Update: This article has been updated with a VISA statement and an indication that VISA issuers have changed rates. The company claims that its approach to cryptocurrency transactions has not changed.
In the last week Bitcoin investors started noticing additional charges on their bank statements. It turns out that the issuers of VISA and Mastercard have decided (how convenient!) To reclassify the way purchases of Bitcoin and other cryptocurrencies are handled on their networks. Incidents like this pose several short-term challenges for the cryptocurrency industry, but also show how frightened the incumbents really are.
Currently, if you want to instantly buy bitcoin, ethereum, or any other alt-coin, the only option is to use your debit or credit card. Transferring funds from your bank has a lower fee, but takes several days. Coinbase has long accepted debit and credit cards for instant purchases, however, passing on the standard 4% credit card transaction fee to the buyer.
Now it appears that VISA and Mastercard issuers have quietly reclassified the way Coinbase credit card purchases are processed on their networks. Coinbase transactions (and presumably all other exchanges as well) are now labeled as a ‘cash advance‘ rather than a ‘buy’. Fees vary by institution, but this means that using a credit card will result in a 5 percent extra charge added by your credit card merchant, in addition to the 4% credit card transaction fee already passed on by Coinbase.
Worse yet, cash advances do not fall within the standard interest-free grace period that consumers expect for other credit card purchases. By the time the Coinbase purchase is made, the transaction accumulates and compounds daily. If that’s not enough, the interest rate is also higher for cash advances – an astounding 25.99% in one case. Finally, but just as important for some consumers, these purchases will no longer be eligible to earn credit card points.
For example, a $ 5,000 instant bitcoin purchase made on Coinbase using a VISA or Mastercard credit card will now result in around $ 500 in fees + interest as well. For most people, losing 10% of your investment in fees means that the practice of using a credit card to buy cryptocurrency is effectively over. It will become more difficult for investors to buy bitcoin and other cryptocurrencies on their terms. Transferring funds through ACH takes three to five business days. In a world where cryptocurrency prices can swing back and forth wildly, a week feels like a biting eternity.
In an email to all customers last night, Coinbase confirmed the change, saying “the CM Code for digital currency purchases has been changed by a number of the major credit card networks “and will now allow banks and card issuers to charge an” additional cash advance fee. “When asked to comment, a Mastercard spokesperson said: “Over the past few weeks, we’ve made it clear to acquirers – or the merchant’s bank – the correct transaction or merchant category code to use for these type of transactions (cryptocurrency purchases). This provides a consistent view of these purchases for traders and issuers. “
If anything, this change makes things more complicated in the short term. Authorities are already divided over what bitcoin “is”: IRS has previously declared bitcoin not “currency” and treats it as taxable property, however, credit card companies are now telling us that buying bitcoin is the same as withdrawing money. a vending machine.
The two things cannot be true. By reclassifying Coinbase (and presumably all other exchanges as well), VISA and Mastercard are doing their best to make investing in cryptocurrency harder, slower, and more expensive. Credit card companies believe it is in their best interests to divert millions of additional revenue in exchange for slowing the rush of bitcoin investment. In many ways, this is true. The rise of bitcoin and the future cryptocurrency is linked to the possible fall of financial intermediaries like VISA and Mastercard. Maybe they just found out.
“Visa allows credit, debit, and certain prepaid Visa products to be used to purchase cryptocurrency, as long as those transactions are legal in both buyer’s and seller’s jurisdictions. Acquirers and merchants are responsible for ensuring that all Visa transactions are correctly encoded in the Visa payment system, so that issuers can rely on accurate and consistent encoding when making authorization decisions. These codes have been in place for some time. Issuers make authorization decisions and determine cardholder fees, if any, ”VISA said in a late statement.