Crypto cards have become a must-have for many crypto services. Hoping to reduce the risk of blocking transactions, companies have been looking again and again for reason why their customers should use plastic. But a crypto card is a placebo that does not solve the problems of either users or fintech companies its only goal is to bring profit to payment systems and intermediaries.
Crypto cards are not needed in the same way that special financial instruments are not needed to buy gold, oil, precious metals or any other resource. The word cryptocurrency like dollar or euro indicates only the currency for transactions with which the card can be used and does not make the banking product any more innovative. However, until banks and payment systems recognize this, we will be forced to eliminate the consequences of cooperation with Wirecard, WaveCrest and other processors that arent the most conscientious, wanting to make money by taking risks but without being able to manage them.
Bank card technologies have gone through a rapid evolutionary path in a very short period of time. They are the fundamental and connecting element for all retail trade relationships. According to Nilson Report, there are currently more than 22 billion payment cards in circulation around the world debit, credit and prepaid. Taking into account that 1.7 billion people do not use banking services at all, for each of the remaining 6 billion people, there are on average 3.6 cards.
All cards are serviced by payment systems that create a closed consumption ecosystem. Heres what happens:
Banks and processor companies pay Visa, Mastercard, UnionPay, American Express and other international payment systems for the possibility of issuing cards.
Cardholders pay banks an annual fee or transaction fees.
Sellers transfer to banks on average 1%4% of the transaction amount for acquiring servicing.
Various intermediaries, aggregators, API providers, etc. also collect a commission.
The main thing is that in each commission payment between all participants, a share of Visa, Mastercard or another payment system is included. If we are talking about cryptocurrency transactions, then the commission of payment systems will be higher, since the traditional financial industry regards these transactions as high-risk.
And yet, bank cards are almost indispensable for transactions worth up to $5,000. This is the fastest and most convenient way to buy crypto from numerous wallets and/or exchanges. Therefore, it would be naive to think that fintech companies could quickly get rid of the intermediation of payment systems and stop paying them for every transaction.
Nevertheless, Visa and Mastercard can do a lot to make their native cards much friendlier to crypto and become a part of the solution, not part of the problem, which Wirecard has been trying to get around, making this kind of change seem inevitable.
Today, when the volume of non-cash payments in many countries has surpassed cash payments, any company wanting to issue bank cards under its own brand, in theory, has three options.
1. Become a principal (direct) participant in the international system. To do this, you need to meet a number of mandatory criteria: have the necessary technological platform and qualified personnel, meet information security requirements, provide security funds, etc.
For example, last year, a principal Visa participant had to have capital of at least $56 million directly with the Visa payment system. Therefore, you need to have an account in United States dollars in the U.S. or in euro in the European Union. The licensing procedure itself can cost about $1 million, excluding the funds required for the security deposit and direct royalties. This is not a realistic option for small and medium fintech companies.
2. Become an associated member of the payment system through the sponsoring bank. In this case, it is the bank that takes care of the compliance with the payment system requirements. The license fee is $200,000$300,000, plus a deposit of several million dollars.
However, even under such conditions, financial organizations do not want to directly cooperate with crypto companies since transactions with cryptocurrency are classified by payment systems as high-risk due to the lack of a unified approach to regulating this area. This results in higher fees and chargebacks for transactions that have been challenged by the cardholder.
3. Contact a processing company. Unlike banks, processors are responsible for issuing payment cards. Among such processors, crypto services usually find partners with a high-risk appetite that are willing to cooperate. Such companies are ready to use various tricks so that payments passing through them are not blocked by the payment system. For example:
Conceal or falsify before the payment system the main activity of the company for which the issue occurs.
Use incorrect Merchant Category Codes.
Issue crypto cards on their own Bank Identification Number, while according to the rules of payment systems, a separate BIN must be allocated for each individual product.
Issue co-branded cryptocurrency cards, which are, in fact, bank cards with an individual design and are then sold through a crypto service.
Expand the limits of card transactions, regardless of the requirements of payment systems and/or the regulator, etc.
All of these are often unjustified risks that processors like Wirecard take on, increasing the cost of issuing and maintaining crypto cards for both crypto services and end-users. Meanwhile, the value of these crypto cards continues to depreciate.
Until recently, people were forced to buy a fourth or even fifth payment card, only for the sake of the crypto prefix in order to save their money from being blocked during operations with cryptocurrency. However, regulated crypto services have already learned to tackle this problem differently by acting strictly within the framework of compliance requirements and forging links with traditional financial institutions.
High-risk processors like Wirecard or Wavecrest can be compared to microfinance institutions, or MFIs, that lend out at huge interest rates. Usually, people turn to MFIs after numerous and not always objective refusals by banks to issue a loan. Sometimes, the money is needed urgently, and the consideration of the application in the bank is delayed; sometimes the banks scoring system does not like the place of work, marital status or the gender of a person. There may be many reasons, but the result is the same: The bank does not want to take risks and people go to less discerning financial intermediaries. Crypto services are forced to do this, too.
A cryptocurrency card is a ridiculous, temporary and forced necessity because banks and payment systems do not want to manage risks on their own. All the risks that Wirecard once assumed when working with crypto companies are now easily eliminated.
Licensing of activities in the field of cryptocurrencies, the implementation of KYC/AML procedures, obtaining a compliance certificate of the payment card industry data security standards and other measures allow crypto services to successfully work with the traditional financial system.
Banks should have the courage to start making money by partnering with regulated crypto services. And for this, above all else, it is necessary to develop internal expertise in the field of compliance. As bank employees have had little motivation to deal with the peculiarities of high-risk transactions, it is easier for them to refuse service to potential clients and/or stop transactions.
However, if a banks compliance service monitors and skips high-risk transactions on a regular and systematic basis, this will create additional cash flow, from which banks could also receive commissions. I am sure that cryptocurrency users right to dispose of honestly received assets should be ensured in an absolutely transparent, legal way, and not by gray schemes. Any card can be crypto, and this is the reality we should all be living in sooner rather than later.
The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Alex Axelrod is the founder and CEO of Aximetria and Pay Reverse. He is also a serial entrepreneur with over a decade of experience in leading world-class technological roles within a large, number-one national mobile operator and leading financial organizations. Prior to these roles, he was the director of big data at the research and development center of JSFC AFK Systems.
Excerpt from:
Cryptocurrency Cards: An Unnecessary Solution That Should Be Stopped - Cointelegraph
- Crypto()Currency - CryptoCurrency.org - April 26th, 2014 [April 26th, 2014]
- Cryptocurrency - Wikipedia, the free encyclopedia - April 26th, 2014 [April 26th, 2014]
- TNW - Stefan Molyneux - Money, Power and Politics The Cryptocurrency Revolution - Video - April 26th, 2014 [April 26th, 2014]
- How to Set Up a Ripple (CryptoCurrency) Generating System! - Video - April 26th, 2014 [April 26th, 2014]
- Bitcoin / Cryptocurrency - An Extensive FAQ - Video - April 26th, 2014 [April 26th, 2014]
- --- The Great Debate --- Bitcoin vs Altcoin @ The CryptoCurrency Convention 4/9/14 - - Video - April 26th, 2014 [April 26th, 2014]
- Bryce Weiner @ CryptoCurrency Convention 4/9/14 - - Video - April 26th, 2014 [April 26th, 2014]
- Popularcoin @ CryptoCurrency Convention 4/9/14 - Joshua Nold - Video - April 26th, 2014 [April 26th, 2014]
- TimeKoin @ CryptoCurrency Convention 4/9/14 - Michael Brown - Video - April 26th, 2014 [April 26th, 2014]
- Infinitecoin @ CryptoCurrency Convention 4/9/14 - Loring Small - Video - April 26th, 2014 [April 26th, 2014]
- Bitcoin Exchange CryptoRush Loses Millions of BlackCoin Cryptocurrency - Video - April 26th, 2014 [April 26th, 2014]
- Brock Pierce, Entrepreneur "FireSide Chat" @ CryptoCurrency Convention NYC - 4/9/14 - Video - April 26th, 2014 [April 26th, 2014]
- [OFFICIAL SPONSOR] Nick Spanos, Bitcoin Center NYC @ CryptoCurrency Convention 4/9/14 - Video - April 26th, 2014 [April 26th, 2014]
- AuroraCoin @ CryptoCurrency Convention NYC 4/9/14 - David Lio - Video - April 26th, 2014 [April 26th, 2014]
- Dogecoin Founder Speaks on the Future of Cryptocurrency - April 27th, 2014 [April 27th, 2014]
- As Bitcoin Soars in Value, Alternative Cryptocurrencies ... - April 27th, 2014 [April 27th, 2014]
- Florincoin @ CryptoCurrency Convention NYC 4/9/14 - Joe Fiscella - Video - April 27th, 2014 [April 27th, 2014]
- DigiByte @ CryptoCurrency Convention NYC 4/9/14 - Jared Tate - Video - April 27th, 2014 [April 27th, 2014]
- Digitalcoin @ CryptoCurrency Convention NYC 4/9/14 - Andrew Davidson - Video - April 27th, 2014 [April 27th, 2014]
- PotCoin @ CryptoCurrency Convention NYC 4/9/14 - Nick Iversen - Video - April 27th, 2014 [April 27th, 2014]
- ZenithCoin @ CryptoCurrency Convention NYC 4/9/14 - Eddie Corral - Video - April 27th, 2014 [April 27th, 2014]
- BitAngels Co-Founder, David Johnson @ CryptoCurrency Convention NYC 4/9/14 - Video - April 27th, 2014 [April 27th, 2014]
- Australian dogecoin founder speaks on the future of cryptocurrency - April 28th, 2014 [April 28th, 2014]
- Coinnext Cryptocurrency Exchange Coming Soon - Video - April 29th, 2014 [April 29th, 2014]
- Cryptocurrency News Round-Up: MtGox Hearing Begins as Bitcoin gets Bloomberg Endorsement - May 1st, 2014 [May 1st, 2014]
- mTrader.org - Cryptocurrency Mining System - Video - May 1st, 2014 [May 1st, 2014]
- CryptoCurrency - cryptobars commodity Launch! - Video - May 1st, 2014 [May 1st, 2014]
- The Mises View: "Taxing Cryptocurrency" | Jeff Deist - Video - May 2nd, 2014 [May 2nd, 2014]
- Coin Pursuit Launches SliceFeeds Interactive Cryptocurrency Network - May 3rd, 2014 [May 3rd, 2014]
- Cryptocurrency | Ground Zero with Clyde Lewis - May 3rd, 2014 [May 3rd, 2014]
- CS 171 Final Project: Cryptocurrency Visualizations - Video - May 3rd, 2014 [May 3rd, 2014]
- Cryptocurrency Explained The Tech Guy 1046 - Video - May 3rd, 2014 [May 3rd, 2014]
- Know How 74 Cryptocurrency - Video - May 4th, 2014 [May 4th, 2014]
- MIT undergrads will each receive $100 in bitcoin - May 5th, 2014 [May 5th, 2014]
- cryptocurrency - Fortune Finance: Hedge Funds, Markets ... - May 8th, 2014 [May 8th, 2014]
- Bitcoin wins US election panel's approval for political donations - May 9th, 2014 [May 9th, 2014]
- CryptoCurrency of the World Unite! - Video - May 9th, 2014 [May 9th, 2014]
- Major Dogecoin Wallet Hacked, Shut Down - May 13th, 2014 [May 13th, 2014]
- Such hack, much sad: Doge Vault reportedly loses $56,000 in heist - May 13th, 2014 [May 13th, 2014]
- BBT Presents: Ode to Cryptocurrency - Video - May 13th, 2014 [May 13th, 2014]
- Scryptify Cryptocurrency Video - Crypto Currency Exchanges - Video - May 13th, 2014 [May 13th, 2014]
- AMD cuts Radeon R9 280 price as inflation woes die down - May 15th, 2014 [May 15th, 2014]
- The Cryptocurrency Certification Consortium - Video - May 15th, 2014 [May 15th, 2014]
- Bitpagar Cryptocurrency - Video - May 16th, 2014 [May 16th, 2014]
- TagPro - Cryptocurrency Juke Session w/ LTB & Counterpary - Video - May 16th, 2014 [May 16th, 2014]
- How to Mine Cryptocurrency Safely - Video - May 16th, 2014 [May 16th, 2014]
- Bunnycoin - Innovative New Cryptocurrency - Video - May 16th, 2014 [May 16th, 2014]
- Jan Irvin on Learning, Statism, Culture, Cryptocurrency and Voluntarism -- Potent News Podcast #1 - Video - May 16th, 2014 [May 16th, 2014]
- Nxt cryptocurrency platform: Proof of Stake mining system - Video - May 18th, 2014 [May 18th, 2014]
- Cryptocurrency Round-Up: Darkcoin Rise Continues; Dogecoin Saved My Life & Bitcoin Explainer Videos - May 19th, 2014 [May 19th, 2014]
- Givecoin.info Announces Partnership with Do A Bit of Good: World's First Charitable Mining Screensaver - May 21st, 2014 [May 21st, 2014]
- Cryptocurrency: Get Mining! - Video - May 22nd, 2014 [May 22nd, 2014]
- Violincoin - The first cryptocurrency for musician - - Video - May 22nd, 2014 [May 22nd, 2014]
- Trollcoin - The Fun Cryptocurrency! - Video - May 22nd, 2014 [May 22nd, 2014]
- Cryptocurrency and Nonprofits with Eric Nakagawa - Video - May 23rd, 2014 [May 23rd, 2014]
- The Cryptocurrency Store - Video - May 23rd, 2014 [May 23rd, 2014]
- The Cryptocurrency Store (Spanish/Espagnol) - Video - May 23rd, 2014 [May 23rd, 2014]
- How To Trade CryptoCurrency: Sign up to a safe and reliable exchange for trading CryptoCurrency - Video - May 23rd, 2014 [May 23rd, 2014]
- UT students to launch cryptocurrency exchange - May 24th, 2014 [May 24th, 2014]
- Videoconferencia Cryptocurrency 201243946 - Video - May 27th, 2014 [May 27th, 2014]
- VideoCharla Jesus Ramos Cryptocurrency - Video - May 27th, 2014 [May 27th, 2014]
- Cryptocurrency Round-Up: Bitcoin Pioneer Dies and Digital Currency's Status in Australia - August 31st, 2014 [August 31st, 2014]
- Bitcoin enthusiasts discuss the cryptocurrency - Video - August 31st, 2014 [August 31st, 2014]
- Make Fast 1.0 up to 10.00 BTC or Any Cryptocurrency REAL CASH - Video - August 31st, 2014 [August 31st, 2014]
- Halcyon cryptocurrency - Video - August 31st, 2014 [August 31st, 2014]
- Selling products / services / fiat money for cryptocurrency - Coinkite PoS Terminal - Video - August 31st, 2014 [August 31st, 2014]
- Selling cryptocurrency to customers - Coinkite PoS Terminal - Video - August 31st, 2014 [August 31st, 2014]
- Cryptocurrency Made Simple - A Plain English Guide to Bitcoins - September 8th, 2014 [September 8th, 2014]
- PotatoCoin - The cryptocurrency for the third world - Video - September 8th, 2014 [September 8th, 2014]
- How To Trade One Kind Of Cryptocurrency For A Different Kind Of Cryptocurrency - Video - September 8th, 2014 [September 8th, 2014]
- How To Fund Your Bleutrade Cryptocurrency Trading Account - Video - September 8th, 2014 [September 8th, 2014]
- How To Open An Account At Bleutrade.com Cryptocurrency Exchange - Video - September 8th, 2014 [September 8th, 2014]
- Cryptocurrency Round-Up: Apple Pay Boosts Bitcoin, Nakamoto Negotiates With Hacker - September 11th, 2014 [September 11th, 2014]
- Qoinpro Cryptocurrency Faucet ok - Video - September 12th, 2014 [September 12th, 2014]
- Weekly Roundup - CEX.IO - Multi-Functional cryptocurrency exchange - Video - September 12th, 2014 [September 12th, 2014]
- TCR #27: Cryptocurrency growth, 9/11 Anniversary, CDC Scandal, Face Your Fears - Video - September 12th, 2014 [September 12th, 2014]
- VanosEnigmA 011 Bitcoin-Comedy BitcoinDog CryptoCurrency-Cat Naughty - Video - September 15th, 2014 [September 15th, 2014]
- WikiLeaks Avoided Bitcoin to Prevent Government 'Destroying' Cryptocurrency - September 16th, 2014 [September 16th, 2014]
- LXC Coin crowdfunds in challenge to Bitcoin - September 16th, 2014 [September 16th, 2014]
- Why Bitcoin Is Poised To Win Big In Las Vegas - September 19th, 2014 [September 19th, 2014]