Capitec cracks down on crypto

Capitec has blocked customers from funding cryptocurrency exchange accounts using regular EFTs and is aggressively pushing its Capitec Pay platform instead. Similar bans could be on the cards for sports betting sites.

This latest change comes after Capitec banned transfers to crypto wallets and exchanges from its smartphone app and business web interface last week.

Capitec customers complained about receiving an error message in the bank’s web interface earlier this week.

“Payment blocked. Beneficiary payments to certain crypto wallets and sports betting sites are no longer allowed. Please use an alternative such as Capitec Pay,” it states.

When contacted for comment, Capitec said it is not currently blocking payments to sports betting sites — only crypto wallets.

The bank also said the change was an anti-fraud and consumer protection measure.

However, several industry insiders have told MyBroadband that this explanation is a smokescreen.

They said Capitec earns a percentage of every Capitec Pay transaction, making it much more lucrative for the bank than EFT payments.

“The industry has seen a significant increase in fraud and investment schemes that use crypto wallets to hide the illegal gains from nefarious activities,” a Capitec spokesperson told MyBroadband.

“To protect our clients and support national efforts to curtail fraud and money laundering, we have prioritised Capitec Pay as a more secure payment method to fund these wallets.”

Asked what makes Capitec Pay more secure, the bank said it uses a verified ID process to ensure clients are properly identified within the Capitec App when making payments.

“This process matches the client’s ID with that of the crypto wallet holder,” said Capitec.

“Additionally, we conduct ongoing due diligence and monitoring of Capitec Pay merchants and transfer values to ensure that merchants are reputable and that payments fall within normal thresholds.”

Capitec said it was actively working to implement alternative payment methods for impacted crypto wallet users.

“We understand that this is inconvenient for clients who wish to make legitimate trades through crypto wallets, but our unwavering priority remains the security of our clients’ information and funds,” it said.

Farzam Ehsani, the co-founder and CEO of VALR, South Africa’s largest cryptocurrency exchange by trading volume, said that while Capitec Pay does add an extra obstacle for fraudsters, it does not eliminate fraud.

Additionally, Capitec Pay is extremely expensive compared to EFT.

“Capitec Pay costs up to 1% of the transaction value and higher after integrating with a payment service provider — I’ve seen 1.4%,” stated Ehsani.

“This is a huge cost to the customer. Payments should be getting cheaper in the world, not more expensive.”

Ehsani said a tiny percentage of all funding into crypto exchanges is fraudulent. Therefore, restricting funding to crypto exchanges is not a proportionate response.

“All the major crypto exchanges in South Africa are now licensed and authorised under the FAIS Act, so to restrict payments to a whole category of regulated FSPs seems to be an overreach,” said Ehsani.

“Is this even legal?” he added.

Ehsani said it would be much better to educate Capitec customers by showing pop-ups and warnings than to infringe on their basic right to legitimately use their money as they please.

“VALR does a tremendous amount of work with banks to combat fraud. We welcome working with Capitec on this, while still allowing customers to make their own choices on how they spend their money,” he said.

Ehsani added that he did like one feature Capitec Pay offers, which is allowing merchants to initiate payment from within the app — an improved version of instant EFTs.

Several banks have launched similar functionality under the banner of launching an open banking API. Nedbank calls its implementation Direct EFT, while Absa chose Absa Pay.

Despite liking the instant EFT (now called pay-by-bank) functionality, Ehsani said they have never integrated these options because the costs are very high relative to the “old” payment methods, which have a fixed cost.

These include electronic fund transfer (EFT), real-time clearing, and real-time gross settlement payments.

Ehsani also highlighted that VALR offers some of the lowest fees in the world — something most of its customers care a lot about.

While VALR will continue considering new payment options, Ehsani said they won’t be integrating Capitec Pay in the near term.

He explained that this was because they have a packed product pipeline and because of how expensive Capitec Pay is relative to other payment methods.

“I don’t think the right solution for Capitec is to force all its customers onto Capitec Pay where they have to pay a much higher rate and which still doesn’t eliminate the fraud issue. I hope Capitec will reverse its decision. But that choice is Capitec’s,” he said.

“For Capitec customers that want to send funds to VALR, if Capitec doesn’t reverse its decision to block your payment, you’ll have to consider opening an account at another bank. But that choice is yours,” Ehsani continued.

“And perhaps VALR should consider becoming a bank in the future. But that choice is ours.”