Inside The Card Network’s digital currency plans
It’s been brewing for some time, but 2021 finally sees established payment companies taking cryptocurrency opportunities seriously, and among those leading the pack is Visa.
An industry that was previously rife with volatility and speculation is starting to see its business-friendly side flourish, and according to the card network, the opportunities are plentiful.
“The world of digital currencies and crypto has evolved and evolved considerably since the launch of Bitcoin in 2009,” says Nikola Plecas, Head of New Payment Flows, Visa Consulting and Analytics, Europe at Visa.
“Visa’s strategy is to be a network of networks and to be truly able to generate and complete new payment flows outside of the card rails. We’ve taken a huge step forward in these new flows over the past couple of years with products like B2B Connect, Visa Direct, Push to Pay – and digital currencies naturally fall into that category. “
However, that doesn’t mean that the world’s most famous cryptocurrency – Bitcoin – features prominently in the card network’s plans. Instead, Visa characterizes the industry as being made up of two distinct groups: conventional and unattached cryptocurrencies and digital currencies backed by fiat currencies, often referred to as stablecoins, which are attracting greater interest from the market. institutional and governmental organizations despite a currently smaller share of the overall market. .
The former is viewed by the company as a marketable asset with limited industrial potential – CEO Alfred Kelly described it as “digital gold” in the company’s second quarter 2021 earnings call. However, it is in the latter case that Visa sees significant potential for payments.
“We see them as having the potential to be used by consumers and traders in the same way as existing fiat currencies,” Plecas explains. “And when it comes to areas of opportunity, there are plenty for organizations like ours.”
The Five Pillars of Visa’s Cryptocurrency Plans
While many use the terms cryptocurrency and digital currency interchangeably, Visa has chosen to characterize the area it focuses on – the stable side of the industry – as digital currencies.
Visa’s digital currency efforts currently fall into five areas. Some of them are well established and are already contributing to the company’s revenue growth, while others are in their early stages and are unlikely to have a significant impact on top line. of Visa in the near future. However, together they represent a long-term view of the market.
The first is perhaps the most obvious: making it easy for consumers to buy cryptocurrencies, which has involved working with ‘drive acceptance’ wallets and exchanges. This area was mentioned in Visa’s latest earnings call as the second largest contributor to growth in its non-present card segment, excluding travel – the strongest growth has been the rise of e-commerce .
The second is a natural progression from the first: allowing the cryptocurrency to be cashed in fiat.
“We want to make sure that as a consumer, once you exit your cryptocurrency positions in exchanges and wallets, you can cash out on a Visa ID and then start spending on any of our over. 70 million merchant endpoints, ”explains Plecas.
While these two are in full swing, a more recent development is the third pillar, which is the use of digital currency APIs to allow banks and neobanks to add cryptocurrency options for their customers. This is still in its infancy, with US neobank First Boulevard becoming the pilot customer earlier this year, but Plecas points out that Visa is “looking to expand into other markets and regions” with the product.
“We quickly realized that there was potential to be the next generation of neobanks,” he explains. “They also do a lot of their treasury operations, paying vendors and employees already in stablecoins.”
To do this, the company needed to allow customers to “stay in their ecosystem when they have also settled their obligations” with Visa, where the fourth pillar, the settlement in stable coins, comes into play. This allowed Visa to settle its first transaction in a stablecoin, USDC pegged to the US dollar, this year.
“Moving to USDC is very similar to moving to USD,” he explains.
“What we have done is an upgrade of the existing treasury infrastructure operations to be able to receive these assets, as their reception is now via public blockchain rails. And as time changes, we want to support other stable coins. “
The final pillar, however, is the most long-term: central bank digital currencies (CBDCs). According to the Bank for International Settlements, 86% of the world’s central banks are now considering launching CBDCs in some form, with more than one in ten currently engaged in pilot projects.
CBDCs have a variety of benefits, including the ability to better reach the underbanked, and Visa argues that their implementation will require public-private partnerships.
“This way they will be integrated in the right way into the existing payment ecosystem,” explains Plecas.
“At Visa, we want to ensure that our products and services act as a bridge between our existing customers and new customers and the blockchains involved in digital currencies.”
Top five digital currency opportunities according to Visa
Potential in B2B payments
While much of this focuses on the consumer side of cryptocurrency and digital currencies, Visa also sees significant potential in B2B payments.
“B2B is a fast growing area of great importance and interest to all of Visa. And we see that digital currencies can complement and complement some of the existing solutions that we have in the space, ”explains Plecas.
However, while digital currencies can impact the B2B space, and in some cases already do, wider institutional adoption will likely take time.
Nevertheless, in areas with weak infrastructure, the potential of CBDCs in particular is strong for B2B.
“In some countries the infrastructure is just not there yet, and for those types of countries and regions, digital currencies can complement what we already have.”
The cross-border opportunity
One area that comes up often in discussions about digital currency is cross-border payments, with many citing potential benefits in terms of speed and cost. However, Plecas stresses that while there is potential, this is not a simple, clean solution.
“The cross-border space is very complex and has a large number of players trying to solve the consumer experience in terms of price for the end user and time efficiency,” he said.
“It’s not easy to solve, even if you try new technologies that would theoretically give you advantages with this aspect.”
However, he says Visa sees particular opportunities in global markets that bring together buyers and sellers of different currencies.
“In these cases, potentially digital currencies can help them reach some of these markets faster and more profitably.”