In addition to buying CipherTrace, Mastercard has initiatives like the prepaid card for CBDC Bahamas. Photo: Alina Kuptsova.
A Mastercard, that surpassed the 100 patent mark blockchain approved and has “another hundreds pending”, has adopted the strategy of indirect use of cryptocurrencies in its network for reasons such as transaction time and volatility. Direct use only through stablecoins such as USDC, which the company is already enabling in some countries.
That’s what he said today (30) Walter Pimenta, the company’s Senior Vice President of Products and Innovation. The executive also stated that the Mastercard participates in the discussion of more than 60 central bank digital currencies (CBDCs) around the world. Brazil is one of the countries that study the subject. In Latin America there are 9. “It is time to research and work together so that the design (of coins) is effective”.
According to Pepper, Mastercard’s strategy is not to act directly with “root” cryptocurrencies“of decentralized networks such as bitcoin and ethereum. In this way, what it does is to license its partners, such as banks and cryptocurrency exchanges, to issue a card for the use of digital currencies.
These institutions, in turn, convert the currencies and then, on the Mastercard network, only fiat currencies transit. The executive stated that the company does not know how much is converted from cryptocurrencies to fiat for use in its network.
Mastercard says volatility and time weigh on cryptocurrencies
One of the reasons for Mastercard’s strategy is volatility. In fiat currency purchases, this problem is minimized in high-inflation economies such as Venezuela, because transactions are practically instantaneous. The issue of paying with bitcoin, for example, is that the transaction takes hours to close. In the meantime, the value of crypto can change a lot, even bringing losses to the recipient, especially if the purchase is of high value.
“For this reason, we see cryptocurrencies more as a speculative investment asset than a purchase and sale vehicle. We don’t know what the future will be like, but our role is to enable conversion and transaction. The relevance of this (the cryptocurrencies) is very clear,” said Pimenta, who is based in Miami.
Stablecoins, or stable coins, however, are treated differently from cryptocurrencies by Mastercard. “They are the digital representation of a country’s currency. They will travel on the network. We are already enabling USDC processing in some countries.” These include the United States (US) and Europeans such as the United Kingdom. And it could include Brazil. “For all countries, the plan is the same: as long as there is regulation, we are open to working on the three models (cryptocurrencies, stablecoins and CBDCs).
However, for this activation or any other currency, in addition to the demand for the service, crypto must meet three Mastercard principles. Thus, it must offer consumer data protection and comply with local security laws. They must also comply with country regulations and be stable. Most of the stablecoins, including the USDC that Mastercard uses, are pegged to the US dollar.
Company is in discussions of more than 60 central bank currencies
In relation to CBDCs, for Mastercard, the ideal model is the so-called two-tier. Therefore, similar to what it is today, where the BC issues and manages digital currency in the country. But the distribution is from the private sector, that is, from banks and fintechs.
“This is interesting because the BC’s role is, in most cases, to manage, provide stability and regulate the currency. And when it enables the private sector to compete in distribution, it fosters competitiveness, innovation and a better user experience”. Another point of Mastercard is that this model would help increase the use of currency by citizens, who are already used to the current system.
An alternative would be for the BC to distribute the currency, which would take away one of the main roles that financial institutions have today. Bahamas already has a CBDC and it is a case to be followed to see what will happen, said Pimenta. The company has already issued a card for use by CBDC in the country.
Mastercard and its rivals Visa and PayPal are actively participating in discussions and initiatives related to both blockchain technology and cryptocurrencies. That’s because cryptos can have a direct impact on your digital payments business.
One of Mastercard’s most recent actions was to buy CipherTrace, which detects fraud in open cryptocurrency networks. And invest in ConsenSys, which develops Ethereum solutions, including decentralized finance.
*Report being updated.