Why Banks Keep Blocking Cryptocurrency-Related Transactions

The close interaction between traditional finance and regulators is the key element in the development of the cryptocurrency industry.

The COVID-19 crisis has brought many new users to the world of cryptocurrencies. One of the main concerns for users, however, is whether their bank cards may be blocked due to the purchase of a cryptocurrency, or when withdrawing funds from a crypto account. Can this risk be prevented?

Since the COVID-19 outbreak and people’s subsequent desire to protect their savings, interest in cryptocurrency has continued to grow. A June 2020 survey conducted by The Tokenist found that 45% of respondents from 17 countries now prefer to invest in Bitcoin (BTC) rather than stocks, real estate or gold. For comparison’s sake, only 13% gave such an answer back in 2017.

But there is a nuance to which clearly not enough attention is paid: The growth of Bitcoin’s audience is due to people who are quite unfamiliar with the crypto world. Judging by the nature of questions we have received in recent months, we realized that it is precisely the fears associated with banks blocking transactions that often stop people from active crypto investments.

State interests

In our experience, there are two main categories of reasons that can lead to blocking cryptocurrency transactions. These are restrictions based on either the regulator or the acquirer.

A state may impose limits and/or prohibitions on crypto operations, conversion of local currencies, and settlements or purchases in foreign currency.

The most striking example of banks blocking crypto operations due to regulatory restrictions is in Argentina. In the fall of 2019, local authorities first lowered the limit on the purchase of foreign currency from $10,000 to $200 United States dollars per month.

The Argentinian government then imposed a ban on the purchase of crypto with bank cards, followed by a 30% tax on purchases in foreign currency. As a result, there was no formal ban on the purchase of cryptocurrency, but local banks have been blocking such transactions.

We tried to contact Argentinean banks, in particular Brubank, to find a solution for our users but received no response. In such a situation, for regulated crypto services, the only option is alternative payment systems available in the local market. Therefore, the cryptocurrency purchase transaction will be divided into two phases: a top-up of the local electronic wallet with a bank card, and then the subsequent cryptocurrency purchase from the wallet balance. Yes, such a transaction becomes more expensive, but it still ensures a safe cryptocurrency purchase. 

In other situations, when blocking is caused only by restrictions on settlements and purchases in a foreign currency, there is a way out: You can use a service that has configured transactions for purchasing cryptocurrencies in national currency.

A caution about intermediaries

If the regulator, who introduces restrictions, usually thinks about the big picture of the country’s economy, then acquirers, as representatives of business, take care of their own benefits. These financial institutions try to prevent operations that are likely to be challenged as unlawful write-offs.

Therefore, acquirers don’t like card transactions without 3D Secure (transaction confirmation via SMS or push notification with a one-time code). In this case, acquirers increase the cost of services and make transactions financially unprofitable, or completely transfer the responsibility for the transactions to the cryptocurrency seller.

This sometimes leads to situations when, for the sake of more favorable conditions, the bank tells the acquirer that its cards support 3D Secure, when in fact, they don’t. Operations with such cards will also be blocked, like what happened recently with several banks in Mexico, reportedly mentioned by our customers.

Acquirers can also restrict operations on anonymous and prepaid cards. For example, in Russia, cryptocurrency transactions from cards that do not have a holder’s name on Yandex.Money or QIWI can be blocked.

Acquirers may prohibit certain types of purchases for the whole country. Recently, such a case has happened with our customers in the United Kingdom. To solve the problem, we changed the settings of our anti-fraud system and proved to the acquirer that we carefully monitor the legitimacy of the operations: We accept only 3D Secure cards; we register each user only after passing Know Your Customer; and we use technological methods to protect operations, among other steps. 

As you can see, the development of the crypto industry is impossible without a close interaction between the world of traditional finance and regulators. Banks in this system resemble employees from visa centers who give the right to cross the border: Some find errors in everything, while others welcome crypto users cordially. I hope that in the near future, more banks will follow the example in South Korea and become crypto-friendly.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.