As crypto investments sputter, payments get a second wind

Even after the so-called crypto winter saw the valuations of many prominent digital currencies plummet, crypto companies are teaming with payment firms to make a growth push.

These partnerships are placing hopes on research that suggests people have not lost their appetite for crypto even after digital assets lost more than $1.3 trillion in the first half of 2022. Crypto exchanges are also struggling, with Binance backing out of a deal to acquire the troubled exchange FTX. FTX has also drawn attention from Congress, which may tighten rules for crypto exchanges.  

But firms are still adding payment products. Blockchain.com, for example, has debuted its Visa debit card, with 50,000 users live at launch. It's initially available in the U.S. ahead of expansion to other markets. The new debit card follows several moves by other payment companies over the past few weeks to expand access to cryptocurrency for payments and related services. 

Jordan Vonderhaar/Bloomberg

"In the world we are headed towards, one where crypto is mainstream, people are going to need more access to the crypto market," said Lane Kasselman, president of Blockchain.com. 

Blockchain.com's card uses Marqeta's issuing platform, with technology that allows users to spend directly from their crypto balance and settle transactions in traditional currency. Blockchain.com is also including cash-back incentive marketing for the cards, which can be used at any merchant that accepts Visa debit cards.  Marqeta recently upgraded its technology to include more financial services designed for nonbanks. 

"Our customers want to be able not to just invest and save in crypto, they also want to access their crypto for daily spending," Kasselman said. 

Blockchain.com referenced research from Marqeta to support its approach to the market. Marqeta's State of Money Movement, which was conducted in partnership with Propeller Insights, polled 4,000 adults globally, including 2,000 in the U.S. The study found 38% of U.S. consumers own cryptocurrency. It also found 93% of all crypto owners currently hold crypto as an asset, but are interested in using digital assets for other purposes. Additionally, 71% of U.S. consumers used a mobile wallet in the past 12 months and 56% of consumers are comfortable leaving their physical wallets at home and taking their phones with them to make purchases. 

"There is a significant demand for consumers to use crypto more as a currency for exchange," Kasselman said, noting Marqeta's study found 82% of consumers globally said they would be interested in using crypto for everyday purchases if their exchange offered a debit card. 

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The card will be linked to a Blockchain.com wallet account and will support payments in crypto and traditional currency. Other crypto cards in the market today include the recently launched PointCard, for consumers who are more active in cryptocurrency than traditional financial services, and the BlockFi Visa and Gemini Mastercard. 

"Even just five years ago, we couldn't have dreamed this was possible, which is a testament to the industry's growth," Kasselman said. 

Several payment companies have also aggressively leaned into crypto during the downturn. 

Mastercard, for example, in early October launched a service designed to make it easier for banks to adopt crypto services. Called Crypto Source, Mastercard offers buy, hold and sell support for crypto, as well as identity management, cyber risk and advisory services. Mastercard's partner is crypto technology firm Paxos, which has also worked with PayPal and Bank of America to support crypto buy, hold and sell.  

Also in October, cryptocurrency company PDX launched a system to convert crypto to traditional currency ahead of payments. Around the same time, ticketing company YellowHeart developed a crypto payment option that does not convert to traditional currency, but is aimed at digital consumers who want to transact in only crypto when buying tickets. And in November, Bitstamp integrated with PayPal to allow PayPal's customers to fund crypto purchases, following earlier Bitstamp partnerships with Google and Apple. 

Like Blockchain.com, Bitstamp is collaborating with large payment companies to quickly add millions of users who could potentially use crypto for payments. And the partnerships between crypto firms and payment companies allow transfers to traditional currency before the transaction reaches merchants, which also builds an addressable market of retailers. 

Research suggests there is a market for crypto payments even if the underlying crypto has lost more than half of its value. Eighty-five percent of retailers want to accept crypto payments, with half of those merchants saying it's on the condition that they don't have to handle crypto directly, according to Deloitte.  And 40% of consumers between 18 and 45 plan to buy crypto over the next six months, according to Checkout.com. 

There's also a potential compliance benefit for crypto companies to work with payment firms. Payment service providers (PSPs) are taking advantage of a window of opportunity to support crypto payments while crypto regulations are still in flux. In much of the world, cryptocurrency and blockchain regulations are still being proposed or awaiting legislative action to govern digital assets that remain stalled. As a result, payment companies tend to be more heavily regulated than crypto-native companies and can partner with crypto companies to help provide scale. 

"Payment companies provide an important service until crypto regulation becomes standardized and crypto adoption becomes mainstream. When this tipping point is reached, the dependency of crypto merchants on PSPs will be reduced," said Elbruz Yilmaz, senior vice president of crypto and web 3 at Paysafe.  

"The main friction between the crypto and fiat worlds occurs during on-/off-ramp processes," Yilmaz said.  "Payment companies are trying to provide card processing and banking-as-a-service solutions to crypto companies."