- >Mastercard to Offer Crypto Support in Near Future
Mastercard to Offer Crypto Support in Near Future
In February, Mastercard announced plans to support cryptocurrency payments on its network. In a statement, the payments giant spoke of “preparing for the future of crypto and payments” by “supporting select cryptocurrencies” directly on the network. Mastercard represents yet another key step for cryptocurrency adoption as another traditional finance heavyweight simply can’t ignore the market any longer.
Hope Mutie | Mar 17, 2021
Mastercard did not specify exactly when it would roll out the program, although industry commentators are betting on later this year. Furthermore, the company injected some caveats in the plan, which left everyone wondering how feasible the crypto plan will be. Still, with Mastercard being a global leader in the payments industry, its signal to adopt crypto in whatever form is a hugely welcome endorsement.
The company joins a slew of traditional financial institutions that are making the crypto jump in recent months. PayPal, Venmo, and Square have each incorporated crypto in their operations. And Tesla, arguably the world’s most progressive company, will start accepting Bitcoin payments ‘in the near future.’
What This Means
Apart from payment players, other big-ticket companies like MicroStrategy, MassMutual, and BlackRock are investing in crypto. Elon Musk’s uber-popular Tesla recently surprised everyone when they plowed $1.5 billion into Bitcoin. And, who would have thought – one of the oldest banks ever – BNY Mellon, is going to start crypto custody services.
Mastercard is a company only rivaled by Visa and American Express in global clout. When a household name like Mastercard announces crypto support, it legitimizes the industry further. People can look and say, “oh, crypto is not just about funding drug dealers and money laundering after all.”
Mastercard’s decision was influenced by increased crypto transactions on its network. Per the announcement, users are increasingly using cards to buy crypto assets, especially during Bitcoin’s recent surge. Mastercard will flow with the tide and start supporting “select” cryptocurrencies directly on their network.
The goal is to help merchants around the world tap into a new pool of crypto-using customers. Also, merchants can keep existing customers who are flocking to cryptocurrencies. And finally, Mastercard users can interact with money in this innovative way.
What’s Different This Time
This is not Mastercard’s first foray into crypto. It has collaborated with BitPay and Wirex to allow people to transact with cryptocurrencies. This year, they partnered with upstart crypto exchange LVL to reduce the chasm between crypto and traditional services for the average user.
Yet, none of these collaborations involve crypto moving directly through the payments network. Wirex and other partners have to convert crypto to Fiat on their end. This means while you may make a payment with crypto, the recipient will get the funds in Fiat.
Mastercard will allow people to send crypto directly over their network. With the new initiative, more sellers can be paid in crypto and transactions between parties will be more seamless.
Will Bitcoin Be Supported?
While all this is good news for crypto, Bitcoin fans saw the fine print that suggests their favorite cryptocurrency might not be on board. Mastercard has ‘requirements’ that cryptocurrencies must have to fit the bill. They include:
- Provide consumer protection such as privacy and security of customer data – in the way “people have come to expect in their credit cards”
- Allow all stakeholders, including merchants, mobile phone networks and financial institution to participate in and benefit from the blockchain networks
- Strict compliance protocols such as KYC
- Comply with local laws and regulations in the jurisdictions where they’re being used
- Offer the necessary stability to be able to be used for spending, not just investment
Mastercard released some of these rules after dropping from the Libra Association in 2019 following hard scrutiny from governments. “Many of today’s 2,600 digital currencies fail to do this”, Mastercard said at the time, about their criteria. It’s clear the credit-card giant is not willing to sacrifice its existing goodwill on the altar of freewheeling, rule-breaking cryptocurrencies.
The problem is very few cryptocurrencies, let alone Bitcoin, meet these rules. First, the Bitcoin network cannot be regulated since it’s decentralized. Regulators can put the squeeze on Bitcoin services, but not Bitcoin itself.
And Bitcoin flunks the last criterion too. Bitcoin is super volatile, making it rather unsuitable for day-to-day spending. Who wants to accept payment for a product/service today, only for the price to dive tomorrow? As a result, Bitcoin is used mostly as a store of value. The same applies to other popular cryptocurrencies like Ethereum, Litecoin, DASH, and so on. All these fluctuate quite wildly, too.
Mastercard said stablecoins “are more regulated and reliable…” and that they hope consumers will rally around cryptocurrencies that “offer reliability and security.” So it seems the company is playing it safe by operating in stablecoins, at least for now.
The question is, which ones? With their stringent criteria, Mastercard may not be very keen to want to touch Tether, the leading stablecoin. The currency’s associated with not one but several controversies. For instance, the company behind it has not exactly been forthcoming with an audited reserve of the money that allegedly backs Tether.
Perhaps Mastercard will experiment with USDC, the second best-known stablecoin. Circle, the company behind USDC, is based in the US, and that’s saying it has little choice but to play within the rules. It remains to be seen how large of a base USDC would actually command.
Putting It All Together
Mastercard is a respected, almost ubiquitous payment platform. Its crypto foray means a ton for an industry that’s clamored for legitimacy from the beginning. Big-time companies are getting into crypto and, by so doing, validating it in the eyes of everyone. Indeed, it’s safe to say at this point payment companies that don’t embrace crypto risk being left behind.
And while Mastercard’s set of rules may be a bit of a dampener for Bitcoin and other popular crypto fans, they can rest assured the bigger picture is taken care of. We’ll have to wait and see what Mastercard actually does, and the market’s reaction.