Visa recently announced that it would allow cryptocurrency USD Coin (USDC) to be used directly when settling transactions on its platform.
The news follows developments from major financial institutions concerning their adoption of cryptocurrency, such as BlackRock authorizing Bitcoin investments for two of its funds, and Mastercard announcing its plans to integrate cryptocurrency transactions back in February.
According to Visa, the move is part of a new model designed to make things easier for cryptocurrency businesses.
The initial program was launched with cryptocurrency payment network and Visa partner Crypto.com.
For several years now, Visa and Crypto.com have been partnering on a crypto-based rewards debit card. However, the infrastructure behind these transactions was less than ideal.
For cardholders, the everyday routine of swiping a Visa card and approving transactions remains unchanged. If you wanted to make a purchase with a Crypto.com Visa card, all you had to do was use the card.
At the end of each day, Crypto.com would convert the digital currency that was spent into conventional fiat, and deposit it into a bank account. That money would then be wired to Visa to fund all the transactions made that day.
The problem with that set-up is that it was tedious, complex, and expensive.
Companies had to predict what their payments volume was going to be every single day. They needed to make certain that they had enough money on hand to wire to banks in order to settle transactions made through their card programs.
Surely Visa didn’t intend this, but the process was a very effective way to discourage cryptocurrency transactions, and the merchants using it.
Now, Visa’s new feature enables crypto wallets to settle payments with Visa directly in USDC. The platform makes use of the Ethereum blockchain, and was developed through Visa’s partnership with digital asset bank Anchorage, the first federally chartered crypto-native bank in the United States.
We’re excited to share news of a historic moment:https://t.co/vCNztABJoG & @Visa successfully conducted the first settlement of transactions using USDC!— Crypto.com (@cryptocom) March 29, 2021
A huge milestone for the industry as crypto and fiat networks begin to converge.https://t.co/v70qC8n4Yy
In late March, Crypto.com completed a transaction by sending USD Coin on Ethereum to an Anchorage account under Visa’s name, eliminating the need to convert digital currency into fiat currency in order to complete a transaction.
Thanks to that successful initial test, Visa is set to extend the program to more partners later this year.
But why USDC and not any other digital coin? Well, it’s stated that Visa chose USDC as it was the only coin that fit their criteria.
“We worked really closely with our risk team [to] 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,” — Cuy Sheffield, Visa’s Head of Crypto.
USD Coin is a stablecoin, which means that although it is powered by the Ethereum blockchain, its market value is tied to the US dollar, giving it greater price stability. As a stablecoin, USDC is also subject to stricter regulations than other cryptocurrencies.
Visa has already launched a product to assist banks with integrating Bitcoin into their mobile applications.
Back in March, Al Kelly, Visa’s CEO told Fortune CEO Alan Murray that the company is focused on enabling Bitcoin purchases and payments via its network, but they have no intention of stopping there.
Visa plans to add more stablecoins to its website alongside USDC, and will eventually move into CBDCs — digital currencies distributed directly by a country’s central bank.
With Visa’s partnership with Anchorage and the resulting treasury upgrades, the company is perfectly positioned to directly support new Central Bank Digital Currencies (CBDCs) as they emerge.
Several countries are already well on their way to developing a CBDC system in the near future. According to the Bank for International Settlements, about 80% of central banks around the world were involved in CBDC work in 2019.
Visa plans to support these central bank digital currencies as soon as they become available, further cementing its place amid the current cryptocurrency bull run.