Mastercard Complements Cryptocurrency
The Financial Behemoth Explores Digital Assets
Why is Mastercard Including Cryptocurrency and Blockchain Technology in its Network?
Mastercard's decision to introduce blockchain technology and cryptocurrencies within the network is far from recent. In fact, Mastercard has filed more blockchain patents (over 80 granted and another 280+ pending!) than most others in the financial services industry and has been investing in blockchain technology patents since at least May 2015.
One of the financial service provider's software development engineers, Steven Davis, has been with Mastercard since 2010. It seems likely that Davis's interest in blockchain helped pave the way for Mastercard to integrate the technology into its network. Davis created a prototype demonstrating how Mastercard could use blockchain to create more efficient and transparent solutions to the company's business model, which soon caught the attention of those he reported to.
Since then, Mastercard has actively explored the depths of DLT and digital assets.
Over the past few years, Mastercard has been working with many financial institutions, including central banks, to ensure that Central Bank Digital Currencies (CBDCs) use the best possible solutions as far as security, issuance and operability is concerned. And it's not only CBDCs they're concerned about.
They provide a crypto credit card programme allowing select third parties to offer Mastercard branded crypto debit cards (more on this further on in the article). Earlier this year, Mastercard announced they would "start supporting select cryptocurrencies directly on [their] network", allowing cardholders to convert stablecoin holdings to fiat more easily.
"Digital currencies increasingly show potential to become a part of everyday commerce, and we are committed to supporting the industry to realise the benefits of this potential to support the future of payments. The future is already here, and we’re ready for it." - Mastercard Newsroom, Featured Topic, Digital Currencies.
The Mastercard New Payments Index conducted in early 2021 found that consumers are increasingly interested in spending cryptocurrency on everyday purchases. 40% of over 15,000 respondents plan to use crypto within one year. Almost 60% were more open to using cryptocurrency than a year prior. Nearly 70% were interested in learning more about crypto and would use it if their understanding was better.
"Our philosophy on cryptocurrencies is straightforward: It’s about choice. Mastercard isn’t here to recommend you start using cryptocurrencies. But we are here to enable customers, merchants and businesses to move digital value – traditional or crypto – however they want. It should be your choice; it’s your money." - Raj Dhamodharan, Executive Vice President, Digital Asset & Blockchain Products & Partnerships.
How is Mastercard Ensuring Security with Crypto?
Mastercard isn't just allowing any old cryptocurrency into its payment network, though. They are focused (and rightly so) on those that offer the highest security and reliability. In their words, they're looking primarily for four things: consumer protection, strict compliance protocols, regulatory compliance, and stability for spending. When considering these four factors, stablecoins are most positioned to meet these needs.
As far as CBDCs are concerned, Mastercard firmly states that they'll only support CBDCs protecting consumer data as laws dictate.
The company has even developed a customisable virtual testing environment, launched in late 2020, enabling users such as governments, banks and other financial service providers to simulate the issuance, distribution and exchange of CBDCs without any risk. This sort of sandbox will go a long way in quashing doubts that potential issuers or regulators may have concerning the use of blockchain technology.
As for crypto fraud and cybercrime concerns, Mastercard plans to acquire one of the world's leading cryptocurrency forensic companies, CipherTrace. Combining Mastercard's existing cyber security prowess with CipherTrace's unprecedented blockchain analytics provides maximum transparency and lends credence to the notion that digital assets are the future of money.
Who is Mastercard Planning on Working with in the Crypto Space?
This section illustrates other companies Mastercard is partnering with to expand their reach into and complement blockchain and cryptocurrency industries.
A cryptocurrency payment services provider.
"BitPay believes the future of payments is on the blockchain because it transforms how consumers send, receive, and store money around the world… [BitPay] working with Mastercard’s pilot to turn digital assets into dollars for everyday spending will accelerate consumers’ use of crypto as a means of commerce." - Stephen Pair, CEO, BitPay.
Central Bank of The Bahamas and Island Pay
In a world-first, this collaboration allows Bahamians the opportunity to convert to and from their traditional fiat currency, Bahamian dollars, to the CBDC, Bahamas Sand Dollar.
Cardholders can use this prepaid Mastercard anywhere Mastercard is accepted with the same consumer protection and regulatory compliance as fiat.
"By working closely with the Central Bank of The Bahamas and Mastercard, we are able to issue a prepaid card unlike any other in the world. We are now able to bring immediate, critical benefits to our customers at a time when they are looking to find new, innovative ways to pay. The Bahamas is leading innovation in CBDCs, and we’re thrilled to be able to play an important role in helping to democratise access to currency, especially in areas that are currently underserved." - Richard Douglas, Island Pay co-founder.
Island Pay was founded in 2018 to democratise access to currency, especially in areas that are currently underserved or lack accessible financial services infrastructure.
A Fintech firm that is the principal operator of the stablecoin, USD Coin (USDC).
ConsenSys is a blockchain software engineering company providing products for Web3.0 developers and enterprises to build on the Ethereum network. The partnership enables the delivery of a tech stack (a collection of tools such as programming languages, servers, front- and back-end frameworks, apps etc.) based on ConsenSys Quorum, an open-source protocol layer.
A US digital asset investment platform (in the making) dealing with stocks and crypto.
"Gemini’s mission is to empower the individual, and we believe this credit card will bring more people into the cryptosystem and benefit all who are a part of it." - Noah Perlman, COO, Gemini.
Gemini, Mastercard and WebBank partnered to provide the Gemini Credit Card; the first card to provide real-time crypto rewards (1-3% back) on purchases made in over 30 supported cryptocurrencies.
"As more consumers look to enter the crypto ecosystem, the Gemini Credit Card gives them an easy point of entry and an effortless way to earn crypto assets as a reward without changing their daily spending habits. Mastercard continues to evolve and meet both industry and consumer demands and commit to the crypto space. We're excited to partner with them on our first real-time crypto rewards card, further helping to bring crypto mainstream." - Tyler Winklevoss, Gemini CEO.
An Israeli enterprise-grade, air-gapped cold vault cryptocurrency custodian that sends cryptocurrency transactions while being 100% offline.
A US-based financial service company working with Evolve Bank & Trust to provide a banking app and relevant services to bridge the gap between fiat and crypto by supporting both.
A Singaporean gassless non-fungible token (NFT) marketplace enabling users to create and trade their digital works.
"Paxos builds the underlying technology that will usher in an open digital economy. Our stablecoins are trusted, regulated and always fully backed one-to-one by U.S. dollars. We can facilitate instant settlement for transactions on a 24/7 basis, 365 days a year. By partnering with Mastercard, we'll bring the benefits of crypto and blockchain to the everyday lives of consumers globally." - Charles Cascarilla, CEO, Paxos.
A Singaporean financial blockchain infrastructure platform.
A Swiss cross-chain oracle, founded in 2017, bridging the gap between capital markets and Web 3.0.
A Swiss enterprise-grade infrastructure platform for digital assets.
A US digital asset investment and payment services platform for crypto, metals, fiat and equities.
The first native cryptocurrency platform granted a "Mastercard principal membership", meaning Wirex can directly issue crypto payment cards to customers. Wirex cards provide cardholders with up to 1.5% back in BTC for every purchase made.
"[Wirex having a Mastercard principal membership] represents a growing interest and recognition in the acceptance of cryptocurrency by leading bodies and regulators and will help us to realise our vision of empowering everyone to experience a world where all currencies, traditional and crypto, are equal." - Pavel Matveev, CEO, Wirex.
Mastercard also explored the possibility of partnering with Facebook's Libra initiative (Libra has since rebranded as Diem). However, that fell through after Mastercard's then CEO, Ajay Banga, expressed their concerns with Libra's regulatory compliance, amongst other issues.
How does Mastercard Using blockchain and Crypto Benefit Businesses and End Users?
The Mastercard Start Path, founded in 2014, is a six-month Mastercard Accelerate programme specifically for fintech startups. Its purpose is to help these companies scale and commercialise their products and services and secure investments. Since its inception, over 250 companies have used it.
"As the fintech landscape evolves at an unprecedented speed, Mastercard provides the infrastructure and assets to help fintech innovators grow and ultimately bring more people into the digital economy." - Amy Neale, Senior Vice President of Fintech and Enablers, Mastercard.
The Mastercard Accelerate programme isn't only for startups; they have a range of resources, technology and insights to help fintechs at every stage of their growth, right up to global expansion.
Mastercard Developers – Provides a range of APIs, SDKs and other products for developers building payment solutions.
Mastercard Engage – Helps fintechs find relevant technology partners to work with.
Earlier this year, MasterCard announced plans to further extend Mastercard principal membership in the crypto space. Their crypto card programme is designed to make it easier for their partners (including Paxos, Wirex, and Uphold, to name a few) to convert between cryptocurrencies and fiat currencies and offer their customers a crypto payment card. Both plans are ultimately encouraging the move towards financial institutions accepting crypto payments.
How will your Everyday Person Benefit?
Ultimately, Mastercard is enabling a more inclusive economy for all. Customers will move digital value (whether cryptocurrency or traditional) how and where they want to when they want to.
There are a few options available worldwide as far as crypto debit cards/credit cards are concerned. Examples of Mastercard-backed ones include those previously mentioned provided by BitPay, Wirex and Gemini (still to launch).
If you're considering applying for such a card, there are several things to consider. For example, some providers convert from crypto to fiat when loaded; others convert at transaction time. Most offer some form of rewards system, such as providing a percentage of cryptocurrency back on transactions. This rewards system is comparable to many traditional cashback reward schemes with fiat cards. And of course, you need to check if they're available in your country of residence.
Mastercard's Cryptocurrency and Blockchain Timeline
What does Mastercard's Crypto/Blockchain Future Strategy Look Like?
Technically, cryptocurrencies aren't yet directly moving through Mastercard's payment system. Instead, crypto is currently converted to fiat currency by their crypto-related partners and fiat is then transferred through Mastercard's network.
The long-term plan is to directly support specific cryptocurrencies to minimise the inefficiencies caused by the current conversion process. As previously mentioned, stablecoins that meet Mastercard's criteria are the likely contenders.
"Mastercard is committed to supporting central banks in their chosen path to modernise payments as they look for solutions that seamlessly integrate with existing ways to pay." - Mastercard Newsroom
Mastercard's strategy relating to crypto is very client-centric; they wish to provide all of their customers, from individuals to enterprises, with choice in how they move value.
We watch this financial behemoth explore new ways to utilise and complement the blockchain and cryptocurrency industries with great interest and excitement.
The above references an opinion and is for informational purposes only. Do not take this as personalised financial advice or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.
Last updated: 20/10/2020