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Blockchain technologies and digital currencies might initially appear to be a threat to traditional financial institutions like Visa and Mastercard.
Yet these debit and credit card network operators — which have a combined market share of more than 70% — are exploring blockchain?for fast cross-border payments and cryptocurrencies for card payments and rewards.
Visa and Mastercard recognize that, as blockchain technology adoption increases, they risk being left behind. They’re also keen to secure a share of the revenue generated from the flow of funds to and from blockchain networks.
Key Takeaways
- Visa and Mastercard are experimenting with blockchain for facilitating cross-border payments.
- Visa has been trialing settlements on Ethereum and Solana, while Mastercard has developed platforms like MTN to enhance payment efficiency and security.
- Both companies are involved in trials of Central Bank Digital Currencies (CBDCs) in various countries.
- Visa and Mastercard are collaborating with numerous crypto platforms to issue cryptocurrency-linked debit and credit cards.
- These partnerships aim to simplify the conversion of crypto to fiat currency for making purchases.
- Both companies are actively pursuing patents related to blockchain and cryptocurrency technologies.
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Cuy Sheffield, Head of Crypto at Visa, has commented: “Banks and financial institutions want to understand how best to serve their clients in this space or risk seeing them get those services elsewhere.
“Going forward, we imagine a future where Visa’s network of networks involves more than just multiple currencies and bank settlement rails, but also multiple blockchain networks, stablecoins, and Central Bank Digital Currencies (CBDCs) or tokenized deposits.
“We expect traditional fiat and legacy settlement rails to co-exist with tokenized fiat running over global 24/7 real-time blockchain networks for a long time. And we see our role as a bridge to meet our clients where they are regardless of preferred currency, settlement network, or form factor.”
In this article, we look at some of Visa and Mastercard’s initiatives in the blockchain and cryptocurrency space.
Visa and Blockchain
In recent years, Visa has been involved in a range of partnerships and projects, taking a blockchain-agnostic approach, “exploring which blockchains have the potential to enhance payment rails, piloting real-world ways to help reduce friction for end users, and getting a clear sense of what consumers want from this quickly evolving tech,” according to Sheffield.
Cross-Border Transfers on Ethereum and Solana
Since 2021, Visa has been working with USDC stablecoin issuer Circle to trial cross-border fiat currency payments on the Ethereum (ETH) blockchain.
It receives payments in USDC from Crypto.com to fulfill its settlement obligations for cross-border volume on the Crypto.com Visa credit card program in Australia and intends to roll the system out to other markets.
Visa expanded its stablecoin settlement capabilities in September 2023 to the Solana blockchain and started working with merchant acquirers Worldpay and Nuvei.
Visa can send funds via Solana to acquirers — financial institutions that process card payments for merchants or businesses — to help speed up settlement times.
Merchant acquirers are serving a growing number of merchants interacting with blockchains and cryptocurrencies. This includes on-ramp providers, gaming studios, and non-fungible token (NFT) marketplaces, which may prefer to receive stablecoins for card payments rather than traditional fiat currencies.
Visa can now manage settlement payouts from its own Circle account in USDC to Worldpay and Nuvei, which can then transfer these payments in USDC to their merchant customers.
Visa said that it chose to add support for Solana for its high processing speeds and lower transaction costs. This makes Visa one of the first major payments companies to use Solana directly for live settlement payments at scale.
Account Fee Abstraction
Upgrades to the Ethereum blockchain have enabled fee abstraction, which allows sponsors to pay the gas (processing) fees for transactions instead of the wallet user.
Visa experimented in early 2023 with Ethereum’s Goerli testnet to trial account abstraction, intending to simplify user interaction with blockchain-based payments.
This removes the need for users to hold Ether to pay gas fees, as the contract can act as an intermediary for currency conversion, collecting funds from the user in any crypto token and then converting them into the native tokens required to pay the fees.
Supporting CBDC Trials
Visa is working with several central banks to trial CBDCs.
Visa has participated in the e-HKD Pilot Programme of the Hong Kong Monetary Authority (HKMA) along with HSBC and Hang Seng Bank to research and test use cases, exploring the feasibility of digital settlement of tokenized deposits.
Visa is also participating in the Central Bank of Brazil’s Digital Real Pilot, having previously worked with the central bank on a project to design a functional prototype based on a blockchain hub that could enable Brazilian small businesses to transfer funds instantly across CBDC ledgers.
The National Bank of Kazakhstan launched its CBDC, the Digital Tenge, on November 15, completing the first transactions using bank cards powered by Visa and Mastercard.
Crypto Credit and Debit Cards
Visa works with more than 70 crypto platforms, according to its website, to issue cryptocurrency-linked debit and credit cards, which makes it easy and convenient for cardholders to convert their crypto to fiat currency and make purchases.
Partnerships include Crypto.com, Kucoin, and Bitpanda.
In March 2023, Bitcoin rewards company Fold said it would expand its cooperation with Visa to make it the exclusive global network partner for its prepaid debit and credits in North America, Europe, Latin America, and the Caribbean.
That followed the launch of its first Visa co-branded Bitcoin rewards debit card in 2020. More than $1 billion has flowed through Fold since it launched the Fold Visa Debit Card.
Pursuing Patents to Protect Blockchain Innovation
Visa has applied for a range of cryptocurrency-related patents with the US Patent and Trademark Office (USPTO) in recent years. They include patents related to creating a digital currency, trademarks for digital wallet software, and NFTs.
The company held 112 blockchain-related patents in the US alone in 2022, data shows. Such patent applications indicate Visa’s intentions to remain involved in blockchain and crypto technology innovation to avoid falling behind its competitors.
Mastercard and Blockchain
Mastercard has stated that its strategy in the digital assets space is “to help provide customers, merchants, and businesses with more choice in how they move digital value“.
The company has formed partnerships with Uphold, Gemini, and BitPay to create crypto cards, created new platforms to test and support CBDCs, developed programs to support the adoption of blockchain technology and NFTs, and explored the potential to support certain stablecoins directly on its network.
Developing Multi-Token Network Interoperability for Web3
Mastercard in 2023 introduced its Multi-Token Network (MTN), a blockchain-powered app store “designed to make transactions within digital asset and blockchain ecosystems secure, scalable, and interoperable” to enhance the efficiency of payment and commerce applications and make it safer for financial institutions to use permissionless networks.
MTN is a key part of the company’s strategy to use blockchain across several payment applications and aims to create trust in four areas: counterparties, digital payment assets, blockchain network technologies, and consumer protections.
Mastercard started trialing the beta version of the network in the UK during Q3 2023 to act as a testbed for developing live pilot applications and use cases with financial institutions, fintech companies, and central banks.
Mastercard plans to make MTN available in additional countries around the world in the future.
The first phase of the applications was powered by tokenized bank deposits, with the company subsequently expanding into experiments using stablecoins and CBDCs.
Lirium, Bit2Me, Mercado Bitcoin, and Uphold were the first partners to join the network, collaborating on a project to enable transfers between the US, Latin America, and the Caribbean.
MTN incorporates Mastercard Crypto Credential, launched in April 2023, which provides a set of common verification standards and infrastructure to ensure Web3 applications comply with regulations such as anti-money laundering (AML), enable trusted interactions using blockchain networks, and support interoperability across supported payment tokens and networks.
Public blockchain networks, including Aptos Labs, Ava Labs, Polygon, and Solana, have agreed to bring Crypto Credential to the application developers in their ecosystems.
In October 2023, Mastercard partnered with crypto payments infrastructure provider MoonPay to explore how Web3 tools can help build consumer loyalty.
MoonPay is also using Crypto Credential to drive trust, compliance, and efficiency, as well as exploring how Mastercard’s payments technology — including Mastercard Send and Click to Pay — can be integrated into MoonPay’s Web3 stack.
Earlier in the year, Mastercard launched its Artist Accelerator, a Web3 and music education platform to help musicians create, collaborate, and monetize their work using Web3 tools.
CBDC Partnerships
Like Visa, Mastercard is involved in several CBDC projects. It has created a CBDC Partner Program to help gain “a greater understanding of the benefits and limitations of CBDCs and how to implement them in a way that is safe, seamless, and useful.”
The program is designed to encourage collaboration with blockchain technology and payment service providers to drive innovation and efficiency.
Partners include:
- Ripple,
- Consensys (blockchain and Web3 software)
- Fluency (CBDC and tokenized assets solution provider)
- Idemia (digital identity technology provider)
- Consult Hyperion (a digital identity consultant)
- Giesecke+Devrient (security technology)
- Fireblocks (a digital asset operations platform)
In addition to Brazil and Hong Kong, Mastercard has participated in the Reserve Bank of Australia’s pilot project to explore potential use cases for an Australian CBDC to provide payment and settlement services to households and businesses.
As part of the pilot, Mastercard demonstrated a solution for interoperable CBDCs that enables them to be tokenized or wrapped onto different blockchains for use in Web3 commerce.
The solution, developed with partners Cuscal and Mintable, includes controls to ensure the CBDC can be held, used, and redeemed only by authorized parties.
Mastercard demonstrated in a live environment how a holder of a wrapped CBDC could purchase an NFT stored on Ethereum. The pilot incorporated two parts of the Multi Token Network, including Crypto Credential.
Focus on Fraud Prevention and Security
Mastercard’s crypto efforts are primarily focused on compliance and fraud detection. In November, the company formed a partnership with regulatory technology platform Feedzai to detect and combat crypto-related money laundering and financial scams using artificial intelligence (AI).
Feedzai is integrating its RiskOps platform directly with Mastercard’s CipherTrace Armada platform, which helps banks monitor transactions from more than 6,000 crypto exchanges for suspicious activity.
Mastercard acquired Web3 analytics firm CipherTrace in 2021 to help businesses identify and understand their crypto-related risks and to manage their regulatory and compliance obligations.
Mastercard has outpaced Visa in patent applications, securing 153 patents. This includes a patent for payment card verification via blockchain to securely verify cardholder information on-chain, making it more difficult to compromise cardholders’ details.
Another patent focuses on providing crypto service providers with application programming interfaces (APIs) to process transactions or facilitate the exchange of consumer data for compliance purposes.
The Bottom Line
Visa and Mastercard’s extensive forays into the blockchain and cryptocurrency space reflect their understanding of the importance of innovation in staying relevant and competitive in the evolving financial landscape.
The payment giants are positioning themselves as transaction facilitators and key players shaping the future of digital global finance.
By incorporating blockchain technologies and digital assets into their own ecosystems, both companies can leverage the benefits to make transactions on their networks faster and more secure.
They can bridge the gap between traditional payments and new forms of transactions, ensuring that financial institutions and Web3 players in all forms comply with security and compliance best practices to secure customers’ funds.
