Mastercard expands its crypto strategy | Payments Source

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Mastercard has long shown interest in digital currencies, a strategy that is taking shape through a new startup aid program and a virtual test platform for central banks.

“What we think we’re doing is bringing perspective to the market as a multi-channel payment provider,” said Michael Miebach, CEO of Mastercard, during Thursday’s earnings call, referring to crypto developments. currencies and central bank digital currencies that often still require technological development or clarity on use case and impact. “We have to be in this space because people are looking for answers.”

Mastercard and Visa both want to use their international scale and large banking networks to gain government and private sector clients as the central bank’s digital currency projects advance and stablecoins expand as options expand. of payment. Miebach devoted part of the card brand’s profit appeal to showcasing Mastercard’s CBDC testing platform and Purchase, NY firm’s decision this week to invite crypto and crypto startups. digital assets to join its Start Path program.

The development of the CBDC has progressed slowly in the United States and Europe, although both markets face pressure to accelerate their respective initiatives given the lead China has with its digital yuan, which is already in effect. in certain markets and with active retailers in China such as McDonald’s and Starbucks.

The delay of the Western CBDCs stems from concerns about the impact of the new currency on the existing banking sector; namely that consumers will withdraw from bank accounts to the benefit of public accounts. There are also questions about how wholesale and retail CBDCs will work together across borders, and whether CBDC goals such as faster payments are achievable through less disruptive means.

Mastercard’s virtual test platform simulates the issuance, distribution and exchange of CBDCs between banks, financial service providers and consumers. The card brand is further suing central banks, commercial banks, technology companies, and consulting firms to evaluate CBDC designs, validate use cases, and study interoperability with existing payment rails.

“All of these countries have to make a trade-off between the existing provision of financial products and what a CBDC solves, whether it’s financial inclusion or cross-border payments,” Miebach said. “We have experience with all of this.”

Mastercard is strengthening its ties with crypto startups by inviting them to join its Start Path program.

Bloomberg

The card brand is also trying to improve its connections with new businesses that use blockchain or cryptocurrency technology.

Mastercard’s Start Path, which provides startups with access to technology and Mastercard executives, has added more than half a dozen crypto participants, including digital asset investment platforms Uphold and Domain Money.

Mastercard announced in February that it would process cryptocurrency transactions on its network, although it did not specify which cryptocurrencies would be included. Most of Mastercard’s language has focused on stablecoins, which are tied to traditional currency valuations to protect against crypto volatility. Circle’s USDC stablecoin is growing rapidly and the Facebook affiliate Diem stablecoin is expected to launch shortly.

“We are preparing to allow our network to transport stable coins, provided that the [currency operator] respects regulatory compliance, consumer protection and safety [standards]”said Miebach.

Mastercard recently announced partnerships with Paxos, Circle and Evolve Bank & Trust to simplify crypto to traditional currency conversions to support payments on Mastercard’s merchant network.

Rival Visa also invests in cryptocurrency, recently claiming to have processed over $ 1 billion in cryptocurrency payments in the first half of 2021, and as Mastercard, drawing attention to technology that enables easy conversions between crypto and traditional currency for retail payments. Visa said it is working with governments on the structure of the CBDC and has developed technology designed to act as an intermediary for commercial banks that would in theory be part of CBDC disbursements in different countries.

“The Mastercard and Visa payment networks would be the natural processors for CBDCs and fiat-backed stablecoins issued by the private sector around the world,” said Eric Grover, director of Intrepid Ventures. “To be sure, processing CBDCs and Stablecoins would be a different type of payment than credit, debit, and ATM transactions. Nonetheless, these are electronic payments and should be in the Mastercard and Visas wheelhouse.”

While the return on private CBDC and stablecoin transactions is likely low compared to retail credit and debit cards, it would be largely incremental, Grover said. “Card networks should be enthusiastic about it.”

For the quarter ending June 30, Mastercard reported revenue of $ 4.5 billion and earnings per share of $ 1.98, beating analysts’ expectations of $ 4.37 billion and of $ 1.74, according to FactSet. Visa and American Express also exceeded expectations for the last quarter.

Mastercard’s gross dollar volume rose 33% to $ 1.9 trillion. The card brand has set aside $ 2.69 billion to get banks and retailers to use cards and route transactions through its network, according to Bloomberg, which reports it’s higher than the 2.47 billion dollars expected by analysts. The card brand forecast percentage growth in the third quarter in the 1920s, noting that this could change depending on the trajectory of the pandemic.

Miebach also voiced his opposition to any tightening of the Durbin Amendment, part of the Dodd-Frank Act that governs the exchange of debits. The Federal Reserve recently adopted a more favorable posture to the market position. The Fed also extended the comment period for changes to Durbin that would clarify that debit issuers should allow merchants to have at least two network choices to process debit payments for online purchases.

“We had the advantage of seeing Durbin play for many years,” said Miebach, believing the rule had fallen short. “The costs to consumers have increased and the benefits have been reduced.”

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