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Cuy Sheffield, Head of Crypto at Visa

April 2021

 

5 - 7 Minutes (click play to watch the video)

Cryptocurrency is going mainstream: What you need to know

Over the past year, digital currency has captured mainstream attention and become front and center in many conversations around fintech and banking. As interest and demand for digital currencies from consumers and businesses grows, and governments explore the potential issuance of central bank digital currencies, many financial institutions are looking for ways to leverage the interest and provide new products and solutions for their customers.

The new era for digital currency

Digital currencies represent a new form factor for money that has evolved into several distinct categories. While Bitcoin exists as a new asset more akin to “digital gold,” we have seen stablecoins – fiat-backed digital currencies – emerge and gain traction as an innovative payment technology that combines the stability of fiat currencies with new public blockchain networks.

“Stablecoins make it easier to access and move dollars around the world, providing an alternative to international bank wires,” says Cuy Sheffield, Visa’s Head of Crypto. “Businesses are looking to leverage stablecoins as a new type of treasury infrastructure that can power global payment flows.”

So, what should the payments industry expect with an increasing interest and use of digital currency in the market?

In the next few years, many expect growing demand from consumers and businesses for crypto-enabled financial services.

Consumers will have increased access to crypto assets like Bitcoin within their existing financial accounts, or through exchanges and wallets that accept Visa credentials. Crypto platforms will become more integrated into the existing payments ecosystem as they begin to embed Visa credentials into their wallets, enabling consumers to easily convert crypto into fiat and spend that value at Visa’s 70 million merchants.

Non-Fungible Tokens

Over the past year, there has been rapid growth in non-fungible tokens (NFT) as a new form factor for digital media that enables brands and merchants to create new types of crypto commerce. While cryptocurrencies like Bitcoin are “fungible” similar to a dollar bill where each Bitcoin is worth the same as another, each NFT represents a distinct and unique file or asset. (Digital artists are often concerned about illegal replication of their work and by using a blockchain they can control scarcity.) NFTs that are issued on public blockchains are creating an ownership layer for digital media and goods that enables consumers to purchase, collect, and trade an image or video over the same wallet and exchange infrastructure that has emerged for cryptocurrencies.

Stablecoins continue to grow rapidly, with over $50 billion of stablecoins in circulation that power $200 billion in payment volume each month.1 Some of the most important use cases today include:

  • Emerging B2B payment flows: New products are emerging that make it easier for non-crypto businesses to use stablecoins and make B2B payments to employees and vendors as part of their treasury infrastructure. For example, Visa has partnered with Circle, a leading stablecoin payment platform, to make it easier for businesses to leverage USD Coin (USDC) for new payment flows and to connect to Visa’s network.
  • Crypto asset marketplaces: Stablecoins are used frequently to purchase other digital assets that are issued on the same public blockchain networks. For example, there is a growing class of digital assets called “non-fungible tokens” that represent collectables such as art, game items, or trading cards that are “tokenized” into new unique assets on a blockchain network.
  • Decentralized finance: A global developer ecosystem has emerged that leverages stablecoins to make it easier for consumers across the world to access a wide variety of financial services and applications, such as lending, crowdfunding and insurance. This ecosystem is known as decentralized finance (or DeFi), and in the most widely used use case, lending, tens of billions of dollars2 in digital assets are being used as collateral for loans disbursed in stablecoins. Crypto wallets are integrating new lending protocols into their products to expand the utility of digital assets.

As stablecoins grow, central banks across the world are also exploring the creation of central bank digital currencies (CBDCs) as a new form of digital cash for their economies. These initiatives will require public and private sector collaboration to research and determine the impact a CBDC would have and how it could be integrated into the existing payments ecosystem.

Preparing for crypto: Ask the right questions first

As financial institutions think about their role in the crypto ecosystem and look for opportunities to provide crypto products, they should engage with their customers to understand how they want to interact with crypto.

Financial institutions should always center their customer within their crypto strategy

How do their customers, whether they are individuals or small businesses, want to engage with new digital assets and the technology behind them? How can banks support access to new assets that consumers want to hold? How can digital assets be used to improve business payments? Can specific new crypto technologies such as blockchain and stablecoins help with areas such as remittances for consumers or B2B payments for businesses? Then consider what it would take for a bank to integrate offerings into their core products.

Take for example First Boulevard, a digitally native neobank focused on building generational wealth for the Black community. In February 2021, First Boulevard announced a pilot program to integrate a set of crypto APIs from Visa to enable their customers to buy and sell bitcoin within their mobile banking app. First Boulevard customers will eventually be able to purchase, custody and trade digital assets held in partnership with Anchorage, a federally chartered digital asset bank. This pilot will also provide tools to increase financial literacy with cryptocurrencies and serves as a first step in supporting API capabilities that help clients access and integrate crypto features into their product offering; it is anticipated to launch later this year.

Visa expects to see more, similar crypto offerings developed in 2021 across the market, as more banks look to offer consumers access to crypto within their core experiences.

Partner for scale, security and speed to market

Alongside customer needs, a successful crypto strategy means determining which aspects to focus on in-house and when partnerships are better bets. Visa is focused on how we can help develop new products and solutions and serve as a bridge for our network of clients to new crypto products and blockchain networks. As one example of how public blockchains can connect to Visa in new and differentiated ways, Visa recently announced the first test transactions settled with Visa in USDC over the Ethereum blockchain3.

The space is moving incredibly quickly, and it can be challenging to keep up with the pace of innovation. There are many resources available to help clients navigate this exciting new ecosystem. Sheffield says “Over the coming years, the lines between crypto, fintech, and banking will continue to blur. Digital currencies represent fundamental innovations that financial institutions across the world will integrate into their core products to power new consumer experiences and payment flows.”

Forward Looking Statements

This content contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are identified by words such as “believes,” “estimates,” “expects,” “intends,” “may,” “projects,” “could,” “should,” “will,” “continue” and other similar expressions. All statements other than statements of historical fact could be forward-looking statements, which speak only as of the date they are made, are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, many of which are beyond our control and are difficult to predict.

1 According to research from The Block Crypto https://www.theblockcrypto.com/data/open-finance/stablecoins

2 According to research from Defi Pulse https://defipulse.com/

3 “Settlement” refers to the daily exchange of funds between Visa’s issuing and acquiring partners over VisaNet to exchange value for cleared and settled transactions—it does not refer to the movement of funds from individual consumer accounts.

Visa Confidential

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