Have you ever thought of using a payment card backed by digital assets like cryptocurrency? Do you know that your digital assets can provide you with a line of credit? Yes, this is possible today as the most prominent firms like Mastercard and Nexo tied up to make it happen. They have recently launched the world's first crypto-backed payment card.
It will hold all the qualities of a traditional credit card, but at the same time, it will offer more. It raised its level of security and improved its features and rewards options for cardholders. It will explain why you should drop the idea of a traditional payment card and go for this crypto-backed payment card.
To know more about the reason for the collaboration of Mastercard and Nexo, we need to learn more about their plans. Let's get into the details and understand these firms more closely and how their new crypto-backed payment card will be helpful for us.
What Is Mastercard?
The fourth-largest payment network, Mastercard, refers to a global credit card network. The United States launched this payment card system in 1966 of 3rd November. Earlier it was established as an interbank bank card; again, from 1969 to 1979, the card held another name Master Charge. Later in 1979, the card was finally named MasterCard.
After 1969 when the card was Master Charge, it was held by the association of several regional bankcards, which BankAmericard heads. When Visa Inc ultimately issued it, it became a Visa credit card.
When considering the evolution of the logo of MasterCard, it is worth having a look. All the changes acquired by MasterCard in their logo primarily represent their partnership and collaboration. They changed around six times in their logo. They came up with their first logo in 1967, but they changed it within three years in 1970. Later, in 1985, they again changed their logo KJ associated with the Cirrus ATM network. Again in 2002, 2016, and 2019 MasterCard put efforts into bringing suitable changes to the look of its logo.
Processing and regulating prepaid, credit, and debit cards ease electronic payment systems between large businesses and consumers. Available in more than 210 territories and countries and more than 150 currencies, Mastercard offers payment products and solutions to customers and financial institutions.
Mastercard launched a web shopping mall on 16th April 2010. It is specially designed to meet the needs of cardholders. The idea is influenced by the partner company of master card, which is a personalized shipping firm.
It will be interesting to determine if we specifically consider how MasterCard makes money. As MasterCard offers technology support to financial institutions, its revenue roots are enormous. The financial institutions contribute the most significant chunk of the revenue of MasterCard. Although the customers apply for credit and debit cards of the MasterCard brand, financial institutions like banks issue these from MasterCard by paying an amount.
If we exclude the dip of last year due to the global pandemic, then MasterCard's credit card will touch $15.3 billion in 2021. In the mid of last year, the firm's market capitalization reached $351.03 billion. The feasibility provided by the MasterCard in their transaction service expands their trust among financial institutions, consumers, governments, merchants, and more.
The business model of MasterCard is mainly supported by the brand value it holds. Mastercard charges a fee for the transactions made at the domestic and international levels.
Let's understand this through a transaction. When a cardholder makes a transaction, it involves four parties—first, the cardholder itself, and second, the cardholder's bank. The third party will be the merchant, and the last one is the merchant's bank. Mastercard placed itself in the middle of the whole transaction process. Apart from the payment settlement, it has hands in authorization and clearance in a transaction.
The money involves all these four parties in a transaction, and MasterCard pays charges in each direction of the cash flows. There is a charge when the cash flows from the cardholder's bank to the cardholder. When the cardholder pays the amount to the merchant, there is another charge that involves the transactions. When the merchant sends the money to its bank, there is also a charge. Even during a successful transaction, there is a network fee, which we cannot avoid.
On the whole, MasterCard has four revenue-generating business models. It involves international and domestic assessment fees. There are also transaction fees and other sources.
What Is Nexo?
Nexo is among the most popular crypto platforms and lending institutions in the digital finance industry. In traditional banks, the approval and processing of a loan take significant time. However, with Nexo, the loan approval process is just a matter of a few seconds. Although it's not a decentralized app, it provides banking services in the crypto and blockchain space.
Moreover, your collateral would be your crypto funds while taking a loan. Established in 2018, it grew popular with its slogan, i.e., "Banking on Crypto''. It's a business model that lets users lend cryptocurrencies and gain some interest from them. Users can earn interest, deposit loans, and grab fiat currencies instantly based on credit scores. Backed up with blockchain technology, Nexo maintains transparency in its operations and allows smart contract processing on the Ethereum blockchain.
Taking an instant loan while possessing crypto assets has become super easy with Nexo. It lets you receive your loan money in three ways:
- Instant withdrawal in USDT and USDC.
- Direct transfer to a personal bank account within a maximum of 3 days.
The interest rate of loans in Nexo varies from 5.9 to 11.90%. Moreover, the loan amount ranges from $500-$2million. You also have a flexible installment calendar. You can repay your loan anytime. You can also submit regular monthly installments or be irregular.
Moreover, you pay the interest-only for the period you have used the loan. The time allotted to an individual to repay his loan is one year. If the defaulter cannot repay the loan within the specific duration, the loan duration gets automatically expanded to another year.
However, for the new US customers, Nexo doesn't allow any Earn Interest product since February 2022. The existing customers also cannot make any extra deposits. However, they will continue earning interests and can also withdraw these funds. Users earn interests in stablecoins and crypto. While stable coins offer interest at the rate of 12%, crypto offers appeal at 12%. You make interest payout daily because the interest gets compounded daily.
Nexo also doesn't have a lockup period for deposits. Users can withdraw fiat money at any hour and time. However, there are some limitations regarding the number of times a user can withdraw crypto. Depending on the loyalty tier, these numbers vary from 1 to 5. In the base tier, the user must have at least 1% of Nexo tokens in his entire portfolio, and he can make crypto withdrawals only once a month.
In the silver tier, the user must have at least 1-5% of Nexo tokens in his entire portfolio, and he can make two crypto withdrawals in a month. In the gold tier, the user must have at least 5-10% of Nexo tokens in his entire portfolio, and he can make three crypto withdrawals in a month. In the platinum tier, the user must have at least 10% of Nexo tokens in his entire portfolio, and he can make five crypto withdrawals in a month.
Moreover, Nexo yields 10% compound interest in a single year. Your income at Nexo gets credited to you in your preferred medium daily. Moreover, Nexo has no deposit or withdrawal fees. Nexo also has its own Nexo Token, which has three crucial benefits. About 30% of Nexo's profits are shared and distributed as dividends to the Nexo token holders. Moreover, Nexo also discounts and bonuses to individuals who stake Nexo tokens. One can also earn profits by the escalating prices of the Nexo token.
Who Launched The First Crypto-backed Payment Card?
In partnership with Mastercard, a well-known global payments company, the famous crypto lender Nexo launched the world's first crypto-backed payment card known as Nexo Card. The renowned internet browser Opera has also announced the launch of a Web3-fuelled crypto browser, especially for iOS devices. This news led to the rise in Bitcoin price by 0.55% within 24 hours.
Moreover, Ethereum's price rose by 0.45%. Binance coin price also heightened by 0.30%, Solana by 0.48%, and Cardano by 0.25%. On the other hand, the cost of Dogecoin fell by 2.35%, Shiba Inu by 0.94%, Samoyedcoin by 0.71%, and Dogelon Mars by 0.16%.
What Is The Nexo Card By Mastercard And Nexo?
The Nexo Card launched by Mastercard and Nexo is neither strictly a credit card nor a debit card. It's a hybrid version of both of these. Initially, the card was beta-tested in Europe. The main perks of the card, as presented by Mastercard and Nexo, are:
- The user needs no credit check to own this card.
- The Nexo card has no monthly and annual charges.
- The card has no charges in foreign transactions up to 20,000 Euros.
- Users will enjoy a 2% cashback while making purchases using the card. If the user wants to redeem the cashback via Nexo tokens, the reward is 2%. Whereas, if the user wishes to save the cashback via Bitcoin, the prize is 0.5%.
- Virtual cards are also available for users.
If we look into the card's working, firstly, users need to have crypto in their Nexo wallet to be eligible for using the card. The card lets users spend their money without really having to sell away their cryptos. It's much similar to another program of Nexo, i.e., the Nexo Borrow program. Users use the crypto coins on their Nexo wallet as collateral while taking loans.
For example, suppose a user has 500 worth of Bitcoin in his Nexo wallet, and he makes a purchase of things worth 100 using the card. Immediately after the user makes the purchase, 200 worth of Bitcoin from his Nexo wallet is sealed and locked as collateral. Thus, the user can't earn any interest on that amount of coins. However, if your collateral comprises Nexo tokens, you will make passive interest on them even while they are used as collateral.
Moreover, according to Nexo's policy, users can repay the loan amount anytime and in any supported cryptocurrency. Furthermore, users aren't charged with any penalty if they refund the amount within 30 days. Here are the advantages of using the Nexo Card:
- The users get instant access to money without really having to sell their cryptos.
- Users also get cash back from the purchases made using the Nexo Card.
- Moreover, if the user's portfolio performs bullish on Nexo and has a lot of Nexo coins, he can get a loan at a 0% interest rate.
The disadvantages of using the Nexo card are:
- As the interest piles up immediately, users need to repay their loan amounts infractions regularly.
- Users need to have a Nexo wallet and some cryptos to get started with the card.
- The locked-up collateral determines the card's spending limit and doesn't yield any interest.
How Will Mastercard's Crypto Payment Card Be Different From A Normal Credit Card?
The move taken by MasterCard and Nexo points out the futuristic approach toward financial transactions. The crypto-backed payment is launched by the collaboration drawing the attention of the global financial institutions toward digital assets as a model.
The crypto-backed payment card may seem similar in mechanism but has sharp differences in their working process.
According to a statement, Nexo said," the service of crypto-backed payment cards is available to a selective part of Europe. Initially, it will be tasted in some central European countries before it is launched globally."
One of the primary specialties of this payment card is that the cardholder need not sell their digital assets. For example, a user can use the card to proceed with transactions, but the credit granted to the user is based on the digital assets he has. If he has some amount of Bitcoin, it will work as collateral for the credit system.
If you have "x" fiat value of digital assets, then this card will allow you to use up to 90% of the value of "x." This card has a crypto-backed credit line and is a much more secure option than traditional credit cards. The card also set free the users from FX fees for around 20,000 euros.
The user required no extra charges for not using the card; the firm's official statement confirmed that there is no minimum indemnity. The firms also set a vast merchant base for using this card; the card can be used by around 92 million merchants globally.
If you are among the users who can maintain a loan-to-value ratio of 20% or below, then the interest will stay at 0%. The limits are not set for the withdrawal and spending of the amount if the user considers the open credit line.
One of their blog Mastercard, states, "We are more concerned about the future of payments and cryptocurrency. We are preparing ourselves for the upcoming changes. The surge of cryptocurrency like Bitcoin is also unavoidable for technology-based fintech firms".
The way users take advantage of digital assets and how they are incorporating this modernization in the financial world is worth considering. Although the approach and concepts are very new to the world, they can bring revolutionary changes in how the world looks into these matters.
The world's first crypto-backed payment launched by the collaboration of Mastercard and Nexo attempted to bring new things to the world. It has sharp reasons why a user should choose this one. How far this attempt will be successful depends on how the user accepts it.