What are crypto cards and what are their use cases?

During the last decade, one of the most innovative disruptions in the financial sector has been cryptocurrencies. Along with the first exchanges dedicated to their purchase and sale, the number of transactions of these assets grew exponentially, motivated by being a new form of saving or investment: between July 2021 and June 2022 in Latin America, there were transactions of more than USD 562 billion in cryptocurrencies, according to Chainanalysis. This figure represents a 40% increase compared to the previous period!

However, a point was reached where the connection with fiat money was inevitable and necessary; otherwise, how would users who want to make payments or purchases in their daily lives use these cryptocurrencies? This is where crypto cards arrived, an innovation—and a great business opportunity—brought by fintech.

And if there is a land to explore business possibilities that the crypto boom brings, it is Latam. Economic and political instabilities, combined with low financial inclusion, caused crypto adoption to grow rapidly compared to more developed countries. According to a report by Latitud, in 2022, 21% of surveyed Argentinians own or use crypto assets, while in the United States, it is only 10%.

Undoubtedly, the alliance between cryptocurrencies and cards is a win-win for Latam: savings, investments, and banking combined. Let's learn more about the great opportunity this tool offers!

How did crypto cards come into existence and why are they so important?

As we mentioned earlier, one of the main barriers that cryptocurrencies presented was the low or nonexistent level of acceptance they had to operate within the existing and traditional payment and transfer infrastructure.

Although there have long been many exchanges where it is possible to exchange fiat money for cryptocurrencies, the reality is that in most cases, they could only be used within the blockchain, entirely outside of banking and payment networks. This gap represented a great business opportunity for fintech.

Fortunately, this situation is changing, and much of it is thanks to fintech, which is leading innovative ideas to integrate technology, finance, and new digital currencies. The first and most intuitive solution to this barrier came through cards, a massive tool that, with this shift, integrates cryptocurrencies into the traditional, physical, and virtual economy, giving users the freedom to use them in any field they choose.

But not only that, several fintech have started offering services that combine the best of both worlds:

• on one hand, access to the blockchain to buy, sell, and transfer cryptocurrencies via a wallet;
• and on the other hand, a franchised prepaid or credit card that allows transactions in the everyday world through BIN Sponsorship and traditional acquiring and processing networks.

What are the most common use cases in the fintech industry for crypto cards?

The ways to launch crypto cards vary according to the country and the business idea executed, but there are some models that have consolidated in our region and are a clear example of current trends:

• Crypto card funded with fiat money and/or cryptocurrencies: Under this model, the user has a digital wallet where they can hold fiat money or cryptos like Bitcoin, Ethereum, or USDT, and choose which to use for transactions. The Ripio prepaid card is a great example of this versatile model, as the user can pay with their card for any purchase using their fiat money balance or by converting the cryptocurrencies from their wallet.
• A secured (or collateralized) card with a crypto asset: Here the user has a credit card where purchases made are backed by a crypto asset, such as NFTs or Bitcoins, previously provided to the card issuer. Generally, the user can spend up to a percentage of the money equivalent to the provided crypto asset. By the end of the month, the user must pay for their purchases in fiat money, and if they fail to do so, the purchases will be paid by liquidating the collateral crypto asset.
• A card funded with tokenized physical assets: In this model, a user who has physical assets that can be valued decides to tokenize them on the blockchain network and obtain a digital token for a value equivalent to the price of their physical asset. In this way, that token can be used to pay for purchases through the crypto card. A pioneer in this model is Agrotoken, the first tokenization infrastructure with presence in Brazil and Argentina that converts the value of its users' agricultural production into crypto assets, so they can use it with their Pomelo-powered cards in any store.

Where to start if I want to offer crypto cards to my clients?

As we saw in the previous section, there are very different examples of crypto cards, but they have common aspects to meet the proposed innovation. On one hand, your solution must solve the connection to the crypto ecosystem and the different blockchains related to your value proposition. This connection is independent of banking networks and must be managed separately.

On the other hand, launching a card requires certain essential aspects such as having a VISA or Mastercard BIN. If you're just starting, this process might be tedious and long, but nowadays, you can access a BIN by working with companies that already have a relationship with the brands and can provide you one through a Bin Sponsorship model.

In addition, it's also important to consider how to issue your cards, as they can be virtual or physical. For this, you will need to consider points such as the design they will have, whether they will be named or unnamed, and elements like their manufacturing and distribution.

Finally, you will need to connect to payment processing networks to authorize or reject the transactions your users make and manage reconciliation with the brands to pay for those transactions.

These are some examples of how cryptocurrencies and cards integrate seamlessly to provide the best solutions for users. Surely we will see new innovative models in the future that will uphold the premises of flexibility, scalability, and speed!