How crypto payment cards really work

First, they are two types of wallet setups when using a crypto card:

🔹 Custodial wallet – The user delegates management of funds to a third party like an exchange (e.g. KuCoin Exchange, Binance, Crypto.com)

🔹 Non-custodial wallet – The user keeps control of funds, but delegates a spending limit to a smart contract (e.g. MetaMask + smart contract).

Despite that difference, the core payment flow is very similar. Here's how it works ⤵️

1️⃣Tap the card – The user taps their crypto card on a regular payment terminal.

2️⃣Transaction is sent to the network – The merchant sends the transaction to their acquirer and it’s routed via Visa or Mastercard.

3️⃣Card scheme routes it to the issuer – The card scheme identifies the right issuer to approve or reject the payment.

4️⃣Issuer freezes funds & approves – The issuer (e.g. via IMMERSVE, Kulipa, …) freezes the equivalent amount in stablecoins (like USDC) and authorizes the transaction.

5️⃣Funds are transferred in stablecoins – The funds are moved (often off-chain) to settle the transaction.

6️⃣Merchant gets approval & is paid – The merchant receives confirmation and the payment is completed.

💡 Bonus insight: The interchange fee generated by the transaction is usually shared between the processor and the wallet/exchange — creating a massive new revenue stream.

Author

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