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The bank has decided to block electronic fund transfers to crypto exchanges, urging customers to use its more expensive Capitec Pay app instead. From Moneyweb.

Reaction to the bank’s ‘Orwellian prescription’ of how its clients spend their money wasn’t long in coming. Image: Siphiwe Sibeko, Reuters

SA’s crypto community reacted with dismay to Capitec’s announcement last week that that it would restrict customers from sending funds to crypto exchanges.

Capitec says the purpose is to protect clients from fraud, and urged customers to use Capitec Pay as an alternative for crypto transactions.

That doesn’t sit well with many in the crypto community, who point out that this will be considerably more expensive – as much as 1% of the transaction value – than the much cheaper electronic funds transfer (EFT).

That cost can go as high as 1.4% once the costs of integrating with a payment services provider is factored in, Farzam Ehsani, CEO of crypto exchange VALR posted on x.

Ehsani says payments should be getting cheaper, not more expensive.

The dismay over the new restriction by Capitec stems from the fact that crypto companies have spent vast time and resources making sure they are licensed as crypto asset service providers (Casps), only to have a blanket restriction placed on the crypto community at a time when they believe restrictions should be easing rather than tightening.

Capitec’s explanation

Here’s the statement from Capitec: “Capitec is committed to protecting our clients from fraud, which is why we made the decision to block EFT [electronic funds transfer] and immediate (Real Time Clearing) payments to crypto exchanges on our app and business web interface. We recognise the increasing interest in cryptocurrencies and encourage users to utilise Capitec Pay as a secure alternative for transactions.

“Additionally, we are actively working with crypto exchanges that have not yet integrated Capitec Pay to expedite this process,” it says.

“Ensuring the safety and security of our clients’ financial transactions remains our top priority.”

‘Infringing’ on customer rights

Ehsani points out that the restriction is limited to Capitec, while other banks allow customers to fund their crypto asset accounts – and that Capitec Pay does not eliminate fraud, though it seems to add an extra obstacle for fraudsters “which is good.”

“A very tiny percentage of all funding into crypto exchanges is fraudulent – so to restrict funding to crypto exchanges is not a proportionate response,” he wrote on X. “Capitec Pay is extremely expensive compared to EFT.”

“It’s much better to educate Capitec customers by showing pop-ups and warnings than to infringe upon the basic rights of customers to legitimately do with their money as they please,” adds Ehsani.

Others believe this is a clear play by Capitec to increase revenue from the growing corps of crypto adopters in SA.

Moneyweb asked Capitec to respond to these claims, but had not received a response at the time of publication.

‘Crypto friendly’ banks

Chris Becker, managing executive: Enterprise Payments at TymeBank, responded: “At TymeBank we are crypto friendly and ready for all your business, folks. We do not intend to restrict your freedom to transfer funds to crypto asset service providers (Casps), but in fact have plans to make it easier over time.”

Frank Leonette, founder of automated compliance and ID verification service GloRep, says the decision to force customers to use Capitec Pay for deposits into crypto exchanges “is understandable for now, but certainly will hurt the real investor”.

“Deposit fees via Capitec Pay providers are 1% plus,” he says.

“I am not sure if the decision is going to prevent further fraud as scammers will adapt and exploit the new systems. Most fraud is not committed on the crypto exchanges but rather in the banking system. Exchanges are merely the cash-out point.

“It’s necessary to deal with fraud problems at root.”

How do the crypto exchanges feel?

Luno SA country manager Christo de Wit says the announcement does not appear to be affecting Luno.

“We did proactively send an email to all Capitec-banked Luno customers [last week] to rather make use of alternative solutions like Capitec Pay, cards or other banks as a precautionary measure. Our fraud, risk and compliance measures at Luno are very robust.”

Richard da Souza, CEO of crypto exchange AltCoinTrader, says the company has managed to integrate Capitec Pay into its platform.

“The announcement did affect AltCoinTrader, as it did all exchanges. We got together with Capitec technical team and the Stitch technical team and we managed to pump out a solution in record time. It’s already up and running.”

Crypto arbitrage providers Currency Hub and Future Forex say the Capitec announcement had no effect on their services.

“As we send funds to offshore exchanges, this change does not affect our processes, and trading will continue as normal,” said Future Forex in a statement to clients.

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VALR says it already working with banks to combat fraud and welcomes “working with Capitec on this, while still allowing customers to make their own choices on how they spend their money.”

What should the Capitec customer do?

Blockchain venture capitalist Brenton Naicker urges Capitec customer to write to the bank to express their “dissatisfaction at their Orwellian prescription of how you spend your hard-earned money”.

Says Ehsani: “I do like one aspect of what Capitec Pay has built which allows a merchant to initiate payment from within the app – this is an improved version of ‘instant EFTs’.”

VALR says it will continue to consider new payment options, including Capitec Pay, in the future but won’t be integrating Capitec Pay in the near term given its already packed product pipeline. Funds can still be shipped via cards, though the costs are often in excess of 3%.

Many crypto commentators are urging customers to open accounts with other banks to fund their crypto accounts.

How long before a crypto exchange launch its bank? That may not be long coming.

Ehsani threw this out last week on X: “And perhaps VALR should consider becoming a bank in the future. But that choice is ours.”