Bitcoin, Ether and other cryptocurrencies have not become the complete replacement for fiat currencies that their founders envisioned. A new breed of crypto companies hopes Ethereum debit cards will bridge the traditional and crypto worlds, letting anyone pay with Ether at millions of retailers around the world.
This guide will introduce you to five companies building these new services on the Ethereum blockchain. Although none of them are shipping cards yet, these companies should start offering them this year.
What Happened to the Crypto Cards?
Several companies launched cryptocurrency prepaid cards over the past few years. Just like branded credit cards, however, these companies weren’t the ones issuing the cards. They had signed agreements with a card-issuer called WaveCrest.
The people using those cards got a nasty surprise on January 5 when their cards stopped working. Visa had booted WaveCrest out of its network.
In a statement reported by CNBC, Visa Europe said: “Our actions were not specific to cryptocurrency, but rather reflect the issuer’s failure to comply with Visa’s policies that ensure the safety and integrity of our payment system.”
The companies that had relied on WaveCrest had to scramble to get their customers’ coins returned. Many are still trying to get a new card-issuer on board and some gave up completely.
TenX prepaid card with Ether wallet
Singapore-based TenX was one of the crypto card companies that fell afoul of WaveCrest’s struggles with Visa. The thousand-member beta program came to a close after testing the TenX platform in countries around the world. As 2017 came to a close, TenX had on-boarded thousands of customers. Then WaveCrest happened.
Unlike many cryptocurrency prepaid cards which convert coins to sustain a fiat balance, the TenX card converted your cryptocurrency for each purchase. And rather than limit itself to just Bitcoin, the TenX wallet supported Ether and Litecoin as well. Plans were even underway to support all tokens built on the ERC20 platform.
The TenX card had very few fees – the company’s profits came from the fees merchants pay for accepting Visa and Mastercard. As long as you spent more than $1,000 a year, you did not have to pay the $10 annual fee. TenX did not charge foreign exchange fees and you didn’t even have to pay mining fees when using the card. TenX did, however, charge $2.75 for ATM withdrawals. You also had to pay a $15 issuing fee, though that included shipping of the physical card.
TenX had already planned to replace WaveCrest with a different card issuer — just not so soon. At the beginning of 2018, TenX thought they would have everything ready to start shipping new cards by the end of March. That did not work out. TenX and its new issuer have completed the backend integration, but there is still work left to do.
More Ethereum-based Cards on the Horizon
The WaveCrest incident wiped out TenX’s head start as a multi-coin prepaid card company. More companies have card programs in the works and should be launching sometime this year. Here are four to keep an eye out for.
Switzerland-based Monaco, founded in 2016, finally launched its digital wallet in a closed beta program this past March. The wallet app supports multiple fiat and cryptocurrencies and will allow users to manage their physical cards.
The Monaco Card will be fiat-based and will require topping-up from the cryptocurrency stored in the Monaco digital wallet. Monaco does not plan to charge fees for use of the card, instead using the merchant fees to cover its costs.
Monaco’s cash back program will pay 2% of each transaction in the company’s token, MCO.
London-based Tokencard was just about to launch its payment system when the WaveCrest incident happened. The company has contracted with another issuer who can support Tokencard’s global plan — including issuing cards in the United States.
Tokencard plans to start alpha testing its digital wallet in June. There’s no forecast for how long the alpha and beta test programs will take. Only once the wallet and apps are rock-solid will Tokencard start issuing physical cards.
Toronto-based Stack has already started private beta testing of its digital wallet app. As long as everything works, out the company will go live in Canada, and possibly the United States and Europe, this year. Exactly when Stack starts shipping cards will depend on how well the beta program goes.
Purchases made with the Stack card won’t incur transaction fees. Topping up the card will be free if you do it with Stack’s token, STK. If you use Ether, you will have to pay for gas. The card will have transactions limits — $100 for tap-to-pay transactions and $500 for chip-and-pin purchases — as well as a $2,000 daily limit.
German fintech company Naga Group already operates what it calls the world’s “fastest growing” social trading network. Traders can speculate in markets for exchange-traded funds, foreign exchange, contract for difference and others financial instruments.
The company launched its digital wallet in April. The Naga Wallet supports Bitcoin, Ether, Litecoin, Bitcoin Cash and any token built on Ethereum. The wallet is already available to traders on the Naga exchange and will be the platform that drives Naga’s prepaid card, the Naga Card.
At launch, the Naga Card will be a fiat-based prepaid card and require topping up from your crypto balances. Over time, the technology will evolve to support real-time conversions for each transaction.
The Naga Card will be available in all of the markets where the Naga Group can operate its trading platform. The United States is not on that list.
How Ethereum-powered Cards Work
There are two ways these cards let you use cryptocurrencies to fund your purchases. The way most of these cards work, at least for now, is like a traditional prepaid card. The card holds a pool of your local fiat currency that you use to pay for your purchases.
When your fiat balance falls below a certain level, the cards go to your crypto balances and convert an amount into fiat to top up your card balance. These settings happen automatically thanks to the smart contracts made possible by running on the Ethereum platform.
The second way, and the one all of these companies are heading towards, is to make the crypto-to-fiat conversion at the time of purchase. The infographic below comes from Stack, but each company runs things in a similar manner.
When you run your card through the point-of-sale terminal, the Visa or Mastercard network handles it just like any other card transaction. Stack receives a request from Visa, for example, to confirm that you can pay the cost of the purchase. Stack checks your crypto balance and then starts the exchange process. Rather than waiting for the exchange to go through and get written to the blockchain, Stack authorizes the purchase out of its own pocket (the liquidity pool in the infographic) and then gets reimbursed when the trade is done.
The disruption caused by the WaveCrest incident slowed the rollout of crypto-backed prepaid cards. This year should see the industry get back on track. Several questions do need to get resolved before these cards see widespread adoption — especially the tax implications of cryptocurrency-funded purchases.