There are currently over 295 million cryptocurrency users worldwide, with over 10% of UK adults estimated to hold or have held some form of crypto asset. As such, cryptocurrency exchanges have emerged as key players in the digital economy.

While their primary function revolves around the buying, selling, and trading of digital assets, there are also significant opportunities for exchanges to leverage advancements in the traditional payments industry.

As cryptocurrency adoption continues to increase, by looking at strategically integrating payment technologies and services into their operations, crypto exchanges can unlock new revenue streams, enhance user experience, and support the continued adoption of digital currencies. In turn, leading to overall growth not only for individual platforms, but both the cryptocurrency and payments industries as a whole.

Diversifying payment options

The ability to offer a wide range of payment solutions to their users is a key benefit crypto exchanges can reap by collaborating with the payments industry.

While many exchanges initially relied on bank transfers and wire deposits, these methods can be clunky and slow. By diversifying their range of payment methods to include local payment methods, credit/debit cards, e-wallets, and mobile payments, exchanges can enhance accessibility and convenience for their users.

What’s more, including capabilities for cross-border payments and local payouts will help exchanges to attract a broader user base.

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In addition to this, by providing multiple avenues for fiat-to-crypto transactions, exchanges can lower barriers to entry for newcomers to the cryptocurrency space.

Driving adoption and retention through user experience

As with any new or alternative financial service, user experience and trust are paramount in driving adoption and retention on crypto exchanges. Integrating payment technologies that offer fast, secure, and user-friendly transaction experiences can significantly enhance the overall trading experience.

For example, implementing instant payment methods and reducing transaction fees can encourage more frequent trading and boost user engagement, while offering features such as recurring payments and automated purchases can cater to the diverse needs and preferences of the users.

Furthermore, the focus on secure transactions will help crypto exchanges to increase trust amongst their user base, something that alternative finance has had challenges with in the past.

Local-level trading

Utilising something like a local payouts solution will allow for timely and efficient transactions, bypassing lengthy traditional banking processes – ideal for time-sensitive purchases or urgent transfers.

Local crypto payment methods can also enable users to engage in transactions within their communities, fostering further economic growth and creating opportunities for businesses and individuals.

What’s more, by eliminating intermediaries like banks and keeping payments at a local level, crypto exchanges get reduced fees and can therefore save themselves money. As a result, they are able to offer more cost-effective solutions to users and, consequently, attract more traders.

Taking advantage of different revenue streams

The payments industry offers various revenue-generating opportunities for crypto exchanges beyond trading fees. By offering payment processing services, merchant solutions, and remittance services, exchanges can diversify their revenue streams and capture additional value from the growing demand for digital payments.

For example, exchanges can partner with merchants to enable crypto payments for goods and services, earning transaction fees in the process. Similarly, providing remittance services for cross-border payments can allow crypto exchanges to tap into a lucrative market segment and generate additional revenue.

Compliance and regulatory challenges

Like any financial service, for crypto exchanges, navigating the regulatory landscape is a key challenge, particularly when it comes to anti-money laundering (AML) and know-your-customer (KYC) regulations.

However, leveraging payment technologies that incorporate robust AML/KYC protocols can help exchanges navigate specific regulatory requirements, leading to better compliance, enhanced security and, ultimately, more user trust.

Furthermore, calling on compliance solutions specific to the payments space – such as transaction monitoring and identity verification – will mitigate the risks associated with fraudulent activities and ensure a safe and compliant trading environment, benefiting both the exchanges and their users.

Maximising future potential

In recent years, we’ve already seen multiple synergies between the payments and crypto industries, and the near future holds significant promise for the relationship between the two.

As innovation continues in the payment space with increases in real-time, local, and cross-border payment solutions, the benefits for crypto exchanges will only continue to grow.

Equally, due to the transformative potential of blockchain technology as well as a growing adoption amongst businesses and individuals alike, growth in the role of cryptocurrency in the payments space will be key.

Scott Major is Chief Commercial Officer at Transact365