Mastercard and Nexo teamed up to launch what they call the world’s first crypto-backed payment card. No, it isn’t a Bitcoin credit card. Nor is it a card that allows you to buy something with fiat money from your crypto wallet. Then what is it?
Crypto industry is gaining momentum, so the industry is gaining momentum, so traditional financial structures cannot stand aside.
Crypto companies are joining forces with banks and financial networks and thus make digital assets become more mainstream.
The latest news about crypto lender Nexo who has teamed up with global payments company Mastercard is quite indicative .
Both companies claim to have launched the world’s first crypto-backed payment card.
What is crypto-backed payment card?
The card, available in selected European countries initially, allows users to spend fiat money without having to sell their digital assets such as Bitcoin, which are used as collateral to back the credit granted.
This means you store cryptocurrency in your Nexo wallet and have the opportunity to spend fiat money with the card issued by Mastercard and linked to that wallet. Nexo and Mastercard call this scheme a crypto-backed credit line.
The card can be used just as any other card issued by Mastercard. More that 92 million merchants worldwide will be accepting it.
According to the Nexo statement, the card requires no minimum repayments, monthly, or inactivity fees. There are no FX fees for up to 20,000 euros per month.
Interest is only paid on the amount of credit actually used. Interest remains at 0% for customers who maintain a loan-to-value ratio of 20% or below.
The user of the card will be allowed to spend up to 90% of the fiat value of his crypto assets. There are no restrictions on how much a user can spend or withdraw from the open credit line.
So basically you don’t spend your crypto at all. Unless, of course, you start spending more fiat money than your crypto wallet is able to sustain.
What makes this card unique?
Cards linked to crypto wallets are not something new. Nexo is one of the pioneers of this segment, having issued a quite popular crypto debit card. The competing products are issued by some crypto exchanges (Coinbase, Crypto.com) and other institutions.
They are all built around the very simple idea. The user has crypto in his wallet linked to a debit card. Whenever he or she makes a fiat money payment with that card, the fiat money is automatically withdrawn from his crypto wallet. It is being done by quick crypto transfers.
It works the same way the different fiat currencies are converted when you, for example, pay for something abroad. When you use your card with US Dollars to buy something in Europe there is a quick conversion from Dollars to Euro. You don’t even notice that. Same thing here – when you buy something for Euro the card issuer is automatically transferring the appropriate amount of BTC (or whatever crypto you have got in your wallet) to get the fiat money for your payment.
The new Nexo and Mastercard product is very different. No transactions are taking place when you buy something. The issuer lends you the fiat money for your payments and is waiting for fiat money to be returned. Your crypto is just collateral to back the fiat currency credit.
We will have to wait and see whether such a merger of two financial technologies will be well received by customers.
Source: Reuters
