Robinhood’s (HOOD) self-custody wallet “Robinhood Wallet” and the social trading app “Fomo” have been found to allow credit card purchases of meme coins without know-your-customer (KYC) verification. The New York State Attorney General’s Office has launched an investigation, and JPMorgan Chase (Chase) has also requested that Visa (V) look into the matter.

On both apps, users can purchase meme coins such as “dogwifhat” by paying with a credit card registered to Apple Pay or Google Pay, without undergoing KYC procedures. Payments are handled by Crossmint’s “Token Checkout,” a product from the crypto payment infrastructure company, and standard credit card rewards are also applied to these transactions.

The core issue is that these transactions are not being processed as cryptocurrency purchases. Under Visa and Mastercard rules, cryptocurrency purchases are required to use a dedicated merchant category code (MCC) and a special flag. However, these payments were processed under the “digital content” category (MCC 5815), which covers items such as audiobooks and digital movies.

As a result, meme coin purchases were being treated as ordinary retail transactions rather than cash services or financial products, allowing some credit card users to earn points, miles, cash back, and other rewards.

Chase disclosed on the 1st that it has requested Visa to investigate, noting that the transactions in question were not recognized as cryptocurrency and that the code assignment may have been incorrect. The bank said it is examining whether the “digital content” classification accurately reflects the actual nature of the purchases. The New York State Attorney General’s Office has also acknowledged that it is aware of the issue and is investigating.

Crossmint maintains that the classification is appropriate, citing the U.S. Securities and Exchange Commission’s (SEC) position that certain meme coins may be viewed as collectibles. According to the company, the code was assigned after consultations with relevant parties, including payment processors and merchant acquirers.

Fomo stated that deposits via Crossmint account for only about 7% of the total, with the majority of users utilizing other payment methods.

Transactions on both apps are processed on Robinhood Chain, an Ethereum layer-2 network that went live on July 1. Cumulative decentralized exchange (DEX) trading volume reached approximately $10 billion within 22 days of launch.

In terms of trading volume breakdown, meme coins accounted for roughly 80% of the total as of July, but the share of real-world asset (RWA)-related tokens has recently improved, with meme coins falling to around 60%.

Regulatory response in focus

Credit card companies have historically established strict standards for cryptocurrency credit card payments from the perspectives of anti-money laundering and consumer protection. Processing cryptocurrency purchases under the same category as other retail transactions effectively circumvents these standards, drawing increasing scrutiny from regulators.

With the New York State Attorney General’s Office now involved, there is a possibility that similar payment schemes could be halted before spreading to other apps and services. On the other hand, the SEC’s position that certain meme coins may be considered “collectibles” lends some support to Crossmint’s argument, and conflicting interpretations over the validity of the classification may persist.

Depending on the outcome of the investigation, the impact could extend beyond Crossmint to the card companies and merchant acquirers that approved the payments. Industry observers are watching closely to see whether this case sets a precedent for classification standards in cryptocurrency payments.