remains small: RippleNet processed more than 6 million transactions in 2021 with a payment volume run rate of over $10 billion. For context, global cross-border payment flows are expected to reach $156 trillion in 2022, per EY.

 

Note: RippleNet’s volume is not included in our forecast, which does not include remittances and cross-border payments.

 

Mexico-based Bitso processed $1.2 billion in remittances in 2020 (around 2.5%–3% of yearly remittance volume between the US and Mexico, up from 1.5% in 2019). Bitso claims to have 95% of crypto market share in Mexico, the world’s third-largest largest remittances recipient.

 

Coinbase launched a pilot in February 2022, letting users send crypto remittances to consumers in Mexico with plans to expand the service to other markets. Thanks to its popularity as a crypto exchange, Coinbase may find success in capturing remittance senders and growing its payments volume.

 

Legacy providers, digital challengers, and retailers are innovating with crypto remittances to keep pace:

 

  • MoneyGram has made several crypto tie-ups. After a short-lived partnership with Ripple, it partnered with the nonprofit blockchain-based Stellar Development Foundation to facilitate cross-border payments using Circle’s USD Coin stablecoin. MoneyGram also invested in crypto exchange and ATM operator Coinme in January 2022. As one of the top three global remittance players, we expect its competitors to follow MoneyGram’s foray into crypto.

 

  • PayPal is mulling plans to develop a stablecoin, which it could integrate into its remittance offering Xoom, among its other solutions. This follows an aggressive push by PayPal into the wider crypto space, where it is looking to position itself as an industry leader.

 

  • Meta (formerly Facebook) is testing its digital wallet Novi with a money transfer pilot between the US and Guatemala. Supported by Coinbase, Novi will let users send money with Paxos’ Pax Dollar stablecoin. Meta’s vast network sets up Novi to be a formidable provider in the space—and to jumpstart crypto remittances adoption.

 

  • Walmart, the largest retailer by sales in the US, is showing interest in the crypto space: In August, it posted a job opening for a digital currency strategy lead. A Walmart foray would drive crypto remittances volume growth by making the option easily accessible to a core remittance user demographic.

Forecast

 

In 2023, crypto remittances will continue to be the most mature use case for crypto payments. Ripple and Bitso have already set the tone, and as more of the biggest players explore crypto, we expect payment incumbents to make decisive moves into the space.

 

Legacy remittance providers should explore using crypto assets that reduce asset volatility:

  • Investigate providing immediate crypto-fiat transfers. For example, Ripple uses its digital asset XRP to serve as a bridge between the local currencies on both sides of remittance transactions. The company claims that XRP is one-tenth as volatile as fiat currency for cross-border transactions.

 

  • Base solutions on stablecoin payments and potential CBDC integrations. Making stablecoins the predominant payment method of a solution, like what Meta’s Novi is doing, can help mitigate volatility risk while maintaining the benefits of cryptos. However, as previously covered, stablecoins carry risks of their own. Once launched, CBDCs could also eliminate this risk and solidify crypto’s regulatory status in the global economy.

2. Cryptos Bring Enhanced Security and Faster Speeds to Cross-Border B2B Payments

 

Crypto Payments Are Upping Fee Pressure in the Cross-Border B2B Space

 

Blockchain-based payments could make up almost 10% of all B2B cross-border payments by 2024, per Juniper Research data. The payment method offers greater transparency and traceability for cross-border transactions. Crypto’s real-time speed also enables global businesses to operate more efficiently, reducing ongoing investment costs and shortening payback horizons—the sum of which drives value for customers.

 

To keep up with competition, payment giants are launching their own crypto B2B solutions:

 

  • Visa’s B2B Connect is a blockchain-based end-to-end payments network that streamlines payments between banks across Visa’s global network. It can enable 50%–80% savings compared with legacy cross-border solutions. And B2B Connect partnered with Citi to act as a global settlement bank, which will broaden the network’s endpoints and help it expand beyond the 100-plus countries and territories it operates in as of 2021.

 

  • JPMorgan unveiled JPM Coin, a stablecoin pegged to the US dollar, in February 2019. The coin facilitates blockchain-based real-time B2B payments and seeks to reduce friction in cross-border transactions.

Forecast

 

To maximize adoption among businesses, banks and payment networks should look to boost interoperability across blockchains. Interoperability is currently limited: Individual blockchain networks are closed, and the technology to enable communication between them is likely still a few years out. Investing in interoperable solutions will encourage greater cross-border volume, connecting B2B solutions across different countries. For example, last October, Visa began developing a crypto payment system called Universal Payment Channel, which will connect multiple blockchain networks.

3. Retail Noncard Crypto Payments Are Connecting Crypto Owners to Merchants

 

Noncard crypto payments are increasingly available to consumers and may also be attractive to merchants. The latter must absorb the costs of accepting card payments, creating historical tension with payment card networks that has escalated over the past year. Circumventing card networks and instead going through crypto exchanges and wallets can reduce costs for merchants and help consumers avoid any surcharges that merchants may apply. Gemini Pay, for example, does not charge any transaction fees.

 

These crypto payments also bring merchants enhanced fraud prevention. Cryptos cannot be altered or reversed, allowing funds to instantly settle and transfer with trust, which reduces chargeback risk for merchants.

 

Incumbents Are Diving Into Noncard Crypto Payments

 

As card fee frustrations rise and merchants search for alternatives, noncard crypto payments are providing competition that could threaten card networks. Crypto’s lower fees can help the payment method gain traction with merchants. Retail payment incumbents are already looking to integrate crypto payments to meet potential merchant demand:

 

  • PayPal debuted Checkout with Crypto in March 2021, enabling wallet users to choose crypto as a funding source at checkout with virtually any merchant that accepts PayPal. This gave PayPal crypto owners a path to paying with crypto that is also easy for merchants to integrate. The following month, CEO Dan Schulman stated the service could reach $200 million in volume.

 

  • Block’s name change from Square highlights its focus on blockchain, and CEO Jack Dorsey has made it a top priority to help Bitcoin “become the native currency for the internet.” Block lets users buy and sell Bitcoin, and last year it announced plans to create a decentralized crypto exchange, as well as a Bitcoin hardware wallet.

 

  • Stripe reentered the digital currency space in March 2022 after dropping out in 2018, launching a crypto tool kit of APIs for merchants. It also partnered with crypto exchange FTX to provide onboarding and identity verification. The reentry marks a pivot from 2018, when it argued that Bitcoin was “better-suited to being an asset than being a means of exchange.”

 

Heavy hitters including Amazon, Walmart, and Uber are also all mulling crypto acceptance, which could aid usage.

Forecast

 

Crypto noncard payments will drive the bulk of global crypto transaction value growth through 2023. In one fell swoop, PayPal created an infrastructure for digital crypto payment, and we expect more consumers to embrace such digital wallet options. But until regulation is sorted out and stablecoins overcome growing pains to become more prevalent, penetration will likely remain limited through 2023.

 

Banks and payment networks should diversify their offerings to include crypto trading and digital payment options. Adding cryptos can help these incumbents compete against exchanges like Coinbase and digital wallet solutions like PayPal. For example, banks can add a QR code for crypto payments in their digital apps. But they can also add app-based crypto trading—still the technology’s primary use case—and look for ways to transition those users to making crypto payments.

4. Retail Card Crypto Payments Open the Door for Card Networks

 

Crypto card programs are burgeoning as card networks and providers incentivize crypto holders into using them as a medium of exchange. Card programs let users more easily spend crypto at any merchant by tapping incumbent payment network infrastructure.

 

Crypto cards are offering expanded rewards opportunities to encourage use. Some programs allow for spend in fiat and then enable crypto rewards, providing consumers with an easy way to start acquiring crypto without investing their own money in the market. But while consumers may seek crypto rewards because they can accrue value over time—unlike points or miles—values can also decline, which could test cardholders’ long-term engagement with the card products.

 

Visa and Mastercard Ramp Up Crypto Card Offerings

 

Crypto firms have been teaming up with the two biggest card networks, Visa and Mastercard, to quickly launch card programs. Visa has 50 crypto card programs as of July 2021, and Mastercard has more than 20 as of April 2022. These launches have picked up in the past year. In November, crypto platform Voyager teamed with Mastercard on a debit card that lets users spend using USD Coin. On its fiscal Q1 2022 earnings call, Visa CEO Al Kelly said that Visa credentials in crypto wallets surpassed $2.5 billion in volume that quarter—an amount equal to 70% of the crypto volume generated for the entire 2021 fiscal year.

 

Card networks are integrating crypto spend into their offerings to avoid disintermediation. Cryptos eliminate the need for banks or card networks to act as the middlemen and verify transactions. Integrating crypto spending in their offerings ensures providers are still involved in the payments process and mitigates the risk of volume moving away from their networks.

Forecast

 

We expect crypto card payments to complement global crypto transaction value growth through 2023. Crypto card volume should steadily increase in tandem with additional expected card launches and rising engagement among current users. However, the size and scale of these programs is still very small, dominated by crypto co-brand tie-ups, and will likely remain so. In a market where credit card volume is highly concentrated among several large issuers, no major US bank issuer directly markets these cards yet. These incumbents will need more regulatory clarity before stepping into this space.

 

To attract crypto card holders, providers should ensure their rewards programs and other card benefits are on par with fiat-based cards. Card programs overall are ramping up rewards offerings to stay competitive, so crypto-based ones need to do the same. Whether it’s adding new ways to redeem rewards like investing or new security features like numberless cards, crypto card programs can bring new, innovative features that may attract cardholders.

 

Enabling spend in a variety of cryptos can also help address the volatility issue. The CoinZoom Visa card, for example, allows cardholders to spend in any crypto in their wallet, earning up to 5% back on every purchase. The average user holds 15–20 cryptos and can examine the market value of each to decide which to use for a given purchase, CoinZoom founder and CEO Todd Crosland told us. This flexibility helps cardholders avoid spending with volatile assets that have lost value. While the approach does not solve challenges posed by volatile cryptocurrencies, it could help smooth them over.

Related posts