Users of Fomo and Robinhood Wallet have been able to buy selected memecoins with credit cards through Apple Pay or Google Pay, receiving ordinary card rewards and without completing a standard know-your-customer process – a payment route that appears to avoid the cryptocurrency coding requirements set by Visa and Mastercard.
The purchases are processed by Crossmint, a crypto infrastructure company whose Token Checkout product allows customers to buy certain digital assets directly into an app wallet. Tests by The Block found that purchases of the WIF memecoin worked with cards on both the Visa and Mastercard networks in New York state.
The transactions were classified under merchant category code 5815, used for digital goods such as books, films, digital artwork and music. Visa and Mastercard rules require direct cryptocurrency purchases to use different codes and to carry indicators showing that crypto assets are involved.
Chase, which issued one of the cards used in the tests, said it believed the classification was “incorrect” and had opened a case with Visa. New York Attorney General Letitia James’ office said it was aware of the issue and reviewing it.
Crossmint disputes that interpretation. The company said the relevant stakeholders had reviewed its categorisation and that eligible memecoins could be treated as digital collectibles rather than cryptocurrency purchases.
“As far as I know, we’re the only game in town when it comes to that particular product that involves no KYC because of the way that we’ve structured it,” Crossmint Head of Strategy Fonz Olvera told The Block in an interview. “Part of it is oursecret sauce, and part of it is … making sure that there’s no friction by embedding the checkout correctly into the mobile application, handling all the orchestration with Apple Pay, Google Pay.”
How the purchases work
On Fomo, a social trading app, users normally fund purchases by transferring cryptocurrency from an external wallet or buying USDC stablecoins with a debit card before swapping them for another token.
Robinhood Wallet, the self-custody wallet app operated by the publicly traded fintech company Robinhood, generally follows a similar process. Users can also connect a Robinhood account or use crypto on-ramp provider Sardine in certain jurisdictions.
The Crossmint integration offers a different route for selected memecoins. Users can buy tokens including “dogwifhat” – WIF – “testicle” and three separate tokens carrying the ticker “ASTEROID” by paying through a credit card connected to Apple Pay or Google Pay.
The process does not require the customer to complete a KYC form. Crossmint’s website says its Token Checkout service nevertheless includes anti-money-laundering monitoring conducted by a dedicated team of anti-fraud specialists.
“In the end, what it looks like to the consumer is I just go into Fomo, I pick a token, and then I check out using Google Pay, and that’s it,” Olvera said. “And those payments just go through, like, if I’m using my credit card, it just goes through the regular Visa [or] MasterCard service.”
The Block said the WIF purchases tested on both networks were delivered directly to the users’ Fomo or Robinhood Wallet app wallets. Each transaction also generated the ordinary rewards associated with the cards used.
That appears significant because cryptocurrency purchases are generally excluded from credit card rewards schemes. Chase’s Ultimate Rewards terms say “cash-like transactions including, but not limited to … cryptocurrency, other similar digital or virtual currency and other similar transactions” do not qualify for points.
Chase said the transaction on the Visa network did not carry the special indicators normally used to identify a crypto purchase.
“A purchase of cryptocurrency is not eligible to earn points under our rewards program agreement. Although we make every effort to award in accordance with our terms, we rely on network data which is ultimately dependent upon acquirers and merchants including accurate MCCs and special condition indicators,” a Chase spokesperson said. “When we run into a situation where what we believe is an incorrect MCC being used, we send notice to and open a case with Visa.”
Crossmint said each supported product goes through a review process before being made available.
“Each product we support, including [WIF], goes through a detailed review and onboarding process involving the relevant partners and stakeholders before it is made available to users, which includes how transactions are categorized,” a Crossmint spokesperson told The Block.
Visa and Mastercard responses
Visa’s rules say direct cryptocurrency purchases should use either MCC 6012 or MCC 6051, alongside special flags identifying crypto activity. Mastercard also requires direct purchases of cryptocurrency to use MCC 6051 and a cryptocurrency transaction identifier.
The Block found the tested purchases were instead recorded under MCC 5815, a code that Visa’s Merchant Data Standards Manual describes as covering “books, movies, digital artwork/images or music that is delivered in electronic format.”
A Mastercard spokesperson declined to endorse or reject Crossmint’s approach after reviewing the test transactions.
“Generally, our goal is to work with acquirers and issuers to remediate problems and to improve compliance with our rules and standards,” the spokesperson said. “This includes education on best practices that can be implemented.”
Visa also declined to comment specifically on the use of MCC 5815.
“We require participants in our network to comply with Visa’s Rules,” a Visa spokesperson said. “When we become aware of potential noncompliance, we conduct a thorough review of the matter and take appropriate action where warranted. The details of our reviews are confidential.”
Doug Kantor, general counsel of the National Association of Convenience Stores and a member of the Merchants Payments Coalition, said merchant category codes are normally assigned when a business begins accepting cards and are not regularly revisited.
“When an acquirer or an ISO signs up a new merchant to accept cards, there’s some basic set of questions about the business to figure out, among other things, what the merchant category code should be,” Kantor said. “And usually that’s sort of the end of it.”
“There’s not necessarily a systematic process there for rechecking these things,” he added. “For the most part, acquirers make these decisions, and there isn’t a whole lot of process or thought put into it after that.”
He said Visa could respond to Chase’s request by changing the category, issuing a warning, imposing fines or attempting to recover fees from past transactions. Kantor said card networks had previously taken strong action over smaller breaches, including threats of $10,000 fines against merchants using basic cash-discount schemes.
“Whenever the credit card industry can come down hard on somebody, they tend to do that,” Kantor said. “And the problem is, because they touch your revenue that’s coming in, they can just take it without any due process, without much of an explanation.”
He said the wider concern was the lack of transparency around decisions made by the networks.
“Visa and Mastercard make these decisions, and nobody else has a really good view of how they make them, why they make them.”
Growth of the service
Fomo raised a $75m Series B round at a valuation of $550m in June. It launched its Crossmint integration in June last year, after which Crossmint said weekly active traders on the app increased sevenfold.
By April, Crossmint said more than 68,000 first-time crypto buyers had used Apple Pay checkout on Fomo. Robinhood Wallet launched its own Crossmint integration the previous month.
“The experience of buying a memecoin is no different from purchasing your morning coffee,” Fomo chief executive Se Yong Park said in a press release. “[Crossmint has] played a pivotal role in breaking down previous barriers to crypto assets and also in the growth of Fomo.”
Fomo said Crossmint was one of several on-ramp options available to its users and accounted for about 7% of inflows.
“Crossmint represents one of several on-ramp flows available to Fomo users, with the majority of our deposit activity occurring through other providers,” a Fomo spokesperson told The Block. “Each of those providers is responsible for operating its services in accordance with its applicable obligations and requirements.”
Representatives of Fomo and Robinhood referred detailed questions about the checkout system to Crossmint. Johann Kerbrat, senior vice-president and general manager of RobinhoodCrypto, said the use of a partner reflected the complexity of payments.
“That’s why we’re using a partner, right? It’s so that they can do the job on their side,” Kerbrat said. “I can tell you [payments is] a fairly complicated business and there are ways for them to have different systems that may not be what you’re expecting at the high level.”
The collectible argument
Crossmint has based its approach partly on comments from the US Securities and Exchange Commission suggesting that some memecoins can be “akin to collectibles” because their value is driven primarily by market demand and speculation rather than the managerial or entrepreneurial efforts of others.
Joint SEC and Commodity Futures Trading Commission guidance on crypto assets published in March specifically names WIF as an example of a “digital collectible” available in the market.
When asked what a memecoin buyer was collecting, Olvera said the asset could provide membership of a community.
“It’s becoming a part of a community,” he said. “There are a lot of memecoins that, depending on how many you have as collectibles, they’ll give you certain benefits within their organization or the community.”
At the time of The Block’s review, Fomo’s Token Checkout supported about 150 tokens. They included Fartcoin, Pudgy Penguins’ PENGU and President Donald Trump’s Official Trump memecoin.
The list also featured more obscure assets, including “Retardio”, a “wojak” token and a seemingly unrelated “WOJAK” token with different artwork. There were three separate ASTEROID tokens with near-identical artwork, alongside dozens of other small-market-cap memecoins.
Crossmint says it monitors market activity and approves eligible tokens across its partners. Its developer website said the service supported memecoins representing about 80% of trading volume during the previous 24 hours at the time of its latest update.
The company defines eligible memecoins as fungible tokens originating from internet memes, characters, current events or trends, or those with another humorous feature. Each token must be approved by Crossmint individually to meet its risk and compliance requirements.
Closed-loop tokens – fungible assets intended for use only within a particular product or ecosystem, such as in-game currencies or loyalty points – are also eligible.
However, the service supports only secondary sales. Primary sales, investment-style tokens, payment tokens, assets used as currency and tokens that act as securities or fall under money transmission laws are prohibited.
“When you have tokens such as memecoins, it’s a different ballgame because they’re not securities; they’re not regulated,” Olvera said. “The SEC has said that they should be considered digital collectibles. And we’ve been in the game since we were formed as a company where we focused on payment products that allowed individuals to purchase an NFT or another digital collectible using a credit card or debit card and make it as zero-friction as possible.And this is exactly what our Token Checkout is.”
Olvera said the memecoins could not be used as monetary value in payments. Asked about swapping such a token for Bitcoin or Ethereum – a process Robinhood Wallet users can complete in a few taps – he said the asset changed character during the swap.
“They can be swapped, but at that point, you are swapping a collectible into a security and that transaction is typically unregulated because you’re doing it on a self-custodial basis,” Olvera said.
The SEC and CFTC guidance cited by Crossmint does not classify Bitcoin or Ethereum as securities. Instead, it describes assets of that type as “digital commodities”.
Legal and regulatory concerns
Some payments specialists questioned whether SEC guidance could determine how Visa and Mastercard should classify transactions.
Professor Yesha Yadav, an associate dean at Vanderbilt Law School whose research includes cryptocurrency and payments regulation, said the two systems were separate.
“The idea that somehow the SEC’s comment on their guidance on memecoins is dispositive on this matter, that to me reads very wrongly,” Yadav said. “There’s no connection … these are two very separate regimes.”
Yadav said the card networks’ own cryptocurrency classifications did not include an exception for collectibles.
“That’s not differentiating memecoins from anything else; it’s just a virtual currency.”
She added that “collectible” was not a legal category and questioned whether it could be used as the basis for an entire transaction model.
Ashley Ebersole, co-founder and chief legal officer of tokenisation company tx and a former senior counsel at the SEC, said the difference between “digital commodities” and “digital collectibles” might not have as much regulatory importance as Crossmint’s structure suggested.
Both were non-security crypto assets, he said, and could face similar treatment if regulators began investigating them.
“I would not necessarily view them dramatically differently, because I think the same regulatory regime is going to be applied to them if they come within regulatory focus,” Ebersole said. “I don’t think there is a real principle on which you can say, ‘Here’s the dividing line,’ because I don’t think it matters terribly, from a regulatory point of view, what side of the line you’re on.”
The Block also found that some tokens available through Token Checkout appeared to sit uneasily within Crossmint’s definitions.
DEGEN began as a reward token for users of the Farcaster Web3 social platform but later evolved to support the Degen Chain Layer 3 network. SEC guidance says tokens that help validate, order and confirm transactions on a functioning crypto system, maintain its operation or security, and encourage network effects – including assets such as ETH or BTC – are digital commodities rather than digital collectibles.
That raised questions about how DEGEN should be categorised.
Genius Terminal’s GENIUS token was another example. At the time of the review it was one of the most valuable assets supported by Crossmint, with a fully diluted valuation of about $265m. It is the native token of a non-custodial online trading platform and appeared unrelated to an internet meme or trend.
The Block previously reported that Binance co-founder Changpeng “CZ” Zhao’s family office, YZi Labs, made a “multi-8-figure” investment in Genius Trading in January, with Zhao joining as an adviser.
After The Block asked Crossmint how GENIUS and DEGEN met its criteria, both tokens became unavailable for Apple Pay or Google Pay purchases on Fomo and Robinhood Wallet. Crossmint did not answer specific questions about the individual decisions.
“Not every good represented onchain belongs in the same category,” a Crossmint spokesperson said. “As with any card purchase, the appropriate categorization depends on the nature of the underlying good being sold. Different goods therefore follow different product flows, compliance requirements, and merchant category codes.”
Responsibility for processing
Yadav said responsibility for compliance could extend to the acquiring institutions involved in submitting Crossmint’s transactions to Visa and Mastercard.
“My understanding is that, in terms of due diligence, acquirer banks have enormous responsibility here,” she said.
Chase identified Checkout.com as the acquirer for The Block’s Visa test transaction. Checkout.com said it would not discuss individual merchant relationships or specific transactions but said its merchants were expected to follow card network and anti-money-laundering rules.
“We require all our merchants to comply with applicable card network rules, KYC/AML obligations, and merchant category code requirements,” a spokesperson said.
In the US, Checkout.com says its acquiring arrangements use Cross River Bank and Pathward as sponsor banks. Those institutions provide access to the Visa and Mastercard networks and manage settlement.
Pathward confirmed it was not the acquiring or sponsoring bank for the test memecoin purchases. Cross River Bank did not respond to repeated requests for comment.
Kantor said merchants usually bear the financial consequences when a transaction classification is challenged.
“Most of the time, if there are questions about this, the merchant’s going to get the short end of the stick in the end.”
Crossmint is seeking money transmission licences across the US and licences in countries including the UK and Canada as it prepares to expand internationally.
“Complying with regulation, especially now that we’re a regulated financial entity, is super important, but we’re always going to have a little bit of tension between the business and the law that is healthy,” Olvera said. “[Crossmint is] both talking to regulators in making sure our interpretation of the law is correct and making sure that we’re always fighting to reduce friction for the consumer if it’s safe.”
He said reducing the number of steps in the purchase process remained a central objective, while acknowledging that legal compliance was the overriding priority.
“We’re always on a mission to reduce friction for the users because we know that even if you add one single field to your KYC flow, then there are conversion metrics that will be affected by it. And the less info that you can capture, the better,” Olvera said. “But in the end, number one, nobody wants to go to jail, and that is the utmost priority, right?”
The Block said it was an independent media outlet providing news, research and data. As of November 2023, Foresight Ventures was its majority investor. Foresight Ventures invests in other crypto companies, while crypto exchange Bitget is an anchor limited partner. The Block said it continued to operate independently.
The information is provided for informational purposes only and is not legal, tax, investment, financial or other advice.
