The cryptocurrency-debit connection is a relatively recent phenomenon — and one in which the payment sector is seeing reciprocal opportunity.
For debit providers, it means more payment options for shoppers and opening merchants up to new customers already flocking to digital assets as well as helping them build loyalty with existing customers seeking these options. For cryptocurrency firms, an alliance with debit cards stands to open new vistas of economic potential and enable them to broaden their reach.
U.K.-based digital payment platform Wirex was the first crypto company to provide debit cards directly to its customers through an initiative rolled out in 2015. Wirex CEO Pavel Matveev told PYMNTS that there was a noticeable increase in crypto use among its customers after this launch. He also observed a growing interest among debit card companies in allying themselves with cryptocurrencies that could lead to larger banks and merchants offering this disruptive, potential-rich payment method as part of their offerings down the road.
The Cryptocurrency-Debit Connection
Its debit connection exposes Wirex to more merchants, allowing it to encourage cryptocurrency use. The main challenge the company initially encountered was persuading merchants across countries and merchant networks to accept mostly unfamiliar and volatile currencies. This problem still exists to a degree, although Matveev said Wirex thought it could approach these merchants by using debit providers as a conduit. Each provider has millions of merchants across hundreds of countries, so digital assets could be used wherever these particular debit cards are accepted.
The firm’s most effective campaign to encourage uptake has been to offer discounts that promise crypto users a certain percentage off their purchases when they shop with certain merchants. Matveev identified three main benefits for debit payment providers in working with cryptocurrency options.
“There’s more [transaction] volume, there are more customers, and it’s a great exposure to cryptocurrency insights,” he said.
These insights could help position debit in this emerging space for a host of investment, operational and transactional purposes. The global appeal of cryptocurrency is also why this digital asset is particularly prized.
“There are a lot of alternative payment methods, or emerging payment methods, but they are usually region-specific,” Matveev said. “I can add Sofort, for example, which is a popular alternative payment method in Europe. But if you think about cryptocurrency, it’s a global payment method, so it can be used on a global basis.”
Cryptocurrency is used across countries — especially in regions without banks. These digital assets are not just a payment method, either; they are also an investment.
“It’s how many people use it,” Matveev continued. “It also can be used as a form of value transference. That’s probably why they’re also interested in using it. And probably another reason is because cryptocurrency is going through another [hype] cycle at the moment, so there are a lot of people that are interested in cryptocurrency. It is in the news. … Interest means more clients and more exposure.”
Every few years, crypto slumps are followed by a revival. The slumps become less pronounced and its growth more prominent with the passing of time.
“Cryptocurrency goes through this kind of hype cycle around every two or three years, so [the current popularity] is not the first hype, nor will it be the last cryptocurrency hype,” he said. “In the long run, I think we will see more and more interest in and for cryptocurrencies.”
The Future Of The Cryptocurrency-Debit Connection
Debit payment providers that are placing their bets on the success of crypto need to find a solution to hedge volatility, which is why they’ve adopted this new kind of stablecoin called central bank digital currency (CBDC). Matveev said he does not think CBDCs will check all the boxes, but they are currently the best solution.
“My personal opinion is that stablecoins or CBDC has a huge potential in the payment space, but at this point [in] time, it’s probably still too early to say that we will see real-life use cases for them,” he said. “I think a lot of different governments in a lot of different countries will explore this CBDC over the years, but right now it’s too early to say anything concrete on the use of CBDC in the payment space.”
Debit providers also need to tighten compliance and satisfy regulations if they want more merchants to commit to accepting cryptocurrency. This includes establishing rules to regulate how cryptocurrency should be used in money service business transactions, for example. As for satisfying regulations, examples include developing and institutionalizing anti-fraud policies.
“Cryptocurrency is a relatively new industry, and usually regulators play catch-up games with new industries, so there is no clear framework for digital assets at the moment,” Matveev said. “There are some countries with a framework, but there is no global regulatory framework. [There are also] anti-money laundering and risk factors [that] have to be addressed when it comes to payments and digital currencies. … It will probably take some time [for all this to occur], but this is a necessary step for big players to start accepting cryptocurrency.”
This process could take years for relevant entities to develop and implement in a continuous cycle of testing and improvement.
“Some companies move quicker than others, and they want to seize this opportunity, so even without a regulatory framework, they are trying to take the first steps,” he added.
Bigger players like major merchants and banks will take their time and wait for guidelines from regulators before dabbling in the use of cryptocurrency payments or offering clients the ability to buy and sell cryptocurrency. Some crypto enthusiasts predict futuristic schemes, like FDIC-insured bank accounts that pay interest in bitcoin rather than dollars. Matveev said he believes that the probability of such schemes occurring is remote, and if they do, it will only be when cryptocurrency has become far more established and ubiquitous.
