Coinbase blames Visa for glitch that overcharged users

While Coinbase has had its fair share of technical issues the last few months, it seems the latest one may not be its fault.

Earlier today reports started coming in across social media and Reddit that Coinbase users were seeing strange charges on their credit and debit cards. Many of these were users being double-charged for a past transaction, although there were also some (unconfirmed) reports of people being hit with as many as 50 duplicate charges.

Understandably, users have been freaking out. It’s never fun to be charged more than you should have been, especially when it overdraws your bank account or maxes out your credit card.

While it was initially unclear what was causing the issue (some were even alleging that Coinbase was withdrawing unauthorized money out of user bank accounts) we’ve now heard from Coinbase and have some clarity on what happened.

According to Coinbase, the issue was related to its credit card processing rails, and can be traced back to Visa. Specifically, it’s the result of Visa reversing and recharging past charges in wake of a decision to classify Coinbase transactions as “cash advances”.

As background, last week most banks and card issuers changed the Merchant Category Code (MCC) for Coinbase, meaning all transactions would now be classified as cash advances (which typically means your bank charges a higher fee). None of these extra fees go to Coinbase, and it’s ultimately a negative for the startup since the higher fee will likely lead to a decline in users purchasing cryptocurrency with their credit cards.

While one would assume that these changes would be applied only to future transactions, it seems that today without warning Visa (but not MasterCard or any other card network) reversed and recharged some transactions that occurred between January 22nd and February 11th, in order to classify them under the new MCC.

All of these transactions were refunded at the same time they were re-charged, meaning theoretically users shouldn’t have noticed anything besides the increased fee attributed to the new MCC code. But as anyone familiar with the payments space knows, banking and credit card systems rarely update instantaneously – especially for refunds which can take multiple days to reflect. This delay means that some users may be seeing the second charge come through before the refund, which without clarification would just appear as duplicate charges.

Ultimately, all users should be fully refunded soon. Coinbase has said it is working with Visa to make sure this happens, and also will reach out to customers who were potentially affected urging them to check and make sure their transaction history is accurate. It’s still unclear how many people will be hit with overdraft fees related to the issue, but Coinbase has said it’ll ensure each customer is refunded in full for any erroneous charge.

While Coinbase has certainly suffered from many technical glitches in the past few months, it may not have necessarily caused this one itself. Of course this doesn’t mean that Coinbase users shouldn’t be upset. Regardless of who caused it no one should ever be erroneously charged (even if it’s temporary), especially if it led to users’ accounts being overdrawn or without funds. Coinbase needs to understand that it doesn’t operate in a bubble (no pun intended) – the crypto world is known for being rife with scams and fraudsters, and regardless of how legitimate the company is, people are going to assume the worst when their credit cards are charged without their consent.

We’ve reached out to Visa for comment and will update this post when we hear back.

He’s the full statement provided to TechCrunch from Dan Romero, VP and GM of Coinbase:

“Based on an internal investigation into the issue, we determined the credit and debit card charges were a result of Visa reversing and recharging transactions. We are working closely with Visa to ensure affected customers are being refunded as soon as possible, as well as notifying all customers that made transaction during the past few weeks that they might be impacted.

The issue stemmed from a recent decision by large banks and card issuers that card networks change the Merchant Category Code (MCC) for purchases of digital currency. Visa changed the MCC for digital currency purchases to a code that allows large banks and card issuers to charge consumers additional fees. 

Coinbase is actively working with major card networks to create a new MCC for digital currency purchases. For the benefit of consumers, we hope that this will not have additional “cash advance” fees as we believe that cards provide wider access to digital currency than just bank accounts.

 We take this very seriously and are taking all necessary steps to resolve this issue as soon as possible.”

Note: The author owns a small amount of cryptocurrency.