Rush to issue cards, the business secrets behind encrypted payment cards

Unlocking the Business Secrets of Encrypted Payment Cards The Rush to Issue Cards Revealed

Original Author: David

Cryptocurrency payment cards are becoming a booming business across industries.

When opening social media platforms like Twitter, we often see Key Opinion Leaders (KOLs) recommending various cards with different fees.

From centralized exchanges like Binance, Coinbase, and Bitget, to encrypted infrastructure like the Onekey wallet, they have all joined this race, hoping to bridge the gap between encrypted assets and the real economy through the issuance of their brand-specific cards.

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Image Source: beincrypto.com

Recently, DeFi applications have also started planning their card issuance business.

In August, the decentralized stablecoin project Hope.money announced the launch of HopeCard, which can be used for payments at VISA-supported merchants worldwide.

And in recent days, Uniswap DAO has also initiated a proposal, voting to discuss whether to issue a VISA card with the Uniswap logo…

Why has card issuance suddenly become popular in the cryptocurrency community?

When exchanges, wallets, infrastructure, applications, and even entrepreneurial teams focusing on card issuance all want a piece of the pie, could cryptocurrency payment cards really be a lucrative business?

Withdrawals and GPT, the catalysts of demand

In fact, cryptocurrency payment cards are not a new phenomenon.

As early as 2015, Coinbase issued cryptocurrency payment cards based on Bitcoin. And although there were organizations exploring card issuance during the bull market of the past two years, their popularity and discussion were far from what we see today.

Why have cryptocurrency payment cards become particularly popular this year?

The key catalyst may be the increased demand for withdrawals and ChatGPT.

The former represents the cryptocurrency community’s desire for secure channels, while the latter activates new payment scenarios.

Firstly, withdrawals have always been an unavoidable topic.

When C2C withdrawals become mainstream and the use of cryptocurrencies for money laundering and illicit businesses follows this path, you never know if your next transaction will result in “card freezing” due to the aforementioned reasons.

This is why we often see various “perfect withdrawal” strategies circulating online, with payment service providers advertising “card-unfreezing” as a selling point, indicating the market’s urgent need for secure withdrawals.

So the encrypted payment card found its space to survive: instead of spending energy to study gold themselves, it is better to use this card to bind commonly used payment methods and directly use encrypted currency for daily consumption.

In addition, the emergence of subscription services such as ChatGPT has also played a significant role in driving the demand for encrypted payment cards.

For tech enthusiasts, there is no doubt that GPT is the center of attention.

But to experience the more powerful features of GPT-4, you need to pay the monthly subscription fee for the Plus membership, and OpenAI does not accept mainstream credit cards and debit cards in China.

In this case, the encrypted payment card successfully resolves the embarrassment of geographical restrictions.

Most encrypted payment cards start with 4 or 5, belonging to American card organizations (VISA / Master / Amex, etc.), perfectly meeting OpenAI’s requirements for card types, and allowing the conversion of encrypted currency into US dollars to complete the recharge.

At the same time, these cards also largely support cross-border shopping on foreign e-commerce platforms (Amazon, eBay, Shopee, etc.) and subscriptions to other software (Midjourney, Netflix, etc.); and with the end of the pandemic, encrypted payment cards are also a convenient choice for users with transnational consumption scenarios.

However, it should be noted that many reports mix “encrypted VISA card,” “encrypted credit card,” or “encrypted card” concepts to the extent that in the overwhelming promotion and advertising on social media, a considerable number of novices do not know what kind of card they are using.

To make card payments, just like traditional banking cards, there are mainly two forms: credit cards and debit cards.

The former allows you to overdraw, that is, consume first and repay later, while the latter requires depositing before consumption.

In the current market environment, in fact, the more popular ones are encrypted prepaid debit cards: they do not need to be bound to existing bank accounts, but require pre-conversion of encrypted currency into fiat currency to be loaded into the card.

Issuer-as-a-Service, the hidden driver behind the popularity

Exchanges issue cards, wallets issue cards, and payment startup teams also issue cards… Can anyone issue an encrypted payment card?

In our inherent impression, issuing credit cards and debit cards seems to be the patent of banks, and conducting this business requires high technical and qualification thresholds. However, in the race of encrypted payment cards, the situation is not the same.

When users see a card with the brand of a certain encrypted currency exchange and the VISA logo, the unknown fact is that behind it is actually a cooperation model between the issuer and the technology provider.

For example, Coinbase’s VISA card is actually supported by technology provider Marqeta, enabling it to issue encrypted debit cards and provide users with real-time transaction authorization and fund conversion services. Similar providers include Immersve, Reap, Striga, and Alchemy LianGuaiy, which are more familiar to Chinese readers.

Furthermore, due to the existence of this role as a “technology provider,” the process of issuing encrypted payment cards has become simpler.

Throughout the entire chain from payment initiation to completion, traditional roles such as users, merchants, and card organizations (Visa/MasterCard) need not be mentioned. Technology providers offer a kind of “card issuance as a service” capability:

By providing necessary security technology, payment processing systems, user interfaces, etc. to organizations that need card issuance, in order to support the issuance, currency conversion, and payment of encrypted cards.

The card issuer only needs to invoke the technology provider’s API or SaaS solution to issue and manage encrypted credit/debit cards.

At the same time, the “card issuance as a service” provided by the technology provider includes various functions such as transaction authorization, fund conversion, transaction monitoring, risk management, etc., helping the card issuer simplify operations and improve efficiency.

Therefore, theoretically, institutions subject to compliance regulations or holding licenses can issue encrypted payment cards with the support of technology providers. This is also the reason why we can see various encrypted payment cards from different issuers in the market.

Taking Galileo, a well-known overseas solution provider, as an example, its API has been integrated with payment networks such as Visa and MasterCard, and it has also established cooperative relationships with card issuers and other industry players. The card issuer can simply call its services to complete card issuance.

From the above figure, it can be seen that an encrypted application with card issuance needs only to provide a wallet address and manage accounts (purple), while consumer actions such as card activation, transactions, authorization, and settlement are all handled by Galileo (blue).

And Galileo’s technological solution is not unique.

In July of this year, well-known multi-signature wallet Gnosis Safe launched a network called Gnosis LianGuaiy specifically for encrypted payments, which also supports the issuance of Visa cards.

One end of this technological solution is connected to the encrypted wallet, while the other end interfaces with the banking system, Visa, MasterCard, and third-party payment processors, with a specialized L2 based on Polygon built in between to handle the conversion and payment between cryptocurrencies and traditional finance.

Similarly, Gnosis also plays the role of a technology provider: providing a set of developer integration tools, allowing the invocation of open APIs, and enabling other encrypted applications to customize their own payment cards.

Overall, technology providers are more like bridge builders, bridging the gap between the crypto world and traditional finance, allowing more payment applications to run on this bridge.

A bird in the hand is worth two in the bush, the secrets of the payment chain

So why has everyone set their sights on the business of crypto payment cards?

As a multi-party business form, every participant in the payment chain has a profit motive and their own secrets of success.

For large exchanges: Creating crypto payment cards is not just about focusing on card opening fees and transaction fees, it often becomes a combination of other business:

• Empowering their own tokens: Using crypto payment cards for consumption can earn token rewards, such as Binance Card’s BNB and Crypto.com’s CRO. This greatly helps to increase the influence and awareness of their own tokens. At the same time, depending on the amount of BNB or CRO pledged, the card’s equity level will also change, which may attract users to purchase or pledge their own tokens;

• Expanding transaction business: Exchanges hold massive user traffic and card issuing is an attempt to expand beyond the business of cryptocurrency trading and into more consumer payment scenarios. Although compliance issues have an impact, the development logic is clear – just as WeChat accumulated a large amount of traffic and stickiness, it then ventured into payments based on its social platform.

For crypto application/technology providers: If they are already in the business of hardware/software wallets, it is only natural for them to enter the payment card business. Since they are able to provide storage services for crypto assets, it becomes inevitable to tap into the next stage of consumer spending;

For other technology service providers, such as AlchemyLianGuaiy or the aforementioned Galileo and Gnosis, crypto payment cards become a business of selling SaaS services, charging based on the calls or customized services for B2B customers;

For other card issuers: After issuing cards, their revenues come from card opening fees, annual/monthly fees, and transaction fees. Additionally, according to my understanding, some card issuers also use the funds stored in the cards for U.S. government bond investments, so as to earn a share in the income from RWA (Risk Weighted Assets).

For card associations: VISA and Mastercard are open to all business opportunities. Whether it’s crypto payment cards or traditional bank cards, the more user spendings, transaction volume, and overseas transactions, the more transaction fees they receive from settlement, leading to higher revenue as the amount increases.

Feather the goose, every link on the encrypted payment chain is profitable for users. In a stable regulatory and macroeconomic environment, this seems like a win-win business.

A big market cake

The narrative in the crypto world is ever-changing, but ultimately it mostly stays within the circle.

However, the nature of crypto payment cards is to “go outside”:

Whether it’s for short-term withdrawals and GPT subscription service demands, or for long-term utilization of the convenience of cryptocurrencies for cross-border payments in various online and offline payment scenarios, what crypto payment cards aim to do is a business of “import and export,” and the cake is undoubtedly huge.

Related research reports also indicate that the global compound annual growth rate of cryptocurrency payment applications exceeds 18%, and the cryptocurrency payment market could potentially reach a billion-dollar scale.

So, cutting a slice of this small cake in such a big market will undoubtedly yield substantial returns. This is perhaps one of the main reasons why all parties in the industry are actively positioning themselves in the crypto payment card space.

But looking at reality, every product comes with current risks and limitations.

Crypto payment cards may stop services due to poor collaboration with banks, and if users do not regularly check their emails or use their cards, they may miss the withdrawal deadline and suffer losses. At the same time, with tightening regulations and changing attitudes of card organizations, even industry giant like Binance may temporarily halt card issuance.

The revolution is not yet successful, comrades still need to work hard.

We look forward to expanding the cake and ultimately allowing users to taste the sweetness of crypto payment cards.

Also, in the next article, we will conduct in-depth research on the opening conditions, features, rates, and benefits of mainstream crypto payment cards on the market, providing more practical and useful reference for your card selection and usage. Stay tuned!

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