Big US Banks Decline Cryptocurrency Purchases on Credit Cards
Major US banks JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. have announced customers will no longer be able to buy cryptocurrencies on their credit cards. The banks cited market volatility and the risks associated with the transactions as the reason.
JPMorgan, which put the ban in place on Saturday, said it does not want to get involved with the credit risk associated with the transactions. Citigroup announced on Friday it will stop purchases of cryptocurrencies on its credit cards. The company has said it will continue to review its policy as the market evolves. Bank of America has already started declining credit card transactions with known cryptocurrencies, including bitcoin, on Friday.
The policy is valid for all personal and business credit cards and does not affect debit cards, the lenders said.
Stop customers from risky purchases
Capital One, a US bank, has banned credit card purchases of cryptocurrencies last month. Financial services firm Discover has put the ban in effect in 2015. The bans aim to stop customers from making very risky buys on their credit lines or prevent defrauders from buying cryptocurrencies and disappearing.
Discover Chief Executive Officer David Nelms said “at the moment, it’s crooks that are trying to get money out of China or wherever”, according to Bloomberg, talking about those trying to use cryptocurrencies. He was dismissive of financing cryptocurrency transactions, noting however that could change depending on customer demand.
Bitcoin has lost more than half its value since Dec. 18. The currency has been experiencing a free fall from $20,000 and has lost nearly $200 billion in the process. Bitcoin has dropped below $8,000 on Friday for the first time since November.
Almost all of the major cryptocurrencies have experienced major losses recently. The drops are taking place due to rising regulatory threats around the globe, concerns about price manipulation and Facebook’s recent stopping of ads for cryptocurrencies and initial coin offerings.
Many countries including India and China are also trying to regulate or ban cryptocurrencies. In the US, despite the country’s more relaxed approach towards cryptos, the Internal Revenue Service has started collecting customer records from major exchanges to find tax evaders.
Stopping card purchases could magnify the pressures on cryptocurrencies by making it more difficult for newcomers to buy into the market, experts say.
On the other hand, allowing purchases of cryptocurrencies can create big headaches for lenders, which can be left on the hook if a borrower bets wrong and can’t repay, Bloomberg has noted. There’s also the risk that thieves will abuse cards that were purloined or based on stolen identities, turning them into crypto hoards. Banks also are required by regulators to monitor customer transactions for signs of money laundering -- which isn’t as easy once dollars are converted into digital coins, it said.
Some financial firms making it easier to buy
On the other hand, some financial tech companies like Jack Dorsey’s Square or trading application Robinhood have made it simpler to buy Bitcoin or other tokens like Ethereum, CNBC noted.
Mastercard said cross-border volumes on its network have grown by 22 percent this year, pushed by clients using their cards to purchase digital currencies. But the trend was beginning to slow down as cryptocurrency prices drop, the firm emphasized.
UK bank Lloyd’s also followed US lenders in banning clients from buying cryptocurrencies with credit cards. The bank said on Monday across the Lloyd’s group encompassing Lloyds Bank, Bank of Scotland, Halifax and MBNA, it was not going to accept credit card transactions involving the purchase of cryptocurrencies.