Imagine being in a busy digital marketplace. There are stores, services, subscriptions, games, including your favourite café. They are all offering you at least a dozen ways of making payments. You have traditional banking options in terms of funds transfer, credit/debit cards, mobile payments, “send money to a friend” services, and, more recently, you have the option of making payments in digital currencies such as Bitcoin or Ethereum tokens. Besides, you have options such as PayID in Australia that allow you to make payments or receive payments through your mobile number or email.
Now, all of these methods have their own benefits and drawbacks, too. But the question is, how well does crypto measure up against other current digital methods of payment? Also, when is one PayPal better than the other?
What is PayID?
Before we dive in and examine crypto against all else, it is helpful to have a concrete example of non-cryptocurrency digital payment that we are comparing against. PayID is just such an example.
PayID allows you to choose an easy-to-remember identifier such as your cell phone number or email address, which you associate with your banking account. So when you want people to pay you funds, they merely have to use your identifier rather than your banking and routing details. Transactions take just a fraction of a second when sending funds between participating banking institutions.
For instance, in the online gambling world, a Pay ID online casino offers gamblers a convenient, secure, and quick means of crediting their accounts. In fact, you will just need a mobile number or an email address that you will use to make an immediate deposit, often without charges. Besides, according to eSportsInsider’s list, most of those Pay ID online casinos will offer you substantial bonuses that you will use to play various kinds of gambling games, from classical to the new ones. This means such an experience provides us with a solid foundation to make a comparison between digital payments through banks in the current society (such as PayID) and digital payments through crypto.
Pros of Modern Digital Payment Methods
Alright, let’s talk about what actually works when you use methods such as PayID, mobile wallet payments, or immediate bank transfers, and so on.
1. Speed & Convenience
Through PayID or similar channels, you are able to conduct transactions fast, in most cases, in a matter of seconds, regardless of the involved banks. This is because you do not need to type account numbers through your phones or emails. Usability is therefore high.
2. Familiarity & Wide Acceptance
These kinds of payments sit at the highest level of an existing payments infrastructure that users are comfortable with, that’s supported by banking infrastructure, and that’s been supported by a regulatory framework. Therefore, it means that most of us are already aligned, so you do not have to learn new systems.
3. Strong Consumer Protection & Regulation
“Just as a merchant may prefer a particular restaurant, you might prefer a particular bank,” Wise’s CEO Daniel Webber said in a statement announcing new banking partnerships. “If you do business with a particular bank, you have all of its infrastructure at your disposal.”
In reality, banks have obligations, fraud protections, deposit protections in some cases, and standard dispute resolution processes. Using bank-tied digital payments means you’re operating in a known regulatory environment.
4. Low Barrier to Entry
You might not need to be a crypto specialist at all. You just have to install your banking app, create a PayID, and that’s it. Chances are that you already have all that in place. Also, “it’s just banking,” so you feel you are at a lower risk.
5. Suitable for Routine Transactions
In usual transactions such as payments of rent, sending funds to friends or family, or reimbursing an account, including those for online games or portals, digital bank payments work well.
Disadvantages of Modern Digital Payment Systems
Of course, even with positive experiences, there are trade-offs. Below are points that one needs to pay particular attention to.
1. Dependence on Centralized Infrastructure
This payment system is processed by banks, payment processors, and in some cases, banking systems in a country. This means that you will depend on a centralized system that either operates within business hours or is restricted geographically in terms of fees.
2. Fees and Cross-border Slowness
Even if domestic transactions are fast, often cross-border transactions will go back to slower and more expensive ways. There are also bank transactions that have processing delays or fees involved. Generally speaking, digital bank transfers may be more expensive or have limitations when you go out of your domestic environment.
3. Issues of Privacy & Data
There is record-keeping, data collection, credentialing, etc., because your bank or payment service is involved. Some users may prefer that their transaction history is not as visible.
4. Innovation and Adoption Limits
Although PayID is a clever system, it is also region-specific (regarding our example, it’s Australian) and not all merchants accept it across all regions. Therefore, you might encounter problems when you attempt to use it for more exotic or globally-oriented purposes.
5. Chargebacks & Fraud Complexity
Although banking institutions provide several protective measures to consumers, digital payments remain vulnerable to fraud. Moreover, in view of the immediate or instantaneous transfer of funds, you may have limited-time protection against a fraudulent transaction.
Pros of Cryptocurrency Payments
Now, moving on to the crypto perspective. When you make payments in crypto (that is, when you make payments using blockchain tokens), you have several possible benefits.
1. Borderless & 24/7 Access
Crypto payments do not rely on banking hours or geographical borders. This means as long as you have a wallet and internet connectivity, you have 24/7/365 ability to make payments anywhere in the world. Regular payments may have delays or timing constraints, especially when it’s a border transfer.
2. Lower/Transparent Fees (in Some Cases)
In that you skip a few middlemen, crypto transactions could be cheaper for a lot of business, particularly across borders. This is because while it costs ~3% to transfer, say, USD 200 through banking channels, it only costs ~1% (or so) in crypto.
3. Independence & New Possibilities
Crypto offers features that traditional payments don’t have, such as smart contracts, programmable payments, irrevocable settlement, and financial access for people who are underserved by the banking system.
4. Speed (Depending on Network)
Although it is not always immediate, it is possible that most of the crypto networks, as well as payment channels, work independently of banking cycles and are capable of settling faster than before.
5. Novel Use Cases & Flexibility
Crypto is programable-cash and that enables new flows such as micro-payments, conditional payments, global micropayments, and decentralised platforms. It is more flexible than just a transfer funds type of functionality in a traditional system.
Disadvantages of Cryptocurrency Payments
Also, no means of payment is completely foolproof. Below are the important cons of making payments through cryptocurrencies.
1. Value Volatility
Various digital currencies tend to have large price fluctuations. This means that accepting a transaction at present could imply a different price in the future. This poses a challenge when considering “payment” compared to “speculation” in digital currencies.
2. Limited Acceptance & On-Ramp/Off
Also, not all merchants will accept payments in crypto. Moreover, an exchange of crypto for fiat or vice versa will also have its own set of costs. Therefore, although you possess crypto, transacting in it is not as easy as transacting in fiat/digital banking systems.
3. Regulation and Legal Uncertainty
Cryptographic regulatory policies also differ from one country to another. Also, there are issues related to taxation, laundering of funds, protection of consumers, returns, and so forth.
4. Security Risks & Technical Complexity
Although a blockchain could be secure, it’s a wallet, an exchange, or a human error that is a huge danger. Moreover, users have to learn how to use their private keys or use a third-party custodial option.
5. Irreversibility & Lack of Consumer Protections
Once a transaction in crypto is verified, it is non-reversible. This is not a big issue for merchants, but it is a hurdle for customers when they need a refund or a chargeback.
6. Energy/Environmental Issues (for networks in particular)
Based on the type of crypto market, it is possible that a high amount of energy is involved in either crypto mining or consensus validation.
So… Which Should You Use, and When?
In light of all this, it is a question of how you make a decision between crypto payments and alternative digital payments.
In terms of making and receiving payments in an everyday setting (such as buying groceries or settling debts with friends) a system such as PayID or immediate bank transfer is definitely fastest and easiest.
In cross-border business, or when you’re interested in exploiting new transaction flows (micro-payments, decentralized apps) in international transactions, cryptocurrencies come into their own.
If you’re working with those merchants that accept crypto, or you would prefer to possess tokens that you could pay with, crypto could prove attractive.
But if you like a stable value and want to avoid surprises, you’re better off choosing digital payments based on fiat currencies. In crypto, you will also have risks related to value fluctuations that you may not be interested in in commercial transactions.
All in all, the ideal tool depends on the job.
