2 min read · Feb 16, 2018
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Major banks around the world have started banning purchases of Bitcoin and other cryptocurrencies on credit including banks in the United States, United Kingdom, Australia, Canada and Europe. There have been a number of reasons behind the ban with most banks opting that they are trying to protect their customers from a risky unregulated market. Massive returns on cryptocurrency markets in 2017 saw so much growth that major exchanges had to block users making accounts due to not being able to keep up with demand.
But do banks really care that much about people getting into debt on their credit cards? Probably not. There are plenty of over spenders such as heavy gamblers with multiple maxed out credit cards and large debts to their respective banks. There isn’t any large push to ban sports gambling companies or casinos, despite global gambling losses totalling an estimated 400 Billion last year.
The truth is credit cards are the most fraud prone payment method on the planet with mass scale fraud a continually growing problem and credit card issuers don’t want to address it. In 2017, 78% percent of all reported online fraud involved credit card numbers.
Industry insiders have reported huge spikes in cryptocurrency related fraud cases. Cryptocurrency services are a target for fraudsters due to their largely untraceable nature.
Some banks have simply opted to count cryptocurrency transactions as a cash advance rather than the purchase of a good or service. This allows them to recoup more fees and revenue eaten by the high administration costs of disputed transactions from crypto related services. Others have opted to continue allowing cash deposits and debit card transactions due them being far less risky than the depths of credit card limits and debt.
Bottom line is the credit card is an old and insecure technology which is struggling to protect its millions of users against fraud. Banks solve this problem by charging back merchants as soon as a dispute arises which is a costly exercise for both parties. Banks have blocked cryptocurrency purchases not because they care about their customers getting into debt the real reason is because it creates too much opportunity for fraud. Hopefully the future will see levels of encryption better than a 16 digit number for the foundation of our global payments system.
Is ban actually a problem for the crypto ecosystem? Definitely not.
Until the necessary safeguards and standard practices are built to protect vulnerable investors from scams and malpractice- not allowing the purchase of highly speculative tokens or currencies on credit is entirely a good thing.
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Now, delving into the provided article from CoinLoop on February 16, 2018, let's break down the key concepts discussed:
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Credit Card Bans on Cryptocurrency Purchases: The article highlights that major banks worldwide, including those in the United States, United Kingdom, Australia, Canada, and Europe, have initiated bans on purchasing Bitcoin and other cryptocurrencies using credit cards. The primary reason cited by banks is the perceived need to protect customers from the risks associated with the unregulated cryptocurrency market.
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Rationale Behind Credit Card Bans: The article questions the sincerity of banks' concerns about customers accumulating debt through cryptocurrency purchases. It argues that banks tolerate other high-risk activities like heavy gambling, which can also lead to significant debts. The central premise is that the stated reasons for the ban might not be the primary motivations behind it.
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Credit Card Fraud and Risk: The article contends that credit cards are highly susceptible to fraud, labeling them as the most fraud-prone payment method globally. It emphasizes that in 2017, 78% of reported online fraud cases involved credit card numbers. This vulnerability is attributed to the outdated and insecure nature of credit card technology.
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Cryptocurrency-Related Fraud: The article asserts that there has been a notable increase in fraud cases related to cryptocurrency services. The largely untraceable nature of cryptocurrency transactions makes them a prime target for fraudsters.
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Bank Strategies: Different banks employ varying strategies in response to cryptocurrency transactions. Some categorize them as cash advances to recover more fees, while others continue to allow cash deposits and debit card transactions, which are perceived as less risky compared to credit cards.
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Credit Card Technology Challenges: The article argues that credit card technology is outdated and insecure, struggling to protect millions of users against fraud. Banks often resort to chargebacks as a costly method to resolve disputes with merchants.
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Cryptocurrency as a Cash Advance: The article notes that some banks classify cryptocurrency transactions as cash advances, potentially allowing them to recoup fees and revenue lost to high administration costs associated with disputed transactions.
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Impact on Crypto Ecosystem: The article concludes that the ban on purchasing cryptocurrencies with credit cards is not a significant problem for the crypto ecosystem. It suggests that until proper safeguards and standard practices are established to protect investors, prohibiting the purchase of highly speculative tokens or currencies on credit is a positive measure.
In summary, the article sheds light on the complex relationship between traditional banking institutions and the emerging cryptocurrency market, emphasizing issues of fraud, credit card technology vulnerabilities, and potential motivations behind the credit card bans on cryptocurrency purchases.
