Visa Closes Loophole That Allowed Credit Card Rewards on Meme Coin Purchases

By Financial Markets and Regulatory Desk

In Brief

• The Regulatory Backdrop: Traditional banking institutions suffered a legislative setback this week after the Clarity Act failed to advance in the Senate, leaving banks empty-handed in their push for tighter restrictions on stablecoin rewards.
• The Private Victory: Despite the legislative defeat, JPMorgan Chase and other traditional lenders have secured a quieter, more tactical victory. Visa is moving swiftly to close a prominent checkout loophole that allowed users to buy speculative meme coins with credit cards while reaping lucrative rewards.
• The Loophole: Powered by crypto infrastructure firm Crossmint and utilized by platforms like the Robinhood Wallet and Fomo apps, the workaround processed high-risk meme coin purchases under Merchant Category Codes (MCC) typically reserved for ordinary digital media—such as e-books, movies, and music.
• The Fallout: Following investigative reporting by The Block and subsequent inquiries by regulatory bodies like the New York Attorney General’s office, Visa has instructed payment processors to phase out the misclassification, effectively killing the era of earning cash-back and travel points on speculative crypto assets.

Main Facts

The intersection of traditional legacy finance and the fast-moving, highly speculative world of cryptocurrency has long been fraught with friction. Traditional banks have historically treated credit card purchases of digital assets with extreme caution. Because cryptocurrencies—and meme coins in particular—exhibit high volatility, banks typically classify them as "cash advances" or apply strict blocks to prevent consumers from going into debt to fund speculative trading. Furthermore, cash advances generally do not accrue rewards points and often carry immediate, high-interest cash-advance fees.

However, a clever technical workaround recently upended these safeguards. According to industry reports and investigative findings by The Block, retail crypto investors using the Robinhood Wallet and Fomo applications found they could purchase meme coins via Apple Pay or Google Pay using standard Visa and Mastercard credit cards. Crucially, these transactions bypassed the rigorous "Know Your Customer" (KYC) onboarding hurdles often required by centralized exchanges and, more importantly, managed to completely circumvent crypto-specific transaction blocks.

Instead of being flagged as high-risk digital asset acquisitions, these purchases were processed using a Merchant Category Code (MCC) for "digital goods media." In the traditional credit card ecosystem, this category is intended for low-risk, everyday consumer purchases like downloadable software, electronic books, movies, and music streaming services.

Because the transactions were miscategorized, they slipped past automated banking risk-assessment models. This meant consumers could buy speculative, community-driven tokens—often associated with extreme price swings—while simultaneously racking up standard credit card rewards, such as travel miles, cash back, and reward points.

When major lenders caught wind of the anomaly, the reaction was swift. JPMorgan Chase, one of the nation’s largest credit card issuers, flagged at least one such transaction that had successfully slipped through the network without triggering crypto flags or being assessed proper category fees. Chase immediately opened a formal dispute case with Visa, arguing that the transaction was fundamentally misclassified and should never have qualified for credit card rewards. Simultaneously, the office of the New York Attorney General signaled its awareness of the practice, launching an informal review into the checkout mechanisms enabling unregulated credit-card-funded crypto accumulation.

Faced with mounting pressure from major banking partners and regulatory scrutiny, Visa took decisive action. According to sources familiar with the matter who spoke with Crypto In America, the payment giant is officially cracking down. Visa has informed payment processors—including major gateway Checkout.com—that the digital goods media code is entirely inappropriate for meme coin transactions and will no longer be tolerated for such use cases. Processors have been given a strict, albeit short, grace period to wind down the loophole, with the enforcement deadline slated to hit imminently.

Chronology of Events

To understand how a routine payment processing classification snowballed into a major industry-wide compliance showdown, it is necessary to examine the sequence of events that brought the loophole to light:

• Mid-to-Late 2025: Crypto infrastructure firms like Crossmint develop advanced payment routing solutions designed to streamline onboarding, integrating web3 checkouts smoothly into mainstream digital wallets such as the Robinhood Wallet and Fomo apps via Apple Pay and Google Pay.
• Late 2025 – Early 2026: Crossmint leans into evolving regulatory interpretations—including a notable 2025 U.S. Securities and Exchange Commission (SEC) staff statement that loosely categorized certain meme coins as more akin to digital collectibles than traditional securities—to structure its payment routing frameworks.
• September 1, 2026: The Block publishes an investigative exposé revealing that everyday retail investors are successfully buying meme coins using credit cards via Apple Pay and Google Pay, entirely bypassing traditional crypto-purchase restrictions and KYC protocols. The report highlights that these transactions are being coded as "digital goods media."
• Early September 2026: Major banking institutions react with alarm. JPMorgan Chase publicly confirms that specific transactions failed to register as cryptocurrency purchases, receiving incorrect MCC classifications that improperly awarded reward points. Chase initiates formal chargeback and classification challenges with Visa.
• Mid-September 2026: Regulatory attention intensifies as the New York Attorney General’s office confirms it is actively reviewing the checkout mechanisms and the potential risks of allowing unsecured credit to fund highly volatile digital assets.
• Late September 2026 (Current Week): Amid broader legislative battles—including the high-profile defeat of the Clarity Act in the U.S. Senate—Visa quietly scores a tactical victory for traditional finance. The card network informs major payment processors like Checkout.com that the digital goods MCC loophole is officially closed for meme coin purchases, setting a strict wind-down deadline for the following week.

Supporting Data and Technical Mechanics

At the heart of this dispute lies the intricate architecture of global payment processing. Merchant Category Codes (MCCs) are four-digit numbers used by credit card networks (such as Visa, Mastercard, American Express, and Discover) to classify a merchant’s primary line of business. These codes are vital for tax reporting, fraud prevention, and—most importantly for consumers—determining which purchases qualify for credit card rewards programs.

How the Loophole Functioned

[Retail Consumer] 
       │
       ▼ (Uses Apple Pay / Google Pay with Visa/Mastercard)
[Robinhood Wallet / Fomo Apps]
       │
       ▼ (Routed via Crossmint Infrastructure)
[Payment Processor (e.g., Checkout.com)]
       │
       ▼ (Assigned MCC: "Digital Goods Media" - E-books/Music/Software)
[Credit Card Network (Visa)]
       │
       ▼ (Misrouted / Bypassed Crypto Restrictions)
[Issuing Bank (e.g., JPMorgan Chase)] 
       │
       ▼ (Result: Transaction approved, rewards credited, zero cash-advance fees)

1. The Initiation: A retail user opens a consumer-facing app like the Robinhood Wallet or Fomo and selects a meme coin to purchase.
2. The Gateway: The transaction is handled by Crossmint, a web3 infrastructure provider designed to abstract away the technical complexities of blockchain transactions for everyday internet users.
3. The Routing: Instead of using an MCC designated for financial services, money transmission, or digital asset brokerages (such as MCC 6051 or 6211, which typically trigger cash-advance rules), the transaction is processed through channels coded under digital media categories.
4. The Approval: Issuing banks like JPMorgan Chase receive authorization requests that look indistinguishable from a consumer buying a subscription or an e-book on the internet. Because the code is benign, the bank approves the charge without applying cash-advance fees or blocking the transaction, and automatically awards reward points.

Regulatory and Legal Posturing

Crossmint defended its structural design by pointing to nuanced regulatory precedents. Specifically, the firm referenced a 2025 SEC staff statement suggesting that certain decentralized, community-driven tokens—popularly known as meme coins—function more as digital collectibles or utility tokens rather than strictly regulated investment contracts or securities.

However, payment networks operate under separate contractual frameworks, operational rules, and risk management guidelines. While an asset might not trigger SEC enforcement as a security, a payment network like Visa holds absolute authority over how transactions are categorized and which merchant codes can be legally and contractually applied to high-risk financial flows.

Official Responses

The unfolding controversy has prompted statements, reactions, and policy shifts from key stakeholders across the financial and regulatory spectrum:

• JPMorgan Chase: In statements provided during initial investigative reporting, Chase confirmed that at least one flagged Visa transaction slipped past its security parameters due to incorrect merchant categorization. The banking giant stated unequivocally that such transactions should not have qualified for reward points and actively pursued administrative corrections through network dispute channels.
• The New York Attorney General’s Office: Representatives confirmed to industry journalists that the state’s top law enforcement office is fully aware of the practices identified in the reporting and is actively reviewing whether such checkout pathways expose everyday consumers to predatory financial risks or bypass state-level consumer protection laws.
• Crossmint: The infrastructure provider maintained that its operations aligned with existing interpretations of digital asset classifications, pointing to SEC staff commentary regarding digital collectibles to justify its approach to user onboarding and transaction flow.
• Visa (via Industry Channels): While declining to issue a broad public press release, Visa communicated directly with ecosystem participants and payment processors. In internal correspondence reviewed by industry observers, Visa clarified that using digital media codes for meme coin purchases violates network intent and contractual guidelines.
• Anonymous Industry Insiders: Summarizing the overarching mood within the traditional financial technology sector, one insider offered a blunt assessment of Visa’s enforcement action: "The message to the crypto industry is clear: Stop being cute, stay in your lane and use the appropriate codes."

Implications for the Crypto and Banking Ecosystems

While the immediate operational dispute centers on a technicality involving merchant codes, the broader implications of Visa’s crackdown reach deep into the future of retail crypto adoption, credit markets, and regulatory compliance.

1. The End of "Free Rewards" on Speculative Trading

For retail traders, the closure of this loophole marks the definitive end of an era. Leveraging standard credit cards to buy high-volatility assets while simultaneously accumulating cash back or airline miles was an obvious arbitrage opportunity. Moving forward, any legitimate credit card purchase of meme coins or other digital tokens will be forced into proper crypto-processing channels. This means consumers will face standard credit card cash-advance fees, immediate interest accrual on purchases, and the complete forfeiture of reward points—effectively raising the cost of speculative trading via debt.

2. Tightening Grip of Payment Networks

The incident highlights the immense power wielded by traditional credit card duopolies like Visa and Mastercard. Even as crypto advocates lobby for legislative clarity in Washington—such as the recent high-profile legislative battles surrounding the Clarity Act—traditional financial plumbing retains ultimate veto power over how digital assets interact with mainstream consumer rails. By cutting off misclassified routing codes, Visa has demonstrated that it can unilaterally police the boundary between traditional commerce and digital speculation without waiting for Congress to pass new laws.

3. Increased Scrutiny on Web3 Infrastructure Providers

Infrastructure firms like Crossmint, which bridge the gap between legacy payment methods (like Apple Pay and Google Pay) and decentralized applications, will face heightened operational scrutiny. Payment processors and card networks are likely to increase compliance audits on web3 middleware providers to ensure that merchant category codes accurately reflect the underlying economic reality of the goods or services being purchased.

4. Separate Battles on Capitol Hill

The timing of Visa’s crackdown coincided with a tumultuous week in Washington, where traditional banks suffered a notable defeat. Financial institutions had mounted an aggressive lobbying bid to secure tighter federal restrictions on stablecoin rewards programs—mechanisms that allow fintech apps and crypto platforms to offer high-yield returns on dollar-pegged stablecoins to compete with traditional bank savings accounts. That banking push stalled when the Clarity Act failed to advance in the Senate.

Thus, while banks lost their legislative battle to curb stablecoin yields in the halls of Congress, they quietly secured a practical, operational victory on the ground—shutting down the unauthorized flow of credit card rewards into the volatile, high-stakes world of meme coin speculation.

Crypto in America is an independent industry newsletter authored by Eleanor Terrett. For continuous updates on the intersection of cryptocurrency, Wall Street, and federal regulation, readers can subscribe via official publication channels.