When humans first started settling and storing grain, the aspect of exchanging value became a prominent feature between societies, empires and civilizations. The first means of exchange happened through the barter system, where people exchanged commodities for commodities. Over time, however, it was apparent that exchanging commodities in large quantities was cumbersome and dangerous.
Money was created as a means of representing such value. It replaced the need for exchanging commodities with commodities. People no longer needed to carry their goods with them whenever they wanted to purchase something. Money solved the issue of transporting large quantities of goods out in the open which left merchants and traders open to attacks, raids and pillaging.
The establishment of commodity money definitely made trading more convenient. The system of commodity money saw precious metals (usually coins) being used as money. But while early monetary systems solved the problems associated with the theft of physical goods, it gave rise to the problem of the money itself being subject to theft and robbery. People had to worry more about what represented the value of their possessions rather than their possessions themselves.
Fast-forward to the last three centuries – where previously, precious metals and stones were used to express value, banknotes and paper currency took precedence with their values being backed by precious metals. This is what we call commodity-backed money. The Gold Standard is an example of such a system, where guidelines were made to allow for a non-inflationary production of standard banknotes which were to represent a certain amount of gold. The Gold Standard was adopted by England in 1816 but was adopted by the U.S. from 1900 to 1930. The Great Depression of the 1930s marked the start of the end for the Gold Standard.
In the 21st century, monetary systems have largely been defined by ‘fiat money’. Fiat money is the currency that a particular government has declared to be legal tender, but isn’t backed by a physical commodity. The value is derived from the forces of demand and supply in the economy, rather than from the value of the commodity from which the money is made.
The present day is characterized by an economy that is in transition. We’re living in what is largely being referred to as the ‘Digital Economy’. Transactions often take place digitally without the exchange of physical currency. People still largely use cash, especially in developing economies, but transacting money electronically is increasingly becoming the norm.
In a digital economy, how does one carry money with them without actually holding any physical currency? A lot of people conduct transactions using instruments that reflect actual money in storage (custody), that which is usually a bank and/or a financial institution. Plastic payments cards have replaced the need to physically carry large sums of money around. They have absolutely removed the cumbersome aspect of carrying physical money or commodities, and have negated the risks associated with having to carry the same.
Today, we cannot imagine a world without plastic payment cards. While debit cards have acted as an alternative to visiting the bank every time one needs money, credit cards are older and have more complex implications than the former. Before both, however, there were department store cards and bank charge cards.
In the time before credit cards, charge cards were essentially payment cards that enabled the user to make purchases which were paid for by the card-issuer, following which the card-holder would be indebted to the issuer. Bank charge cards were precursors to modern-day credit cards. With credit cards, banks issue a line of credit to the cardholder where he or she can use the card to make purchases.
The card-holders have the option of re-paying the amount to the bank within a grace period (usually between 25 and 30 days), or they can pay the bank back in installments. However, the cardholder is liable to pay interest on the amount spent through the credit card. The interest rate increases with each installment and usually results in the person paying an amount greater than what he or she initially spent in the card. The frequency of credit card repayments can have direct consequences on a person’s credit score. Timely payments can positively affect a person’s credit score and open up future benefits and rewards for the cardholder, whereas failure to pay the amount back to the bank can adversely affect the credit score which can make the cardholder liable to pay higher interest rates.
In a way, taking a credit card is like taking a loan from the bank, except that you can borrow up to a limit and you are charged interest only on what you owe.
Debit cards, on the other hand, offer the convenience of a credit card but work differently. Debit cards can draw money directly from a cardholder’s checking account when they make a purchase. Generally, there’s a 4-digit PIN number associated with a debit card that card-holders can use at stores to purchase commodities or services, or at ATMs to draw cash. Debit cards offer the same conveniences of credit cards with the exception that users are not required to borrow money to complete transactions. Furthermore, debit cards don’t offer the same consumer protection that credit cards do.
According to a 2017 survey, among 1000 customers in the U.S.; 40% preferred to use debit cards while 33% preferred to use credit cards. Only 12% of people showed a preference for the use of cash. The survey also showed that debit card purchases are a preference for daily purchases while credit card purchases are a preference for high-value purchases. The preference for the type of card also varied according to the levels of income earned. Those earning above $75,000 a year preferred credit cards while those that earned below $75,000 a year, preferred using debit cards.
The results of this survey show that people prefer using credit and debit cards over cash for the purpose of making purchases. Furthermore, people can’t do peer-to-peer payments only by using simple plastic payment cards. They can facilitate payments using digital wallets but these wallets are, in most cases, connected to users’ bank accounts.
Where did credit cards come from? A brief history.
The history of credit cards can be dated back to 1946 with the ‘Charg-It’ card which was launched by a Brooklyn based-banker by the name of John Biggins. This card gave rise to the ‘closed-loop’ system where purchases made through the Charg-It card were forwarded to Biggins’ bank who then reimbursed the merchant and obtained payments from the customer. Only customers of the bank could obtain a Charg-It card and purchases could only be made locally.
In 1951, five years after the Charg-It card was launched, New York’s Franklin National Bank issued its own charge card to its loan customers.
A dining and entertainment charge card quickly emerged around the same time. The Diners Club card, which was mainly used for travel and entertainment purposes, is reported as being the ‘first credit card’ where card owners made purchases on credit. It was still technically a charge-card as the payments for the purchases had to be paid in full at the end of each month.
American Express released the American Express Card in 1958. A competitor to the U.S. Postal Service, they introduced money orders in 1882 and travelers’ checks in 1981. They even contemplated a travel charge card before Diners Club beat it to the punch. However, they introduced the first actual plastic card, in 1959, that replaced the ones made with cardboard and celluloid. Within 5 years of launching this card, over 1 million American Express Cards were used across 85,000 merchants, both domestic and foreign.
The closed-loop system eventually evolved into a system of offering revolving credit to customers. Where previously, users had to settle their bills at the end of each month, now they could carry their monthly balance forward for a nominal finance charge.
In 1958, Bank of America issued unsolicited BankAmericard credit cards to a select number of markets in California. By 1966, BankAmericard went national and became the first licensed general-purpose credit card. It was renamed to Visa, a decade later, due to its growing international presence.
Around the same time in 1966, a competitor card in MasterCard was launched by a group of Californian banks called the Interbank Card Association (ITC).
Both Visa and MasterCard are run by boards comprised of high-level executives from their member banks. Bankcard associations operate in an ‘open-loop’ system that requires interbank cooperation, as well as the transfer of funds.
Innovations around Plastic Payment Cards
In 1960, IBM introduced the magnetic stripe or ‘mag-stripe’ verification to credit cards which fostered continuous technological innovations in the world of cashless payments.
In the 2000s, major card issuers started rolling out mini-cards as well as keychain cards to customers. Card personalization also became a big thing which allowed users to get their photos printed onto their cards. Big players like Visa and MasterCard launched interactive cards that had tiny powered LCD screens that generated a one-time passcode at the push of, either a button or a mini-keyboard.
Another innovation was in terms of radio-frequency identification (RFID). Cards with RFID were embedded with an RFID chip/antenna which enabled touchless ID verification between the cardholder and the merchant having an RFID card reader. This concept gave rise to more exotic biometric solutions to cardholder verification, including facial, iris, hand and finger scans, voice imprints and RFID chip implants.
Eventually, increasing concerns for card security saw the global switch from mag-stripe and RFID to EMV computer chip cards. These were pioneered by Europay, MasterCard and Visa. EMV had the advantage of giving users a more secure ID verification and payment solution.
Advantages of Credit Cards
As mentioned before, the biggest advantage of having a credit card is in terms of removing the inconveniences and dangers of carrying cash around. There are a whole host of other benefits when it comes to owning a credit card, like building the credit rating of the credit card owner which increases the chances of the user being eligible for a mortgage loan or a car loan.
Rewards and frequent flyer cards allow the user to earn extra reward points for every dollar spent on eligible purchases, such as grocery stores and petrol costs. Reward credit cards allow users to earn reward points that they can then redeem with the bank’s reward programs for perks that include flights with partner airlines, products from reward stores or even cash back.
Credit card holders can request for chargebacks if they aren’t happy with the product or service that they’ve sought out. Chargebacks can be done through credit card companies in the event where the user has had a dispute with the merchant, whether it’s in the store or online.
Credit cards can work with any currency, although conversion fees usually apply. Some credit cards waive fees for international purchases, which makes it convenient for users to purchase things internationally.
One of the most important uses of a credit card has to do with giving the user access to an emergency line of credit. They act as a safety net in a situation where a user doesn’t have enough cash or savings to cover any unexpected costs that may arrive.
Limitations of Credit Cards
Opinions on credit cards have been largely polarizing. There is a whole legion of people out there who dislike credit cards for a multitude of factors.
Carrying a balance forward, month-on-month will result in a user paying interest charges. Credit card APR can range from anywhere between 14% and 22% per annum. Users can sometimes end up paying hundreds or thousands of dollars upon being unable to make timely payments every month.
Credit card fraud
There is a range of fraud schemes out there that target credit cards. Credit card holders are constantly under the risk of fraud, especially while making online purchases. Card details being exchanged online might not always be the safest thing to do. Some websites are set up just for the purpose of stealing our financial information and thereby, steal funds. While users can still be compensated for illegal transactions on their accounts, dealing with credit card fraud can be an arduous and time-consuming process.
Credit card fees
Apart from interest rates, there are a number of fees associated with owning a credit card.
Most credit cards come with annual fees that can range anywhere from between $25 p.a. to $1,200 p.a. The more perks a user wants, the higher the annual fee will be.
Cash Advance Fees
Trying to get cash or ‘cash equivalent’ transactions can prove to be an expensive affair for the credit card holder. Using a credit card for cash withdrawals can attract a cash advance fee of 3% of the total transaction amount.
Credit Card Surcharges
Surcharges are often applied by businesses on credit card purchases. For Visa and Mastercard products, the fee ranges between 0.5% and 2%, whereas Amex cards could be charged 3%.
Depending on the type of credit card, users can be charged other fees that could quickly add up. Fees can be charged upon missing a payment, spending past the credit limit, overseas transactions and balance transfer. If a user doesn’t have enough of a balance or has no access to interest-free days, they may be charged an additional interest on top of these charges.
Missing out on timely payments and interest will result in a user’s credit score being damaged. A bad credit score will result in the user being denied a further line of credit. Having a bad credit score makes a user a high-risk borrower which then makes it difficult for the user to seek out a loan.
Minimum Purchase Requirements
Most businesses out there have a minimum purchase requirement for credit cards (and debit cards). Minimum purchase requirements can be an inconvenience for the cardholder, especially if he or she does not carry any cash with them.
Asset-backed Cards (backed by precious metals like Gold and Silver)
Precious metals like gold and silver have an inherent value which can be conveyed through various currencies, as seen in the Gold Standard which was extensively used in England in 1816 and in the U.S. between 1900 and 1930. The principle behind this system was to issue non-inflationary bank notes backed by a certain amount of gold.
While gold and silver were physically traded as currency in a system of commodity money a couple of centuries back, it is not possible to use them as a means of exchange in the modern day economy but rather they can be used as a store of value. It isn’t possible to use gold or silver to purchase items from businesses or retailers.
However, the introduction of asset-backed cards allowed for individuals to spend securely stored assets like gold and silver. Asset-backed cards allow users to have the inflation hedge of actually owning physical gold or silver, while also providing instant liquidity.
Asset-backed cards are similar to debit cards but instead of spending funds from a bank account, users can directly and easily convert their precious metals to fiat currency. Once the purchase is made, the bank will convert the purchase from fiat currency to its value in gold or silver which it will then withdraw from the user’s precious metals storage account.
To use an asset-backed card, there are a couple of steps a user needs to take. First, they must set up their account and buy gold and silver. Some banks and companies require a minimum deposit, which can range from $100 to $500. Considering the logistics involved in transporting silver or gold bullion, most banks that offer asset-backed cards require their users to purchase these precious metals in-house. Users can, however, use their own gold or silver to fund the card.
Once a deposit is made, the bank sets aside a user’s purchase in a secured vault.
Asset-backed cards, like debit cards, can solve for a lot of issues posed by credit cards. For starters, there aren’t high annual interest rates. Banks and companies that issue them only charge a commission fee, the value of which varies based on the kind of asset (VeraCash charges 3% for gold, 7% for silver and 10% for diamond). Most of the fees associated with credit cards like annual fees, cash advance fees, surcharges, and payment-penalty fees are virtually absent. The only fee that users would have to pay apart from the commission fees on assets is a card re-issuing fee.
Another advantage that asset-backed cards have over credit cards is that a user doesn’t need a good credit score to seek out these cards. They need to either have the necessary funds to create an account and buy assets from the bank or company, or they need to have securely stored assets which they can transfer to the vault of the bank or the issuing company.
Some asset-backed cards allow for their users to transfer a portion of their assets to another user having the same card. The card also allows for peer-to-peer payments, but with assets instead of currencies.
Secured Credit Cards
Secured credit cards are an option for people who have bad credit or no credit, where they cannot seek a traditional credit card. Secured credit cards are backed by a cash deposit when a user opens an account. The risk to the credit card issuer is reduced as a result of deposits made by the user, where the deposit is usually equal to the card’s credit limit. If the issuer doesn’t pay his credit card bills, the issuer can take the money directly from the deposit. If a user pays their bills on time, they will get their deposit back. The responsible use of the card can improve a user’s credit score, even to the point of letting them qualify for an unsecured credit card. However, users will incur interest if they carry their balance into the next month.
The large-scale adoption and use of cryptocurrency for the purchase of everyday items like groceries and travel is one of the main goals of the crypto community. The main problem is the series of regulatory hurdles imposed by governments around the world, with some banning the purchase and sale of cryptocurrencies, while others have altogether banned its possession and use. A lot of countries where cryptocurrency is legal to have treated it as a separate asset-class and levy relevant taxes on it. Some merchants have opened up the provision of accepting cryptocurrency as payment.
One of the main problems faced by the crypto community and crypto holders is the issue of liquidity. Converting cryptocurrency into fiat money or converting fiat money into cryptocurrency is anything but a simple process.
In scenarios where merchants do accept cryptocurrency payments, users would have to carry their wallet details with them, i.e. their private and public keys; something that is considered extremely risky and foolish. In cases where users have hardware wallets, having to carry physical storages around is both, risky and inconvenient.
Crypto-backed cards solve for this issue immensely. They allow users to top-up their cards with cryptocurrency which they can then use to make purchases in fiat currency. In most cases, users will have to connect their cryptocurrency wallet with their crypto-backed card. The card can then be used anywhere where these network cards are accepted.
In most cases, when a purchase is made, the card converts a user’s cryptocurrency into a fiat currency where the vendor is paid in the currency of their choice. The converted amount is then deducted from the user’s crypto wallet and the total amount is updated. Some prepaid cards allow users to top their cards up with cryptocurrency, all of which is converted into fiat currency. Finally, there are cards that allow users to link their crypto wallets and fiat accounts which enables users to switch between the two with ease.
Cryptocurrency-backed cards look and feel like a regular debit card with a 16-digit card number, the card holder’s name, and a security code. Some are designed for online use while others allow users to use a PIN number as they would with any other debit card.
Advantages of Crypto-cards
Crypto-backed cards help bridge the gap between purely online traded cryptocurrency and real-world currency which would help traders use cryptocurrency in a real-world setting. Like any plastic payments card, crypto cards are portable and are extremely useful while traveling. Users can use their cards to withdraw local currency in whichever region they are without being subject to high fees. They may have to pay conversion rate fees but will not have to pay an additional fee charged by their bank.
Cryptocurrency-backed cards help users avoid the many fees associated with traditional banking institutions. Since most cryptocurrencies are decentralized, they are not subject to the same rules and regulations associated with traditional banking cards.
Top Companies offering Crypto-backed Cards
Crypto.com is the market leader in the domain of cryptocurrency-backed cards, providing MCO VISA cards that are paired their users’ MCO wallets. The card allows users to spend their cryptocurrency seamlessly at over 40 million retailers globally who accept VISA.
Crypto.com issues a metal MCO VISA card with no annual fee. The cards are also shipped for free as there are no delivery fees. The MCO token is utilized as an incentive structure for cardholders. Depending on the number of tokens staked, users will have access to different cards which have a different range of benefits for the customer.
Users that haven’t staked any tokens will get a basic ‘Midnight Blue’ card which allows free withdrawals up to $200, beyond which there will be a 2% ATM withdrawal fee. Foreign exchange fees up to $2000 are free beyond which, users will have to pay a 0.5% charge. Users get 0% as cashback in MCO tokens.
Staking 50 MCO tokens will give users the ‘Ruby Steel’ card which allows free withdrawals up to $400, beyond which users will be charged a 2% withdrawal fee. Foreign exchange fees up to $4000 are free and users are charged 0.5% beyond the limit. Users get 1% as cashback in MCO tokens.
Users who’ve staked 500 MCO tokens can opt for the ‘Jade Green’ or the ‘Royal Indigo’ card. Both cards allow free withdrawals up to $800, beyond which they will be charged a 2% withdrawal fee. Foreign exchange fees up to $10000 are free, beyond which users are charged a fee of 0.5%. Users get 1.5% as cashback in MCO tokens.
Users with 5000 MCO tokens staked can avail the ‘Icy White’ card which is similar to the ‘Jade Green’ or ‘Royal Indigo’ cards with the ATM withdrawal and foreign exchange fees. The only difference is the 1.75% cashback in MCO tokens for users of the ‘Icy White’ card.
Users who’ve staked 50000 MCO tokens or more can use the ‘Obsidian Black’ card, that allows free withdrawals up to $1000, with the withdrawal rate being 2% thereafter. Users of this card don’t have to pay foreign exchange fees and will get 2% cashback in MCO tokens.
For green, indigo, white and black cards; users get unlimited access to airport lounges around the world.
This is one of the oldest cryptocurrency debit cards out there with their physical and virtual debit cards being launched in late 2013. Merchants, retailers and consumers have the option to easily transact using Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) and Litecoin (LTC).
The platform is available to users in the U.K., Russia and Europe.
For users in the U.S., there is an issuance fee of $15 with a monthly service fee of $1. Cash withdrawals from partner bank’s branches cost users $0.5 while ATM withdrawals will cost the user $5. There is a daily withdrawal limit of $1,500 and a monthly withdrawal limit of $4,000 with the maximum balance on the card being $8,000 at any given time.
For users in the EU, there is an issuance fee of €15 with a monthly service fee of €1. Cash withdrawals from partner bank’s branches cost users €0.5 while ATM withdrawals will cost the user €5. There is a daily withdrawal limit of €1,500 and a monthly withdrawal limit of €4,000 with the maximum balance on the card being €7,000 at any given time.
For users in Russia, there is an issuance fee of ₽1,000 with a monthly service fee of ₽65. Cash withdrawals from partner bank’s branches cost users ₽30 while ATM withdrawals will cost the user ₽300. There is a daily withdrawal limit of ₽100,000 and a monthly withdrawal limit of ₽300,000 with the maximum balance on the card being ₽600,000 at any given time.
Users in all 3 regions don’t have to pay any additional fees on their card transactions.
Cryptopay takes 5-7 business days to issue a card once an order has been placed.
Wirex is a U.K.-based startup that offers a VISA debit card that comes with a chip and PIN. The card is currently available to EEA (European Economic Area) residents where the Iban support was introduced for all EUR accounts.
The card can be loaded up with Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC) and waves. Users can spend in 3 different fiat currencies – U.S. dollars, the euro and the U.K. pound sterling. A management fee of $1.50 is charged by Wirex to its users every month.
Withdrawals from ATMs within Europe will cost residents a fee of $2.50, and $3.50 outside Europe. For in-store purchases, users are rewarded with a 0.5% crypto cashback in Bitcoin.
Another company based out of the U.K., the card is available to members in the EU with the U.S. and Asian markets to be added soon. Users are issued a physical or virtual VISA debit card where users can make online and offline transactions while purchasing in any VISA-accepted merchants around the world.
Uquid cards have an issuance fee of $16.99. There is a monthly management fee of $1 and ATM withdrawals amount to $2.5 in the EU and $3.5 outside Europe.
Uquid takes 2-3 days to issue a card once an order has been placed.
Bitpay cards are available to U.S. residents only. To qualify for one, users must have a home address, a valid government-issued ID and a social security number. Additionally, an issuance fee of $9.95 is charged.
There is also a dormancy fee of $5 a month for a 90-day period of inactivity. Each time the card is used outside the U.S., users are charged a conversion fee of 3% on their transactions. Withdrawing cash will cost users $2 in the U.S., and $3 overseas.
Bitpay takes 7-10 days to issue a card after an order has been placed.
Limitations of Crypto-backed Cards
Only a few Cryptocurrencies are available for use
Most crypto-backed cards out there, at the moment, only support Bitcoin and/or a few other cryptocurrencies like Ethereum, Litecoin, and Ripple. This puts undue pressure on a few cryptocurrencies as a gateway into crypto investing.
Adoption and Use currently limited to a few countries
Another limitation is the fact that the adoption and use of crypto cards are available only to members of a few jurisdictions like the U.S., the U.K., the EU, Russia, and Singapore, to name a few.
Some exchanges are offering services to the Asian market but their adoption and use are limited by regulation in certain jurisdictions, some of which have outright banned any kind of use when it comes to cryptocurrency.
Existence of various fees
The advantage of having a cryptocurrency-backed card is the fact that users don’t have to pay high levels of interest, coupled with middleman fees and late payment fees like those seen in the case of credit cards.
However, users do have to pay a high issuance fee to get a crypto-backed card. Furthermore, a lot of companies charge a monthly management fee for every card issued. Using the card for withdrawing cash will incur a cost of between $2 and $5 for users, depending on the type of card they are using and the issuing authority.
For users that are traveling, a conversion rate fee is charged to them depending on the kind of jurisdiction they are currently present in.
Bank of Hodlers – Crypto-backed Credit & Debit Cards
The Bank of Hodlers will provide cryptocurrency-backed plastic payment cards which will be connected to user wallets. There will be a provision for both debit and credit cards.
The BoH debit card will give users the option to spend their cryptocurrency from their wallets. The card will have a nominal issuance fee and users will be able to use their debit cards for payments world-over.
The BoH credit card will be similar to asset-backed credit cards, where users will have to deposit their cryptocurrency into a liquidity pool. They will be extended a line of credit to the extent of their cryptocurrency deposits, after which they will be able to use their BoH credit card to purchase things in any part of the world for merchants accepting credit card payments.
If a user defaults on their payment, their cryptocurrency deposits will be liquidated.
The Bank of Hodlers will issue physical and virtual credit cards to users along with a wallet app. Users will be able to keep track of their spending by categories through the app and each category will be represented by its own color. Moreover, the BoH app will allow users to view their week-on-week or month-on-month spending.
The card will be universal which means that users will be able to spend their cryptocurrencies through their BoH credit or debit card with merchants that accept card payments, around the world.
Users will be charged interest, only if they choose not to clear the outstanding bill within 30 days. Moreover, there won’t be any fees like those seen with traditional banking payment cards like; late fees, annual fees, international fees, and over-limit fees. Since this would be an open loan, a user’s outstanding balance would be converted to a loan with an interest rate of between 5% and 7% annually. This is significantly lower than the 25% charged per year by other banks.
The Bank of Hodlers will be partnering with a bank and a payments card network to provide this service. The card will come with a unique card number and a special security chip. A one-time dynamic code will be generated for each payment, which will protect the card number from being used without authentication. Each payment will have to be authenticated via fingerprint or facial recognition.
Users will be able to pay for items in both, fiat and cryptocurrencies. The wallet app will allow users to interact on a peer-to-peer basis. This means that users will be able to send cryptocurrency, as well as fiat money, to each other quickly and efficiently.
Finally, the details of transactions regarding spend-tracking and categorization will happen on-device and none of the information will be stored on the Bank of Hodlers’ servers.
Plastic payment cards were a revolutionary concept in the 20th century and paved the way for a future entailing cashless payments. With such a provision, people no longer had to go through the cumbersome aspect of carrying physical money around with them, either for purchasing expensive goods or for the purpose of traveling. All their spending capacity was now concentrated in a portable card without them having to worry about losing their funds to theft or burglary.
Even if users did lose their cards, they would just have to contact their respective bank and ask for a new one, the fee of which would be debited from their respective bank accounts. In the event that a card was compromised as a result of an internet hack, the bank would reimburse the amount lost back to the cardholder after a series of processes.
Such a provision can be considered as a disruptive technology in the world of finance where people were largely using paper money to largely transact.
However, with all the perks and benefits that came with such provisions, there are several downsides which people have been subject to as a result of, sometimes, their own discretion.
With credit cards, came the predatory nature of banks where a user would have to engage in a lifetime of payments or risk going to jail altogether. We have to remember that a bank offers a line of credit for users to spend – money that essentially doesn’t belong to a user.
Interest payments along with the various fees associated with banks can prove to a nightmarish process for a user that is unable to meet the required payments, with users sometimes having to pay double or triple the amount that they initially spent on their credit cards. Missing payments, initially, have small consequences in the form of balance being carried forward along with the interest on that amount.
After 60 days of non-repayment, the interest rate will increase to the higher penalty rate. The minimum payment for each month will get larger as more late payment fees are added to a user’s account. Once the penalty rates kick in, a user’s finance charges will also increase. This results in the outstanding balance getting bigger with each passing month. In the event where a user catches up on his or her payments, the penalty rate remains in effect after the user has made 6 consecutive payments.
If a user continues to miss their payments, they start getting contacted by their credit card company’s billing department. These calls can be harrowing for the user with the company mentioning words like ‘charge-off’ and ‘default’. Once 90 days have passed, the creditor sends the user a settlement offer which basically lets the user off by asking them to pay a percentage of their loan amount in lump-sum amount.
All late payments are added to a user’s credit report. This negatively affects a user’s credit score which takes away their ability to get a credit card, a loan or even a source of employment. After 6 months or 180 days, the credit card company writes off the unpaid debt as a business loss. This means that the user no longer is obligated to pay the company back but it also leaves a black mark on their credit report which stays for the next 7 years, thereby alerting everyone of a user being a defaulter on credit payments.
Charge-off accounts are sent to collection agencies where it moves from one agency to another until the debt of paid for or bankrupted. A user’s original creditor may sue him or her until the debt is paid for or bankrupted.
Cryptocurrency-backed Cards are a superior alternative
The dangers associated with owning a credit card can be linked to the predatory nature of traditional finance where a user can fall into serious debt which can lead to lawsuits or even jail term.
We can argue that the fault lies with the user and that responsible use of a credit card could have avoided a series of problems that could ruin a person’s life. However, it is unfair to only fault the user as the system itself creates circumstances for users to default on their credit payments.
Not only do users have to pay back the original amount credited to them, but they also have to deal with high interest rates along with additional fees in the form of annual payments and bank charges. Sometimes, users have to pay hundreds, if not thousands, more than what they had originally sought out through their credit cards.
Cryptocurrency-backed payment cards offer a safer alternative to people looking for a line of credit. No credit scores are required to seek one out, and no extra fees are charged in the form of annual payments or bank charges. The only fee users would have to pay is the issuance fee for a physical or virtual card and a wallet app.
If a user defaults on his or her payments, the issuing company can simply liquidate the user’s crypto assets that they put up as collateral. Users don’t have to deal with frequent calls from collection agencies, nor do they have to be worried about being slapped with a lawsuit with the dangers of a jail term looming on the horizon.
The best part about a crypto-backed credit card is the absence of high levels of interest which are a major contributing factor towards the aspect of mounting debt, especially in predatory finance.
The only downside of crypto-backed credit and debit cards is the fact, like in the case of all crypto-backed financial services, the only people who can seek one out are the ones that have crypto assets to offer up as collateral. That shouldn’t stop people from seeking out such services. They have the option to engage in a parallel system of finance. All they have to do is to take a leap of faith and invest in cryptocurrency to avail these services.
About Bank Of Hodlers
Bank of Hodlers is building a customer-centric bank on the blockchain, by providing financial services like cryptocurrency-backed loans and cryptocurrency-backed cards.
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