While bitcoin becomes more controversial by the day, Barclays has given it a positive signal for future purchases using their credit cards. Banks have been split on the correct way to handle customers purchasing the cryptocurrency on credit, and the recent drop in price hasn’t helped the case either.
No Ban for Barclays Credit Card Users
Investments have traditionally never been allowed via credit card purchases, but since cryptocurrencies operate in a shadow sector that is not governed by Central Banks, conventional deposit methods haven’t been easy to negotiate. As such, many bitcoin trading platforms have enabled a credit card deposit option.
The credit card deposit option works a lot like a cash advance, but the worry is that it allows for customers to leverage themselves much more than banks are comfortable with. It is dissimilar to regular purchases where the user can end up with a good that is possible to return, as well as crypto assets notorious volatility.
Further, purchases are different than investments regarding the speculation and risk involved. Additionally, many times you will have people buying cryptocurrencies with money they don’t have with the intent to multiply their holdings and pay back the credit.
The recent massive correction in bitcoin has also made it unclear how some of these customers are going to pay back their debts. As such, many financial institutions have decided to tighten up their policies to deter cryptocurrency purchases with credit cards.
Barclays is not going to be entirely laissez-faire about this though. They do intend to monitor all suspicious activity, as Anti Money Laundering (AML) and Know Your Client (KYC) laws still apply. As their spokeswoman stated:
“We take precautions to assess affordability before extending credit, flag and prevent any suspicious transactions and also closely monitor credit risk.”
More UK Banks Ban Bitcoin Purchases on Credit
Virgin Money has taken a different stance on bitcoin and is preventing customers from buying any cryptocurrencies. Similar to Lloyds, they believe that running up debts in volatile markets is a recipe for credit risk and not something they want to deal with.
The interesting point about Virgin Money’s ban is that their founder, Richard Branson, is a staunch proponent of cryptocurrencies in general, and thinks bitcoin has the potential to change the world.
The billionaire, who started with a mail-order record company, hosted a private blockchain summit on Necker Island in conjunction with Bitfury during July 2017. Knowing this, it seems like the philosophical outlook of the founder can differ from what is best for the bottom line of the company.
— Richard Branson (@richardbranson) October 21, 2016
The risk is not worth the reward for banks. Typically, only sophisticated investors with a high net worth would be able to get into investments as risky as these, but cryptocurrencies are accessible to all.
Regardless, customers can still use their debit cards for the purchase of cryptocurrency. The difference here is clear, though, as users will not be borrowing money, thus bearing the brunt of the risk.