Barclays Bans Credit Card Crypto Transactions Due to Volatility

Barclays, a leading British bank, has announced that it will prohibit all cryptocurrency transactions made using its credit cards starting from June 27. This decision is driven by the perceived risks associated with the volatile nature of cryptocurrency prices and the potential for customers to incur debt that they may struggle to repay. The bank has cited the lack of consumer protections and the absence of coverage under the Financial Services Compensation Scheme or the UK’s Financial Ombudsman Service as key factors in its decision.

The ban will affect all cryptocurrency transactions, including those conducted on regulated platforms. Barclays has emphasized that customers have limited recourse if transactions go wrong, further justifying the need for the ban. This move aligns Barclays with other major UK banks, which have also implemented restrictions on credit card-funded cryptocurrency transactions. Collectively, these institutions have prevented customers from accessing digital assets through credit.

The decision by Barclays is closely linked to the regulatory environment in the UK, where the Financial Conduct Authority (FCA) has been increasing its efforts to protect consumers from the volatility and fraud risks associated with the cryptocurrency market. Both Barclays and the FCA have warned that using borrowed funds to purchase highly volatile assets can lead to insurmountable debt, especially if cryptocurrency prices decline. The restriction on credit card transactions may result in a temporary decrease in retail-driven rallies and trading volumes for popular tokens.

Despite the ban, cryptocurrency investors still have alternative payment options available, including digital wallets, bank transfers, and debit cards. As traditional banks tighten their regulations, fintech companies, which offer crypto-friendly services, may see an increase in new customers. This shift could potentially drive more retail investors towards these alternative financial services, providing them with continued access to the cryptocurrency market.

The Payments Association, a London-based entity, pushed back against the idea of restricting crypto purchases via credit cards, arguing that such a move would unfairly equate digital assets with high-risk activities. The Association notes that controls already exist for using credit cards to purchase high-risk assets, including crypto. In some cases, banks may block individuals from using cash to buy digital assets, making credit cards a fallback option. However, purchasing crypto with a credit card can carry added costs, which may trigger higher fees and interest rates.