On/off Ramps in Web3: Multi processor payments

Are multiple processors the case of “more the merrier”?

In Web2 payments, multi processor is a business working with multiple payment providers. For example, using Adyen, Stripe, Worldpay together. The strategy has its pros and cons explained further ain this post.

This post discusses the similar multi processor trend (“the more the merrier”) unfolding in the fiat to crypto on/off ramp space.

A deep dive into the Web2 multi processor set up

First, let’s dive into what Web2 multi processing is.

What’s a multi processor?

Multi processor means using more than one payment processor/provider to process your payments (could be cards, bank transfers etc)

Pros of being multi processor

1. Stability: Protection against downtime, have a back up.
2. Coverage: It’s hard for a payment processor to be great in every market. If a business is global, it needs local providers with expertise, licenses, and local payment methods.
3. Benchmarking: Businesses compare price and performance, and route payments to the processor with the highest ROI. Each partner is compelled to deliver the highest value (keep them on their toes).

Cons of being multi processor

1. Operational overhead: Setting up and managing multiple integrations is more work and requires a dedicated team.
2. Routing management: A business will have to define its payment routing logic. While “payment orchestration” solutions help (e.g., Spreedly), there are continuous decisions and investments.

Overall, it makes more sense to be a multi processor when you are a larger merchant in multiple geographies.

What does the Web3 multi on ramp world look like?

First, if you’re wondering what an on/off ramp is, here’s a quick introductory guide.

Second, let’s see how the Web3 fiat to crypto on ramp world is unfolding.

Current state: Wallets offer multiple on ramps to wallet users

Users are nudged based on how much crypto they get for a fixed fiat budget (e.g., how much ETH one can get for 200 USD). However, users can choose which on ramp to use, as seen below in a Trust Wallet screenshot.

Updated as of Oct’22, with a increasing # of on ramps each time

Similarly, if you use Metamask and review their on ramp options, you’ll find Wyre, Moonpay, Transak, Sardine and Coinbase Pay (note: this seems to be a growing list). In fact, Metamask has built an aggregator to show customers the best quote for their chosen payment method and location.

Does the current state of multiple on ramps make sense?

There are solid reasons for multiple on ramps.

Similar to why businesses want multi payment processors, multi ramp gives dapps more leverage to bargain, benchmark, and offer a wider variety of countries, payment methods, and chains, to their end wallet users.

However, it does not make sense for customers to have to choose between multiple on ramps.

• Customers don’t choose which payment provider they pay with. When a customer buys on Amazon, they don’t know which provider their payment was processed with.
• Even if some businesses show how paying with one payment method is cheaper (eg bank transfers vs cards), no customer has to pick a payment provider. It creates decision fatigue.

What does the future hold?

In 12–18 months, here’s what could happen:

1. On ramp consolidation: As the number of on ramp providers grows, similar to merger activity in payments processing, on/off ramps might merge with each other, or become part of larger PSPs.
2. Lower fees for end customers: More competition should lower end customer processing fees, and provide end consumers with more low cost payment methods relevant to their preferences. This likely means margin compression across on ramps.
3. Behind the scenes routing and decision engines: End customers don’t have to choose between 4–5 on ramps. Businesses “nudge” customers towards an on ramp based on internal decision engine (price, speed, uptime etc), so there’s less decision fatigue. We see the rise of tools to enable smart routing through various on/off ramps.
4. More regulatory scrutiny: Should on ramps be VASP licensed? They’re not exactly an exchange, but they handle customer KYC.

As a history major — I believe history will repeat itself. Looking forward to seeing what in Web3 payments follows the trends in Web2.