Reviewing Binance’s Credit Card System

DISCLAIMER: None of the following is intended to be investment advice. This is only meant to be a description of what has worked well for me so far, and my own opinions. Also, full disclosure, my links to Coinbase, Binance, KuCoin etc., include referrals. It actually benefits you to use them because we will both get an extra $10 worth of BTC for free if you deposit at least $100 to Coinbase. Thanks in advance if you follow the links when you make your accounts - and even if you don’t, I hope this guide helps you out!

Binance is now accepting credit cards - and, speaking frankly, this is not a sentence I ever expected to write. There are a lot of reasons why I didn’t expect Binance to ever get directly hooked into the existing financial world. Getting a merchant account - especially a high-risk merchant account - is often a byzantine and mystifying process for any business.

A merchant account is a type of business bank account that allows a business to accept and process electronic payment card transactions. - Investopedia

What further complicates these matters is that many banks and other financial institutions are largely hostile to the cryptocurrency world. Regulatory agencies such as FinCEN create even further difficulties, slapping onerous and draconian “Money Services Business” rules onto any business that would dare act as an exchange.

Binance is my favorite altcoin exchange, but it’s hard to miss the fact that they do things in a very unorthodox way. They have avoided the usual bureaucratic nightmares by operating outside of the United States and staying entirely in the crypto world. This is another reason why it surprised me when I heard that they were partnering with Simplex in order to provide credit card services. The whole thing made me very eager to try it out and get a review published. Let’s jump right into it!

The Process

The onboarding process was fairly straightforward except for some major annoyances in the KYC. All you do is navigate to their credit card payment page (Funds → Buy With Credit Card on the top right) after making your account.

Let’s buy half of one Ether to test this out.

After clicking “Buy now,” a popup greeted me letting me know that I’d be finishing my transaction at Simplex.com. Agreeing, I was transported into a four-step verification process wherein I entered my billing info, payment information, and Know Your customer (“KYC”) info. All of this was smooth except for the KYC.

KYC Shenanigans

KYC, for those of you who don’t know, is when a financial institution collects some data from you in order to combat identity theft (or, in the case of Bitcoin exchanges, because of burdensome restrictions placed on them by various US regulatory bodies). In the case of Simplex, all they really wanted was a photo of my ID - ideally a passport.

When I uploaded my passport, I was first told that the image was too small - an automated system based on the size of the file. I loaded up gimp (an image editing tool) and scaled it up by 2x. I sent it in and saw the following message:

This verification process usually takes up to a few hours, however at periods of high demand it can take between 24–72 hours. We appreciate your patience while we work to ensure you receive a quick response.

In my case, it only took about fifteen minutes for me to receive an email saying that my KYC Verification had failed. It said:

Please upload a real photo of your document, not a printed/scanned version of your document.

I had scanned my passport - although in fairness, their page literally says “scan your document.” I’m not sure where they were getting the “printed” idea from - I suppose my scanner had created a somewhat poor quality image which might have created some confusion.

In any event, I quickly took a photo with my phone and clicked the link in the email which brought me back to the Simplex checkout at the “verification” step. After re-inputting all of the information and uploading the new photo, I was again met with an error message about the size of the file.

Frustrating!

Now, unlike my scanner, my phone is actually pretty new and has a great camera. I upsized the image again in gimp, annoyed at the seemingly unnecessary hiccup in the onboarding process. Did I mention that I hate KYC?

My troubles weren’t over, however. I again received an email - this time within seconds of uploading the image. I began to suspect that I wasn’t dealing with a person, but a program that was analyzing the image and finding it wanting. The message this time was:

Please retake the picture with better quality and higher resolution. Please also make sure that all 4 corners of the document are captured and all details are clearly visible.

My thumb was covering an empty corner of the passport, but none of the data was obscured or unclear. Thoroughly annoyed at this point, I took one more photo and went through the process again. I realized at this point that my phone had inadvertently downsized the first photo - this time I had a nice high-res 4.1 MB file.

It’s worth noting that the Simplex webpage did not remember any of my verification data, so I had to type in my name, address, DOB, ID number, ID expiration, ID type, country, and zip code three times. I could definitely see a less determined person giving up throughout this process!

This time as I chose the file and clicked “Upload Document,” I was greeted with a loading screen. This was the same as before, except this time it sat there animating…

Okay…

And animating…

Uh huh…

And this pretty much just kept going for several minutes until I realized this wasn’t going anywhere. Staring at it, I remembered that the max file size was 4MB. Was this their idea of an error message?

There’s no way to cancel out of this screen, by the way. This means I had to refresh the page. This means all my data was canceled out. This means I had to enter it all again.

Simplex, please.

I went into gimp again and reduced the quality of the photo until it was around 3.2MB, put my data in for the fourth or fifth time, and uploaded it. It worked this time, and a couple of minutes later I received an email approving my payment. Hurrah, 0.5 ETH would soon be mine!

Minutes after that, I received an email from Binance letting me know that a little over 0.49 ETH was in my account. This was the end of the purchasing process.

Areas that could be improved

The fees are onerous

Let’s crunch some numbers. I ended up paying $64.07 for 0.49 ETH. At the time of this writing, Binance is averaging a price of $108.08 - meaning 0.49 ETH should cost around $53. Why did I pay eleven dollars extra? That’s around a 20% markup! Unfortunately, there’s a real gotcha that Simplex has laid onto Binance. It turns out that, while the Simplex fee is the usual 3.5% you’d expect from a credit card process, the minimum fee is $10. This surprise was totally on me for not noticing it on the first page, but it would be nice if the fee structure for your individual transaction was displayed to you at some point before you click confirm. In any event, this means that if you’re going to buy cryptocurrency via credit card on Binance, you would be well served to ensure that you buy enough that $10 constitutes at least 3.5% of the transaction amount. PS: One more thing about fees - I suggest you use a debit card rather than a credit card. Depending on how your bank handles it, they might incorrectly try to treat a credit card transaction as a "cash advance" which will tack on more fees.

KYC is torture

As I expected, the KYC process made me want to tear my hair out. Unfortunately this is more-or-less unavoidable when dealing with the legacy financial world, and you’re likely to encounter similar issues on any other platform that requires KYC, including Coinbase. Simplex’s site could definitely be improved to make this process less miserable, though. It’s worth noting that even with all the trouble I had, the entire start-to-finish process still took under an hour - and almost all of that was the KYC.

You still can’t buy less popular coins directly

At the time of this writing, you can only purchase Bitcoin, Ethereum, and Litecoin with cash. You would then trade one of those three coins for whatever you were really looking for.

50 dollar minimum

Buying small amounts of cryptocurrency is not possible. This could be an issue - not just for people with less money, but for people who want to test the process out with a couple of dollars. I suspect this may be a limitation placed on Binance by its merchant account. In any event, due to the fee structure I discussed above, it’s probably inadvisable to buy less than around $285 worth of a cryptocurrency unless you want to pay more fees than you have to. This is obviously not ideal - in fact I would characterize it as the worst thing about this news.

Restricted countries

At the time of this writing there are several countries that aren’t supported or have limited support. Some Chinese banks, for instance, are not supported. Most relevant to Americans is the fact that six states are not supported: New York, Connecticut, Hawaii, Georgia, New Mexico, and Washington. While I’m unsure about the other states, the lack of NY support probably has something to do with its ridiculous “BitLicense” which has driven almost every major cryptocurrency company out of the state. Perhaps Binance will navigate that hurdle at some point, perhaps not. I can’t blame them for this, though; it’s not their fault that the New York lawmakers are incompetent.

But it’s not all bad!

I realize this seems like a laundry list of complaints, but it is only intended as constructive criticism which will hopefully be acted upon. All in all, I still think that this is an incredible development for my favorite exchange. Remember that this means that you no longer have to transfer coins to Binance to trade altcoins.

I can’t begin to say how much this streamlines the onboarding process. The main reason I run this website is because it has become clear to me that the cryptocurrency world is extremely intimidating to people who aren’t familiar with it. It’s easy to see this stuff as “easy” when you’ve been doing it for awhile, but try to put yourself into a newbie’s shoes. These people are being told that they need to understand addresses, wallets, how not to get phished, why the token or coin they want to purchase is worth purchasing, and more - all while shelling out cash. This is a big ask, and anything that can streamline and simplify this process is good. Now that you no longer have to buy coins from Coinbase and then move them to Binance, the process to buying coins is both faster and easier. This is a tremendous step forward for the cryptocurrency world - so if you’ve been looking for an excuse to jump in, now is the time. Make your account on Binance today!