In early June, the Visa network suffered a major European payments setback when consumers were unable to effect purchases using Visa payment cards, causing financial institutions to advise consumers to spend cash or resort to other payment options.
Online transactions were impacted less, and many contactless payments for smaller amounts at point-of-sale devices were achievable. One result is that many automated teller machines saw cash reserves significantly depleted. Cryptocurrency advocates cite the Visa incident and the fact that numerous payments processors operate solutions to process cryptocurrency transactions as reasons to become less dependent on centralised networks.
Visa’s June issue was merely the most recent event in an action-packed 2018 that has seen significant uncertainty related to cryptocurrency payments. In early January, confusion arose in the space when the Visa payment system stopped supporting Bitcoin debit cards, impacting services including BitPay, Wirex, and TenX among others. Visa provided clarity shortly thereafter that the catalyst for its decision was not cryptocurrencies themselves, but rather a lack of compliance with Visa Europe’s membership rules by WaveCrest, the cards’ issuer.
Cryptocurrency participants started incurring unexpected commissions in their bank statements in early February, something that also soon became evident in Mastercard holder’s statements. Payment systems began charging up to 5% on some transactions – in addition to the fees already assessed by various cryptocurrency exchanges – rendering it considerably more expensive to purchase cryptoassets through traditional payment networks. In essence, Visa and Mastercard reclassified these transactions by starting to liken the purchase of cryptocurrencies to quasi-cash transactions, resulting in a change in commission terms.
BANKS REDUCING CREDIT EXPOSURE
Major financial institutions announced around the same time in early February that they were disallowing the purchase of Bitcoin and other cryptocurrencies using credit cards. Banks such as Citigroup, Bank of America, Lloyds, and JPMorgan Chase seemingly instituted the ban to mitigate the credit risks associated with digital assets, and enacted the policy change at a time when the markets were recoiling from the all-time highs established in late 2017. A recent survey by LendEDU revealed that approximately 18% of Bitcoin transactions are effected with credit cards, and that 22% of those who purchased with a credit card did not pay off their balances after purchasing Bitcoin.
CAUTION BY PAYMENT NETWORKS
The position of Mastercard and Visa with regard to cryptocurrencies continues to evolve. Last year, Mastercard CEO’s Ajay Banga reported his network would find a ‘way to be in the (cryptocurrency) game’ for government-backed cryptoassets, and dismissed all others as ‘junk.’ Co-president of Mastercard’s Asia-Pacific business, Ari Sarker, in March amplified those remarks, adding crypto candidates should not be anonymous and meet all ‘regulatory requirements.’ Sarker also cited a Bitcoin pilot program in Japan and Singapore that allows Bitcoin holders to cash out onto a Mastercard, suggesting it represents ‘a toe in the water… we are fully cognisant of the reputational risk.’
Interestingly, Mastercard attributed the decline in its customers purchasing cryptocurrencies with credit cards and the ‘recent drop-off in crypto wallet funding’ to the weakening in the network’s first quarter growth this year.
ADVANCING BLOCKCHAIN INNOVATION
Notably, Mastercard filed a patent for instantaneous payments incorporation Blockchain technology in November 2017, and has filed more than 30 ‘patents related to blockchain technology and cryptocurrency.’ On 8 June, Mastercard released details about a patent application filed with the United States Patent and Trademark Office about a plan to counter card skimming through storing encoded payment credentials on a public blockchain and use retrieval methods to validate payments at points of sale. Mastercard has also filed a patent related to Blockchain-based itinerary bidding where hotels, airlines, and other service providers can respond to travellers’ reservation requests.
REDUCING TOMORROW’S PAYMENTS FRICTION
The Blockchain initiatives being pursued by Visa and Mastercard evidence the networks’ pursuit of solutions powered by decentralised networks, lest they become less relevant. The cryptocurrency payment solutions of tomorrow could likely entail official debit cards that are supported by the schemes that enable cross-border payments that can be tracked in real-time. Consider the current reach and acceptance enjoyed by the schemes: 2.5 billion Visa payment cards; 2.3 billion Mastercard or Mastercard-branded cards; tens of millions of merchants globally, and billions of payment card accounts worldwide in more than 200 countries and territories. These metrics and key performance indicators will continue to propel cryptocurrency payments innovation.
“Fewer chargebacks and less fraud could materalise as a result of these types of alternative payments options.”
As the store of value property of cryptocurrencies increasingly yields to digital assets gaining greater acceptance as media of exchange, merchants and other end users can expect to incur – and must address and adequately manage – cryptocurrency market risk and other liabilities, evidencing the need for comprehensive solutions that seamlessly interoperate with fiat.
Some notable currently industry innovations include the ability to remit funds anywhere as easily as one can send a text message, and two-way cryptocurrency ATMs with points of sale functionalities. As integrated and instantaneous payment gateways for cryptocurrency become global and increasingly built on top of digital assets, new payments processing services will emerge that can easily integrate with existing e-commerce solutions.
DASNET PAYMENTS INNOVATION
Payments innovation is also taking place within the DasNet ecosystem. Solutions are being developed and unveiled where the store of value represented by DasCoin can be converted to fiat and spent at merchants or used to access ATMs. These solutions involve the DasNet Blockchain and have been developed to benefit from scalability as the DasNet ecosystem continues to mature. As disintermediation quickens and decentralisation advances, these technological innovations will have the ability to broaden the global payments acceptance of DasCoin and other digital assets.
Blair Baker is the Chief Executive Officer of Das Payments Limited and works to bring unique solutions to the DasCoin ecosystem. Blair co-launched the world’s largest retail foreign exchange trading company in New York in the late 1990s. He also served as a central banker for four years, reporting directly to the Governor of an Asian central bank. Blair also served as a Global Contributary Editor of Central Banking Journal in London for several years and has been syndicated by Reuters for more than 15 years.