Payments giant and credit card company VISA, have announced they are providing support for cryptocurrency payments using the USDC stablecoin starting with partner Crypto.com. USDC is an ERC-20 token that runs on top of the Ethereum blockchain network. This makes use of a stablecoin to settle payments using VISA payment products through their partners. At the moment VISA will pilot the payment system with Crypto.com, a cryptocurrency platform and digital exchange, with plans to offer the service to other partners. VISA is going to make using cryptocurrency much more available for payments. This legitimizes cryptocurrency payments for goods and services, since VISA is a financially regulated entity.
This is a bridge between traditional finance with emerging fintechs involved with cryptocurrency and digital assets. VISA had tried to bridge cryptocurrency payments before, but plans fell through. Perhaps VISA is now ready to provide the service with more knowledge and understanding of cryptocurrency. This allows VISA to better understand the new space fintechs are operating from, which involves innovative products that implement digital currency and blockchain technology. Perhaps it is a sign that changes are coming to traditional financial systems. VISA has been warming up to cryptocurrency and other digital currency (non-crypto) as evident from their more recent postings.
Before VISA, payments processors like PayPal and Square have provided support for cryptocurrency. PayPal has paved the way for users to buy cryptocurrency like Bitcoin through their app. Square allows their customers to buy, hold and sell cryptocurrency through their platform, including the Cash app. Prior to that, there were not many mainstream apps other than those provided by digital exchanges like Coinbase that allow their users to purchase cryptocurrency. VISA is different in that it is providing a way for customers to make payments with the cryptocurrency they hold. This is a layer that has been missing and it could accelerate utility of cryptocurrency as a payment method. Using the blockchain may also provide faster settlements compared to the current system, but scaling remains to be seen on blockchain networks like that of Ethereum.
While the purpose of cryptocurrency is for open direct payments system (Peer to Peer), VISA is not exactly that type of platform. It still operates under the traditional financial system, which is highly centralized and permissioned. That means VISA is not exactly an open network, it requires a membership for its customers. That is why the product they offer is more of a bridge between the traditional fiat system and cryptocurrency. The decentralized aspect of a transaction still falls under the blockchain layer, but through a VISA payment gateway. In the case of USDC, the payment is from a user’s digital wallet on the Ethereum blockchain or even a custodial wallet that supports USDC. What VISA provides is a way to make that payment possible to retailers who will accept the transaction. VISA has so many partners in the retail space that they work with, this opens opportunities for cryptocurrency companies like Crypto.com to have access to more traditional financial markets.
VISA could also open another bridge, this time to the DeFI space of the blockchain. Most platforms in DeFi run over the Ethereum network, but other platforms like Binance, Polkadot and Cardano offer their own ecosystems that provide DeFi apps. If there is integration to support VISA, that can bring more users to the DeFi space who are using VISA credit cards or payment applications supported by the VISA network. At the moment, VISA and other credit card companies do allow customers to purchase cryptocurrency from digital exchanges. Opening up to support decentralized exchanges in the DeFi space are more challenging due to regulatory compliance. If this can be resolved, it opens up the space to allow interoperability of dissimilar payment networks to become possible.
This is overall good for the Ethereum network. VISA will not only need to have USDC, but also Ethereum’s native token ETH (ether). In order to process transactions using USDC, small denominations of ETH are used to pay for costs called “gas” which are part of the transaction fees paid to the network. This is for processing transactions that have to be verified and secured on the blockchain. It may also be likely that it will be VISA’s partners who hold the USDC and ETH, while VISA just helps bridge the retail merchants with the cryptocurrency payment as the settlement layer. The main issue with Ethereum has been scaling, but the development community is fast tracking efforts to scale the network.
With VISA’s announcement, other payment companies like Mastercard and American Express should take notice. This introduces a business model that brings cryptocurrency native platforms with the traditional retail space. The predominant form of payment in the VISA network is by credit and debit card. By integrating a cryptocurrency method into the network, it opens up new channels for making payments. The choice of using a stablecoin also makes plenty of sense given that cryptocurrency is very volatile. This changes the narrative that cryptocurrency is trying to replace traditional finance. Before that can happen, it must have greater utility. Perhaps VISA can help bring it to more mainstream adoption, to the point where we can buy toilet paper with cryptocurrency.
(Image Credit: Photo by Tom Fisk)
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