Credit Card companies: If you can’t beat crypto players, join them

The saying “If you can’t beat them, join them” seems to be the new motto for global payment processing service providers such as Visa and MasterCard. While most would have thought that these traditional financial payment railway providers would one day be gone with the advent of digital assets, digital wallets, crypto, and stablecoins, it seems these entities are fighting to their last breath. But will this be enough for them to survive?

Credit card companies, technically known as global payment processing service providers have joined the crypto payments scene either by including crypto and stablecoins into their portfolios, partnering with crypto exchange and even offering banks tokenized blockchain technology platforms forissuing stablecoins and CBDCs.

Examples include the Coinbase Visa Direct partnership. The partnership offers new services for Coinbase customers in US and EU by integrating Visa Direct network.

Coinbase customers can now, transfer funds into their Coinbase account in real-time using an eligible Visa debit card, purchase crypto on Coinbase directly with an eligible Visa debit card, cash out funds from Coinbase to a bank account, via an eligible Visa debit card, in real-time.

Visa has even partnered with MetaMask allowing MetaMask users to convert 40 kinds of crypto into local fiat currency at 130 million of Visa’s merchant locations across 145 countries.

While PayPal announced a deeper partnership with Crypto.com another global crypto exchange and launched its own stablecoin PYUSD. Crypto.com customers will be able to add PayPal as a payment method to fund purchases ofcrypto currencies on the crypto.com application in the United States. They planto offer this in other countries as well in the future.  

“Visa and Mastercard’s reengagement with the crypto sector marks apivotal turn in the industry’s trajectory,” Antoni Trenchev, co-founder and managing partner at Nexo, told Cointelegraph recently.

The Demise of traditional Payment Processors

Previously Billion-dollar investor Chamath Palihapitya had predicted that Visa and Mastercard two of the biggest payment processors globally would be overthrown by blockchain and DeFi projects in 2022.

He had noted in an episode of the “All in One Podcast” that, "My biggest business loser for 2022 is Visa and MasterCard and traditional payment rails and the entire ecosystem around it." He had noted that these payment processors didn’t need to exist anymore.

One of the reasons he gave for their demise was their high transaction fees which was anywhere between 2-3% sometimes even 6%, while Blockchain-based payment infrastructure providers offer transaction fees that range between 0 -2%.

According to The World Bank, the average cost of sending $200 is still 6.35% of the transfer amount globally or an aggregate $54B in fees annually. Comparatively, the average transaction cost of sending remittances using stablecoins is a far lower 0.5-2.0% of the transfer amount, with the potential to trend lower due to new innovations.

Merchants as well as customers are the victims of these high transaction fees and this is especially hard for small businesses. They charge high fees compared to crypto payment providers. This cost, is borne by the supplier or the client, and most importantly influences the final price of products and services.

With crypto transactions, clients and merchants gain from lower pricing, which increases their buying power.

Clients and merchants are also victims of inconvenience when payment transactions take days or sometimes weeks to be proceed. Crypto transactions have also solved this with instant real time payments.

Payment processing entities know that very well and are trying torevive their business models.

Visa and MasterCard trying not to drown

As part of their last bid for survival, they are using their greatest asset, their network effect, partnering with stablecoin issuers,crypto exchanges, crypto wallets and even banks.

Visa and MasterCard are still able to play the role of converting a cryptocurrency or stablecoin into your trading partner’s preferred money.

This was clearly seen when Visa unveiled its Tokenized Asset Platform (VTAP) to support stablecoins and tokenized deposits. Spanish bank BBVA plans to pilot a token on Ethereum starting in 2025.

Visa highlighted the potential to offer the service to its 15,000 banking network partners.

Frank Rotman, Chief Investment Officer of QED Investment, commented, “If you don’t have a stablecoin solution in the world of money movement, I think you’re going to miss the boat.”

While MasterCard purchased CipherTrace, a cryptocurrency intelligence company, to enhance its crypto capabilities, and in 2023 announcedits Multi-Token Network, an initiative designed to make transactions within the digital asset and blockchain ecosystems secure, scalable and interoperable.

All this is happening as stablecoins for payments grows across theglobe. In a recent Castle Island Ventures and Brevan Howard survey with 2,500 cryptocurrency users in Brazil, Nigeria, Turkey, Indonesia, andIndia, 69% of the respondents said they have converted their local currency to stablecoins. Another 39% said they have purchased goods or services with tokens and have sent money to a relative in another country, while 30% have used stables for their business and 23% have paid or received a salary in stables.

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The Future

It is apparent that crypto and stablecoins have and will become part of mainstream payments and financial services.

It is also apparent that Visa and MasterCard are working to future proof their business models trying to stay relevant in the new digital payment ecosystem either through partnerships with crypto entities, or gaining expertise in blockchain technology allowing them to offer tokenization services.

Founder of CoinMENA crypto exchange, on LinkedIn pointed out, “Stablecoins are quickly becoming one of crypto’s most powerful applications. By enabling fast, cheap, global payments, among other uses,they’ve proven to be crypto’s “killer app.” In the second quarter of 2024,stablecoins accounted for $8.5 trillion in transaction volume across 1.1 billion transactions. To put that into perspective, that’s more than double Visa’s $3.9 trillion in transactions over the same period!”

He adds,” Stablecoins are now being compared to household names like Visa, PayPal, ACH, and Fedwire, which shows just how powerful and useful this technology has become.”

But do we really need the Visa’s and MasterCards’s of the world tobe part of it? It is enough that they want to become experts in Blockchain, and crypto payments?

In the end the continued hold of payment processing service providers such as MasterCard and Visa will keep transaction fees high, as their bread and butter comes from these transactions’ fees.

Banks, financial institutions now have the opportunity to utilize their own networks, and the technologies being offered from technology players to surpass payment processing service providers and do it themselves.

The future is for innovative and consumer focused solutions in a new digitally financed ecosystem.

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