Discussion | Credit card purchases of cryptocurrencies may be blocked? Taiwan's Financial Supervisory Commission sends letter to banking association: Virtual asset service providers should not act as payees

The Financial Supervisory Commission of Taiwan issued a letter to the Bankers Association in early July, stating that virtual assets are highly speculative and risky, and difficult to monitor for transactions. It requested that credit cards should not be used as a payment tool for trading virtual assets. Will this have an impact on purchasing coins with credit cards? What is the actual significance?

Financial Supervisory Commission's Letter Highlights

The Financial Supervisory Commission (FSC) explains that credit cards are essentially a tool for "consumer payments" rather than a tool for investment, high-risk, or high-leverage investments. In the past, there have been cases where credit cards were disabled for online gambling, stocks, futures, options, and more. Due to the high speculative and high-risk nature of virtual assets, credit cards cannot be used as a payment tool for them.

The FSC requires:

1. The "credit card acquirer" is not allowed to sign VASPs (Virtual Asset Service Providers) as contracted merchants.
2. In the contract between the "credit card acquirer" and the contracted merchants, it must be stated that the merchants cannot sign VASPs as payees/sellers.
3. The above regulations will become a focus of internal audits at the FSC.

The FSC requires that existing credit card acquirers adjust within three months after the issuance of this announcement.

Unable to Deposit with Credit Cards on Exchanges?

Cryptocurrency exchanges, VASPs, provide services for buying coins with credit cards. Overseas exchanges such as Binance, FTX, etc., offer users a direct way to purchase cryptocurrencies, usually including fees from third-party payment processors, as well as market price spreads and exchange rate spreads. Local exchanges that already allow fiat currency transfers may also offer credit card purchase services for convenience.

In the context of buying coins with credit cards on cryptocurrency exchanges, the third-party payment processors that exchanges cooperate with are considered "contracted merchants" in the diagram below. When cardholders make payments to them, the payment processors will conduct transactions with their acquiring banks. The acquiring banks then handle transaction authorizations and settlements with the cardholders.

As the FSC requires contracted merchants not to sign agreements with VASPs, this situation prevents third-party payment processors from establishing partnerships with exchanges. Therefore, in theory, exchanges cannot provide services for buying coins with credit cards anymore, as credit card acquirers regulated by the FSC in Taiwan cannot accept this business.

But is it Really Impossible?

Although the FSC in Taiwan has not specified whether the "credit card acquirer" should be domestic or foreign, if credit cards issued by foreign banks and credit card acquirers are foreign entities, would this regulation still apply?

Experts interviewed mentioned that if foreign acquirers facilitate transactions in Taiwan, they may also require exchanges to provide documentation and discuss anti-money laundering issues.

Can You Buy NFTs with Credit Cards?

If credit cards cannot be used to buy coins, can they be used to buy NFTs? Platforms like OpenSea allow users to buy cryptocurrencies through MoonPay to purchase NFTs. In Taiwan, Qubic Wallet also enables users to buy cryptocurrencies based on the selling price of NFTs with credit cards. Even though the end result is purchasing NFTs, the subject of credit card transactions is cryptocurrencies, which involves VASPs according to the FSC's context. The author believes that this is not in line with regulations.

Can You Still Shop with Crypto Debit Cards?

As an example, the well-known crypto debit card Crypto.com CRO card is not a credit card but a debit card used for consumption, not for purchasing cryptocurrencies. Therefore, it should not be included in the FSC's recent regulatory letter.