The Downfall of the Coinbase Debit Card: What Went Wrong?
Coinbase is a popular platform that allows users to buy, sell, store, and trade various cryptocurrencies. In 2019, Coinbase announced that it was launching its own debit card, called the Coinbase Card, in partnership with Visa. The card was supposed to enable users to spend their crypto assets anywhere Visa is accepted, as well as withdraw cash from ATMs. The card also offered rewards in the form of crypto cashback for every purchase.
However, the Coinbase Card turned out to be a disappointment for many users and regulators. The card faced several issues, such as high fees, limited availability, technical glitches, security breaches, and regulatory hurdles. As a result, the card lost its appeal and popularity among crypto enthusiasts and investors. In this article, we will explore some of the reasons why the Coinbase debit card was a failure.
One of the main drawbacks of the Coinbase Card was its high fees. The card charged a 2.49% fee for every transaction, which included a 1.49% conversion fee and a 1% liquidation fee. This meant that users had to pay a hefty amount every time they used their card to spend their crypto assets. For example, if a user spent $100 worth of Bitcoin using the card, they would have to pay $2.49 in fees.
In addition to the transaction fees, the card also charged other fees, such as ATM withdrawal fees, monthly maintenance fees, foreign transaction fees, and card replacement fees. These fees added up quickly and made the card expensive and unattractive for users who wanted to use their crypto assets for everyday purchases.
Another problem with the Coinbase Card was its limited availability. The card was initially launched only in the UK and later expanded to a few European countries. However, the card was never available in the US, which is one of the largest markets for Coinbase and crypto in general. The reason for this was that Coinbase faced regulatory challenges in obtaining a license to operate its card in the US.
Coinbase applied for a special purpose national bank charter from the Office of the Comptroller of the Currency (OCC) in 2018, which would have allowed it to offer its card and other banking services in the US. However, the OCC did not approve Coinbase’s application and instead granted a charter to another crypto company, Anchorage Digital Bank. This left Coinbase behind its competitors and frustrated its US customers who wanted to use its card.
The Coinbase Card also suffered from technical glitches that affected its performance and reliability. Users reported several issues with the card, such as delays in transactions, errors in balances, incorrect conversions, and declined payments. Some users also complained that their cards were frozen or deactivated without any notice or explanation.
One of the most serious technical glitches occurred in February 2020, when Coinbase accidentally charged some users twice for their transactions using the card. This resulted in overdrafts and negative balances for some users who had to wait for weeks to get their refunds from Coinbase. Coinbase apologized for the incident and blamed it on a bug in its system.
The Coinbase Card also faced security breaches that compromised its users’ data and funds. In August 2019, Coinbase revealed that it had discovered a vulnerability in its card system that exposed some users’ personal information, such as names, email addresses, phone numbers, and postal addresses. Coinbase said that it had fixed the issue and notified the affected users.
However, in October 2019, another security breach occurred when hackers managed to access some users’ accounts and steal their funds using their cards. The hackers exploited a flaw in Coinbase’s two-factor authentication (2FA) system that allowed them to bypass the security code required to log into users’ accounts. The hackers then used their cards to make unauthorized purchases or withdrawals from ATMs. Coinbase said that it had refunded the victims and enhanced its security measures.
The final nail in the coffin for the Coinbase Card was the regulatory hurdles that it faced from various authorities. In October 2020, Coinbase announced that it was suspending its card services in Europe due to issues with its partner issuer, Wirecard. Wirecard was a German payment processor that provided services to many fintech companies, including Coinbase. However, Wirecard collapsed after admitting that it had lost $2 billion in a massive accounting fraud. This led to the suspension of Wirecard’s license by the UK Financial Conduct Authority (FCA), which affected Coinbase and other Wirecard clients.
Coinbase said that it was working to find a new issuer for its card and resume its services as soon as possible. However, in January 2021, Coinbase announced that it was permanently shutting down its card program in Europe and the UK. Coinbase did not provide a clear reason for this decision, but it was likely influenced by the regulatory uncertainty and scrutiny that crypto companies faced in Europe.
For instance, in October 2020, the European Commission proposed a new regulation called the Markets in Crypto-Assets (MiCA), which aimed to create a common framework for crypto assets and service providers in the EU. The MiCA regulation would impose strict rules and requirements on crypto companies, such as licensing, capital, governance, disclosure, consumer protection, and anti-money laundering. The MiCA regulation could pose significant challenges and costs for Coinbase and other crypto companies operating in Europe.
The Coinbase Card was an ambitious project that aimed to bridge the gap between crypto and traditional finance. However, the card failed to deliver on its promise and ended up being a flop. The card faced multiple issues, such as high fees, limited availability, technical glitches, security breaches, and regulatory hurdles. These issues eroded the trust and confidence of users and regulators in the card and ultimately led to its downfall.
The Coinbase Card is an example of how difficult it is to create a successful crypto debit card that can compete with conventional payment methods. Crypto debit cards face many challenges and risks that require careful planning, execution, and compliance. However, despite the failure of the Coinbase Card, there are still other crypto debit cards in the market that are trying to offer a better alternative for crypto users. Whether these cards will succeed or not remains to be seen.