Full House: Crypto Cards Show a Strong Hand in 2019
Until recently, cryptocurrency debit cards appeared to fall short of expectations. Despite many failed efforts in recent years, crypto debit cards are enjoying a second wind thanks to a surge in crypto prices over the summer. With some of the crypto world’s biggest names launching crypto debit cards, Cointelegraph takes a look at the latest updates in the burgeoning payments sector.
What are cryptocurrency debit cards and how do they work?
Cryptocurrency debit cards are almost exactly the same as the bank card you carry around every day in your wallet, except for the fact that you can use them to deposit and convert cryptocurrencies. Crypto debit cards represent the transitional stage that cryptocurrencies are currently evolving through. Merchants — for the most part — aren’t ready to accept payments for everyday items and services in crypto, along with the fact that many cryptocurrencies still face issues with transaction time. Consequently, many exchanges only offer the possibility to trade cryptocurrencies for other existing cryptocurrencies, presenting an issue for investors looking to convert their tokens to fiat.
In this respect, crypto debit cards present a happy middle ground for both investors and merchants alike. Payments with a crypto card does not require the merchant to have any technology to accept cryptocurrency payments, as they use the existing Visa/Mastercard infrastructure widely used by businesses the world over. Crypto cards either convert currency seamlessly for the payment or give the user the opportunity to transfer it into a dedicated fiat account for payments.
New Litecoin Foundation partnership rolls out new card
The Litecoin Foundation, a nonprofit organization dedicated to advancing and promoting blockchain technology, announced that it has teamed up with Bibox Exchange and the blockchain firm Ternio to roll out its own crypto debit card.
The new card, dubbed “BlockCard,” will be released as a joint venture by the companies and, for the meantime, is restricted to U.S. customers only. According to a post published by the Litecoin Foundation, BlockCard will enable customers to spend cryptocurrency both online and in-store worldwide. It might not come as a surprise that the most prominent cryptocurrency available to service users is Litecoin (LTC). Customers will also be able to use Bibox Exchange’s and Ternio’s native tokens, Bibox Token (BIX) and Ternio (TERN) respectively.
While Bibox Exchange is set to act as the custodian of users’ funds and to leverage north of $200 million worth of cryptocurrency trading volume, Ternio aims to provide a dedicated blockchain platform.
Litecoin creator and managing director of the Litecoin Foundation, Charlie Lee, said the card launch represents an opportunity to get more people spending Litecoin:
“This is an exciting partnership for us as it furthers the Litecoin Foundation’s mission to create more use cases for spending Litecoin in everyday life. Leveraging Ternio’s BlockCard platform with Bibox’s exchange engine gives Litecoin holders unparalleled access to use their LTC at merchants around the world.”
Although a cursory glance back at recent efforts to launch crypto debit cards may prove a sobering experience for most entrepreneurs, Ternio founder and CEO Daniel Gouldman told Cointelegraph via email that the payments industry is there for the taking:
“The payments industry is currently $4 trillion a year on its way to being $5.5 trillion. Commerce literally is about exchanging value. More and more people are figuring out that cryptocurrencies hold some tremendous advantages over traditional systems which are archaic. When you have JP Morgan, Facebook, Mitsubishi bank, Samsung and other multinationals all employing a cryptocurrency of some kind — it’s clear that not only tech savvy bitcoin enthusiast/anarchists see the value. Cryptocurrencies are going to revolutionize payments.”
Since Bitcoin’s resurgence in the summer of 2019, many top cryptocurrencies are riding the back of a bullish market. Consequently, the launch of several new crypto card initiatives isn’t really that surprising. Despite an increasingly crowded market, Gouldman thinks that BlockCard has what it takes to outshine its competitors:
“Unlike other crypto cards — they force you into fiat at the moment of your deposit which means you’re carrying around a glorified prepaid card that you could buy at Walgreens or Wal-Mart. They charge you for the deposit directly — undercut the value of your asset (by a lot) and then you’re stuck in cash with no easy way to get back into crypto. We allow the users to stay in crypto so they can easily withdrawal whenever they want and the process is seamless.”
Historically, the crypto community has complained about high fees and regulation issues in connection to previous efforts to launch crypto debit cards. Gouldman said that the Ternio team shares the community’s disappointment and has developed BlockCard with the goal of giving customers the best deal possible:
“There was this thought process that the banks were ripping people off and it really soured people on large institutional players. But we traded this lack of trust in banks and other fintech companies for crypto companies that are gouging people. It’s really disgusting. If a company isn’t giving you a square deal — it’s because their values are very different than certainly ours but also — I suspect most consumers. We’re not perfect but our thesis is about lowering costs and making it more convenient. [...] And creating competition is good because it’s good for markets and good for consumers. We’re pro-consumer. That’s who we are and that’s who we’re always going to be.”
In the crypto world, competition is tough, with a lot of companies vying for the top spot in a niche sector. However, Gouldman said that the spate of card launches is a sign that things are changing for the better:
“There are a lot of great card companies out there and I’m excited for the entire industry. We won’t and shouldn’t live in a world filled with only one option; more options means consumer choice and forces innovation. The industry hasn’t seen crypto really break out for payments but it’s really about to. Write that down. Buy the t-shirt. It’s about to get real.”
Coinbase Card rolled out in six European countries
On June 11, Coinbase launched its Visa debit card in six European countries. Customers in Spain, France, Italy, Ireland, Germany and the Netherlands will be able to sync the cards to their Coinbase accounts to spend their cryptocurrencies at any merchant that accepts Visa cards. This latest offering from Coinbase comes in two formats: a mobile app for iOS or Android, and a physical card that can be used to make fiat withdrawals from ATMs. News of a European launch followed the April announcement of Coinbase Card, a service previously limited to United Kingdom customers.
Powered by customers’ Coinbase account crypto balances, Coinbase Card allows transactions worldwide in multiple cryptocurrencies, such as Bitcoin, Ethereum and Litecoin. According to the press release, cryptocurrencies stored in users’ account are instantly converted to fiat currency at the moment of purchase. The card will also be supported by an app that enables service users to select which crypto wallets are used when spending. The app also provides receipts and transaction summaries.
Coinbase’s European offering will also allow customers to choose which cryptocurrency to make payments with, which Coinbase converts to cash for a fee.
At the time, news of the UK crypto debit card launch received a mixed response from online members of the crypto community. While some advocate that this is a necessary step towards greater adoption, others noted that the restriction to U.K.-based customers and reports of transaction fees could prevent the product from taking off.
Coinbase Card is issued, authorized and regulated by the electronic money institution Paysafe Financial Services Limited.
Coinbase cancels Shift Bitcoin debit card
Coinbase’s previous efforts to maintain a crypto debit card service have not always been so successful. Coinbase’s Shift Bitcoin debit card reportedly ceased operations on April 11, according to an email allegedly from the Shift team that was posted on Reddit on Feb. 18. The shutdown of Shift was the latest blow to the crypto debit card sector, following a number of high-profile companies also throwing in the towel.
Launched in November 2015, Shift was part of what initially seemed a promising new innovation: cards that allowed users to spend Bitcoin (BTC) via the existing Visa debit infrastructure. Although there are numerous companies in different countries still offering them, their much-touted global appeal has waned.
According to the screenshot uploaded to Reddit, the Shift BTC card service terminated on April 11, 2019. The company did not give an official response stating the reason for the shutdown of the product. The company did assure current service users that the product will function as usual up until the advertised cut-off date.
Comments on social media indicated that a lack of demand was the reason behind Coinbase’s decision to withdraw the Shift BTC card.
Where did it all initially go wrong for BTC cards?
While the summer of 2019 is proving to be a popular time for card launches, the market was not always so buoyant. One of the most prominent setbacks for the sector occurred in January, when Visa ended its relationship with debit card provider WaveCrest. At the time, the decision from the payment titan set the cat among the pigeons in the crypto community. The company later revealed that the relationship had been terminated due to WaveCrest violating Visa’s policies:
"We can confirm that WaveCrest’s Visa membership is being terminated due to continued non-compliance with our operating rules. All of WaveCrest’s Visa card programmes will be closed as a result.
“Visa has other approved card programmes that use fiat funds converted from cryptocurrency in a number of jurisdictions. The termination of WaveCrest’s Visa membership does not affect these other products.”
This is not the only time that payments giants have created uncertainty for crypto debit card providers. Back in October 2018, Finance Magnates reported that both Mastercard and Visa would classify cryptocurrency and initial coin offerings (ICOs) as “high risk.” Quoting undisclosed sources, the publication reported that a ban would be applied to brokers operating from “unregulated or loosely regulated environments.” Unfortunately this description would spell disaster for many crypto debit cards, as there is no universal policy for regulating crypto payments. Consequently, many debit card companies offering crypto services would appear as not having applied the necessary due diligence to their business.
Ex-Visa exec launches own card
Although Mastercard and Visa have a lukewarm approach to cryptocurrencies, the same cannot be said for ex-Visa exec Steven Parker, who now heads Crypterium, a crypto payment firm that announced it has shipped around 4,000 crypto debit cards since its launch.
The company, based in Estonia, launched the Crypterium Card on June 12, offering users a prepaid card compatible with several major cryptocurrencies, such as Bitcoin, Ether, Litecoin and USD Coin, along with Crypterium’s own CRPT token.
Having delivered 3,736 cards to roughly 70 countries in the week following the product’s launch, Crypterium said it was experiencing “booming demand” on the back of the BTC price surge and fledgling bull market. Crypterium co-founder and chief operating officer, Austin Kimm, spoke to Cointelegraph through email about how crypto debit card providers had had a tough time in the past:
“Timing is everything. Being the first is not always the best idea as the world needs to be ready to accept a shift in thinking. Many people couldn't see the benefit of the internet when it first launched. Until now, crypto debit cards have had to fight on multiple fronts.”
Kimm named a number of factors that had previously held back the growth of crypto debit cards, including price volatility and institutional investment domination:
“A dramatically falling crypto market (by value) limited owner desire to spend what is probably a lot less in value than it was when they first bought or received it. Lack of trust by a wider community limiting the spread of currency. The vast bulk of Crypto owners bought their crypto as an investment, very few earned it as income (miners apart) compounding the lack of incentive to spend crypto.”
Although many still consider Visa and Mastercard to be the gold standard in terms of global customer reach, Kimm said that this belief is misplaced:
“Many companies might say they are able to issue their cards worldwide, but it is simply not true. Visa and Mastercard have a regional strategy limiting the reach of card crypto card issuers. The history of TenX is interesting in that they had a regional issuing capability for Singapore, but shipped cards worldwide. This led to Visa blocking their services completely and in the process destroying the value of their card issuing partner wave crest holdings. This regional strategy means that all cards are being issued in the same places, USA, UK, Singapore. But where is cryptocurrency having the greatest impact? Latin America, Asia and many developing markets. The use case in developing markets is significantly greater than that in developed markets.”
Kimm said that its strong customer base in the Asia-Pacific region influenced his decision to partner with Union Pay International:
“They are huge in the developing markets, and they have no regional issuance restrictions. That means that with one single partnership, Crypterium can issue cards to any citizen in any country in the world (we still require usual KYC information) reaching those users that need us most and whom everybody else has ignored. Users that will want to use the card for everyday transactions.”
Wirex
After the initial fiasco involving Visa cancelling its working relationship with WaveCrest in January, many companies found themselves in the awkward position of attempting to offer crypto debit card services without actually having a card provider themselves. One company, Wirex, found itself this predicament, however, due to the fact that the company had begun to seek out relationships with other card providers prior to WaveCrest’s collapse, Wirex soon landed on its feet. Having ridden out the whole debacle, Wirex co-founder Dmitry Lazarichev spoke to Cointelegraph about the intricacies involved in launching a crypto debit card:
“There are several challenges when trying to launch a crypto supported card in every country. First and foremost, although over-simplifying its classification, the entity issuing the card and accounts should be licensed by the appropriate local regulator as an e-money/money transmitter institution or the local regulatory equivalent.
“Second, a ‘BIN sponsor’ is required — that is a company which holds principal membership with a card payment network - Visa and Mastercard being the best-known and having widest coverage. In January 2018, WaveCrest ceased operating under Visa’s network, which essentially stopped all companies overnight who relied on WaveCrest’s card services. Wirex was one of very few companies, if not the only one, to find another card issuer and BIN sponsor, in Contis Financial Services.”
Lazarichev added that gaining approval as an authorized agent of Contis, along with successfully passing a number or due diligence tests, gave their reputation a boost after the initial knockback with WaveCrest:
“We had been approved as an authorised agent of Contis, an FCA e-money license holder, which helped in terms of credibility to secure the card issuance. This required thorough checks of our policies for KYC [Know Your Customer] and AML [Anti-Money Laundering] purposes, specifically processes and controls. We successfully passed the audit for PCI- DSS which we were awarded later during the year (we are level 1 certified — the highest in the industry). We are not ICO funded. Traditional institutions are historically wary of working with ICO funded companies.”
Australia’s bullish environment proves stable for crypto cards
Despite the struggles facing many crypto debit card companies in Europe and beyond, BTC.com.au launched its own Bitcoin card. Australia, famous for its bullish approach to crypto, has proven to be a healthy environment for this latest crypto venture. BTC.com.au CEO Danny Ariti spoke to Cointelegraph, stating that BTC.com.au has seen an increase in customer demand for the product since its official launch last year:
“We've personally seen a massive uptake and interest in our cards since officially launching the program. We believe this to be the result of making the card an easy and intuitive product with a focus on removing many of the pain points associated with other cash out options. Cards can be loaded with multiple coins with support for additional coins constantly being added, funds are instantly loaded onto the card when a transaction is made - there is no waiting for clearing times that you'd see with regular cash out options, all made more appealing to users with cards operating outside of the traditional banking system.”
The BTC.com.au CEO emphasised that a lack of crypto understanding is partly to blame for the lack of more widespread adoption along with the current requirement to rely on third party companies and investors:
“One of the main challenges is institutional and mainstream company pressures and restrictions. This is mainly due to a lack of understanding of cryptocurrency and blockchain technology. We don't believe this to be limited to only a lack of understanding, but also a fear of the exceptional concept that is cryptocurrency and blockchain technology. As we rely on third party companies and institutions in order to develop these card products, their restrictions in the understanding of cryptocurrency is prevalent. An example of this, specifically within Australia, is the $999 limit attached to our card program. This is a result of insurance companies evaluating businesses operating in this space as 'high-risk' making it difficult for cryptocurrency-related businesses to obtain the necessary insurances to meet the regulatory requirements to have these limits raised. With widespread use of the cards, we're hoping that this high-risk view will decrease.”
Ariti also touched on the damage dealt to the sector by Mastercard and Visa’s policies towards cryptocurrency businesses, but remained cautiously optimistic about renewed interest from card issuers:
“The industry has seen some curve balls thrown at it with many of the earlier card programs operating on the Mastercard and VISA networks having their programs pulled as result of cryptocurrency-related businesses being heavily scrutinised and being placed in a high-risk industry category. While in Australia we presently only have the ability to operate over the domestic eftpos card network, we're now seeing renewed interest from card issuers potentially approving new cryptocurrency card programs back onto these global payment networks.”
Overall, Ariti maintains a positive outlook for the future adoption of BTC debit cards, commenting that the potential benefits and ease-of-use, together with the eventual merchant acceptance of cryptocurrency, will win out in the end:
“We are optimistic about the future of cryptocurrency cards; they allow users to easily integrate cryptocurrency into their everyday lives with little learning curve by taking a new technology and coupling it with a familiar system and user experience, essentially bridging the gap between the 'old’ and 'new'. This of course is all part of a much larger movement until more merchants begin natively accepting cryptocurrency, but this small stepping stone will eventually translate into a much larger revolutionary leap as adoption continues.”
Despite 2018’s prolonged bear market, it’s clear from the recent spate of launches and service expansions from existing providers that entrepreneurs in the crypto industry see opportunities to exploit a potentially fertile market. Much like any business environment, the crypto world has witnessed its fair share of egos and cut-throat competition. For now, there appears to be a certain sense of shared optimism and community spirit regarding the potential for crypto debit cards to facilitate wider adoption of digital currencies. Although more companies are throwing their hats into the ring, there are still plenty of options for card providers to attract customers, with competitive fees, increasingly diverse coin portfolios and user experience all being low-hanging fruit for potential clients. However, as both 2019’s so-called bull run enters a bout of serious volatility and Facebook’s Libra project faces mounting regulatory difficulties, it remains to be seen how institutions, customers and centralized card providers across the crypto sector will react.