(Photo Illustration by Igor Golovniov/SOPA Images/LightRocket via Getty Images)
The financial space was rocked by the news that German fintech group Wirecard filed for insolvency owing €3.5bn. Not only a financial failure but also a seemingly “elaborate and sophisticated fraud,” according to EY, the company’s auditor for more than a decade.
Many companies using Wirecard’s service would have been struck by the news, and would have had to hit the panic buttons, including a few crypto companies using Wirecard for their own card payment systems.
Already a difficult operation to get right, crypto payment, and crypto payment cards are only starting to make their way into the mainstream but it is instances like this that really hinder their potential and growth. Bitcoin has had a few changes in designation over the years, and as it stands, making it a payment system is harder than it once was.
The major cryptocurrency has undergone a number of evolutions in its some 11 years of existence. The digital currency began life as a medium for exchange in transactions, and found its first use when 10,000 BTC was traded for two pizzas (those pizza’s are now worth just shy of $100 million).
But, just like the value of those two pizzas has changed, so has the designation of Bitcoin. The digital asset is today seen far more like an investable asset. Bitcoin is spoken about in the same breath as stocks and commodities and is permeating the conversations of Paul Tudor Jones and the execs at CME, Fidelity and other corners of Wall Street.
However, this fluid flow of Bitcoin’s designation may well be seeing a shift back towards acting like “A Peer-to-Peer Electronic Cash System,” as it is labelled in its own whitepaper. Recent news from Visa, PayPal and Venmo have many looking towards Bitcoin (or that should be cryptocurrencies, blockchain and the entire token ecosystem) for its potential in payments.
PayPal is rumoured to be rolling out direct sales of cryptocurrency to its over 300 million users, while it is posting job vacancies for blockchain experts. Visa has also started working towards the cryptocurrency space with a patent for its own type of cryptocurrency, not to mention its support of the Coinbase crypto debit card as a Visa Principal Member.
If there is indeed a move towards Bitcoin and crypto taking a new role in the evolving payments system, then the clues will probably be in the application. One of the biggest applications, and the possible bridge to the next evolution of payments, is the oldest, new, technology — cards.
But, as the recent news surrounding Wirecard shows, this road for crypto cards is not an easy one. Just getting a foot in the traditional card scene can be difficult for Crypto payment’s solutions providers — but then there are the companies that provide the payments railways to also consider.
Original fintech
The little pieces of plastic that nearly everyone carries around in their wallets are seen as so normal and so standard that little thought is given to their journey. However, debit and credit cards can be seen as the original fintech, and the original digitalization of cash.
This is why they are probably all the first place to look for the next iteration of digital cash — and that could be crypto. I have already mentioned that Visa is doing a lot of work regarding crypto payments and tokenization, but its chief competitor Mastercard is not letting this new wave slip by.
I spoke with Suman Hughes, Director of Communications at Mastercard about their thoughts on cryptocurrency cards and the incorporation of crypto as a new payments system.
“We see potential in cryptocurrency, especially in stablecoins. We have observed how using an internal stablecoin and tokenized fiat can improve settlement. We are driving the development of new products, including viable digital currencies that are safe, stable, reliable, and compliant,” Hughes told me.
“We are working with governments to explore Central Bank Digital Currencies (CBDCs), which brings physical cash into the modern digital age. CBDCs can enable financial inclusion, increase the efficiency of payments infrastructure and reduce informal economies.”
Unsurprisingly, the interest in the potential of crypto for a major payment’s network like Mastercard revolves around its potential for a broader application. CBDCs are certainly on the rise, and could become a standard implemented by governments, rolled out through the likes of MasterCard and into the hands of the individuals.
But, there is also no getting away from the original crypto space and those who are looking to utilize their decentralized coins and cryptos in a payments method. Coinbase, Fold and other big crypto companies have partnered with Visa and the likes to roll out cards, but there are others trying to compete.
I spoke with the CEO of Crypto.com, Kris Marszalek, a company looking to pioneer the way in regards to personal crypto payments cards. He explained how it is not a straightforward process to compete with the legacy payments networks, even if it is with a brand new technology.
“It’s definitely challenging for a crypto startup to roll out a card product that is ready for prime time,” he told me. “It needs to work well with traditional financial and payment networks, which means we have to partner with established players.
“That was a judgment call we made from day one. We focused on compliance, security and privacy as the foundation on which the company should be built. We’re building a globally trusted financial institution that’s in the process of securing licenses in all major jurisdictions.”
“But we are also building for the future. Payment is always about adoption, from both a merchant and user standpoint.”
Let down by the legacy
It is not only difficult entering the legacy system of payment with new financial technology like Bitcoin, there are also the hurdles that come with some of these traditional companies. The Wirecard news has rocked the financial world and with Crypto.com reliant on this company for its card’s, they too were struck hard.
The FCA in the UK effectively shut down Crypto.com’s card activity in the UK and Europe to try and stem the damage from Wirecard’s collapse, and forced Crypto.com’s hand in looking for a new card service provider.
“The FCA effectively shut down Wirecard UK, the issuer of our cards in Europe. Our EU/UK cards will stop working today. All customers will receive 100% credit back to their crypto wallets within 48 hours. We’re moving the card program to a new vendor,” Marszalek tweeted following the news.
The latest on this saga for Crypto.com is that the FCA, the U.K. watchdog, has allowed Wirecard Card Solutions, a Newcastle-based subsidiary of troubled German company Wirecard AG, to resume regulated activity meaning that the cards from Crypto.com have been reactivated in the UK and Europe.
These kinds of events, while mostly a one-off and rare, do represent the other issues that crypto faces in trying to enter the mainstream. Payment systems are usually taken as impenetrable and as a given, but there are hidden dangers that can hold back the advancement of this space.
That being said, the future of crypto seems laid out, and on top of that, its future as a payments system is becoming more and more probable.
The future of the space
There are certainly tangible changes in the crypto space when it comes to payments, and how these payments will be enacted and rolled out. But there is also a long way to go. However, as Marszalek explains, the digital asset bridge has already been built by cards.
“By 2030, every single person on the planet will hold digital assets one way or another. Our mission is simply to accelerate the world’s transition to cryptocurrency. Familiar form factors, like a card, play a very important role in educating main street users.”
Still, Hughes explained that there are still a number of things that need to be overcome in the crypto space for payments to be normalised with these assets.
“We strongly believe that for digital currencies to become trusted payment instruments for consumers or businesses, it is essential that they offer stability, regulatory compliance and consumer protections,” she added.