Crypto payment cards are becoming a sweeping trend across the industry. On social media platforms like Twitter, it’s common to see key opinion leaders (KOLs) promoting various cards with different fee structures. From centralized exchanges like Binance, Coinbase, and Bitget to crypto infrastructure providers like Onekey Wallet, many have already entered this race, hoping to issue their branded cards as a conduit between cryptocurrency assets and the real economy.

Image Source:beincrypto.com

Recently, DeFi applications have also started venturing into the card issuance business. In August, the decentralized stablecoin project Hope.money announced the release of the HopeCard, which can be used for payments at global merchants supporting VISA. Meanwhile, in the past few days, Uniswap DAO initiated a proposal to discuss the issuance of a VISA card bearing the Uniswap logo.

Why has the card issuance business suddenly become popular in the crypto community?

Exchanges, wallets, infrastructure providers, applications, and even teams focused on card issuance are all eager to get a piece of the pie. But, is the crypto payment card a lucrative business?

Withdrawals and GPT, the Catalysts for Surging Demand

In fact, cryptocurrency payment cards are not a novel concept. As early as 2015, Coinbase had issued a Bitcoin-based crypto payment card. However, during the bull market wave of the past two years, although there were industry-related organizations exploring card issuance, their popularity and discussion heat did not match what we see today.

Why have crypto payment cards become particularly popular this year? The key catalysts might be the surge in demand driven by withdrawals and ChatGPT. The former represents the crypto community’s desire for channel security, while the latter activates new payment scenarios. Firstly, withdrawals have always been an unavoidable topic. With the C2C withdrawal model becoming mainstream, using cryptocurrencies for money laundering and developing black and grey market activities also follow this channel. You can never be certain that your next transaction won’t inadvertently get caught up in these activities and result in a frozen card. It’s common to see various “perfect withdrawal” strategies circulating online, and withdrawal service providers market themselves on not freezing accounts – all these indicate a pressing market need for secure withdrawals. Therefore, crypto payment cards find their niche: rather than spending effort on figuring out withdrawals, it’s more convenient to use these cards linked to common payment methods, directly utilizing cryptocurrencies for everyday expenses.

Scenario

Scenario ：Service

Payment Channels：Paypal, Google Pay, 支付宝 Alipay, 微信支付 WeChat Pay Paypal, Google Pay, Alipay, WeChat Pay

Additionally, the emergence of subscription services like ChatGPT has played an indispensable role in driving the demand for cryptocurrency payment cards. For tech enthusiasts, GPT is undoubtedly the center of attention. However, to experience the enhanced features of GPT-4, one needs to pay a monthly subscription fee for Plus membership, and OpenAI does not accept mainstream credit or debit cards from domestic sources. In this context, cryptocurrency payment cards have successfully resolved the awkwardness of geographical restrictions. Most of these cards start with the number 4 or 5 and are affiliated with American card organizations (such as VISA, MasterCard, American Express, etc.), perfectly meeting OpenAI’s requirements for card types. They allow the conversion of cryptocurrency into US dollars to complete the recharge.

Additionally, these cards generally support overseas online shopping on platforms like Amazon, eBay, Shopee, etc., as well as subscriptions to various software (Midjourney, Netflix, etc.). With the end of the pandemic, for users who engage in cross-border transactions, cryptocurrency payment cards are proving to be a convenient option.

However, it’s important to note that many reports are confusingly using terms like “crypto VISA card,” “crypto credit card,” or simply “crypto card,” leading to significant confusion among many novices in the midst of widespread social media promotion and advertising. They often do not fully understand the nature of the card they are using.

Similar to traditional financial systems, there are primarily two types of cards available for making payments: Credit Cards and Debit Cards. The former allows you to overdraft, meaning you can spend first and pay back later; the latter requires you to deposit funds before spending.

In the current market environment, the more popular option is the crypto prepaid debit card: it doesn’t require linking to an existing bank account but does necessitate converting cryptocurrency into fiat currency to be loaded onto the card.

Issuing Cards as a Service: The Hidden Force Behind the Trend

Exchanges are issuing cards, wallets are issuing cards, and even payment startups are getting into card issuance… Can anyone issue a crypto payment card?

In our traditional understanding, issuing credit and debit cards seems like a domain exclusive to banks, involving high technical and qualification barriers. However, in the world of crypto payment cards, this is not the case.

When users see a card branded with a cryptocurrency exchange and bearing the VISA logo, what’s not commonly known is the collaborative model between the card issuer and the technology provider behind it.

For example, the VISA card by Coinbase is actually supported by the technology provider Marqeta, enabling the issuance of crypto debit cards and offering users 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 “technology provider” role, the process of issuing crypto payment cards has become simpler. On the complete chain from the initiation to the conclusion of a payment, the roles of users, merchants, and traditional card organizations (like Visa/MasterCard) naturally need no further mention. However, the technology provider offers a capability akin to “issuing cards as a service”:

By providing necessary security technology, payment processing systems, and user interfaces to organizations that need to issue cards, support is given for the issuance of cryptocurrency cards, currency conversion, and payments. Card issuers only need to use the technology provider’s API or SaaS solutions to issue and manage cryptocurrency credit/debit cards. Additionally, the technology provider’s “Card Issuance as a Service” includes various functions such as transaction authorization, fund conversion, transaction monitoring, and risk management, aiding card issuers in simplifying operations and enhancing efficiency. Therefore, theoretically, institutions regulated for compliance or holding licenses can issue cryptocurrency payment cards with the support of technology providers. This explains why we see a variety of cryptocurrency payment cards from different issuers in the market.

Taking the well-known overseas solution provider Galileo as an example, its API is already integrated with payment networks like Visa and MasterCard. It has also established cooperative relationships with card issuers and other industry stakeholders. Demand parties can simply use its services to complete the card issuance process.

From the above diagram, it can be seen that crypto applications with card issuance needs might only require providing a wallet address and managing accounts (indicated in purple). The consumer’s actions such as card activation, transactions, authorization, and settlement are entirely handled by Galileo (indicated in blue). Moreover, Galileo’s technical solution is not unique in this aspect. In July of this year, the well-known multisignature wallet Gnosis Safe launched a network specifically for crypto payments called Gnosis Pay, which also supports the issuance of Visa cards. This technical solution binds one end to a crypto wallet and the other end to the banking system, Visa, MasterCard, and third-party payments. In the middle, a special L2 based on Polygon is constructed, dedicated to handling the conversion and payments between cryptocurrency and traditional finance.

Similarly, Gnosis also plays the role of a technology provider: offering a suite of developer integration tools and open API access, allowing other crypto applications to customize their own payment cards. Overall, technology providers act more like bridge builders, bridging the gap between the crypto world and traditional finance, enabling more payment applications to run on this bridge.

Plucking the Goose on the Payment Chain

Turning back to the question, why is everyone eyeing the cryptocurrency payment card business?

As a multi-party involved business model, every entity in the chain has a profit motive and their own business strategies. For large exchanges:

• Creating crypto payment cards isn’t just about focusing on small card opening fees and transaction fees; it often forms a combination punch with other businesses:
• Empowering their own Token: Using crypto payment cards for transactions can earn token cashbacks, such as Binance’s BNB and Crypto.com’s CRO. This greatly aids in enhancing the influence and recognition of their own token. Additionally, based on the amount of BNB or CRO staked, the benefits level of the payment card can change, which might also attract users to buy or stake the exchange’s tokens.

• Expanding Transaction Services: Exchanges, holding massive traffic and user bases, are issuing cards in an attempt to branch out from the core business of digital currency trading and expand into more consumer-end payment scenarios. Despite compliance issues, the development logic is clear—akin to WeChat, which ventured into payments after accumulating substantial traffic and user stickiness based on its social platform.

For Cryptocurrency Application/Tech Providers: For those already in the business of hardware/software wallets, branching into payment card services is a logical step. Having provided users with crypto asset storage, moving to the next consumption link is inevitable.

For Other Types of Tech Service Providers, such as AlchemyPay, Galileo, and Gnosis mentioned earlier, crypto payment cards become a business of selling SaaS services. They earn by charging for B2B client usage or customized services.

For Other Card Issuers: Post-issuance revenue comes from card opening fees, annual/monthly fees, and transaction fees. Additionally, as I understand, some card organizations invest the funds deposited by users in U.S. government bonds, thereby sharing in the returns from real-world assets (RWA).

For Card Organizations: Companies like VISA and Mastercard operate on a “the more, the merrier” basis. Whether it’s crypto payment cards or traditional bank cards, the more the user spends, the higher the transaction count and overseas transactions, the more they earn from clearing and settlement fees, leading to increased revenue.

In the realm of cryptocurrency payments, every link in the chain offers a potential profit for users. Under stable regulatory and macroeconomic conditions, this seems to be a win-win business for all parties involved.

The Cake in the Big Market

Narratives within the crypto world are constantly evolving, but most of them are still primarily circulating within the industry. However, the business of crypto payment cards is inherently geared towards external expansion. Whether it’s meeting short-term needs for withdrawals and GPT subscription services, or, in the long term, leveraging the convenience of cryptocurrencies for international and cross-border payments while complying with regulations, the aim of crypto payment cards is to facilitate both entry and exit in financial transactions. There’s no doubt that the potential market for this is enormous.

Recent research reports have shown that the global compound annual growth rate of cryptocurrency payment applications exceeds 18%, indicating the potential for cryptocurrency payments to develop into a market with a scale of over a billion. Carving out even a small slice of such a vast market can yield substantial returns. This is likely one of the key reasons why various industry players are actively positioning themselves in the cryptocurrency payment card segment.

However, looking at the current reality, every product has its inherent risks and limitations. Cryptocurrency payment cards may cease operations due to ineffective collaborations with banks. Users who fail to regularly check their emails or use their cards might miss the window for cash withdrawals, leading to losses. Additionally, with tightening regulations and shifting attitudes of card organizations, even industry giants like Binance might face temporary suspension of card issuance.

The revolution is not yet successful, and comrades must continue to strive. We are looking forward to the expansion of our endeavors, where ultimately, users will also be able to reap the benefits at the table of cryptocurrency payment cards. Additionally, in our next article, we will conduct an in-depth investigation into the market’s leading cryptocurrency payment cards, covering their requirements for opening, features, fees, and benefits. This will provide practical and useful references for your card selection and usage. Stay tuned for more.

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