North America’s biggest cryptocurrency exchange Coinbase has become a principal member of card processor Visa’s network. The membership, which was actually granted in December but revealed only today, enables Coinbase to become an “issuing authority”, similar to banks, and issue credit cards on Visa’s network. This means that the exchange can work directly for crypto adoption on both sides of the aisle, soliciting merchants and cardholders alike, for crypto credit cards.
Principal members can also sponsor other financial institutions for membership in the network; Coinbase could pave the way for other crypto payment services firms, such as BitPay, to join Visa. Such payment firms could introduce co-branded crypto credit cards in the market and ameliorate part of the volatility risk associated with crypto conversion. Other companies that have issued crypto debit and credit cards include Nexo and Bitpay.
How Will Principal Membership Affect Coinbase’s Existing Debit Card?
The San Francisco-based exchange first dipped its toes in the card services market in April last year by partnering with the PaySafe Group to launch a crypto debit card in the U.K. The card’s operational geography was later expanded to include 29 more countries in Europe and 10 coins.
As part of the arrangement, Coinbase was required to pay fees to PaySafe, the issuing authority, to process transactions. Despite the fact that its fees included a conversion fee from crypto to fiat, the card was not an expensive deal for merchants in Europe. Transaction fees ranged from 2.49% in the U.K. to 2.69% in the remaining parts.
But providing those inexpensive fees, probably, ate into the exchange’s revenue stream in a year during which the price of Bitcoin mostly declined. Becoming a principal member nixes the PaySafe fee and allows Coinbase to set its own rates, meaning they could structure the fee in a way suited to their accounting and revenue streams.
A Long Road Ahead
In an interview with Forbes, Zeeshan Feroz, CEO of Coinbase U.K., touted the instant liquidity of crypto available to customers through the card. But that liquidity is also available to customers that are part of other crypto credit services. The availability of a programming interface to Visa Direct, a system that ensures direct payment to merchants for a percentage fee of the total amount is also a benefit. Typically, credit card processors settle amounts using the Fed’s wire system that has a lag period, extending anywhere between three days to a week, for settlement.
But those benefits are contingent upon retail adoption. The crypto revolution is seemingly powered by retail demand. But there is little data or anecdotal evidence to prove usage. Feroz from Coinbase told CNBC last June that their card had seen “extremely strong take-up” and that sales “blew past” the 1,000 initial free cards offered. But those words don’t prove anything. Other card issuers have proclaimed similar anodyne announcements. There might be a journey ahead for Coinbase.