This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on July 11 - 17, 2016.

Bitcoin wallet providers are emerging to solve the major problem faced by users — poor payment acceptance. The cryptocurrency, which allows electronic money to be transferred between registrants without the need of a bank, has been gaining in popularity, especially among people who have grown sceptical of fiat currencies such as the US dollar, euro, yen and pound sterling following the global financial crisis in 2008.

Despite bitcoin’s growing popularity, it is still very difficult to find merchants who will accept it as a form of payment in Malaysia, except for e-commerce sites such as Codashop and Bitstore and a couple of restaurants. However, Malaysia is believed to have a sizeable number of bitcoin users, so this poses somewhat of a problem.

This is where bitcoin wallet providers such as Wirex (formerly known as e-coin) and Asia Nexgen (ANX) come in. They are coming up with bitcoin debit cards, which allow users to convert bitcoin to cash and load it into the card to be spent at any merchant that accepts Visa or MasterCard transactions.

Like any normal debit card, these cards hold four key pieces of information on the user — the name of the cardholder, card number, expiry date and card verification value number.

The bitcoin wallet providers do not use the same approach. Wirex, for instance, offers a virtual Visa card or a normal plastic MasterCard. Its users can convert bitcoin into either US dollar, pound sterling or euro and load it into the card for immediate use. They can use the plastic card at any physical store that accepts MasterCard and the virtual card at any online store that accepts Visa.

These cards are able to convert bitcoin to fiat and fiat to fiat as well as buy bitcoin with several alternative payment methods, such as Alipay or Mistercash. The app can be used for mobile banking, to transfer money to anyone in the world and to verify their accounts. The virtual card costs US$3 while the plastic one is US$17.

Hong Kong-based ANX offers two debit cards — ANX Plus and ANX Premium. ANX Plus holds Hong Kong dollars and is linked to UnionPay while ANX Premium holds US dollars and is linked to MasterCard. Users can load up to $50,000 of each currency.

ANX only issues cards to verified customers. A mobile app is in the works.

Wirex co-founder Pavel Matveev says the use of debit cards makes things easier for bitcoin users and is a step towards mainstream acceptability. “Before this, you couldn’t just go to your coffee shop and buy a cup of coffee using bitcoin because the shop would probably not accept it. With the bitcoin [plastic] debit card, however, you can spend your bitcoin anywhere MasterCard is accepted — which is almost every merchant nowadays.”

Matveev says there are over 150,000 Wirex users globally, with a month-on-month growth rate of 30%. Some 30,000 of these users are Malaysians. “Malaysia is our second fastest growing market. The fastest is Japan because the government has decided to regulate bitcoin as a currency, which has triggered a lot of interest in it.”

Of the 30,000 Malaysians who use the Wirex wallet, about 10,000 use the debit card, he says. And 70% opt for the plastic version. “I think it is psychological; people feel safer having a physical card. It may also be because they can use it to withdraw money at ATMs.”

Conversions and security

Users do not need to submit any documents to apply for a Wirex debit card, meaning they can remain unverified. But this comes with certain limitations. An unverified user can only load up to US$2,500 and withdraw up to US$1,000 at ATMs. If users want to do away with these limits, they need to register themselves with Wirex and go through a proper verification process.

“It is all about the KYC (know your client) and AML (anti-money laundering) policies. By law, we are obliged to apply KYC policies and take the users’ proof of identification and proof of address when they reach an equivalent of US$2,500 on their cards. So, let’s say you buy US$2,500 worth of bitcoin, we will ask you to provide additional documents,” says Matveev.

“We do not ask for documents when users apply for the card because some people just want to try out the service. If they like it, they can increase their limits by verifying their accounts. I recommend that people verify themselves because once they have verified their account, they basically have no limit and it is just more convenient.”

Regarding the conversion fees, Matveev says the company is trying to match its bitcoin rate with the prevailing market rate. However, he adds, the conversion rate does not exceed 1% of the transaction. The blockchain fee, which is the fee given to miners, or block verifiers, is also applied.

“Block verifiers are people who verify all the transactions, who have spent money on computer programmes as well as time and energy to process the transactions. In exchange, they receive a fee known as the blockchain fee. Basically, you pay a tiny amount to these miners or block verifiers so that they can process your transactions,” says Matveev.

The blockchain fee is not fixed. It fluctuates during the day, depending on the load of blockchain transactions. “So let’s say there are not many transactions in the morning, the fee will be very low. In the middle of the day, when there is a lot of people trying to send bitcoins, the fee will be higher,” he says.

According to Matveev, Wirex’s fiat-to-fiat conversion rate is less than what is provided by players such as MasterCard. “We don’t make money from these conversions. When you have two currencies — say, euro and the pound sterling — what we do is convert the euro to bitcoin and then bitcoin to the pound sterling.

“Why is this cheaper? Because there is no middleman, or broker, or bank that will make money out of this. And there is no MasterCard or Visa, which usually charge a percentage for conversions. That is why we have such a good rate,” says Matveev.

Historically, bitcoin has been considered risky and prone to malicious online activities, which is why security is very important. Matveev says Wirex’s security is provided by BitGo (the industry standard for the wallet network), accompanied by SSL encryption (the technology for establishing an encrypted link between a web server and browser) and Two Factor Authentication (an extra layer of security that requires not only a password and username but also something that only the user has on them). Meanwhile, the plastic card is equipped with a chip and pin authentication method for any transaction.

The future of the bitcoin debit card

Suraya Zainudin, a local freelance writer and co-founder of RinggitOhRinggit.com and WangTarik.com, who has been using Wirex’s debit card since February, says she uses the card both as a remittance tool and her foreign currency account. She also uses it as a backup card to buy things such as groceries.

“I get paid in bitcoin so I find the card useful in accepting remittances. I do not use my bitcoin much because the price has been volatile, especially in the last few weeks and most Malaysians are hanging on to their bitcoin for investment purposes,” she says.

“Therefore, I use it as a backup card. I still use my normal debit cards for normal payments. But if I run out of money, I have the option to use my bitcoin as well.”

For some, the mobile app and help desk can make or break the whole user experience. Suraya says the Wirex app is very helpful and makes her feel more secure.

“I know that the aim of the app is to be like the desktop version. Some features are not there yet but it is still pretty good. As a paranoid bitcoin user, sometimes you want to log in just to make sure that your money is still there. I log in two or three times a day just for that,” she adds.

The complexity of bitcoin and the blockchain technology is slowing down the global adoption of the cryptocurrency. That is why Wirex is trying to make its debit card more user-friendly. For instance, it tries to simplify things on its website, with write-ups that are jargon-free so those who are not familiar with the system will find them easier to digest.

“We are trying to make the process as smooth as possible, so when you download the application, we will issue your virtual card free of charge and you can start using it. You can either top up the card through bank transfers or use alternative payment methods such Alipay,” says Matveev.

“We are trying to expand our help centre and are featuring blogposts on how you can buy, sell and convert bitcoin to currencies. We provide guidance, videos and tutorials. I don’t think they need to understand what mining is or how blockchain works or how many confirmations they need for their deposit to be verified. It is enough if we can make the bitcoin user experience a lot smoother.”

Matveev believes that the bitcoin debit card is a convenient way for newcomers to familiarise themselves with bitcoin and the blockchain industry. Each card can only hold one currency at the moment and he says Wirex is working on a multi-currency card, which it plans to introduce in the coming months. The company is also negotiating with one of the biggest Japanese bitcoin exchanges to launch the yen as one of the card’s currencies soon.

The ringgit, however, is not much of a priority because there is little demand for it to be one of the currencies on the card. “It is not difficult for us to launch another currency, but it depends on the demand. As a business, we need to justify the introduction of any new currency because it will require some capital, liquidity and development. So, if there is a huge market and demand in Malaysia for the local currency, then no problem; we can launch it,” says Matveev.