Mastercard fleshes out its crypto strategy | PaymentsSource – American Banker

Mastercard has long signaled an interest in digital currencies, a strategy that is taking shape through a new program to help startups and a virtual testing platform for central banks.

“What we believe we do is bring a perspective to the market as a multrail payment provider,” said Michael Miebach, Mastercard’s CEO, during Thursday’s earnings call, referencing developments in cryptocurrencies and central bank digital currencies that often still require technology development or clarity on use cases 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 bank networks to win government and private-sector clients as central bank digital currency projects advance and stablecoins expand as payment options. Miebach spent part of the card brand’s earnings call pitching Mastercard’s CBDC testing platform and the Purchase, N.Y., company’s decision this week to invite crypto and digital asset startups to join its Start Path program.

CBDC development has moved slowly in the U.S. and Europe, though both markets face pressure to expedite their respective initiatives given the head start China has with its digital yuan, which is already live in some markets and with retailers active in China such as McDonald’s and Starbucks.

The holdup for Western CBDCs stems from concerns about the new currency’s impact on the existing banking industry; namely that consumers will draw down bank accounts in favor of government accounts. There’s also questions about how wholesale and retail CBDCs will work together across borders, and whether the goals of CBDCs — 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 additionally pursuing central banks, commercial banks, technology companies and advisory firms to assess CBDC designs, validate use cases and study interoperability with existing payment rails.

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

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

Bloomberg

The card brand is also attempting to improve its connections to new companies that use blockchain or cryptocurrency technology.

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

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

“We are getting ready to enable our network to carry stablecoins, provided the [currency operator] meets regulatory compliance, consumer protection and safety [standards],” Miebach said.

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

Rival Visa is also investing in cryptocurrency, recently reporting it processed more than $1 billion in cryptocurrency payments in the first half of 2021, and like Mastercard drawing attention to technology that allows easy conversions between crypto and traditional currency for retail payments. Visa has said it’s working with governments on CBDC structure and has developed technology designed to act as a conduit for commercial banks that would in theory be part of CBDC disbursements in different countries.

“Payment networks Mastercard and Visa would be natural processors of CBDCs and of privately-issued fiat-currency-backed stablecoins worldwide,” said Eric Grover, a principal at Intrepid Ventures. “To be sure processing CBDCs and stablecoins would be a different kind of payment than credit, debit, and ATM transactions. Nonetheless, they’re electronic payments, and should be in Mastercard and Visa’s wheelhouse.”

While the yield on CBDC and private stablecoin transactions is likely to be thin compared with retail credit and debit cards, it would be largely incremental, Grover said. “The card networks should go for it with gusto.”

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

Mastercard’s gross dollar volume increased 33%, to $1.9 trillion. The card brand set aside $2.69 billion to entice banks and retailers to use cards and route transactions over its network, according to Bloomberg, which reports that’s higher than the $2.47 billion analysts expected. The card brand projected third-quarter percentage growth in the high 20s, noting that could change depending on the trajectory of the pandemic.

Miebach also expressed opposition to any tightening of the Durbin amendment, a part of the Dodd-Frank law that governs debit interchange. The Federal Reserve has recently taken a posture that is more favorable to the merchant 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 have had the benefit of seeing Durbin playing out for many years,” Miebach said, opining that the rule has not met its intended goal. “Costs for consumers have gone up and benefits have been reduced.”