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Banks Are Trying To Block Cryptocurrency, But to no Avail

Interaction between traditional finance and regulators is the key element in the development of the cryptocurrency industry.

The Corona Virus pademic known as COVID-19 has drawn so many new users to the cryptocurrencies world. The major concerns for users is, whether their bank cards may be blocked due to the purchase of a cryptocurrency, or when withdrawing funds from a crypto account. This risk, can it be prevented?

During the outbreak of this pandemic, people now desire to protect their savings and this has made the interest in cryptocurrency to grow rapidly. A survey conducted in June this year by The Tokenist found that 45% of respondents from 17 countries now prefer to invest in Bitcoin 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 being active in investing in cryptocurrency

State interests 

These are major reasons that can lead to blocking cryptocurrency transactions;

1.  Restrictions based on the regulator 2. Restrictions based on the acquirer 

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

The most striking example of banks blocking cryptocurrencies operations due to regulatory restrictions is in Argentina. In the fall of 2019, local authorities first reduced the limit on the purchase of foreign currency from $10,000 to $200 USD each month

There was a ban imposed by the Argentinian government on the purchase of digital currency 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.

There were contacts made to the Argentinean banks, Brubank in particular, to look for solutions for some users but there were no response. In such a situation, for regulated crypto services, the only option is alternative payment systems available in the local market. Therefore, the purchase of digitalcurrency transaction will be divided into two phases: a top-up of the local electronic wallet with a bank card, and then the subsequent digitalcurrency purchase from the wallet balance. Indeed, transactions like this becomes more expensive, but a safe digitalcurrency purchase is still ensured.

Another situation, 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

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

So far, acquirers don’t like card transactions without 3D Secure (transaction confirmation v through text messages or push notification with a one-time code). In  situations like this, acquirers increase the cost of services and make transactions financially unprofitable, or completely transfer the responsibility for the transactions to the digital currency users

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 some 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 can be blocked.

In the whole country, Acquirers may not allow certain types of purchases. Currently, such case has happened with some users in the United Kingdom (UK). To solve the problem, There are some changes in the settings of our anti-fraud system and proved to the acquirer that the legitimacy of the operations are carefully monitored: Only 3D Secure cards are accepted; Each user are registered only after passing Know Your Customer (KYC); and technological methods are used 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. In the near future, more banks will follow the example in South Korea and other countries to become crypto-friendly.

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