In what will undoubtedly be seen as another signal for cryptocurrencies becoming more mainstream in the financial ecosystem; both VISA and Mastercard have highlighted their moves to lean into crypto in their business models through partnerships.

These are big networks to expose cryptocurrencies into. According to this Creditcards.com article there were 340 million Visa credit cards in circulation in the U.S. and 800 million Visa credit cards in circulation outside of the U.S. at the end of June 2020. Mastercard had 234 million credit cards in the U.S. and 709 million cards in the rest of the world at the end of September 2020.

Recent earnings calls (Q2 2021) last week by VISA and Mastercard dropped some clues.

VISA's CEO Alfred Kelly outlined two market segments of opportunity;

• "Digital Gold" where cryptocurrencies are seen as a store of value. Think of HODL-ers who aren't inclined to spend their holdings.
• "Digital Currencies" backed by fiat currencies. Kelly pointed specifically to CBDC's (Central Bank Digital Currencies) and stablecoins (eg. USDC by Circle & Coinbase)

It's that second segment that VISA sees as really just another network to bring onboard their platform as a payment option. Remember, "fiat currency" is money issued by a central authority (such as a government) that is not backed by a commodity such as gold. It allows that central authority more influence on the economy that uses the currency and they can control additional creation and release of it. 

Kelly went on to detail five opportunities VISA will focus on;

• Buy crypto through VISA cards
• Convert crypto to fiat currencies through a VISA credential to allow spending at VISA accepting merchants
• Provide crypto options for their financial partners to offer their customers
• Allow financial institutions to use crypto (specifically stablecoins) to settle transactions with VISA
• Build CBDC solutions with central banks

Meanwhile Mastercard's CEO Michael Miebach and Head of Investor Relations, Warren Kneeshaw highlighted some of the approaches it was taking to align itself with cryptocurrencies;

• Several new crypto partnerships have been approved for launch this quarter. The partnership with Gemini to offer a crypto rewards credit card is one example.
• Exploring applications to be built on top of CDBC's such as smart trade contract technology using their CDBC Testing Platform.
• Discussing partnerships with central banks including the European Central Bank and Bank of England where the central bank mints the currency and the private sector (ie Mastercard) distributes it.
• Mastercard already offers Bahamas' citizens a prepaid card option using the country's CDBC.

All this might sound very crypto-friendly and innovative by VISA and Mastercard but there's an element of catch-up by these networks as other players such as PayPal and Square had already announced similar initiatives earlier.

One challenge in transacting with crypto remains the tax implications where crypto is treated as a commodity so any conversion from one currency to another is counted as a capital gains/loss event. I'm sure your financial advisor or accountant will love to discuss that with you.

Overall, I like the trend towards leveraging existing distribution networks and offering crypto based rewards to encourage wider usage but the essential centralization of these initiatives still feel incrementally innovative rather than disruptively so. One of crypto's core benefits is the removal of friction and cost caused by the presence of layers of middle men. I wonder if getting a couple of percent as a cash back in crypto on purchases will be enough to keep these players relevant in the long term.