Payment Declined – Credit Card Companies Ban Crypto PurchasesDate Written: February 7 2018 Written By: Samantha Joule Fow
The cryptocurrency markets got a little less speculative last week when three of the largest U.S. banks announced that they would no longer process credit card transactions for cryptocurrency purchases. JPMorgan Chase, Bank of America, and Citigroup started to decline credit card transactions on known cryptocurrency exchanges on Friday. They join Capital One and Discover, who have previously announced that they won’t support these transactions.
Buying Cryptocurrency on Credit Raises Major Financial Risks
Many major cryptocurrency exchanges, including Coinbase, allow users to purchase digital coin using credit cards. This is an attractive prospect to some investors who believe they can cover the charges with their trading profits. And, so long as they can make their payments, credit card companies can make profit on the interest. However, credit card companies are starting to think twice about allowing customers to make such risky purchases.
Mastercard reported that consumer spending abroad has increased 22% this year, due in large part to customers using credit cards to buy cryptocurrencies. This purchase volume has raised concerns about theft, fraud, or massive default if the market takes a turn.
Cryptocurrencies are extremely volatile. After a staggering climb to nearly $20,000 in December, Bitcoin has lost more than half its value. Many investors who were once confident that they could cover cypto purchases they made on their credit cards now may be looking at a bill they can’t pay.
Volatility is not the only thing causing concern at the credit card companies. Cryptocurrency has also become a tool for cybercriminals and scammers. As a result, banks are concerned that cybercriminals and identity thieves will run up cryptocurrency charges on stolen cards. This can leave credit card companies on the hook for millions of dollars in fraudulent charges. Most cryptocurrency transactions are untraceable and stolen coins are almost never recovered. This makes theft and fraud a serious liability in addition to the risk of default.
Big Banks on the Blockchain
Complex financial regulations and money laundering transactions apply to international transactions, like purchasing cryptocurrency on a foreign exchange. As a result, some banks refuse to process them. For example, customers of financial institutions like the UK-based Barclays, Lloyd’s, and Standard Chartered Bank have complained of their accounts being closed due to attempted cryptocurrency purchases. Bank of America and Chase customers have lodged similar complaints, although the institutions do not have express policies in this regard.
All this is not to say that big financial institutions oppose virtual currency altogether. Electronic payment company Square allows users of its Cash app to purchase Bitcoin. Robinhood, the popular stock trading app, will also be introducing Bitcoin and Ethereum trading to its platform this month.
As a matter of fact, most of the big banks have already jumped on the blockchain bandwagon. JPMorgan Chase is hoping to increase transactional efficiency and security with its own blockchain product – Quorum – based on the Ethereum platform. In fact, just about every major bank is experimenting with blockchain technology. We can expect more and more blockchain-based financial services from global banks like UBS, Credit Suisse, and Banco Santander in the near future. However, for the time being, cryptocurrency investors will no longer be able to buy coins on credit.