Crypto exchange company Gemini is working with Alloy, an identity verification company, to help with applicant ID verification and to determine credit limits for the rollout of a new credit card.
Gemini recently acquired Blockrize, a crypto based credit card company, and said it would use the new asset to offer a Gemini credit card for customers on its crypto trading platform. The card is expected to launch later this year.
The credit card works like a typical credit card, but consumers can collect bitcoin rewards based on their purchases. The Gemini credit card offers up to 3% back in bitcoin or other cryptocurrencies on every dollar a consumer spends.
The Gemini credit card will be regulated under the same know-your customer and anti-money laundering protocols as traditional credit cards. With such a novel offering, there's a critical need to balance approval speed with the ability to meet stringent compliance requirements, though little precedent for how to do it.
Nonetheless, crypto credit cards are gaining traction. Competing companies Quontic Bank, BlockFi and Crypto.com all offer crypto credit cards that help consumers earn rewards on their spend in cryptocurrencies.
When fintech companies are offering services, significant resources are directed at risk and fraud prevention, Alloy CEO Tommy Nicholas told Payments Dive.
"We realized that if we could make the risk infrastructure needed to stand up on a new financial product, whether it's a credit card, or checking account, or a savings account, or a brokerage account, we could make all of that really easy to build and super effective," Nicholas said. "It would both make it easy so a lot more products could be built, but also so that a lot more users of those products would have better experiences."
Gemini will be joining Ally Bank, Aspiration Bank and Radius Bank, all of which currently use Alloy's platform.
Alloy's API for the onboarding process will give Gemini access to 85 data sources for KYC/AML protocol. "Selfie" verification and biometrics data are among the tools that will be used to verify a consumer's identity.
Alloy integrates other risk data and processes to give its customers better risk management and low friction in onboarding. Some of the risk assessment providers that Alloy works with are Ekata, Acuant and Iovation.
In 2020, 33% of credit report feedback collected by the Consumer Financial Protection Bureau (CFPB) was due to identity theft, according to a report from data analytics company, Stratifyd. Fraudulent transactions relating to cryptocurrency transactions saw a surge in 2020 as well. Attempted fraud on crypto transactions rose by 4.6% in 2020 from the prior year and cryptocurrencies were the second most purchased item by fraudsters using stolen money, according to a report by Sift, a fraud analytics and prevention company.
"As digital currencies and NFTs are picking up popularity among consumers, we are seeing more fraud attempts on that asset class," said Kevin Lee, a digital trust and safety architect at Sift. "Given that they are digital assets and usually untraceable, it makes an easy and high reward target for fraudsters."
During the pandemic, a need for better security among digital channels led Alloy's customer base to grow. The company doubled its revenue in 2020, compared to 2019, Nicholas said.
The underwriting process for determining how much credit to extend to card-holders will be different than traditional procedures as well, Nicholas said. Rather than just collecting credit reports from three major credit agencies, Alloy will take a look at a consumer's alternative data sources.
"These may include their cash-flow, how timely do they pay their utility bills and how much money they actually have rather than just a credit report," Nicholas said. "It's an incredibly regulated process."
Once a consumer's credit history and alternative data sources are evaluated, they can be approved with a credit limit and an annual percentage rate for the Gemini credit card. Consumers will collect rewards in cryptocurrencies for each purchase and this is a good way for companies to get customers accustomed to crypto transactions even if they are just accumulating rewards, Nicholas said.
"You're not asking the user to necessarily be all in on crypto or have a ton of crypto just to get started. In fact, you're sort of walking them into the crypto ecosystem by giving them an ability to earn crypto rewards," Nicholas said.