Where and when can I get my bitcoin debit card? According to a few exchanges and trading platforms, the answer may be “soon.” A small handful of companies are locked in a tight race to be the first to develop and sell a non-prepaid debit card backed by customer-owned bitcoins. Xapo’s branded debit card appears to be getting close (overdue by about a month, by some accounts), while several others have announced intentions to offer a card. While we don’t have very much information about the cards that are on the way, what we do know suggests that many in the community will stay away.
A major hindrance to cryptocurrency adoption is the small size of the participating merchant base. In spite of the few high profile conversions over the last year, a generous estimate of the worldwide size of the bitcoin economy would likely fall somewhere in the low five figures. By comparison, Mastercard boasts more than 30,000,000 participating merchants worldwide.
Bitcoin backed debit cards offer something for everyone- cryptocurrency enthusiasts can keep their wealth in bitcoins while retaining the ability to conduct business as conveniently as with a regular bank account. Banks, on the other hand, get to participate and profit from the growth of cryptocurrencies by leveraging their existing systems to deliver a service that consumers want. However, considering the reasons that many people choose to adopt cryptocurrencies, bitcoin debit cards start to look a little less attractive.
A debit card that draws from a hosted bitcoin wallet seems like a natural solution, but the reality of implementation is a little more complicated. The widespread acceptability of the bitcoin debit cards currently advertised stems from their compatibility with one or more of the major interchange networks (Visa, Mastercard, Pulse, etc.). The interchange networks facilitate funds transfers between member banks and merchants, while also providing foreign exchange and other services where necessary, in exchange for a fee for service by participating merchants.
Debit card issuers must meet strict requirements in order to qualify for membership in one of the major networks. Among these are the obligations to “know your customer,” and to develop and implement anti-money laundering compliance programs. They must also comply with the Payment Card Industry Data Security Standard and the requirements of the state where they are located. All of these requirements are expensive to implement and maintain.
Visa and Mastercard require members of their networks in the United States to be insured by the Federal Deposit Insurance Corporation or National Credit Union Association, which means that issuers of compatible bitcoin debit cards must also be members (or pay to be affiliated with a bank or credit union that is). In the case of direct membership, FDIC or NCUA insurance usually requires a bank charter from a state, which involves an even longer list of pre-requisites.
Like banks, payment card issuers are required to cooperate with government entities. Network processing implies that the data sent over the network is subject to intercept and storage by law enforcement or intelligence agencies in the parts of the world where this is the norm. Unless you plan to keep a fistful of pre-paid burner cards on hand, it won’t take long for the veil of privacy created by holding and spending bitcoins to be worn away by the pattern of activity you generate while going about your daily routine.
Merchants don’t have to know that you are spending bitcoins, nor are they likely to care, since they get paid by their processors in their local currency. The liquidation and conversion of your bitcoin holdings is handled on the back end by your card’s issuer. This is all transparent to the merchant, so don’t expect a discount for paying with bitcoin (since you actually aren’t). The merchant still has to pay the interchange fee for the privilege of accepting your branded card. Additionally, some card issuers will charge you a fee every time you use it. ANX, for example, intends to take a whopping 2.5% per swipe once their card launches (at least one issuer, Xapo, claims that their card will be free).
UPDATE 08/02/2014: Xapo’s debit card will NOT be free and all claims to that effect seem to have disappeared from their website. Check out their list of fees here.
Since your bitcoins will need to be on deposit with the card issuer in order to be spent, you will essentially be carrying on a traditional banking relationship, with all of the attendant cost and hassle. And, since your issuer will need to convert your holdings into dollars in order to transfer them, your account is likely to only be denominated in bitcoins and not actually be backed by them. If New York’s proposed Bitlicense rules are any indication of the way that state level regulators are likely to proceed, then bitcoin holdings will not be considered acceptable as reserves for issuers.
What do you think? If you have signed up for a non prepaid bitcoin debit card or you intend to, please let us know in the comments.