To get crypto cards into the hands of the masses, to get them spending in commercial and retail use cases … well, the cards have to be issued first.
Issuers, of course, want to link into the Mastercard network so that users can spend their crypto assets wherever Mastercard is accepted and benefit from the continued embrace of digital currencies by businesses and consumers.
Eventually, as Raj Dhamodharan, executive vice president of digital asset and blockchain products and partnerships at Mastercard, told Karen Webster, transactions on those crypto cards will likely be settled directly in cryptocurrencies.
But that option is still in the future. Dhamodharan said issuing crypto cards is a process currently rife with friction, marked by several steps involved for issuers who have to first convert holdings into fiat for consumers to use them at the physical point of sale.
No easy task in a nascent ecosystem where the lift for crypto innovators and the crypto innovator partners that would like to enable that spend. They lack the infrastructure necessary to convert crypto into fiat universally accepted by merchants and acquirers. It’s a technical heavy lift that requires time and investment — and many of these crypto native firms could use a helping hand.
To that end, Mastercard, late last month, launched a program to helps issuers simplify and streamline their crypto card programs — an enhancement to its existing Crypto Card program.
The company said that it is partnering with Circle, Paxos, Evolve Bank & Trust, Metropolitan Commercial Bank, Uphold, BitPay, Apto Payments, i2c Inc. and Galileo Financial Technologies. And in eliminating the “burden” of fiat conversion for those partners, the company is starting with the issuer side — chiefly because that is where the demand is now.
Using Platforms For The Conversion
In terms of mechanics, with the August announcement, Mastercard is not directly taking crypto into its Treasury yet, so it is working with Paxos and Circle. Those firms, he said, will use their platforms to convert as-yet-unnamed crypto to fiat through fiat-backed stablecoins.
Enabling the crypto-to-fiat conversion — and eyeing the eventual direct settlement in cryptos — is no different than the traditional work Mastercard does with issuers and acquirers to enable settlement in any number of currencies around the globe.
One key difference, of course, at least with cryptos, lies with the blockchain versus traditional rails (though Dhamodharan noted that Mastercard has been exploring blockchain’s potential for a while.)
At present, Mastercard has not said which currencies will be added to the network. Still, as cryptos are added to the network, issuers can settle with Mastercard in those currencies and acquirers can get paid. “Ultimately they may choose to pay those currencies to merchants,” he said.
Step by Step
Simplifying crypto card issuance, he told Webster, “meets the immediate value propositions and the requirement that that the issuers have.” It also allows for a step-by-step evolution of the crypto ecosystem, bringing banks, issuers and processors together as they embrace different options of paying and getting paid.
“What currencies they actually pay our settlement partners will be up to them,” he said. For example, some wallet providers may find it preferable to convert their holdings into eligible stablecoins instead of converting them into fiat while meeting their settlement obligations.
Guiding Principles In Place
Dhamodharan said that the guiding principles for any crypto acceptance on its network are three-fold. The currencies have to have stable value; they must be fully compliant with rules and regulations in a given jurisdiction. And finally, they have to have the right levels of consumer protection — tied to privacy laws and other regulations. The aforementioned principles, he said, can foster trust in the burgeoning ecosystem — with an eye on stability.
“Stability is important,” he said, “because after all we are a payments company. We are not an investment company.” After all, he said, if a crypto cannot be used as a stable unit of account, it cannot really be used as a vehicle for transactions.
The virtuous cycle then would take shape with that range of flexibility (no matter whether the settlement is done in fiat or directly in crypto): a more efficient process allows more cards to be issued, which means consumers will be able to transact in the cryptos they are most wedded to or have investments in — and they aim to spend some of those gains.
The urgency is there: PYMNTS research shows that roughly 18 percent of the U.S. population would consider using crypto in retail transactions.
Though Mastercard’s merchants who have traditionally accepted the payment giant’s cards suddenly would have access to a whole new level of spending power, Dhamodharan told Webster, “we’re going to really let our partners and customers drive this.”
There’s still the need for more clarity across the crypto space, he said — including which currencies are allowed, in which countries and how regulators will treat them.
But, as he told Webster, as Mastercard broadens its Crypto Card program across its network, it is going to be available on all our transactions, whether retail, commercial or P2P — and those payment types yet to come.
“We need to be deliberate and thoughtful about it,” he told Webster, “because with any payment system, integrity is the number one thing. Without trust there is nothing.”