Throughout its history, cryptocurrency has primarily been used as an investment security. According to Coinbase, only about 20% of their cryptocurrency transactions involve using Bitcoin as currency, and the other 80% simply involve investment for potential profit. However, as more and more merchants accept these tokens as payment for goods and services, cryptocurrency has emerged as a useful utility token for commerce.
Overstock.com was the first notable retailer to begin accepting bitcoin back in 2014. They now accept other major coins such as Ether, Litecoin, Dash, and Monero. Expedia also began accepting bitcoin for hotel bookings in 2014. Other major retailers accepting cryptocurrency for payment (not anywhere near an exhaustive list) include Amazon, Shopify, Newegg, DISH, Intuit, and Microsoft. This constitutes a huge paradigm shift in both the public acceptance of cryptocurrency and its impact on the marketplace. It’s no wonder that cryptocurrency debit cards have emerged as another means of engaging in ordinary financial transactions.
More and more coins are offering financial services integrated with their own branded cryptocurrency debit cards. One main driver behind this effort is the tedious nature of using cryptocurrency to purchase products or services from a merchant who does not accept it as payment. This requires converting crypto to fiat currency using an exchange, depositing the fiat money in a bank account, then paying the merchant from that account. Using a crypto debit card avoids all this trouble by placing the responsibility for converting between currencies on the card provider, thus making such transactions much faster and more convenient for the holders of cryptocurrency. The only downside to this method of payment can be higher fees and less-favorable compared-to-market exchange rates. Nevertheless, the added convenience is obvious.
The First US Crypto Debit Card
Back in November of 2015, Coinbase issued the U.S.’s first bitcoin debit card called Shift in 25 states. This card allowed anyone to spend their bitcoin at any merchant who accepts Visa cards. Coinbase was willing to endure the intense regulatory scrutiny and bureaucracy required of any credit card issuer, including obtaining individual money transmitter licenses and other approvals on a state-by-state basis. Other crypto platforms avoided such regulation by trying to stay out of the limelight, or only issuing their cards overseas.
Why They Are Important
The significance of offering cryptocurrency debit cards can’t be overstated. It is part of a major effort on the part of cryptocurrency companies to push their offerings into the mainstream, gain wider popular acceptance for their coins, attract new customers, and slowly but surely grow the value and usefulness of their coins. They are confident that the more people who spend cryptocurrency on the open market, the more incentive merchants will have to accept it as payment. After all, merchants should be more than happy to avoid all the hefty processing fees that current credit card companies charge them for each transaction they process! And it follows that having more and more merchants accept crypto as payment should increase the number of customers who use it in this way.
One advantage of cryptocurrency-based debit cards is their availability to those who do not have bank accounts. Since all standard debit cards are tied directly to the bank account which funds them, having that initial bank account is a necessary requirement. While this may not be an issue for most, there is a growing segment of the population that, for a variety of reasons, either cannot open a bank account in their own name or would like to avoid doing so. A debit card tied to a crypto-based account solves this problem.
For international travelers, the Taiwan-based WageCan, issued by Transforex, may be the best cryptocurrency debit card available. It’s foreign currency conversion fee of only 1.5% is substantially lower than most others. It’s ATM transaction fees, which are based on 1% of each transaction rather than a fixed-rate fee, usually work out to be cheaper to the customer for most ATM-type transactions.
The London-based Wirex card, formerly known as E-coin, provides two card options — both a virtual Visa card and a plastic, chip-enabled MasterCard. The base currency can be set to either US dollars, Euros, or the British pound, and the cards can be used essentially anywhere in the world. For security purposes, Wirex supplies a proprietary smartphone app with two-factor authentication. This app manages the conversion between fiat currency and cryptocurrency and also permits loading funds from PayPal and other platforms.
Another offering worth mentioning is the Russian-based debit card Cryptopay. They’ve already issued nearly 40,000 Visa debit cards to users around the world, and they have become one of the largest bitcoin debit card solutions with around 100,000 transactions per month. Like Wirex, Cryptopay offers both virtual and plastic cards, and they are very open and transparent about all their fees and charges, even to those with unverified accounts. As one would expect, their cards are accepted by any merchant who accepts Visa cards for payment.
How to Choose the Right Card for You
What should a customer look for when choosing a cryptocurrency debit card? The answer is a combination of availability, fees, restrictions, and other limitations. Many of these debit card issuers charge an initial fee to obtain one, and then a modest monthly service fee to use it. Other fees involve the conversion of one international currency to another; the conversion of one cryptocurrency to another; ATM withdrawal fees, both domestic and international; differences in the fee structure (percentage vs. flat rate); and some cards also carry inactivity penalties.
Other considerations include whether the company supports Visa, MasterCard, or both; which cryptocurrencies does the company support, and both the number and variety of these; does the company only support the main players or also a variety of alt-coins; which fiat currencies is the card compatible with; whether the company offers both a virtual and plastic card; their level of security (e.g., do they offer two-factor authentication?); and depending on how quickly you need to obtain it, how long does that process take, as some can take as long as 8 weeks to arrive.
Restrictions and limitations vary widely from card to card and knowing these is important in helping the customer choose the right card. Some cards, for example, are only available in certain countries, or in the case of the U.S., are restricted to certain states. Some cards limit the number of daily online transactions or have a dollar limit on these transactions. There may also be a total lifetime withdrawal limit with some cards. Some customers may also be concerned with the comprehensiveness of the initial identity confirmation process required by the issuing authority, which may include passport, ID, address, or even, in one case, a Skype interview.
It should be relatively easy to understand the up-side of the cryptocurrency debit card offering, and using the guidelines above, one should be able to compare the suitability and costs of any of the cards under consideration. As always, it’s important to do one’s homework before making a final decision. Not doing so can lead to a lot of disappointment or worse.