Since Bitcoin’s inception in 2009, the crypto economy has become much more than a new asset class. Despite certain high-profile bad actors taking advantage of novel technology, crypto has proven itself to empower financial freedom with decentralized money, identity, and digital assets—paving the way for a new internet owned by individuals.
About one in five Americans use cryptocurrency apps today, with another 11% of Americans interested in using them over the next year. Simple and seamless onramps are critical to bringing new users into this innovative financial system. This article aims to help you understand the tradeoffs of building your own onramp and how to build it with conversion, cost, and user control at the core.
First, what is a crypto onramp?
An onramp is a service that converts fiat currency (like USD or Euros) from a bank account into cryptocurrency in a wallet. Think of them as the ‘money changers’ of the crypto world. ‘Crypto onramp’ and ‘fiat onramp’ are often used interchangeably, though they both refer to services that change fiat currency into cryptocurrency. Some specify that an onramp ends in a self-custody wallet, but we generalize the term to refer to crypto wallets of any kind.
When done well, the crypto onramp process is often seamless for users. Register with a new bank or investment app, create an account, verify your identity, link your bank account, and (often in just seconds) you can begin purchasing any number of cryptocurrencies. While it seems simple, the process of offering crypto onramps can be complex.
Below, we'll explore how to build a crypto onramp, including staying on the right side of regulations. But first, should you even build an onramp, or are there other options?
Should you build a crypto onramp?
Financial organizations build their own onramps for three primary reasons: cost, conversion, and control. Building your onramp in-house requires more effort and increases liability in exchange for lower costs and more control over UX and risk decisions.
An in-house onramp also gives companies the advantage of owning the user relationship, which can help build trust and allows for customization. Maintaining control over the onramp process empowers organizations to strengthen their brand identity, manage risk, and access valuable data insights.
Building a fiat onramp is a strategic choice; however, it's only right for some companies. Using established onramp partners can reduce development costs, handle regulatory compliance, and improve speed to market. Partners such as Coinbase Pay, MoonPay, and Banxa offer easy-to-use, full-stack onramps that developers can integrate with minimal technical lift. However, building a crypto onramp might be the right choice if you are optimizing for transaction cost and control.
How to build a crypto onramp
Building a best-in-class crypto onramp requires careful consideration of regulations, user experience, and risk management. Below, we'll explore the specific steps needed to create a service that transfers fiat to crypto while ensuring regulatory compliance.
1. Implement KYC
Implementing KYC procedures is the first step in building a compliant and secure crypto onramp. This is often the highest friction point in an onramp, especially when ID and selfie checks are placed at the beginning of the onboarding flow. Building an onramp in-house gives you control over friction and fraud thresholds, like using PII (personally identifiable information) verification with behavioral analytics and device fingerprinting. Some crypto apps use these steps up front to minimize friction and cost, then use ID and selfie checks as additional steps to minimize fraud.
Some crypto apps conduct KYC twice—once when the customer signs up to access the onramp service and again in the app or when the user tries a different onramp service. This dual verification process can create additional friction in onboarding, causing drop-off and reducing conversions. Using a single solution prevents double KYC and the accompanying friction while meeting KYC obligations.
2. Meet AML and sanctions obligations
Meeting Anti-Money Laundering (AML) and sanctions obligations is important in any financial transaction. Still, it's essential in the cryptocurrency industry, due to heightened regulatory scrutiny. One of the challenges is the need to screen users against Office of Foreign Assets Control (OFAC) and politically exposed persons (PEP) lists while keeping false positive flags low. Failure to prevent financial crimes, including money laundering, can have severe consequences, including millions of dollars in fines.
3. Set up anti-fraud and risk measures
Addressing fraud and mitigating payment risks is critical for crypto companies. Without these measures in place, companies may suffer from extremely costly fraud attacks. There are several steps in this process, including:
Compare users to known fraudsters: To combat fraud effectively, onramp providers can use an anti-fraud network, where companies collaboratively report fraudulent activities and receive alerts about fraudulent users (without compromising the privacy of the user).
Assess ACH return risk: Given the volatility of the crypto market and the self-sovereign nature of crypto wallets, there is a higher risk of losing funds due to a returned deposit. For example, “double credit fraud” can happen when a user buys crypto, moves it to a self-custody wallet, claims the original fiat deposit to be unauthorized, then keeps the crypto and gets their fiat currency back. Assessing the risk of ACH returns can limit this risk.
Authenticate identity and verify balance: Checking the bank account owner’s name and phone number against the information they provided, and running a balance check to verify that they have funds before proceeding with a transaction can offer additional protection against fraud and return risk.
Implementing these anti-fraud and risk management solutions helps crypto onramps enhance security, minimize fraud-related risks, and provide users with a safer and more reliable experience when engaging with cryptocurrencies.
4. Transfer funds
Once you've determined the user and the deposit are low risk, the next step is to transfer the funds, a process that faces unique challenges in the cryptocurrency industry. A primary challenge is the limited number of banks and payment processors willing to provide payment services to crypto companies due to regulatory uncertainty and the heightened risk of asset price volatility and fraud.
To address these challenges, redundant bank and processor partnerships are critical for maintaining access to fiat deposits and withdrawals. Here's how it works in the US:
Deposits: When a user initiates a deposit, the provider transfers the requested funds from the user's bank account to the company's corporate cash account. If sufficient funds are available, ACH can process the transaction in a day (if using same-day ACH) or a few days for traditional ACH. Users can also fund an account via wire transfer, which typically settles instantly.
Hold or Decline: If the user's verified identity or transaction shows signs of risk, the onramp provider may hold the transaction for further review or decline it altogether. This scrutiny helps mitigate the risk of ACH returns, which can be very costly if proper anti-fraud measures aren't implemented.
Withdrawals: When users wish to withdraw their crypto (also known as a crypto offramp), the same onramp provider facilitates the transfer of funds from their corporate cash account back to the user's bank account. Using FedNow or RTP, users receive funds immediately, ensuring a seamless experience. This process is less risky than deposits but still requires ensuring the user is who they say they are and the bank account they're using belongs to them.
5. Transfer crypto
After receiving fiat from the user, you will need to send crypto to the user's wallet by sourcing the asset from liquidity providers. This requires setting up a crypto wallet or letting the user authenticate their existing self-custody wallet. Once that is complete, the app will send purchased crypto to the user's wallet via a sub-ledger if they are holding custody over the assets, or an on-chain ledger if they aren’t. Lastly, the app will monitor the wallet and transaction to ensure compliance.
While Plaid can help crypto companies get through step four, we partner with crypto infrastructure companies like ZeroHash and Bakkt to help our customers complete this final step (see next section for more).
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Build your crypto onramp with Plaid
Plaid offers a suite of tools to maximize conversion and minimize the number of partners you'll need to work with. In addition to Plaid, you'll likely need to work with a partner, such as Zerohash, Quicknode, Fireblocks, Bitwave, and Elliptic, for other crypto components, such as wallet infrastructure and on-chain transactions monitoring.
Plaid does, however, combine multiple steps of the onboarding process into a single, secure platform. Below, we'll explore the tools Plaid offers for each step of the crypto onramp.
KYC: Plaid IDV is a full-stack KYC solution optimized for user experience. Using a single KYC provider in your onramp ensures users onboard efficiently while maintaining regulatory compliance and enhancing security.
AML: Plaid's Monitor is an AML tool that helps crypto apps meet AML requirements by quickly screening customers against global watchlists while minimizing false positives.
Anti-fraud: Plaid offers several anti-fraud tools, including:
Beacon, an anti-fraud network.
Signal, an ACH risk assessment tool.
Balance to verify funds in real-time.
Auth to authenticate accounts.
Identity to receive bank account owner details and Identity Match to match the identity information you collect from the user against information on file with the user’s bank.
Transfer funds: Plaid Transfer can facilitate the transfer process by providing deep insights into each payment transfer with real-time analytics and return rate management. This allows crypto apps to process fiat deposits and withdrawals seamlessly while maintaining a secure and compliant financial ecosystem.
With Plaid, crypto and fintech providers can create many steps of the crypto onramp within the Plaid platform. Using one provider for multiple steps means fewer solutions, less confusion, and more reliability.
How Plaid is improving the onramp process
Currently, crypto onramping involves several lengthy steps, resulting in a less-than-optimal user experience. Recognizing these challenges, Plaid has set a clear goal: to streamline and simplify the onboarding process by reducing as many steps as possible.
Plaid's solution is to let users who have completed the verification process choose to store their information. Then, the next time they interact with any company using Plaid for identity verification, they enter their phone number and confirm it with a one-time passcode. This quickly pulls up their identity info, which they can then confirm in one click. This streamlined verification process significantly improves the user experience, especially when multiple providers are required to KYC the user.
Plaid also simplifies the process for linking bank accounts—a critical step in many financial transactions—including crypto onramps. Users can quickly connect their bank accounts and select the account they want to use. Plaid's secure authentication process (including one-time passcode, device fingerprinting, and Plaid network signals) adds an extra layer of security while streamlining user experience.
These innovations drastically reduce the steps in the onramping process. By limiting friction and complexity, Plaid aims to enhance the fiat onboarding process, making it more efficient, user-friendly, and secure for customers and companies.
What is the future for crypto onramps?
The future for crypto onramps lies in further increasing efficiency and building trust through faster onramp processes and higher deposit approval rates—all while minimizing fraud and ACH returns. In a world where a crypto wallet could belong to anyone, including those with nefarious intentions, the next frontier is clear: we must bring privacy-preserving and trusted credentials to the forefront.
Plaid is committed to leading the charge. We envision a future where users can confidently onramp into the crypto economy in a few clicks, retaining full ownership of their identity with their privacy preserved and protected. This will help create a decentralized financial ecosystem that’s fortified with trust.
→ Learn more about how Plaid can make funding crypto fiat wallets faster and more secure.