Crypto Industry Puts Banks in its Crosshairs

The fast-growing U.S. crypto debit card market has a new entrant in Wirex, a U.K.-based digital payments platform that claims the first such cryptocurrency-based payments product, launched in 2015.

The Wirex Visa Prepaid Card launched Monday (Feb. 7), issued by Sutton Bank, an FDIC-insured Ohio bank, the company said. Wirex supports payments using 37 cryptocurrencies in more than 130 countries, mainly in Europe and Asia.

It’s an increasingly crowded field, with competition from top cryptocurrency exchanges like Coinbase, Crypto.com, BlockFi and Gemini matched by entrants like NYSE-owner intercontinental exchange owned Bakkt and digital assets platform Uphold which allows users to buy sell and trade everything from cryptocurrencies to stocks to gold and foreign currencies.

Another new entrant, cryptocurrency hardware wallet maker Ledger, recently announced something like a secured credit card. The Ledger Crypto Life Card offers a line of credit based on crypto holdings in users’ Ledger digital wallet.

See: Crypto Debit Card or Aspiring Neobank? With Secured Line of Credit, Ledger and Baanx’s Crypto Life Card Aims Higher

It’s all part of a growing movement that is — intentionally or not — seeking to return cryptocurrency to the original purpose for which bitcoin was designed: As a tool for online payments.

That said, it’s also turning its back on the bitcoin dream to a large extent, as current crypto payments are dominated by Visa- and Mastercard-branded debit cards like Wirex’s entrant.

The goal of Satoshi Nakamoto, the pseudonymous creator of bitcoin, was to create “a purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution.”

Like Visa and Mastercard, and the banks that issue them.

Betraying Crypto’s Roots?

One reality is that there’s no immediate way to make cryptocurrency an effective means of payment, online or offline, without access to payments networks and point-of-sale terminals. For one thing, the sheer volume of agreements that would have to be made would be enormous. And even using a system like China’s e-CNY digital yuan, which is based on QR codes and readers, just getting the necessary cross-compatibility would be next to impossible without a top-down-controlled government. And even then, China is still working on getting potential users to step away from the familiar Alipay and WeChat Pay, which have 90% of the widely-used mobile payments market.

Another is that getting the 32 million small and medium-sized businesses (SMBs) that employ nearly half of the U.S. workforce to accept crypto payments directly would require, among other things, making a fairly large percentage of those employers at least familiar with the way cryptocurrencies work, the cost of holding and selling them, and comfortable with either self-custody or trusting cryptocurrency exchanges.

To say nothing of the wild price swings, and high transaction fees that have made bitcoin mostly usable in economies in severe trouble like Venzuela. Use of bitcoin payments remains tiny and unpopular even in El Salvador, where the government made BTC a legal tender and gave citizens $30 worth just for downloading the required Chivo digital wallet.

While the number of crypto owners and users in the U.S. is growing substantially — 16% own or had owned crypto and 29% more are interested, according to PYMNTS’ June 2021 Cryptocurrency Payments Report, and 46 million consumers would be interested in using crypto in that way — it still remains relatively small.

Read more: Cryptocurrency Payments Report

A Cheaper and Faster Mousetrap

However, as more channels open up — notably PayPal’s 32 million strong merchant network, which can accept payment in bitcoin and a few other cryptocurrencies — more people will become accustomed to it. And want it.

On the other hand, getting consumers used to spending crypto on the credit card payment rails would likely make merchants a lot more interested in pursuing other rails that settle faster, don’t take nearly as large a cut of the sale, and don’t have chargebacks.

That’s certainly a narrative crypto debt card issuers are pitching.

Saying the company’s goal is to “empower American consumers, whether a hardcore crypto-enthusiast or a novice fintech fan, to experience the benefits of a digital economy,” Harold Montgomery, managing director of Wirex USA, called the new debit card “an alternative to traditional forms of payments that are antiquated, slow and non-transparent.”

Cryptocurrency, on the other hand, is “a global payment method, so it can be used on a global basis, Wirex CEO Pavel Matveev told PYMNTS in June. He added, there are “a lot of alternative payment methods, or emerging payment methods, but they are usually region-specific. I can add Sofort, for example, which is a popular alternative payment method in Europe.”

See also: Wirex On Driving Cryptocurrency Debit Card Acceptance Around The World

The CEO of Wirex’s payments infrastructure partner Zero Hash, Edward Woodford, said the company sees cryptocurrencies gaining “momentum as a payment option,” as a growing number of Americans are becoming interested in using crypto holding for payments.

At the moment, however, crypto debit card issuers like Wirex are largely competing for serious crypto enthusiast users via standard industry tools like crypto-back rewards schemes — Wirex’s pays up to 8% — and access to DeFi lending platforms that offer interest rates far higher that is available from traditional banks.

That’s not a bad market, however. Fully 51% of U.S. crypto owners say they are more likely to shop at merchants that accept crypto, according to the PYMNTS Cryptocurrency Payments Report.

So maybe issuing crypto debit cards on Visa and Mastercard’s rails is simply a good way to sneak in and prepare to eat their lunch.