Users still waiting for a break-through for bitcoin debit and credit cards

Even internet users are creatures of habit. That habit might be the reason for the excitement around the potential marriage between bitcoin cryptocurrency and traditional debit cards. The promise by California based bitcoin wallet provider Xapo to enable users to pay with a debit card while drawing from their bitcoin wallets was greeted enthusiastically by special interest publications. The announcement was only the most recent in a series of similar ones over the last few months. A stream of updates on how far discussions between Xapo and a potential credit card provider had advanced also illustrated that this is a complicated affair. (For an analysis of the regulatory tussles, see here).

“Security, meet convenience. With the new Xapo debit card you have the best of both worlds in the palm of your hand,” Xapo announced in April 2014. Xapo which recently raised as much as 20 million US dollars in venture capital would allow people to spend their bitcoins at any place that would accept Visa or MasterCard, Wired magazine positively reported. This would end the need to produce QR codes via phone or email when buying a simple bottle of lemonade. The amounts would be drawn from the bitcoin wallet using the actual exchange rate of the currency being used.

The announcement was just out when MasterCard felt compelled to deny any partnership with Xapo. Writing to digital currency special interest magazine CoinDesk, the company stated: “MasterCard does not have a relationship with Xapo. There is no card program currently available.” Xapo CEO Wences Casares reacted telling reporters that Xapo was “currently working with an undisclosed bank to launch the open-loop debit card product, but it has yet to select a credit card network with which to power the offering.” It is the very link between bitcoin wallet providers and traditional banking institutions with all the regulation attached to them that are one main source of complications for the ‘marriage’.

Hybrids exist – albeit with limitations

Other bitcoin debit cards have been announced before Xapo. Already available are for example cards from Bitplastic or Cryptex.

The Bitplastic Frequently Asked Questions explains limitations that do persist using the bitcoin debit cards. Cash withdrawal is limited for Bitplastic cards to 200 dollars daily, an exchange fee (bitcoin to hard cash currency) applies, plus a 1.5 percent ATM fee. Annually, the spendable amount users can load onto their card is 3,500 dollars – and, when you lose the card, the money is gone. The transfer back from the card to the Bitplastic wallet is not possible either.

Another disadvantage of the existing cards is also that the bitcoin exchange rates do vary considerably – another blow to the cryptocurrency resulted from the ban of bitcoin by China's Central Bank. As the rate is charged with a “small delay between when you submit the request and when we process it, the price of bitcoin may have moved,” Bitplastic writes. In this case, you might get a little more or a little less loaded to your card, depending on whether bitcoin goes up or down after you add funds to your card.” Price movements between withdrawal and processing would be small, though.

Finally, while the offer is starting to be serious, acceptance seems to still is a problem. Cryptex, as a Hong Kong startup linked to China’s Bank Union Pay, said its card could be used in 90 percent of US ATMs via the Discover card network.

Are prepaid cards the way to go?

While bitcoin wallet providers move to vaults (like Xapo) and debit cards, traditional banking providers also move to prepaid card solutions. Banking backend provider Wirecard who offers solutions for mobile and online payment meanwhile also started a system of issuing its own cards, including a prepaid card solution from its own bank - with their own limitations regarding, for example, daily spending.

Yet, while offering ‘e-money’ and ‘prepaid solutions’, “this is still based on regular currency and bound by the existing framework of banking law, civil law and European credit card regulatory provisions,” the WireCard AG wrote answering a question on a potential partnership with bitcoin wallet providers. “As bitcoins currently do not comply with the regulatory obligations, the respective companies are no potential partners for the WireCard Bank,” the company wrote.

A marriage of the two systems remains a complicated affair.