For the first time, American travelers will be able to use a debit card in Cuba, easing the need to carry big wads of cash to make payments on the island.
Pompano Beach-based Stonegate Bank announced Thursday that it will offer customers a debit MasterCard that can be used in Cuba by Americans who qualify to visit the island under one of 12 categories of travel approved by the U.S government.
The card can be used in about 10,000 Cuban hotels, restaurants and other places that accept cards. Stonegate said it plans to expand the use of cards to Cuban ATMs in 2016.
“This is the first step in relieving the burden of U.S. travelers carrying cash when traveling to Cuba and another step in normalizing commercial relations between the two countries,” David Seleski, president and CEO of Stonegate, said in a statement. “Hopefully more issuing banks will help this process by approving credit and debit cards as well.”
To open a business or personal account with Stonegate requires a $2,500 minimum deposit.
As part of a normalization process between the United States and Cuba that began last December, the Obama administration announced a limited commercial opening toward Cuba that allows expanded travel, trade with private Cuban entrepreneurs, joint ventures with the Cuban government to improve telecom and Internet infrastructure and new banking rules to help support the new relationship.
Most commercial activity between the United States and Cuba, however, is still prohibited by the embargo.
In July, Stonegate set up a correspondent banking relationship with Banco Internacional de Comercio, a Cuban bank known as BICSA, in the first major financial deal by an American company in Cuba since the U.S. resumed diplomatic relations with the island nation. In May, Stonegate also began to handle the accounts of Cuba’s diplomatic missions in the United States.
Stonegate’s arrangement with BICSA, which handles foreign trade financing, foreign exchange transactions and correspondent relationships with overseas banks, was designed to make it easier to transfer money to Cuba. It was viewed as the first step in encouraging financial activity between the two countries.
The debit card deal is “in theory a big deal because it’s a huge step forward in terms of adding some normalcy to financial transactions between the two countries,” said Collin Laverty, president of Cuba Educational Travel, which organizes cultural and business trips to Cuba.
“Psychologically, it’s great for U.S. travelers that worry about running around Cuba with stacks of cash.” he said. “In practice, it won’t have too much of an impact in the short term because most travelers book and pay their hotels prior to arrival and only a small number of retail stores and restaurants accept credit cards.”
He noted that banking infrastructure in Cuba is still limited. “Many transactions still require cash, and this won’t change that,” Laverty said.
Americans have been allowed to use credit and debit cards in Cuba since January, when the U.S. Treasury’s Office of Foreign Assets Control issued new regulations. But no U.S. financial institutions actually offered any type of cards until Thursday's announcement, fearing that doing business in Cuba was too risky.
“At this time Stonegate is the only U.S. bank to opt in and they are first to market,” said attorney Andy Fernandez, who heads the Cuba Action Team at Holland & Knight.
One of the sticking points for other banks, he said, is they want clarity on language in the new regulations when it comes to who is responsible for ensuring that travelers fall into the 12 categories authorized to visit Cuba. The regulations say it is up to travelers to identify whether they fall into categories such as travel for research and educational purposes, but Fernandez said there also is a phrase that is giving banks pause.
It’s “provided that you don’t know or have reason to know” that what the traveler is stating is incorrect. The banks want clarity on what that means and don’t want to be held responsible if they handle transactions for a traveler who gives incorrect information. “They want it absolute; we can rely on the traveler’s declaration period,” Fernandez said.
Banks also remain wary about any Cuba transactions because both foreign and U.S. banks have in recent years paid hefty fines related to illegally moving U.S. dollars through the banking system on behalf of Cuba and other sanctioned nations.
“This [business with Cuba] is going to proceed slowly. It will not be an overnight sensation,” Fernandez said.
MasterCard stopped blocking Cuban transactions made on its cards issued by U.S. banks on March 1. But until its partnership with Stonegate, no U.S. banks had supported the cards on the island. MasterCard already has infrastructure there because its cards issued by non-U.S. banks are already accepted in Cuba — mostly at state-run hotels and other visitor-oriented locations.
“As the infrastructure continues to develop on the island, this milestone reinforces a collective effort . . . to deliver our cardholders a convenient and safe way to pay when traveling to Cuba,” Jeff Wilson, president of Mastercard’s GeoCentral division, said in a statement.
American Express also has said it plans to do business in Cuba under the new regulations and is working on getting acceptance on the island soon. But it has had to start from scratch because it hasn’t had merchant relations or terminals set up on the island.