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Friday, April 23, 2021

Visa, Mastercard make way for cryptocurrencies

The major card brands—Visa and Mastercard—are making way for crypto-payments on their networks. Visa just launched a pilot program that bridges the worlds of digital and traditional currencies by using USD Coin (USDC), a stablecoin cryptocurrency backed by the U.S. dollar, to settle transactions on its network using Ethereum, an open source blockchain technology.

Anchorage, the first-ever federally chartered digital asset bank, is the exclusive digital currency settlement partner for the pilot, Visa said.

Meanwhile, Mastercard formed a partnership with ConsenSys, a software engineering firm that provides tools and services to support Ethereum. While Mastercard is not yet ready to fully support cryptocurrency transactions on its network, Raj Dhamodharan, executive vice president for blockchain and digital asset products and partnerships at Mastercard, suggested in a recent blog post that crypto settlements are in the cards.

"We are preparing right now for the future of crypto and payments, announcing that this year Mastercard will start supporting select cryptocurrencies directly on our network," Dhamodharan wrote. It's going to take time to put in place all necessary safeguards, but it's coming, Dhamodharan added. "Our philosophy on cryptocurrencies is straightforward: it's about choice. Mastercard isn't here to recommend you start using cryptocurrencies. But we are here to enable customers, merchants and businesses to move digital value – traditional or crypto – however they want."

A first: Visa crypto settlement

Visa disclosed on March 29, 2021, that it has spent the past year "establishing a pathway for digital currency settlement" on its settlement platform, an undertaking that culminated with a new pilot that allows Crypto.com to send USDC to Visa to settle transactions. Crypto.com, based in Hong Kong, is a Visa partner that issues cryptocurrency-backed prepaid Visa cards.

Stablecoins like USDC are unique among cryptocurrencies because they are pegged to fiat currencies (such as the U.S. dollar), making them less volatile than other cryptocurrencies, like Bitcoin. Visa's standard settlement process requires partners to settle in traditional fiat currencies, which adds costs and complexities to the process. Visa said its integration work with Anchorage will also strengthen its ability to support new central bank digital currencies (CBDCs) as they evolve.

"Crypto-native fintechs want partners who understand their business and the complexities of digital currency form factors," said Jack Forestell, executive vice president and chief product officer at Visa. He characterized the pilot as a "major milestone," adding that "it's really an extension of what we do every day, securely facilitating payments in all different currencies across the world."

Mastercard: stability is key

Dhamodharan, in his February blog post, struck a similar chord. "Our change to supporting digital assets directly will allow many more merchants to accept crypto – an ability that's currently limited by proprietary methods unique to each digital asset," he wrote. "This change will also cut out inefficiencies, letting both consumers and merchants avoid having to convert back and forth between crypto and traditional to make purchases."

Dhamodharan also revealed that Mastercard has been working with several major central banks as they review plans to launch CBDCs, providing a "test platform" for simulations.

Dhamodharan emphasized that Mastercard is only interested in working with stablecoins, at least at this point. "To be completely clear, not all of today's cryptocurrencies will be supported on our network," he wrote. "We expect consumers and the ecosystem as a whole will start to rally around cypto assets that offer reliability and security. It's those very same crypto-coins that we expect to bring into our network."

PayPal gung-ho on crypto

Payments disruptor PayPal already allows customers to buy hold and sell four of the most popular cryptocurrencies—Bitcoin, Ethereum, Litecoin and Bitcoin Cash—in increments as low as $1. On April 20, the company announced the capability was being rolled out to individuals using the Venmo P2P app.

And in late March, PayPal launched Checkout with Crypto, allowing U.S. consumers to pay millions of online merchants globally using cryptocurrencies stored in their PayPal wallets.

Checkout with Crypto will appear alongside other methods in a consumer's PayPal wallet to be used when they have sufficient crypto balances. The draw for merchants already keen on cryptocurrencies is that they can accept cryptocurrencies without additional integrations or fees, PayPal said. "All transactions are settled in USD and converted to the applicable currency for the business at the standard PayPal conversion rate," the company stated.

PayPal President and CEO Dan Schulman sees Checkout with Crypto as driving mainstream adoption of cryptocurrencies. "Enabling cryptocurrencies to make purchases at businesses around the world is the next chapter in driving the ubiquity and mass acceptance of digital currencies," he said. end of article

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