Author: David, TechFlow
Crypto payment cards are becoming a business sweeping the entire industry.
Open social media such as Twitter and you can often see KOLs recommending various cards with different fees;
Centralized exchanges such as Binance, Coinbase, and Bitget, as well as crypto infrastructure such as Onekey Wallet, have already joined this race, hoping to open up the channel between crypto assets and the real economy by issuing their own brand cards;
Image source: beincrypto.com
Recently, DeFi applications have also begun planning to issue cards.
In August, the decentralized stablecoin project Hope.money announced the release of HopeCard, which can be used for payment at merchants supporting VISA around the world;
In recent days, Uniswap DAO has also launched a proposal to vote on whether to issue a VISA card with the Uniswap logo...
Why has card issuance suddenly become popular in the crypto community?
Exchanges, wallets, infrastructure, applications and even startup teams focused on issuing cards, when everyone wants to get a piece of the pie, will encrypted payment cards be a good business?
Withdrawal and GPT, the fuse that ignites demand
In fact, crypto payment cards are not new.
As early as 2015, Coinbase issued a Bitcoin-based encrypted payment card. During the bull market in the past two years, although there were industry-related organizations exploring the card issuance business, its popularity and discussion were far less than today.
Why have crypto payment cards become particularly popular this year?
The key trigger may be the surge in demand brought about by withdrawals and ChatGPT.
The former represents the crypto community’s desire for channel security, while the latter activates new payment scenarios.
First of all, withdrawal is always an unavoidable topic.
When the C2C withdrawal model becomes mainstream, the use of cryptocurrency for money laundering and the development of black and gray business are also taking this channel. You will never know whether your next transaction will be "shot" and your card will be frozen due to the above reasons.
As a result, we often see various popular "perfect withdrawal" strategies on the Internet, and deposit and withdrawal service providers use "no card freezing" as a selling point. These all show that there is an urgent need for safe withdrawal in the market.
Therefore, crypto payment cards have their place to survive: instead of spending energy on researching withdrawals yourself, it is better to use this card to bind commonly used payment methods and directly use cryptocurrencies for daily consumption.
In addition, the emergence of subscription services such as ChatGPT has also contributed to the demand for crypto payment cards.
For the trendsetters in the technology circle, GPT is undoubtedly the focus of the whole event.
However, if you want to experience the newer and more powerful features of GPT-4, you need to pay a monthly subscription fee for Plus membership, and OpenAI does not accept mainstream domestic credit and debit cards.
In this case, crypto payment cards successfully resolve the embarrassment of geographical restrictions.
Most crypto payment cards have card numbers starting with 4 or 5 and are affiliated with US card organizations (VISA/Master/American Express, etc.), which perfectly meet OpenAI's requirements for card types and can convert cryptocurrencies into US dollars to complete recharges.
At the same time, most of these cards also support overseas shopping on foreign e-commerce platforms (Amazon, eBay, Shopee, etc.) and subscriptions to other software (Midjourney, Netflix, etc.); and with the end of the epidemic, for users with cross-border consumption scenarios, encrypted payment cards are also a convenient choice.
However, it should be pointed out that quite a few reports are confusing the concepts of "encrypted VISA card", "encrypted credit card" or "encrypted card", so that in the overwhelming social media promotion and publicity, quite a number of novices do not know what kind of card they are using.
If you want to pay by card, there are two main forms: credit card and debit card, just like bank cards in traditional finance.
The former allows you to overdraft, that is, consume first and repay later; while the latter requires you to deposit first and then consume.
In the current market environment, crypto prepaid debit cards are actually the most popular ones: there is no need to bind an existing bank account, but the cryptocurrency needs to be converted into legal currency in advance and loaded into the card.
Card issuance as a service, the driving force behind the trend of copying
Exchanges are issuing cards, wallets are issuing cards, and payment startup teams are also issuing cards... Can anyone issue a crypto payment card?
In our inherent impression, issuing credit and debit cards seems to be the patent of banks, and conducting this business has high technical and qualification thresholds; but in the field of encrypted payment cards, this is not the case.
When users see a card with a cryptocurrency exchange brand and a VISA logo, what is unknown behind it is actually the cooperation model between the card issuer and the technology provider.
For example, Coinbase's VISA card is actually supported by technology provider Marqeta, which enables it to issue crypto debit cards and provide users with real-time transaction authorization and fund conversion services; similar providers include Immersve, Reap, Striga, and Alchemy Pay, which is more familiar to domestic readers.
Furthermore, due to the existence of the role of “technology provider”, the issuance process of crypto payment cards becomes simpler.
In the complete chain from payment initiation to payment completion, traditional roles such as users, merchants and card organizations (Visa/MasterCard) are naturally not worth mentioning; technology providers provide a capability similar to "card issuance as a service":
By providing the necessary security technologies, payment processing systems and user interfaces to organizations that need to issue cards, we support the issuance of encrypted cards, currency conversion and payment.
Card issuers only need to call the technology provider's API or SaaS solution to issue and manage encrypted credit/debit cards.
At the same time, the technology provider's "Card Issuance as a Service" also includes a variety of functions including transaction authorization, funds conversion, transaction monitoring and risk management, helping issuers simplify operations and improve efficiency.
Therefore, in theory, any institution that is subject to compliance supervision or holds a license can issue encrypted payment cards with the support of technology providers. This is why we can see a variety of encrypted payment cards from different issuers in the market.
Taking Galileo, a well-known overseas solution provider, as an example, its API has been integrated with payment networks such as Visa and MasterCard. It has also established cooperative relationships with upstream and downstream industries such as card issuing banks. The demander can complete the card issuance by calling its services.
As can be seen from the above picture, crypto applications that need to issue cards may only need to provide a wallet address and manage accounts (purple), and consumers' card opening, transactions, authorization, settlement and other actions are all completed by Galileo (blue).
Galileo's technical solution is not an isolated case.
In July this year, the well-known multi-signature wallet Gnosis Safe launched a network dedicated to crypto payments, Gnosis Pay, which also supports the issuance of Visa cards.
This technical solution is bound to a crypto wallet on one end and connects the banking system, Visa, MasterCard and third-party payment on the other end. In the middle, a Polygon-based L2 is specially built to handle the conversion and payment between cryptocurrencies and traditional finance.
Similarly, Gnosis also plays the role of a technology provider: it provides a set of developer integration tools, opens API calls, and allows other crypto applications to customize their own payment cards.
Overall, technology providers are more like bridge builders, bridging the gap between the crypto world and traditional finance and allowing more payment applications to run on this bridge.
The business of the payment chain
By the way, why are so many people eyeing the encrypted payment card business?
As a business model involving multiple parties, each party in the chain of encrypted payment cards has profit demands and their own business acumen.
For large exchanges, crypto payment cards are not just about opening a card and handling fees, but often form a combination with other businesses:
Empowering own tokens: Using crypto payment cards to consume can get token cashback, such as Binance Card's BNB and Crypto.com's CRO, which is very helpful in increasing the influence and recognition of their own tokens; at the same time, depending on the amount of staked BNB or CRO, the equity level of the payment card will also change, which may also attract users to buy or stake their own tokens;
Expanding trading business: Exchanges have huge traffic and users, and card issuance is still trying to jump out of the digital currency trading business itself and expand more C-end payment scenarios. Although affected by compliance issues, the development logic is clear - refer to WeChat, which started to do payment based on social networking after accumulating a lot of traffic and stickiness.
For crypto application/technology providers: If they are engaged in hardware/software wallets, then it is natural to engage in payment card business. Since they can provide users with storage services for crypto assets, it is inevitable to open up the next consumption link.
Another type of technology service provider, such as AlchemyPay or the aforementioned Galileo and Gnosis, has turned crypto payment cards into a SaaS service business, charging money based on B-side customer calls or customized services;
For other card issuers: the income after issuing the card comes from the card opening fee, annual/monthly fees and transaction fees, etc. At the same time, according to the author's understanding, some card issuing organizations will also use the amount deposited by users in the card to invest in US government bonds, thereby sharing a share of RWA's profits.
For card organizations: VISA and Mastercard are doing a business of accepting all, the more the better. Whether it is a crypto payment card or a traditional bank card, the more the user spends, the more transactions, and the more overseas transactions, the more fees they receive from clearing and settlement. The larger the amount, the higher the revenue.
Users can profit from every link in the crypto payment chain. With stable regulations and the macro-economic environment, this seems to be a win-win business for all parties.
Cakes in the big market
The narrative in the crypto world changes with each passing day, but ultimately most of it is still within the circle.
From the perspective of business attributes, encrypted payment cards are a track that needs to "go outward":
Whether it is the short-term demand for cash withdrawals and GPT subscription services, or the long-term use of the convenience of cryptocurrencies in cross-border payments to open up more online and offline payment scenarios while meeting compliance requirements, what crypto payment cards want to do is the "entry and exit" business, and the cake is undoubtedly huge.
Relevant research reports also show that the global compound annual growth rate of encrypted payment applications exceeds 18%, and encrypted payments are likely to form a market size of 1 billion.
The rewards of cutting a small piece of cake in such a large market are obviously lucrative. This may be one of the important reasons why all parties in the industry are actively deploying encrypted payment cards.
But looking at the reality, any product also has current risks and limitations.
Crypto payment cards may stop service due to poor cooperation with banks. If users do not check their emails or use their cards regularly, they may miss the withdrawal time and suffer losses. At the same time, with the tightening of supervision and the change in the attitude of card organizations, even industry leaders like Binance may suspend card issuance.
The revolution has not yet succeeded, comrades still need to work hard.
We look forward to the pie growing bigger and end users getting to taste the sweetness at the table of crypto payment cards.
At the same time, in the next article, we will also conduct in-depth research on the card opening conditions, functions, rates and discounts of mainstream encrypted payment cards on the market to provide more practical and useful references for everyone's card selection and use.
