Growing Pains: Coinbase Struggles With Banks, Payment Processors, Card Issuers

It’s been an exciting and interesting few months for Coinbase, one of the largest and most popular cryptocurrency exchanges based in the United States. In the months of November and December, Coinbase onboarded hundreds of thousands–even millions–of new users; the company reported over a billion dollars in revenue in 2017.

However, the exchange’s rise has not come without its own set of issues. While the company has taken steps toward improving its customer service, Coinbase gained a reputation for taking days (or in some cases, weeks) to respond to requests for help.

While customer support and service outage issues seem to have subsided (perhaps with the cooling of the crypto markets in general), Coinbase has been facing a new set of issues over the past several weeks. Now that major banks, payments processors, and governments are starting to gain a slightly better understanding of what cryptocurrency is and how it works, the payment industry’s relationship with crypto is starting to change in a big way.

As one of the largest channels that customers and banks use to interact with crypto through, Coinbase has bore the brunt of many of the issues that result when banks and payments systems have taken steps toward policy change. Let’s review.

Neither Coinbase Nor Visa Will Take Responsibility

In the latest ‘episode’, some users reported duplicate transactions on Coinbase made through their Visa cards last week.

Coinbase pointed the finger at Visa in a series of Tweets, explaining that some large banks and other card issuers had asked that purchases of digital currency use a different merchant category code that would allow card issuers to charge higher fees on crypto purchases.

1/ We have determined that the erroneous credit and debit charges are the result of Visa reversing and recharging transactions. This was not done by Coinbase. We are working with Visa to ensure all affected customers are reimbursed.

— Coinbase (@coinbase) February 16, 2018

Originally, Visa simply denied that it had anything to do with the duplicate charges. In an emailed statement to CNBC, the company wrote that “Visa has not made any systems changes that would result in the duplicate transactions cardholders are reporting.

“We are also not aware of any other merchants who are experiencing this issue,” Visa continued. The company also said that it was reaching out to Coinbase’s acquiring institution to “offer assistance and ensure cardholders are protected from unauthorized transactions.”

On Saturday, however, Visa posted another statement that made it clear that although they weren’t going to take the blame, Coinbase was not at fault, either. A joint statement with payment service Worldpay reads: “this issue was not caused by Coinbase.”

“Worldpay and Coinbase have been working with Visa and Visa-issuing banks to ensure that the duplicate transactions have been reversed and appropriate credits have been posted to cardholder accounts,” the statement continued. However, customers who were charged overdraft fees because of the duplicate transactions may just be out of luck.

Big Banks Discontinue Credit Card Usage on Coinbase

Earlier this month, Coinbase confirmed that credit card holders from four major US banks had been prohibited from using their cards to purchase cryptocurrency from the exchange. In a tweet, the exchange encouraged affected customers of JPMorgan Chase, Bank of America, Citi, and Capital One to switch to debit cards or ‘bank account payment methods’.

Customers using credit cards on Coinbase: the following card issuers are now blocking purchases of digital currency with credit cards.

Chase
Bank of America
Citi
Capital One

We’re encouraging affected customers to switch to debit card or bank account payment methods.

— Coinbase (@coinbase) February 6, 2018

Eventually, Coinbase announced in a blog post that it would be disabling US customers’ ability to add any new credit cards as payment methods onto the exchange, saying that “At the moment, Coinbase cannot ensure customers will have a positive purchasing experience with a credit card.” Credit cards already linked to the exchange, debit cards, and other approved methods of payment are unaffected.

“We did not make this decision lightly,” the post continued.

The banks are not targeting Coinbase specifically. Rather, the banks have barred customers from using credit cards from purchasing cryptocurrencies from any source. JPMorgan spokeswoman Mary Jane Rogers told Bloomberg that the ban (which was officially enacted on Saturday) was put in place to end the risks that come with purchasing crypto on credit.

For at least some of these banks, the ban may not be a permanent measure. Late Friday, Citigroup spokeswoman Jennifer Bombardier said that the bank would ‘continue to review [its] policy as this market evolves.’

Coinbase Says Goodbye to Paypal (For Now), Launches ‘Coinbase Commerce’

Coinbase also announced last week that it will be taking a long hiatus from allowing customers to use PayPal to buy crypto. “Our plan is to re-enable support for 2 weeks and then disable PayPal entirely until we can overhaul the entire experience,” the same blog post read. The post explained that PayPal is expected to return to Coinbase later this year.

PayPal has not made any movements toward ending its relationship with crypto exchanges or with cryptocurrency as a whole. However, popular payment service Stripe announced in January that it would be ending support for the purchase of Bitcoin in April of this year.

Perhaps not-so-coincidentally, Coinbase announced that it would be launching a crypto-friendly payment service of its own. Coinbase Commerce is slated to be a worldwide service that allows merchants to integrate crypto payment options into their existing payment stream or to be added as a separate offering.

A Glass Half Full?

Despite all of the trouble that Coinbase has faced in recent weeks, the company is still moving forward and looking for solutions.

“We’re working hard to improve your Coinbase experience. We might not always get it right,” read the latest Coinbase company update blog post. The company doesn’t seem to have intentions of giving up any time soon: “… above all, your satisfaction with our product is what’s important.”

That being said, Coinbase’s actions over the weeks, months, and years to come will be very important for the present and the future of cryptocurrency. Here’s hoping that the company (and its customers) manage well; the world is watching.