The news that major issuers Visa and Mastercard were banning the use of their networks to pay for cryptocurrencies and fund e-wallets sparked controversy in the ecosystem. The processors’ decision meant that users can no longer fund their crypto wallets via credit card, and many suspected it would impact card issuers as more people entered the crypto market.
While it’s still too soon to determine the long-term ramifications of the decision by the issuers—as well as multiple financial institutions—the move has already conceivably inflicted damage. A recent earnings call by Mastercard revealed the company had experienced slight losses since it announced the ban in the first quarter of 2018. The result, while not conclusive, is indicative of the increasing popularity of cryptocurrencies as a payment method and shows that people are searching for creative ways to integrate these novel solutions into their everyday activities.
This popularity has also led the crypto community to come up with its own solution should credit card issuers remain on the opposing side. Crypto debit cards are an emerging payment method that simplifies the once complex process of converting coins to fiat to pay for regular goods and services. As credit card issuers and banks remain firmly against including cryptocurrencies in their future plans, the thriving new sector could establish a foothold in the market by offering a more comprehensive ecosystem.
The State of Crypto Cards
Crypto cards are the result of the field’s need to be more accessible as a real-world payment method. They are debit cards pre-loaded with an amount of bitcoin and theoretically can be used on existing payment networks such as Visa and Mastercard. The cards convert the appropriate amount of crypto to fiat when paying for goods and services.
Such was the promise of Wavecrest, one of the most heralded crypto card projects to emerge in the sector. The company was a major provider for other issuers until its services were banned by Visa, whose terms and conditions are notoriously strict and change depending on jurisdictions. For many companies and users, the news was explosive as it completely negated their investments and once again restricted their crypto use.
Even so, the sector has shown resilience and still delivers solutions that may reduce friction for transacting in cryptocurrencies. There are new solutions on the horizon that could operate within major processors’ compliance framework. Visa has repeatedly stated that its termination of Wavecrest’s access was not due to its cryptocurrency background, but over its flaunting of operations rules.
One company, TokenCard, is planning to take a more end-to-end approach to creating a payments ecosystem. The platform lets users store their tokens in a single wallet and offers full control over their allowances while simultaneously providing multiple payment options. Additionally, the company has created a simple and efficient management tool in their Token app, which lets users exercise control over their portfolio directly from their mobile devices. The company announced in January it had a fully compliant partner for issuing cards with a global reach.
Others, like the privacy-oriented Verge, are finding support in more traditional alliances. The company announced a partnership with TokenPay and WEG Bank in Germany that will allow it to offer a debit card for its XVG tokens. The deal would allow XVG to reach critical mass by gaining acceptance across Europe.
Some entrants are in a more advanced stage, like Wirex’s offering. The company already issues a popular card, and is rapidly expanding its ecosystem by presenting a rewards program that should be as appealing as that of traditional credit cards, but with a more transparent model. By providing better services than the current market leaders, crypto cards could reach a broader audience and gain a larger foothold despite their smaller stature.
Taking on the Market Leaders
For most card issuers, the problem isn’t that major processors are completely anti-cryptocurrency. Even so, it does signal a more aggressive approach to cryptocurrencies in general. When taken together with the announcement in the first quarter of the year that Visa and Mastercard were banning purchases of cryptocurrencies with credit cards, it is unsurprising some are giving up on the idea of working with these companies.
The wave of anti-crypto decisions by banks and other issuers is having a demonstrable, albeit still minor, impact on some processors. Mastercard, for instance, saw a 2% quarterly drop in cross-border volume growth in part because of their crypto purchases ban. Regardless, taking on Visa and Mastercard will require a combination of compliance and disruption. To gain broader acceptance than bank-issued credit cards, crypto cards require exposure and ultimately, better fungibility.
Visa has expressed its openness to continue offering processing services to crypto card issuers. The company has been strict in dealing with rule-breakers, as demonstrated by the thousands of customers left without cards when Wavecrest was blocked. Even so, companies are exploring new partnerships and issuers that do operate within processors’ frameworks. For now, crypto cards will remain a solution for a niche market. By continuing to provide more comprehensive services that are usable and compliant, they could eventually compete on the same level as the traditional giants that rule the market before leaving them in the dust.