Buying memecoins with credit cards on Robinhood Wallet and Fomo appears to sidestep card-network crypto rules

On Fomo, a popular "social trading" app, buying Bitcoin or Ethereum means either transferring in crypto from an outside wallet or buying USDC stablecoins with a debit card before making a swap. On Robinhood Wallet, the public fintech's self-custody wallet app, the same general steps are required, though you can also connect a Robinhood account or buy through onramp provider Sardine in certain jurisdictions.

To buy memecoins such as "dogwifhat" (WIF), "testicle," or three different tokens with the ticker "ASTEROID," however, Fomo and Robinhood Wallet users can instead use a credit card through Apple Pay or Google Pay, even earning typical card rewards on the purchase. The apps also don't require customers to complete know-your-customer (KYC) information forms for these memecoin buys, which are powered by a product from crypto infrastructure firm Crossmint.

"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 our secret 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."

However, the way Crossmint's transactions were categorized has been disputed by Chase, which told The Block it believed an "incorrect" code was used and that it was opening a case with Visa. Crossmint maintains that the classification was reviewed with relevant stakeholders and is appropriate for eligible digital collectibles.

The Block confirmed this with test purchases of WIF using credit cards on both the Visa and Mastercard networks that Crossmint's token checkout product works as designed, with the selected memecoins delivered directly to either Fomo or Robinhood Wallet's app wallets after a simple Apple Pay credit card checkout. The transactions, which were made in New York State, also each earned the card's ordinary purchase rewards.

While the purchase process did not include a KYC flow, Crossmint's website says the token checkout product includes "AML (anti-money laundering) monitoring" by a "dedicated team of anti-fraud experts."

"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."

Fomo, which raised a $75 million Series B round at a $550 million valuation in June, launched its Crossmint integration in June of last year, and Crossmint later noted that weekly active traders on the app jumped 7x following the product's launch. As of this April, Crossmint said more than 68,000 "first-time crypto buyers" have used the Apple Pay checkout in Fomo. Robinhood Wallet's Crossmint integration launched last month.

"The experience of buying a memecoin is no different from purchasing your morning coffee," Fomo CEO 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." 

Card network crypto rules

Under the Visa and Mastercard networks' rules, cryptocurrency purchases carry different coding and processing requirements than ordinary digital goods transactions. 

The Block's investigation found that on both card networks, the WIF memecoin buys were classified under the merchant category code (MCC) 5815, a standardized code that covers, according to Visa's Merchant Data Standards Manual, "books, movies, digital artwork/images or music that is delivered in electronic format."

Visa's manual states that direct cryptocurrency purchases must use one of two other categories — MCC 6012 or 6051 — and carry special flags that indicate the transactions involved crypto assets. Mastercard similarly requires direct cryptocurrency purchases to use MCC 6051 and a cryptocurrency transaction identifier. 

Cryptocurrency transactions are also generally restricted from earning credit card rewards; Chase's Ultimate Rewards terms, for example, state that "cash-like transactions including, but not limited to ... cryptocurrency, other similar digital or virtual currency and other similar transactions" are not eligible for rewards points.

When asked whether the MCC 5815 designation was approved by Crossmint's transaction processor and acquirer, Crossmint indicated that at least some stakeholders were consulted.

"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. 

Yet, when contacted by The Block, a Chase spokesperson said the bank believed the 5815 categorization was incorrect and that the bank was "opening a case with Visa." The spokesperson also noted that the Visa transaction did not include the special flags that indicate crypto was involved.

"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," the 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."

A spokesperson for New York Attorney General Letitia James told The Block her office is also aware of and reviewing the matter.

Doug Kantor, general counsel of the National Association of Convenience Stores and a member of the Merchants Payments Coalition, said merchant category codes are typically assigned at onboarding and rarely revisited later.

"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."

A Mastercard spokesperson, after reviewing the test transactions, declined to endorse or reject Crossmint's approach. "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."

A Visa spokesperson likewise did not comment on the MCC 5815 classification. "We require participants in our network to comply with Visa's Rules," the 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."

Representatives from Fomo and Robinhood both deferred specific questions about the checkout process to Crossmint.

"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, later clarifying that Crossmint's on-ramp accounts for about 7% of user inflows. "Each of those providers is responsible for operating its services in accordance with its applicable obligations and requirements."

Johann Kerbrat, SVP & GM of Robinhood Crypto, likewise referred specific questions to Crossmint during an interview with The Block.

"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."

'Crypto' or 'collectibles'?

Crossmint, in explaining the classification, cited the SEC's opinion that certain memecoins can be "akin to collectibles" in that their value is primarily driven by market demand and speculation, rather than by the managerial or entrepreneurial efforts of others. 

Crossmint also noted that the joint SEC and CFTC guidance on crypto assets unveiled in March explicitly names WIF as an example of "digital collectibles available in the markets today."

So when a user buys a memecoin, what exactly are they collecting? "It's becoming a part of a community," Olvera said in response. "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."

The Token Checkout product on Fomo supported around 150 tokens at the time of The Block's review, including well-known offerings like Fartcoin, Pudgy Penguins' PENGU and President Donald Trump's Official Trump memecoin alongside more niche offerings like "testicle," "Retardio," three separate tokens with the ticker "ASTEROID" and near-identical artwork, a "wojak" and a "WOJAK" (apparently unrelated), and dozens of other small market-cap memecoins.

Which tokens make the cut? "Our team continuously monitors market activity and proactively whitelists eligible memecoins across all of our partners," Crossmint explains on its developer website. "As of the last update, the Checkout supported memecoins representing around ~80% of the memecoin trading volume in the previous 24 hours."

Another page further clarifies which memecoins are eligible: "Fungible tokens that are considered collectibles and originate from an internet meme, characters, current events, trends, or have some other humorous characteristic," the page states. "Memecoins require approval by Crossmint on a case-by-case basis in order to meet our risk and compliance standards."

Also eligible for the product are so-called "closed-loop tokens," or "fungible tokens designed to be used only within a specific product or ecosystem (like in-game currencies or loyalty points)."

Crossmint only supports secondary sales of the memecoins; primary sales are prohibited, along with "investment-style tokens," "payment tokens or assets used as currency," and "any tokens acting as a security or falls under money transmission laws."

"When you have tokens such as memecoins, it's a different ballgame because they're not securities; they're not regulated," Olvera told The Block. "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 also said that the memecoins "cannot be used as monetary value in payments." When asked about swapping the memecoin to a token like Bitcoin or Ethereum, which Robinhood Wallet users can do in a few taps, Olvera said, "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."

The joint SEC and CFTC guidance Olvera cited does not treat Bitcoin and Ethereum as securities; it describes assets of that type as "digital commodities."

Other crypto apps generally structure memecoin purchases differently. On Coinbase, The Block found that buying WIF required identity verification and a debit card, and appeared to route through a stablecoin purchase that was then swapped into the memecoin. That transaction was coded to a quasi-cash category consistent with Visa's stated rules for cryptocurrency. Kantor said that flow is "a pretty typical way they [exchanges] do this sort of thing."

A Coinbase spokesperson told The Block that the exchange, which does not support crypto purchases with credit cards in the U.S., "requires identity verification for all card-funded crypto purchases" and that the March SEC guidance did not change its verification requirements on a per-asset basis.

'Two very separate regimes'

Some payments experts have cast doubt on Crossmint's framing. Professor Yesha Yadav, an Associate Dean at Vanderbilt Law School whose research covers cryptocurrency and payments regulation, told The Block that the SEC's guidance does not necessarily apply to the rules of card networks.

"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."

The card networks' own crypto classifiers draw no exception for collectibles, Yadav noted. "That's not differentiating memecoins from anything else; it's just a virtual currency." And "collectible," she added, is not a legal category. "The idea that somehow you can say what is and isn't a collectible in a legal sense, and then structure your entire transactional MO around it, feels very odd in this space."

Ashley Ebersole, co-founder and chief legal officer of tokenization company tx and a former senior counsel at the SEC, said the distinction between "digital commodities" and "digital collectibles" may carry less regulatory significance than Crossmint’s product structure suggests. Both categories remain non-security crypto assets, he said, and could face similar treatment if they attract regulatory scrutiny.

"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."

Some of the offerings that were available through Token Checkout at the time of The Block's review also appeared to stretch the collectible or closed-loop token definitions. Supported tokens included DEGEN, which started as a reward token for users of the Farcaster Web3 social platform, but has since evolved to power the Degen Chain Layer 3 network.

The SEC, in its guidance, notes that tokens which "facilitate and incentivize the validation, ordering, and confirmation of transactions on the associated functional crypto system, serve as a mechanism to maintain the functioning and/or security of the associated functional crypto system, and foster network effects," such as tokens like ETH or BTC, are considered "digital commodities" rather than digital collectibles, raising questions on where DEGEN fits.

Genius Terminal's (GENIUS) token, one of the most valuable tokens that was supported by Crossmint's product with a current fully diluted valuation of roughly $265 million, is the native token of a non-custodial online trading platform and is seemingly unrelated to any internet memes or trends. Binance co-founder Changpeng "CZ" Zhao's family office, YZi Labs, made a "multi-8-figure" investment in Genius Trading, with Zhao joining as an advisor, in January, The Block previously reported.

After The Block asked Crossmint how it categorized the GENIUS and DEGEN tokens, both tokens became unavailable to purchase through Apple Pay or Google Pay on Fomo and Robinhood Wallet. Crossmint did not answer The Block’s specific questions about how individual tokens met its eligibility criteria.

"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."

Who's responsible for compliance?

Yadav noted that some responsibility for compliance likely falls on the acquiring side of the Crossmint transactions, including the financial institutions that submitted them to Visa and Mastercard. "My understanding is that, in terms of due diligence, acquirer banks have enormous responsibility here," Yadav said.

Chase identified Checkout.com as the acquirer for The Block's test transaction on the Visa network. In response to an inquiry from The Block, a Checkout.com spokesperson said the firm doesn't comment on the specifics of individual merchant relationships or transaction processing.

"We require all our merchants to comply with applicable card network rules, KYC/AML obligations, and merchant category code requirements," the spokesperson said.

In the United States, Checkout.com says its card-acquiring setup uses two sponsor banks: Cross River Bank and Pathward. The banks provide access to the Visa and Mastercard networks and handle settlement. Pathward confirmed to The Block that it was not the acquiring or sponsoring bank for the test memecoin transactions. Cross River Bank did not respond to The Block's repeated requests for comment.

Kantor said that in practice, the merchant often absorbs the consequences when transaction coding 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."

Olvera noted that Crossmint is in the process of securing money transmission licenses across the U.S., as well as licenses in other jurisdictions like the UK and Canada, in order to expand its service worldwide.

"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 added. "[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."

Olvera, when asked whether the Token Checkout product might support more types of crypto assets in the future, emphasized that lowering user friction is the most important goal.

"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?"

Visa has wide latitude in how it responds to Chase's request for review, according to Kantor, who said Visa may simply reassign the code, but could also issue a warning letter, impose fines, or seek to recover fees on past transactions. He noted the networks historically have moved aggressively against far smaller infractions, describing merchants threatened with $10,000 fines over basic cash discount programs.

"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."

The larger issue is visibility, Kantor added. "Visa and Mastercard make these decisions, and nobody else has a really good view of how they make them, why they make them."