Crypto cards just suffered a major setback

All the crypto fortunes amassed over the last year are good for nothing if they can’t be spent or cashed out for currencies that can actually be spent in the real economy.

As David Gerard, author of Attack of the 50-ft blockchain, has been documenting on his blog the last few months, that’s not an easy thing to accomplish in reality. The number of merchants accepting cryptocurrency directly (especially the more exotic flavours) is limited. Platforms specialising in exchange (such as Bitfinex, Coinbase etc) have the annoying habit of limiting withdrawals to small sums and/or suffering processing delays whenever prices move downwards. Also, OTC or local exchange markets are highly illiquid, expensive to navigate or simply untrustworthy and dangerous.

This leaves few options for realising the juicy returns that have in theory been generated.

Small wonder the concept of a prepay crypto card that can instantly convert crypto fortunes into real spending power — because it is accepted by the Visa or Mastercard network — has captured the imagination of the suddenly enriched community.

Over the last year dozens of ventures promising exactly this sort of service have sought to raise funds via initial coin offerings in a bid to satisfy the consumer demand. Often, they’ve raced to market with Visa branded mockups without even checking if their Visa accessibility claims are viable.

So why would the likes of Visa or Mastercard be inclined to facilitate these ventures?

For the most part, Visa and Mastercard seem to be removed from the development process. Ventures instead seek relationships with third party processors who, via pre-existing relationships with the major network providers, claim to be able to offer access to the respective payment networks. One of the biggest players offering such services for the crypto community for the last year has been Gibraltar-based WaveCrest, a principal issuing member of both the Visa and Mastercard networks which specialises in providing prepaid card solutions to industry.

There’s only one problem. Strict terms and conditions usually govern the circumstances in which prepay cards can be issued by unlicensed (non-bank) institutions due to their popularity with the unbanked or low-credit community as well as their propensity to be taken advantage of for money laundering reasons. These T&Cs tend to be jurisdiction dependent, and can in some cases restrict the types of funds that can be loaded onto cards by source (for example the source of funds might be restricted to welfare payments and/or employer compensation for services rendered).

When it comes to crypto-backed prepaid cards, it’s always been a bit of mystery (to us at least) how they were able to have their cake and eat it with respect to satisfying both AML/KYC terms on source of funds and open-ended access expectations to the payments system, especially in some of the stricter jurisdictions.

Was WaveCrest using its legacy principal issuing agreement in “innovative” ways not anticipated by the main network providers to accommodate crypto prepay cards? Or was it structuring brand new agreements that respected all regulatory conditions and concerns in this field?

A quick reading of any of the T&Cs attached to the cards facilitated by WaveCrest suggests the former.

Take as an example the following condition attached to a card brought to market by an outfit called TenX:

LOADING FUNDS TO YOUR ACCOUNT
Five.1 Your Card is a payout card tied to an account directly or indirectly established by an employer or other such corporate payor (each, a “Payor”) on behalf of a consumer to which electronic funds transfers of the consumer’s wages or other compensation are made on a recurring basis, whether the account is operated or managed by the employer, a third party payout processor, or a depository institution. Only funds from a Payor may be loaded to your Account In case of errors or questions about the funds loaded to your Account, contact your payout provider.

In any case, in the last 24 hours rumours have been circulating across the crypto community that many of these crypto cards have suddenly lost access to the Visa network. A tweet from TenX specifically stated that:

#TenX advisory: Following an urgent communication from our card issuer WaveCrest, payments on the TenX card will be unavailable. We are working on a solution and will let you know further details as soon as we have them. We apologise for the inconvenience.
— TenX (@tenxwallet) January 5, 2018

A press spokesman for Visa gave FT Alphaville the following additional detail.

“We can confirm that WaveCrest’s Visa membership is being terminated due to continued non-compliance with our operating rules. All of WaveCrest’s Visa card programmes will be closed as a result.”
“Visa has other approved card programmes that use fiat funds converted from cryptocurrency in a number of jurisdictions. The termination of WaveCrest’s Visa membership does not affect these other products.”
“Visa is committed to the security of its ecosystem and compliance with Visa’s operating rules is critical for ensuring the safety and integrity of the Visa payment system. Our issuers’ card programmes must comply with our membership regulations, as well as all applicable laws.”

Visa would not expand on the nature of the non-compliance.

The above, nonetheless, suggests card providers who are currently communicating that they are “working on solutions” to their Visa accessibility could have their work cut out for them, especially if servicing the affected jurisdictions. For now, at least, the only significant competitor in the space with access to the Visa/Mastercard network is Wirecard. Whether they’ll be keen to take on the affected parties depends entirely on whether doing so will compromise their own compliance agreements.