Visa opens door to crypto payments

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Visa is seeking to be a leader in the booming cryptocurrency industry.

On Monday, Visa said it accepted a virtual currency payment for the first time, marking a milestone for the 62-year-old company. Specifically, the payments giant settled a transaction using cryptocurrency plumbing known as the Ethereum blockchain, a distributed accounting ledger based on the technology behind Bitcoin.

The transaction involved a Visa partner, Crypto.com, a Hong Kong-based issuer of cryptocurrency-backed prepaid cards, sending Visa a U.S. dollar-pegged virtual currency called USD Coin, or USDC. Visa said it worked with Anchorage, a Visa-backed cryptocurrency startup that is one of the U.S.’s newest federally chartered banks, to accept the payment.

Visa said the move is part of a pilot program to make life easier for cryptocurrency businesses. Visa wants to eliminate the hassle of it requiring customers to convert their cryptocurrency holdings into fiat currency, like U.S. dollars, before settling up their accounts on the Visa network. The company said it plans to expand the feature to other members of its payments networks, and potentially to other virtual currencies, later this year.

This is the latest in a string of cryptocurrency-related announcements for Visa. Earlier this month, Visa CEO Al Kelly told Fortune CEO Alan Murray that Visa is working to let people to buy Bitcoin and to make payments using Bitcoin through the Visa network, following the lead of financial tech, or fintech, companies like PayPal and Square. In February, Visa introduced a product to help banks integrate Bitcoin into their mobile apps.

Visa is one of several payments giants looking to capitalize on the latest cryptocurrency craze. Ajay Banga, the chairman and former CEO of MasterCard, Visa’s perennial rival, recently told Fortune he’s less interested in Bitcoin, but very keen on the potential for central bank digital currencies, a government-backed variety. Meanwhile, younger businesses, such as PayPal and Square, are all seeking to place themselves at the forefront of the Bitcoin bull run.

Fortune spoke to Cuy Sheffield, Visa’s cryptocurrency leader, about the historic transaction on Ethereum and what it means for the future. He says Visa is “open for business” for cryptocurrency companies, and that the company aims to make itself the industry’s “preferred network” for crypto payments.

Here’s a shortened, edited transcript of that conversation.

Fortune: Let’s zoom out a second. Give me the big picture perspective on why cryptocurrency is interesting. Why does Visa care about this fledgling, zany part of the economy at all?

Sheffield: The whole foundation of Visa, all the way back to [Visa founder] Dee Hock, was built on the electronic movement of money. Digital currency represents an evolution of money itself. Traditional fiat currencies and digital currencies are going to coexist for a long time. It’s important to have a bridge between them.

How does Visa’s latest announcement change what it was doing before?

The distinction has to do with infrastructure. On the consumer side, there’s the everyday activity of tapping a Visa card and authorizing payments. But most people have no clue what actually happens behind the scenes. Funds have to move between customers’ banks and, say, coffee shops’ banks. Before, crypto wallets had to convert their holdings into fiat currency so that they could be wired to Visa at the end of the day. That’s been a challenge for some crypto partners, like Crypto.com. It’s an extra step and it’s added complexity.

What was wrong with that setup?

The challenge was that companies had to predict what their payments volume was going to be. They had to ensure they would have enough traditional fiat on hand to wire to banks to settle obligations from their card programs. Now we’re creating this new capability that a crypto wallet can settle their obligations with Visa directly in USDC.

How does this benefit ordinary people?

The consumer cardholder experience doesn’t change. They have a balance of crypto that they’re able to spend at a merchant. What changes is the process behind the scenes. Now these businesses don’t have to keep balances in a traditional bank account. This will make it easier for more crypto wallets to offer Visa card programs to consumers, and that’s ultimately going to benefit consumers as they’ll have more options to pay using crypto.

Out of all the so-called stablecoins [virtual currencies designed to maintain a stable price] out there, why did you choose USDC?

We worked really closely with our risk team do an analysis of how USDC works. Where are the underlying fiat reserves? What are the rules and the governance processes? USDC was the first fiat-backed stablecoin that met Visa’s standards, that we were comfortable supporting on our settlement platform. We plan to support other digital currencies in the future, including [central bank digital currencies, or] CBDCs. We want to be currency and protocol agnostic. But we’re starting where most of our business clients are focused, which is on stablecoins like USDC.

Where does the pilot program go from here?

We are now starting to work with Crypto.com so that a portion of their settlement obligations will start to come in USDC. The key area that we’re looking at is, how much does this improve how they operate their treasury? Can this make it more efficient for them to manage their treasury on a more programmatic basis and not have to worry about wire cut-off times [which could cause payments delays]. What else can they build? We plan to continue this pilot program over the coming months and then look at expanding to other partners later this year.

People are expecting the Federal Reserve to release results of its initial research into central bank digital currencies in the coming weeks. What should we expect to see?

We’ve been engaging with central banks across the world on the topic of CBDCs. First, we think it’s really important that any CBDC be accessible within existing commercial banks’ and fintechs’ digital wallets. Second, it should be accepted at any merchant. You have to have a way to spend it. It’s going to be a long time, and very difficult, for every small business and merchant across the world to upgrade their point of sale terminals to accept a new CBDC. Our new capability is a great example of how CBDCs could be used to settle obligations with a Visa card connected to it, that would enable a consumer to easily spend it.

I’ve got to ask about non-fungible tokens, or NFTs, blockchain-based digital collectibles. I know you’re a digital art collector and that you recently wrote a wonderful blog post on the topic.

Visa is absolutely, very interested in new forms of crypto commerce. We are actively following and exploring opportunities. We’d love to follow up with you in the near future about it.

What else should people know about Visa’s crypto plans?

The biggest takeaway is Visa is open for business for crypto wallets. We’re committed to being the preferred network for crypto platforms and making it very easy for them to integrate and use Visa. We’re building new infrastructure and we’re upgrading the ways that Visa works so we can be a leader.