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Crypto Cards: A New Revenue Stream for Wallet Providers

From Crypto.com to Coinbase and now MetaMask, some of the most prominent players in the cryptocurrency space have issued crypto cards. But what explains this proliferation?

The answer lies in the challenges of monetizing crypto wallet software. Whether as apps or extensions, crypto wallets are difficult to monetize. Crypto assets are in the end user’s custody, eliminating the possibility of hidden fees. Software wallets are abundant, resulting in low user retention as users can easily switch between different wallets.

Currently, even the best and most secure wallet apps lack the sophistication to justify a subscription for end users.

Understanding Self-Custody

There is an inherent image problem with self-custody in crypto. The concept was promoted with the idea that since crypto is akin to cash, users can hold it without incurring any costs. Unlike banks, which charge fees to hold money, holding crypto was seen as cost-free.

This view is flawed. Self-custody is more akin to holding gold in a vault. Users must buy the vault and cover its maintenance costs. While holding crypto might be free, managing these assets incurs overhead costs. For physical gold, secure storage, surveillance, insurance, and other security measures are necessary. For crypto, the costs are significantly lower, but a good wallet is still essential.

Psychologically, people are more willing to pay for physical goods. A hardware wallet is a tangible item with an obvious production value. However, once the user pays the initial purchase price, the challenge remains: How to charge a recurring fee? The answer lies in value-added services.

Value-Added Services as Revenue Generators

Value-added services go beyond the core set of services provided by a company. For a wallet, these include:

  • Buying crypto
  • Exchanging crypto for other crypto
  • Bridging crypto assets from one blockchain to another
  • Staking crypto

These features enhance the user experience by offering a secure, easy-to-use, and somewhat private interface. Wallet providers typically generate revenue from slippage or FX fees, or by farming MEV. This is a fair exchange as the wallet provider ensures user safety and convenience.

However, charging for value-added services alone is insufficient for wallet providers to achieve the growth needed to satisfy investors. The best way to grow this revenue segment is to provide an easy-to-use product that continually generates income for the issuing company.

Crypto Cards as a Revenue Driver

Crypto cards enable users to spend their crypto assets in local stores, serving two main functions: loading and spending crypto. These functions generate revenue for the issuer. Even if the issuer foregoes this opportunity, they still benefit from interchange fees.

The adoption of crypto cards is increasing rapidly. Visa customers made $2.5 billion in payments with its crypto-linked cards in the first fiscal quarter of 2022. This adoption is not due to crypto cards adhering to core crypto principles, but because they comply with the principles of financial products: they are regulated, easy to understand, and easy to use.

While there are barriers to transacting day-to-day with raw crypto, crypto cards are a significant step toward this vision. Transactions do not execute on the blockchain, and currency conversion does not occur on-chain either. However, crypto cards allow users to spend their crypto similarly to fiat currencies. They also adhere to regulatory practices to prevent money laundering and terrorist financing.

Crypto cards may not be the perfect solution, but they are practical and sufficient for all stakeholders involved at this stage.

Crypto cards bridge the gap between traditional finance and the emerging world of cryptocurrencies.

Encourage readers to explore more news on Global Crypto News for the latest updates and insights in the cryptocurrency world.

Manthan Dave is a co-founder of Palisade, a digital asset custodian backed by Ripple, providing businesses with comprehensive solutions for managing digital assets securely. Before co-founding Palisade, Manthan was a senior software engineer at Ava Labs and Ripple, contributing to the development of innovative blockchain solutions.

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