If you are thrown off by the terms in the title of the article, don’t worry: at least a half of our readers are. But to figure out the answer to our main question, we’ll need to dig a little deeper. We’ll help you better understand why ICOs need a PSP.
What is an ICO?
Investopedia reports that an ICO is “an unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or bank.”
ICO is inevitably connected with blockchain and cryptocurrencies. Once a company realizes that it needs funds to launch a project, they can offer potential investors to purchase cryptocurrencies (typically Bitcoin or Ethereum).
In return, they get token which can either bring in dividends from the future revenue of the company or give their owners a right to exchange them for company’s goods and services.
In other words, ICO is a type of crowdfunding.
ICO’s growing popularity
It is worth mentioning that it is extremely popular.
In fact, in 2018 more than 7 billion USD was raised so far for projects like Telegram ICO, Dragon, Huobi token, Bankera, and Envion, states CoinSchedule.
Sounds pretty big, right?
The same sources also report that the most popular categories of an ICO today are communications, finance, trading & investing, gaming & VR, and payments.
Besides, a lot of ICOs use credit cards as the most reliable way to fund their accounts. And this calls for special payment processing solutions.
However, with this much money flowing in ICO businesses are desperately looking for ways to process their payments. And with banks frequently refusing to process their payments due to an increased risk of overwhelming chargeback rates, ICOs often seek assistance of reliable Payment Service Providers to help them get their payments accepted and processed.
Moreover, given that holdbacks in ICOs can significantly exceed standard ones which are 10% for up to 180 days for international sales, business owners are always on the lookout for improved payment processing solutions.
That is when PSPs with their capabilities and state-of-the-art technologies and third-party fraud scrubbing come on stage.
Why do ICOs need a Payment Service Provider?
There are several core reasons why using the help of a PSP is vital to the ICO. So, let’s get things underway and look into each one of these reasons.
1. Simplified account opening.
Given the high levels of chargebacks and fraud, many banks do not want to work with ICOs. At least not just yet.
That is why in many cases the only solution to start processing the payments is to seek the assistance of PSP.
They use the fraud and chargeback prevention software to eliminate various risks and use other preventive measures that protect both the merchant and the PSP itself.
Besides, they have a long history of working with certain banks. So, there is the trust credit which makes banks more open and willing to collaborate with PSP which process ICO payments.
2. Obtaining a certificate.
Governments and financial regulators are worries that ICOs serve as a way of money laundering. Moreover, they often find them dangerous and harmful to individuals especially when projects fail. Finally, they express their concerns about connections between ICOs and terrorism or any fraudulent activities worldwide.
As a result, ICOs now have to adhere to Anti-Money Laundering policies as well as obtain specific licenses.
The process of obtaining such a license is not as straightforward as one would hope. This makes PSP’s assistance vital if the ICO wants to start processing payments.
Some PSPs can even help ICOs get a license.
Some European countries, like the UK, have already taken measures to make the process of obtaining a license for an ICO and cryptocurrency businesses possible. However, it is not as straightforward in many other places around the globe, so professional assistance is needed.
3. Lower costs.
Banks trying to protect their interests often set higher charges and fees for ICOs. Frequently, it makes no sense to collaborate with banks directly, as their fees significantly exceed what the ICO can really pay.
However, PSPs that have been on the market for quite some time can be rather flexible when it comes to fees. So, seeking their help can be a money-saving solution for smart business owners.
4. More technical opportunities.
Banks typically have limitations on the size of payments they can process. Since ICOs often work with huge money volumes, they might face the problem of poor traffic performance.
To prevent this from happening, they can ask a PSP to allow them to process bigger payments. They can negotiate the conditions with the bank and thanks to their long payment history with these banks, they might be able to get better terms.
5. Secure settlements.
Another reason to hire a PSP is that settlements with them are potentially safer.
PSPs willing to protect their interests use state-of-the-art technologies to check each settlement and ensure its security. So, to make the process of payments smooth and seamless, use the assistance of PSPs.
6. Fast onboarding.
ICOs can start processing their payments much faster should they use the help of a PSP. The onboarding process along with information gathering and setup varies from case to case. Yet, it is usually much faster than onboarding directly with a bank.
7. Minimum KYC package.
PSPs require the minimum documents package, only the ones essential to get the ball rolling. Of course, they too care about the security, but they only require the minimum package sufficient to ensure this security.
8. Fraud and chargeback prevention.
If you are in the ICO business, you realize how high the risks of chargeback and fraudulent activities are. Therefore, you understand how crucial the special software developed by PSPs is.
It can foresee the potential chargeback and fraudulent activities and protect you from them. This help is truly priceless.
Over to you
If you are an ICO looking for ways to process your payments, you should consider looking for a reliable PSP to help you out with it. Take a look at our list of benefits above to understand what you need to look for in a PSP, and see how a Payment Service Provider can help you get started!