01 Aug Banks still wrestling with bitcoin credit card purchases
Fintech startup Abra recently decided to let customers buy cryptocurrency with credit cards. Meanwhile, Bank of America, JPMorgan Chase, Citigroup, Capital One, Discover and other major banks continue their policy of locking bitcoin and other altcoin purchases.
It’s a cryptocurrency conundrum and it’s likely to continue in the short-term until traditional financial institutions can find a way to understand and properly respond to a market that is changing quickly around them.
Like the past five years of fintech disruption, traditional banks are flummoxed when it comes to innovation.
Abra says the fault lies with bank systems
In an interview in American Banker, Bill Barhydt, Abra’s CEO said, “A lot of US banks that haven’t rolled out 3-D Secure” — a security protocol for card transactions — “and other technologies have different chargeback rules because they’re still behind in the technology curve. So, they’ve been reluctant to process crypto transactions.”
JPMorgan says its decision stands for the moment according to the magazine. “Due to the volatility and risk involved, we are not processing cryptocurrency purchases using credit cards at this time,” a spokeswoman said.
Visa and MasterCard appear neutral on the issue. MasterCard still allows purchase of cryptocurrencies where permitted by law.
Consultant Richard Crone said, “They [traditional banks] need to think outside the old core processing box and think like a fintech,” he said.
Abra’s Barhydt says there have been no chargebacks on cryptocurrencies to date thanks to the fintech’s way of validating purchasers and use of 3-D Secure technology.
Are banks “big brothering”?
Attorney Christine Duhaime, founder of the Digital Finance Institute says if banks are “de-risking” purchase of cryptocurrencies to protect customers, they could be at risk for not acting on other similar risks such as buying stocks and bonds, purchase of a new car or even online gambling,
“It’s not their role and legally; I think it exposes them to more liability,” she said. “Moreover, how are they then going to change their position when the time comes to accept digital currencies? Then what? They will be on the hook for market changes and chargebacks because, in 2018, they publicly said they believe they have a responsibility legally, to Big Brother the sector,” she told American Banker.
Who’s leading the way?
Abra, Square, and Circle Financial are just three of the fintechs who allow cryptocurrency purchases by credit card.
Abra already has thousands of users of its cryptocurrency wallet and hopes to offer payments, money transfers, and credit services in the near future.
One thing is clear. When it comes to consumers and cryptocurrency, the landscape for traditional financial institutions and new fintechs is shifting rapidly and the spoils will go to the agile.