If cryptocurrency is on its way to becoming a mainstream payment method in the U.K., it will be due to an increased appetite from major card networks for forming alliances with leading cryptocurrency providers.
Last month, Coinbase became the latest cryptocurrency exchange to launch a Visa debit card in the U.K. The Visa card converts cryptocurrencies such as bitcoin, ethereum and litecoin to traditional currency, and thereby allows shoppers to spend their crypto in high street stores and online.
“We’re looking to drive a slightly different perception of the money that’s in crypto,” said Zeeshan Feroz, U.K. CEO of Coinbase. “Before, you either had to find a retailer that accepted crypto, or you had to sell it into fiat, withdraw to a bank account and then spend it. But our Visa card makes crypto as liquid as cash.”
Coinbase’s new card will be going head to head with Wirex, which launched the U.K.’s first cryptocurrency debit card back in 2015. As Wirex CEO Pavel Matveev points out, the growing market reflects shifting attitudes among card networks, as Visa and more recently Mastercard have become more comfortable partnering with cryptocurrency operators.
“It’s a young industry,” Matveev said. “A lot of major corporations — Visa, Mastercard, and maybe banks — they all want this business, as there’s a lot of volume and a big customer base, but they’re cautious.”
Mastercard publicly decried working with cryptocurrency a year ago, so right now, “95% of crypto debit cards are through Visa, because they were the first company trying to get the business,” Matveev said. “But we’re now seeing more positive attitudes from Mastercard. This will help the industry as it’ll generate more trust.”
While cryptocurrency debit cards have also been launched in the U.S. and elsewhere in Europe, many of the industry’s biggest players have been choosing to focus mainly on the U.K. At the moment, Coinbase’s new card will be available only to U.K. consumers. Both Wirex and Coinbase say this is because there is a higher level of acceptance of new financial products, particularly cards, in the U.K.
“Consumers in the U.K. order more cards than anywhere else in Europe,” Matveev said. “Visa told us that the volume they do in the U.K. is twice as big as the combined volume in the rest of Europe.”
But while the U.K. provides growth opportunities for emerging industries, cryptocurrency remains a fragile business. In January 2018, all of Wirex’s crypto debit card competitors in the U.K. were wiped out when their card issuer Basecrest violated one of Visa’s regulations.
“Visa’s response was to shut down the issuer, and so all these companies’ cards stopped working,” Matveev said. “It was with one day’s notice, and a disaster for the industry. But Visa are fine with crypto in general. They say that if you do everything right — your compliance, risk procedures, and e-money requirements are correct — there will be no pressure from Visa.”
As well as finding a reliable issuer, there are other challenges for new entrants to the market, such as finding a pricing model which keeps crypto conversion and transactional fees low enough to stay competitive.
While Coinbase has the advantages of a strong brand and a large existing client base as a cryptocurrency exchange, its debit card has been criticised for coming with relatively high overall fees of 2.49% per transaction. However, Feroz argues that these fees are less than those which consumers would incur from converting cryptocurrency online.
“The fees are not actually that high when you look at the cost of liquidating crypto, withdrawing to a bank account and then spending it,” he said. “In reality it’s actually cheaper to use the Coinbase card to spend crypto for most low- to average-value transactions. And as the program scales, we can look at ways to trim costs further.”
But Wirex predicts that Coinbase entering the market will ultimately have major benefits for the cryptocurrency industry in years to come. Matveev expects it will help shift perceptions of cryptocurrency from that of an arcane investment tool, to a mainstream payment instrument.
“Coinbase are trying to explore new revenue streams, and they’ve entered the card business because market conditions and cryptocurrency trading volumes are relatively low,” he said. “They have a big brand, which will bring a lot of attention and new customers to crypto debit cards. I am a big believer that sooner or later, everybody will be using digital assets for payments.”
