Blockchain technology and digital currencies have emerged as disruptive forces in the financial industry, challenging traditional institutions like Visa and Mastercard.
However, these payment network giants, with a combined market share of over 70%, are not shying away from the potential of blockchain and cryptocurrencies. Visa and Mastercard are exploring blockchain and cryptocurrency.
They are testing cross-border payments, working with Central Bank Digital Currency (CBDC) trials, collaborating with crypto platforms to issue cryptocurrency-linked debit and credit cards, pursuing patents related to blockchain innovation, and prioritizing fraud prevention and security.
Cross-Border Transfers on Ethereum and Solana
Visa and Mastercard have recognized the importance of blockchain for facilitating fast and secure cross-border payments. Visa, in collaboration with USDC stablecoin issuer Circle, has been trialling cross-border fiat currency payments on the Ethereum blockchain since 2021.
This initiative aims to simplify settlement obligations for cross-border transactions on the Crypto.com Visa credit card program in Australia, with plans to expand to other markets.
On the other hand, Mastercard has ventured into the Solana blockchain for cross-border transfers. By working with merchant acquirers Worldpay and Nuvei, Mastercard can send funds via Solana to facilitate quicker settlement times.
This move allows Mastercard to cater to the growing number of merchants interacting with blockchain and cryptocurrencies, enabling them to receive stablecoins for card payments.
Account Fee Abstraction
To simplify user interaction with blockchain-based payments, Visa has been experimenting with account fee abstraction. This upgrade to the Ethereum blockchain allows sponsors, such as Visa, to pay the gas fees for transactions instead of the wallet user.
By removing the need for users to hold Ether for gas fees, Visa aims to reduce friction and enhance the user experience in blockchain-based transactions.
Supporting CBDC Trials
Central Bank Digital Currencies (CBDCs) have gained significant attention in recent years, and both Visa and Mastercard have been actively involved in trials and research related to CBDCs. Visa participated in the e-HKD Pilot Programme of the Hong Kong Monetary Authority (HKMA) alongside HSBC and Hang Seng Bank. This collaboration has aimed to examine the feasibility of a Digital Settlement for Tokenized Deposits.
Mastercard, on the other hand, has partnered with various blockchain technology and payment service providers to drive innovation and efficiency in CBDC adoption. Ripple, Consensys, Fluency, Idemia, Consult Hyperion, Giesecke+Devrient, and Fireblocks are among Mastercard’s CBDC partners. These partnerships focus on understanding the benefits and limitations of CBDCs and developing safe, seamless, and useful implementations.
Crypto Credit and Debit Cards
Recognizing the growing popularity of cryptocurrencies, Visa and Mastercard have collaborated with numerous crypto platforms to issue cryptocurrency-linked debit and credit cards.
These partnerships, including Crypto.com, Kucoin, Bitpanda, and others, aim to simplify the conversion of cryptocurrencies to fiat currency for making purchases. Cardholders can easily convert their crypto holdings into traditional currency and use their Visa or Mastercard payment cards for everyday transactions.
Pursuing Patents to Protect Blockchain Innovation
Both Visa and Mastercard have demonstrated their commitment to blockchain and cryptocurrency innovation by pursuing patents related to these technologies. Visa, in particular, has applied for a range of cryptocurrency-related patents with the US Patent and Trademark Office (USPTO).
These patents cover various aspects, including creating a digital currency, digital wallet software, and non-fungible tokens (NFTs). In 2022 alone, Visa held 112 blockchain-related patents in the US.
Mastercard has also been active in securing patents related to blockchain and cryptocurrency. With 153 patents, Mastercard has outpaced Visa in this regard.
These patents cover areas such as payment card verification via blockchain and providing crypto service providers with APIs for compliance purposes.
By securing these patents, Visa and Mastercard aim to protect their blockchain innovation and ensure they remain at the forefront of technological advancements in the financial industry.
Developing Multi-Token Network Interoperability for Web3
Mastercard has introduced its Multi-Token Network (MTN), a blockchain-powered app store designed to enhance the efficiency of payment and commerce applications within digital asset and blockchain ecosystems.
MTN aims to make transactions more secure, scalable, and interoperable, enabling financial institutions to utilize permissionless networks more safely. The beta version of MTN was trialled in the UK during Q3 2023, with plans to expand globally in the future.
One of the key features of MTN is the integration of Mastercard Crypto Credential, which provides common verification standards and infrastructure for Web3 applications.
This ensures compliance with regulations, enables trusted interactions on blockchain networks, and supports interoperability across supported payment tokens and networks.
Mastercard has partnered with various blockchain networks, including Aptos Labs, Ava Labs, Polygon, and Solana, to bring Crypto Credentials to application developers in their ecosystems.
CBDC Partnerships
In addition to their individual CBDC initiatives, Visa and Mastercard have formed partnerships to drive CBDC innovation. Mastercard’s CBDC Partner Program aims to collaborate with blockchain technology and payment service providers to explore the benefits and limitations of CBDCs and develop safe and seamless implementations. Ripple, Consensys, Fluency, Idemia, Consult Hyperion, Giesecke+Devrient, and Fireblocks are among Mastercard’s CBDC partners.
Visa, on the other hand, has participated in CBDC trials with several central banks. For example, Visa joined the e-HKD Pilot Programme of the Hong Kong Monetary Authority (HKMA) to research and test the digital settlement of tokenized deposits. Visa also collaborated with the Central Bank of Brazil on a project to design a functional prototype for instant fund transfers across CBDC ledgers for Brazilian small businesses.
Focus on Fraud Prevention and Security
As the adoption of cryptocurrencies and blockchain technology increases, ensuring compliance, fraud prevention, and security becomes crucial. Both Visa and Mastercard have prioritized these aspects in their approach to blockchain and cryptocurrency.
Mastercard, in partnership with regulatory technology platform Feedzai, employs artificial intelligence (AI) to detect and combat crypto-related money laundering and financial scams. This integration enables banks to monitor transactions on more than 6,000 cryptocurrency exchanges for suspicious activities.
Mastercard’s acquisition of CipherTrace, a web3 analytics firm, further strengthens its efforts in identifying and understanding crypto-related risks. CipherTrace helps businesses manage regulatory and compliance obligations by providing insights into potential risks and threats.
Additionally, Mastercard holds a patent for payment card verification via blockchain, enhancing the security and privacy of cardholders’ information.
Conclusion
Visa and Mastercard’s embrace of blockchain and cryptocurrency technologies reflects their commitment to innovation and their recognition of the evolving financial landscape. By exploring and leveraging these technologies, they aim to enhance their payment networks, bridge the gap between traditional and new forms of transactions, and cater to the growing demand for digital assets. As they continue to collaborate with industry partners and drive CBDC innovation, Visa and Mastercard position themselves as key players in shaping the future of digital finance.
