Author: David, Deep Tide TechFlow

Cryptocurrency payment cards are becoming a business that is sweeping across the entire industry.

Open Twitter and other social media, and you can often see KOLs recommending various cards with different fees;

From centralized exchanges like Binance, Coinbase, and Bitget, to crypto infrastructure like the Onekey wallet, they have all joined this race, hoping to bridge the gap between crypto assets and the real economy by issuing their own branded cards;

Image source: beincrypto.com

Recently, DeFi applications have also begun planning to enter the card issuance business.

In August, the decentralized stablecoin project Hope.money announced the issuance of HopeCard, which can be used for payments at merchants supporting VISA globally;

In the past few days, Uniswap DAO has also initiated a proposal to vote on whether to agree to issue a VISA card with the Uniswap logo…

Why has card issuance suddenly become popular in the crypto space?

When exchanges, wallets, infrastructure, applications, and even startups focused on card issuance all want to get a piece of the pie, will the business behind cryptocurrency payment cards be a good one?

Withdrawal and GPT: The Catalysts for Exploding Demand

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

As early as 2015, Coinbase issued a Bitcoin-based cryptocurrency payment card. During the bull market of the past two years, although industry-related organizations were exploring card issuance, their popularity and discussion levels were far from what they are today.

Why have cryptocurrency payment cards become particularly popular this year?

The key catalyst may lie in the surge in demand driven by withdrawals and ChatGPT.

The former represents the crypto community's desire for channel security, while the latter activates new payment scenarios.

First, withdrawals have always been an unavoidable topic.

As C2C withdrawal models become mainstream, using cryptocurrencies for money laundering and developing gray industries is also following this channel, and you can never know whether your next transaction will be "collateral damage" and result in a frozen card for the aforementioned reasons.

As a result, we often see various "perfect withdrawal" strategies trending online, with withdrawal service providers using "non-frozen cards" as a selling point, indicating a pressing market demand for secure withdrawals.

Thus, cryptocurrency payment cards have found their survival space: instead of spending energy researching withdrawals, it is better to use this card to bind to commonly used payment methods and directly use cryptocurrencies for daily consumption.

In addition, the emergence of subscription services like ChatGPT has also significantly contributed to the demand for cryptocurrency payment cards.

For the trendsetters in the tech circle, GPT is undoubtedly the focus of attention.

However, to experience the updated and more powerful features of GPT-4, one needs to pay a monthly subscription fee for Plus membership, and OpenAI does not accept mainstream credit and debit cards from domestic users.

In this case, cryptocurrency payment cards successfully resolve the awkwardness of regional restrictions.

Most cryptocurrency payment cards have card numbers starting with 4 or 5, belonging to American card organizations (VISA / MasterCard / American Express, etc.), perfectly meeting OpenAI's requirements for card types, allowing cryptocurrencies to be converted into USD for recharging.

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

However, it should be noted that many reports mix up concepts like "crypto VISA card," "crypto credit card," or "crypto card," leading many newcomers to be unaware of what kind of card they are actually using amidst the overwhelming social media promotions and advertisements.

To use a card for payment, similar to traditional financial bank cards, there are mainly two forms: credit cards and debit cards.

The former allows you to overdraw, meaning you can spend first and pay back later; while the latter requires you to deposit money before spending.

In the current market environment, the most popular ones are actually crypto prepaid debit cards: no need to bind an existing bank account, but you need to convert cryptocurrencies into fiat currency and load them onto the card in advance.

Card Issuance as a Service: The Driving Force Behind Replication of Popularity

Exchanges are issuing cards, wallets are issuing cards, payment startups are also issuing cards… can anyone issue a cryptocurrency payment card?

In our inherent impression, issuing credit and debit cards seems to be the patent of banks, and engaging in this business has a high technical and qualification threshold; however, in the cryptocurrency payment card space, this is not the case.

When users see a card branded with a certain cryptocurrency exchange and bearing the VISA logo, what is often unknown behind it is the collaboration model between the issuer and the technology provider.

For example, the VISA card from Coinbase is actually supported by the technology provider Marqeta, enabling it to issue crypto debit cards and provide users with real-time transaction authorization and fund conversion services; similar providers include Immersve, Reap, Striga, and Alchemy Pay, which domestic readers may be more familiar with.

Furthermore, due to the existence of the "technology provider" role, the card issuance process for cryptocurrency payment cards has become simpler.

In the complete chain from payment initiation to completion, traditional roles such as users, merchants, and card organizations (Visa/MasterCard) do not need to be elaborated; while technology providers offer a kind of "card issuance as a service" capability:

By providing necessary security technology, payment processing systems, and user interfaces to organizations that need card issuance, supporting crypto card issuance, currency conversion, and payments.

The demand side for card issuance only needs to call the technology provider's API or SaaS solution to issue and manage crypto credit/debit cards.

At the same time, the technology provider's "card issuance as a service" also includes various functions such as transaction authorization, fund conversion, transaction monitoring, and risk management, helping issuers simplify operations and improve efficiency.

Therefore, in theory, compliant regulatory or licensed institutions can issue cryptocurrency payment cards with the support of technology providers, which is also why we see various cryptocurrency payment cards from different issuers in the market.

Taking the well-known overseas solution provider Galileo as an example, its API has already integrated with payment networks like Visa and MasterCard, and it has also established cooperative relationships with issuers and other upstream and downstream industries, allowing demand sides to call its services to complete card issuance.

From the image above, it can be seen that a crypto application with card issuance needs may only need to provide a wallet address and manage accounts (purple), while the consumer's card opening, transactions, authorizations, and settlements are all handled by Galileo (blue).

Galileo's technical solution is not an isolated case.

In July this year, the well-known multi-signature wallet Gnosis Safe launched a network specifically for cryptocurrency payments called Gnosis Pay, which also supports issuing Visa cards.

This technical solution binds to a crypto wallet on one end, connects to banking systems, Visa, MasterCard, and third-party payments on the other end, and builds a dedicated L2 based on Polygon in the middle 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, opening API calls, and allowing other crypto applications to customize their own payment cards.

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

Feathering the Nest: The Business Behind the Payment Chain

That said, why is everyone so focused on the business of cryptocurrency payment cards?

As a multi-party business model, every party in the cryptocurrency payment card chain has a profit motive and its own business strategy.

For large exchanges: Engaging in cryptocurrency payment cards is not just about focusing on a small amount of card issuance fees and transaction fees; it often forms a combination with their other businesses:

• Empowering their own Token: Using cryptocurrency payment cards for consumption can earn token cashback, such as Binance's BNB and Crypto.com's CRO, which greatly helps enhance the influence and recognition of their own tokens; at the same time, depending on the amount of staked BNB or CRO, the benefits of the payment card may vary, which may also attract users to purchase or stake their own tokens;

• Expanding trading business: Exchanges hold massive traffic and users, and issuing cards is an attempt to step out of the digital currency trading business itself and expand more C-end payment scenarios. Although affected by compliance issues, the development logic is clear—referencing WeChat, which, after accumulating a large amount of traffic and stickiness, moved into payments based on social interactions.

For crypto applications/technology providers: If they are already engaged in hardware/software wallets, then entering the payment card business seems natural; since they can provide users with storage services for crypto assets, it becomes inevitable to bridge the next consumption link;

For other technology service providers, such as AlchemyPay or the previously mentioned Galileo and Gnosis, cryptocurrency payment cards become a business of selling SaaS services, charging based on B-end clients' calls or customized services;

For other issuers: The income after card issuance comes from card opening fees, annual/monthly fees, and transaction fees, and as I understand, some issuing organizations also invest the amounts deposited by users into U.S. government bonds, thus sharing in the returns from RWA.

For card organizations: VISA and Mastercard are businesses that welcome all; the more, the better. Whether it is cryptocurrency payment cards or traditional bank cards, the more users spend, the more transactions they conduct, and the more overseas transactions they have, the more fees they receive from clearing and settlement, leading to higher revenue.

Feathering the nest, every link in the cryptocurrency payment chain has something to gain. In a stable regulatory and economic environment, this seems to be a win-win business for multiple parties.

The Cake in the Big Market

The narratives in the crypto world are changing rapidly, but most of them still revolve around internal competition.

Cryptocurrency payment cards, by their business nature, are a track that "goes outward":

Whether it is the short-term demand for withdrawals and GPT subscription services or the long-term goal of utilizing cryptocurrencies for cross-border payments under compliance to unlock more online and offline payment scenarios, what cryptocurrency payment cards aim to do is the business of "entry and exit," and the cake is undoubtedly huge.

Related research reports also show that the annual compound growth rate of global cryptocurrency payment applications exceeds 18%, and cryptocurrency payments are likely to form a market scale of billions.

In such a large market, taking a small piece of the cake clearly offers substantial returns. This may also be one of the important reasons why various industry players are actively laying out cryptocurrency payment cards.

However, looking at reality, any product has its current risks and limitations.

Cryptocurrency payment cards may stop services due to poor cooperation with banks, and users who do not regularly check emails or use the card may miss withdrawal deadlines and incur losses; at the same time, with tightening regulations and changing attitudes from card organizations, even industry leaders like Binance may pause card issuance as a result.

The revolution has not yet succeeded; comrades still need to work hard.

We look forward to the cake getting bigger, and ultimately users can also taste the sweetness at the table of cryptocurrency payment cards.

At the same time, in the next article, we will also conduct in-depth research on the card opening conditions, functions, rates, and benefits of mainstream cryptocurrency payment cards in the market, providing more practical and useful references for everyone in choosing and using cards.