Two British banks have followed U.S. banks in banning customers from buying Bitcoin and other digital currencies with their credit cards. Lloyds Banking Group and Virgin Money will no longer authorize credit card payments for cryptocurrency purchases through certain merchants.
The ban applies only to Virgin Money and Lloyds Banking Group credit cards, and not debit cards.
For both banks, this is a change of heart. Why now? “It’s a case of protecting credit card customers from the risks associated with the volatility of the price of cryptocurrencies seen over recent months,” said a spokeswoman for Lloyds Banking Group, which includes Lloyds Bank, Halifax, Bank of Scotland and MBNA (which banned credit card cryptocurrency payments a month ago).
The banks regard borrowing credit, through credit card payments, to finance a speculative investment like cryptocurrency, as a high-risk strategy, because the customer could end up with debts they can’t pay back.
Here’s the rub: Lloyds and Virgin Money customers can use their credit cards to bet on the horses or for spread-betting, but they can’t buy Bitcoin anymore with them. They can still trade in it using their debit cards. It’s not clear which mattered more – extreme volatility in the virtual currencies or caution over protecting customers, with an eye on the regulator, or both.
According to a report in the Financial Times, Lloyds has said the numbers of customers involved in credit card cryptocurrency payments is “very small”.
“In blocking cryptocurrency transactions on credit cards, the banks are simply protecting their liabilities,” said one senior banker. “The cryptocurrency business is completely unregulated and because users are anonymous, it’s very open to being used for money laundering”.
Greg Adams, the managing director of Blokt.com said in an interview with Express.co.uk that the law surrounding cryptocurrency is in desperate need of further clarification and that banks are probably worried about being liable for losses.
Bitcoin’s value peaked at nearly $20,000 (£14,465) in December, before falling back to around $8,000 (£5,700) as Lloyds blocked card payments.
Mario Draghi, the president of the ECB, has warned that cryptocurrencies are “very risky assets”, while Nordea, Scandinavia’s largest bank, has forbidden all its employees from trading in cryptocurrencies because of the high risk. Other European banks may also impose restrictions on customers and employees. But are the banks doing too little, too late?