Crypto in uncharted waters with Coinbase Debit Card

11 May, 2019

Two crypto industry players recently announced consumer debit cards that will allow people to make normal purchases the same way they would with any other debit card but use their crypto holdings to pay for the goods or services in question. This is uncharted territory. It will be interesting to see what comes of this apparent marriage between cryptocurrency and traditional payment networks.

A banking startup by the name of 2gether announced plans in March 2019 to launch a prepaid Visa debit card that allows customers to make purchases with either euros or one of seven cryptocurrencies the bank supports. Among those seven cryptos are Bitcoin and Bitcoin Cash.

2gether was joined by Coinbase in recent days after the well-known exchange announced its own Visa debit card in conjunction with UK payment processor PaySafe. Consumers who choose to use the Coinbase Card will be able to use the BTC, ETH, LTC, and other tokens in their digital wallets to make purchases. The card will only be available to UK and EU customers.

Anywhere Visa is accepted

These two companies offering Visa debit cards should be considered monumental news within the cryptocurrency community. This is definitely a big deal when you step back and analyze all of the potential implications. How it plays out will influence how fiat and cryptocurrencies interrelate in the coming years.

The first thing to note is that both debit cards will be branded by Visa. This means several important things. For starters, it means that the debit cards will be accepted anywhere in the world where Visa cards are accepted. This potentially means millions of merchants who do not normally accept cryptocurrency payments still taking the debit cards for payment.

Without even trying, these merchants will be dabbling in the cryptocurrency space. If everything works out as intended for Coinbase and 2gether - and the jury is still out on that - cryptocurrency debit cards could be the bridge to mainstream adoption some people have been waiting for.

Visa network and protection

When banks choose to put the Visa or MasterCard logo on their debit cards, they do so for more than just aesthetic reasons. A branded debit card indicates a relationship between the card issuer and the brand itself. So in the case of a Visa branded debit card, the branding indicates there is a relationship between Visa and the card issuer. Visa branded cryptocurrency cards are no exception.

The relationship starts with transaction processing. Any transactions that take place using a Visa-branded debit card are processed on the Visa network. That means Visa is ultimately responsible for making sure said transactions are settled correctly and in a timely manner.

This reality inevitably ties together Visa, the payment processors that operate on its network, and card issuers who choose to partner with Visa. By issuing a Visa-branded debit card, Coinbase is linking itself to the credit card giant. Their relationship is indirect in that PaySafe acts as an intermediary between them, but the relationship exists, nonetheless.

Another important aspect of branding is that of consumer protection. Customers enjoy the backing of Visa to protect their purchases when they use a Visa-branded debit card. Fraudulent charges can be reversed, returns on defective merchandise can be facilitated, and so on.

How the cards will work

Using a cryptocurrency debit card from a practical standpoint will be no different than using a bank-issued card. In-person purchases will be made by inserting the card into a machine, pushing a few buttons, and grabbing your receipt. It is as simple as that. Online purchases will require entering your card number, its expiration date, and so forth.

In terms of the Coinbase Card, users will have the option of logging in to their Coinbase accounts and designating which of their cryptocurrency wallets they want to use to fund debit card purchases. A user with just one wallet will obviously not have that choice.

The 2gether Card will work a little bit differently. Because it is a prepaid debit card, users will have the option to load it with euros and a variety of cryptocurrencies. They will be able to designate a certain portion of the card's total balance to whatever tokens they want to use. Then they will be able to choose which currency they want to pay with when it comes time to buy something.

Converting crypto to fiat

The real magic with these two cryptocurrency debit cards occurs when a transaction is made. Let's say you want to play slots at an online casino that doesn't normally accept crypto payments. That casino is not suddenly going to be crypto-friendly because you are using the Coinbase Card. It doesn't have to be.

When you enter your card information in order to make a deposit, transaction data is sent to the Coinbase system for payment. From there it goes to the PaySafe system for processing. PaySafe converts your cryptocurrency into fiat before sending it on to the casino.

Converting crypto to fiat is that which makes it possible to get millions of merchants in the cryptocurrency game without them even knowing it. Do not misunderstand; the point here is not one of deceiving merchants. They are getting paid in fiat, so it matters not to them what goes on behind the scenes.

The important thing here is that even a moderate amount of success with cryptocurrency debit cards will demonstrate to merchants that they have nothing to fear from BTC, BCH, LTC, ETH, and the rest. After a few years of successful crypto debit card purchases it should become apparent that cryptocurrency can be an adequate payment system.

What's in it for them

So why would an organization like Coinbase partner with a payment processor to offer debit cards to account holders? What's in it for them? They clearly see a moneymaking opportunity here. How they go about monetizing the Coinbase Card will largely determine its success or failure.

Coinbase appears to be ready to charge customers a card-issuance fee of £4.95. However, they are waiving the fee for the first 1,000 customers who sign up. Whether or not other fees are attached remains to be seen, but it is quite likely there will be.

As things currently stand, Coinbase makes money on crypto by assessing a fee on every transaction. Are you looking to buy some ETH? You can do so through Coinbase for a small fee. You will pay another fee should you decide to sell. Everything at Coinbase is fee-based because Coinbase is essentially an exchange. That's how exchanges make their money.

How 2gether intends to monetize its debit card is not clear. However, if they fashion their model after traditional prepaid debit cards, they will charge transaction fees on every purchase. They may also charge a fee to convert crypto into fiat in order to cover the cost of that conversion.

In whichever way you slice it, using a cryptocurrency debit card is not going to be free. The only way to facilitate absolutely free cryptocurrency transactions is to transfer coin from one user to another with the agreement that neither one will charge an extra fee. This does not work in the real world of consumer economics for the simple fact that everyone involved has to make money somehow.

If it works out

There are some curious people with their eyes now on Coinbase waiting to see if this whole thing works out. If it does, the cryptocurrency debit card may encourage mainstream banks to get involved. It might encourage some of those banks to allow customers to open virtual accounts for managing crypto holdings. It could motivate others to include cryptocurrency transactions on their own debit cards.

Another potential benefit rests in bringing more stability to cryptocurrencies through greater utility. If you are a regular reader of posts, you know just what we mean by this. Utility is everything to Bitcoin and its many competitors, and widespread usage of crypto debit cards would certainly give utility a big boost.

If you are a Coinbase account holder and you live in the UK or EU, you will soon have the opportunity to obtain a cryptocurrency debit card branded by Visa. You can use the card to make a deposit at an online casino, put fuel in your car, pay for meals and entertainment, and more. You will be able to spend your crypto with any merchant who already accepts Visa cards.

Is that something you are interested in? Would you like to be able to spend your crypto tokens the same way you do fiat? If so, the Coinbase plan might be right up your alley. We would only urge you to fully educate yourself on how it all works before you dive in.

Take the time to read all the fine print that comes with the card. Make sure you understand transaction fees, conversion fees, and any other fees and charges that Coinbase plans to assess. Above all, don't forget to check the balance of your wallet before you spend. Price fluctuations virtually guarantee that your balance will not remain the same for very long.