Visa Strengthens Management of Payment Classification Codes for Meme Coin Transactions to Close Loopholes in Card Benefits

Visa Takes Action to Close Loopholes in Meme Coin Payments

Visa, a major payment network, has begun to tighten the classification of payment codes for credit card purchases of meme coins, which are a type of cryptocurrency.

Under previous operations, there were cases where purchases of meme coins were processed not as cryptocurrencies but as "digital media," creating a loophole where card benefits such as point rewards and cash back, which should not apply, were granted. This new measure aims to ensure that payment processors apply the correct merchant category codes, significantly impacting both the card industry and cryptocurrency payment infrastructure.

Background of Incorrect Merchant Category Code (MCC) Application and Loopholes

The issue originated from transactions processed through the system of Crossmint, a provider of cryptocurrency payment infrastructure.

In apps like Robinhood Wallet and Fomo, purchases of meme coins made via Visa or Mastercard through Apple Pay or Google Pay were assigned the merchant category code (MCC) "5815."

This MCC 5815 is intended for identifying general digital products and media such as e-books, movies, audiobooks, and music. However, Visa's regulations require that when directly purchasing cryptocurrencies, a dedicated category code for cryptocurrencies must be used, along with additional information indicating that the transaction involves digital assets.

Generally, purchases of cryptocurrencies or cash-equivalent transactions are excluded from credit card reward programs. However, processing these transactions under MCC 5815 allowed users to earn regular card benefits when purchasing meme coins.

Actions by Issuing Banks and Regulatory Authorities and Visa's Corrective Notice

In response to this inappropriate code assignment, JPMorgan Chase, the card issuer, raised an objection.

The bank pointed out that at least one Visa transaction had not been flagged as a cryptocurrency transaction, and benefits that should not have been granted were applied. They reported this to Visa and requested an investigation. Additionally, the New York State Attorney General's office has acknowledged the issue and is conducting an investigation.

In response, Visa notified payment processors, including Checkout.com, and industry stakeholders that using the digital media code (MCC 5815) for meme coin purchases is inappropriate. A grace period has been set for each payment processor to change and correct their system operations, which is expected to end soon.

Crossmint, a cryptocurrency payment infrastructure company, had claimed the legitimacy of its approach based on a statement from SEC staff that "some meme coins are akin to collectibles." However, this was not recognized under the payment rules of the card network, necessitating strict classification based on actual circumstances.

Impact on Users and Payment Businesses and Future Outlook

Visa's recent measures do not prohibit the purchase of meme coins through cards. However, with the end of the grace period, transactions conducted through the affected payment routes will be reclassified as cryptocurrency transactions. As a result, users will no longer be able to earn traditional points or cash back when purchasing meme coins and will be subject to fees and various compliance restrictions associated with cryptocurrency purchases.

Moreover, this incident does not mean that Visa is withdrawing from the cryptocurrency sector. Visa is actively working on launching stablecoin platforms and cryptocurrency-linked cards, and this response is part of an effort to ensure compliance and the application of classification rules within the payment network.

Going forward, it will be crucial to see whether Mastercard, another major card network, will issue similar corrective instructions. If both companies align, the loophole allowing meme coins to be purchased cheaply with benefits through credit cards will be completely closed.

As the adoption of cryptocurrency payments progresses, the strict operation and oversight based on traditional financial infrastructure rules are becoming increasingly stringent.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.