Updated: Aug 19
Crypto has been experiencing a growing embrace by the mainstream payment players over the past year. Payment behemoths Visa, Mastercard, and even PayPal have all integrated crypto into their business operations in some form or fashion. Why would they do such a thing? Wasn’t crypto supposed to be a threat to their business model of generating fees from facilitating a massive amount of ever-growing transactions? Why team up with the perceived competition? Why foray into the world of cryptocurrencies at all?
There are multiple reasons actually. Here are just two of them:
1) Good firms go to where the customers are and they also go to where the customers are headed. There are now over 200 million people who have used cryptocurrencies and it only took four months for the crypto population to double from 106 million users in February to 203 million users in May according to a recent Crypto.com report. The crypto user base is growing fast.
2) The payment giants recognize the new technology’s potential and want to be involved and benefit from its growth. The graph above clearly shows that the space is full of growing consumer interest. Instead of competing against the future and losing potential customers, it’s much better to help shape the future by finding creative ways to add value. Mastercard has even said that their goal is to “aid adoption and create innovative experiences in the crypto space.”
The mainstream payment firms see the value in teaming up, but what’s in it for the crypto side? Don’t they view the major payment firms as giants to be toppled? Isn’t Visa and Mastercard’s TPS (transactions per second) always being highlighted by crypto skeptics to show how far ahead they are of bitcoin and ethereum’s TPS?
It is true that Visa’s TPS is said to be in the 1.7K-24K range while Mastercard’s TPS is believed to be around 5K. Compare that to Bitcoin’s TPS of under 10 and Ethereum’s TPS of under 30. An enormous difference to say the least. However, there are many fixes such as the bitcoin lightning network and layer two solutions. Not to mention that Ethereum 2.0 has a goal of executing 100K TPS. Once this comes to fruition, it will be a major game-changer.
However, from the crypto perspective, partnering up with the likes of Visa and Mastercard will make adoption easier and the process more convenient for many, especially the less-tech savvy customers. And most notably, the partnerships will enable customers the ability to easily spend their crypto, a tremendous feat.
Here is an overview of crypto's recent integration into the business operations of Mastercard, Visa, and PayPal - showcasing crypto's growing acceptance.
In 2020, they partnered with Wirex and BitPay to create crypto debit cards that allow people to transact using their cryptocurrencies. It’s important to clarify that with these crypto cards, the cryptocurrencies don’t actually move on the Mastercard network. Instead, the crypto partners convert the digital assets on their end to traditional fiat, then transmit them through the Mastercard network, so the crypto isn’t being spent directly. That should be changing this year though. CEO Michael Miebach pledged to integrate digital currency payments directly on the network. This would allow Mastercard’s almost one billion users to spend select cryptocurrencies at more than 30 million merchants. To achieve this a pilot is being done with Paxos, Circle, and Evolve Bank & Trust to simplify the conversion of crypto into fiat. Mastercard is also partnering with Consensys, the Ethereum software engineering firm, to accelerate the development of crypto applications and services.
For its part, Visa has partnered with 50 crypto platforms via card programs that “make it easy to convert and spend digital currency at 70 million merchants worldwide.” The company has also been closely working with other major crypto companies like FTX exchange, Coinbase, CoinZoom, and others. In March, Visa announced that for the first time, they had settled a transaction using the Circle-backed stablecoin USD Coin (USDC) on the Ethereum blockchain, a major development. Visa even reported that they had facilitated more than $1B in transactions via crypto-linked cards in the first half of 2021.
PayPal was one of the firms that seemed to recognize the potential of crypto early on. In 2014, they made it possible for online vendors to accept bitcoin payments via partnerships with Coinbase, BitPay, and GoCoin. In October of 2020, they announced their new digital asset service that let users buy and sell select cryptocurrencies with the caveat that crypto assets stored on the platform could not be used to pay merchants or buy goods. However, in March of this year, they started allowing U.S. consumers to use their crypto holdings to pay for goods globally. And just last month, PayPal unveiled plans to expand their cryptocurrency services with a new consumer wallet “super app” while also increasing the weekly crypto purchase limit to $100,000 and removing the annual limit altogether.
It is clear that crypto is shaping the future of the payments world and as a result, the mainstream players are embracing and partnering with the crypto world. This new technology is definitely here to stay.