Credit Card Giants in Crypto — Opportunity or Threat?

This year has been an interesting year for crypto for many reasons. For one, credit card companies are increasingly more involved in the crypto space. 

Ironically, cryptocurrencies exist to remove the middleman (such as banks and credit card companies) so that peer-to-peer transactions over the Internet can be cheaper and more efficient. 

Are credit card giants such as Visa and Mastercard simply piggybacking a hyperactive trend, or do they know something about the future of crypto that we do not?

Start from the beginning. What is cryptocurrency?

How credit card companies stay relevant in the crypto realm

The crypto world and traditional finance are not far removed from each other; there lies an intersection. 

This is where we find on- and off-ramps such as crypto exchanges and retailers like Easy Crypto. This even includes banks that offer custodial services, to enable customers to invest in popular coins without directly buying them. 

Credit card companies have also established themselves in the new crypto economy by offering credit card rewards in cryptocurrencies. The partnership between these companies and crypto exchanges supposedly will increase the user base of both services. 

A customer could earn cryptocurrencies without changing their shopping behavior; they’d also have to create a crypto exchange account to access (and monetise) their crypto rewards. Eventually, the crypto-curious will make use of the platform more often, which translates to an increase in the exchange’s revenue. 

Another approach is to back credit or debit cards with crypto assets. Customers don’t have to convert their holdings to stablecoins and fiat to use them for purchases. They could simply swipe their crypto card, and allow token swaps to take place in the background. 

Credit card companies know that not every crypto hodler is an investor. This is an important fact to realise if crypto were to be massively adopted by all kinds of people. It’s also useful to see the latest reports on crypto adoption. 

Curious about StormX? Here’s a simple explainer about the Crypto Cashback token.

How the world’s adult population engages with cryptocurrency

Recently, Visa released a report titled “The Crypto Phenomenon: Consumer Attitudes & Usage”. The report aims to understand how the adult population perceives cryptocurrency, and whether or not they own some.  

Of the people surveyed* across 8 countries, 94% are aware of cryptocurrencies, and of those people, 32% are owners while 21% are not yet owners, but are curious about it. The rest of the sample are either ‘skeptics’ or ‘unengaged’. 

Together, both owners and people who are open to learning more about cryptocurrencies represent 53% of the people surveyed. It also helps to provide some context of this survey, which the report covers:

• Crypto owners and users in emerging markets account for 37% of people who are crypto-aware, compared to 29% in developed markets.

• In the report, 83% of crypto owners say that wealth-building and the belief in crypto’s importance in financial services in the future are the key motivators of owning/investing in them.

• Among the crypto owners, 81% express interest in crypto-linked cards (with the scheme such as ones highlighted above). 84% of crypto owners are also interested in crypto rewards. 

• More importantly, 18% of respondents say they would be likely to switch their banks with one that offers crypto-related products in the next 12 months. “Among consumers who already own cryptocurrency, nearly 40% are willing to make the switch,” according to the report.

Survey results from Mastercard’s New Payments Index report also agrees with Visa’s findings. Of all people surveyed who live in the Asia-Pacific region, 45% are likely to consider using cryptocurrencies. This is a jump from last year’s 12% figure. By the way, those who have said that they’ll use cryptocurrencies tend to actually use cryptocurrencies, as the report shows. 

Overall, it seems that there is a myriad of opportunities for credit card companies to step in as there is much engagement in cryptocurrencies among the world’s adult population.

Don’t miss this report. Southeast Asia Takes the Lead in Crypto Adoption.

* The survey method is as follows: 9 focus groups, 10 in-depth interviews (US, Germany, Argentina), and 6430 online surveys (Argentina, Australia, Brazil, Germany, Hong Kong, South Africa, the US, and the UK). All respondents are at least 18 years old. Respondents who are 25 and over have a threshold income level to take part in the survey, and are those who make household financial decisions. 

The next steps for Visa — consulting service for merchants and banks

On 8 December 2021, Visa announced a new crypto consulting service for merchants and banks. 

As part of Visa’s Consulting and Analytics, the company launched the Global Crypto Advisory Practice. This service is aimed for customers, merchants, partners, banks, and even governments, to navigate and establish themselves in the crypto space.

The consulting service could benefit financial institutions to “attract or retain customers with a crypto offering”. Retailers could benefit from understanding about NFTs and how they can be used in, for example, loyalty programmes and ticketing. 

They’re even prepared to help central banks explore the concept of central bank digital currency (CBDC) — a project in which Mastercard and PayPal are currently competing for a slice in profit.

All this sounds like a large investment for credit card and payments network giants. To go back to our first question — are they building up something for the long term? The answer to the question is highly likely, yes.

It appears that credit card giants truly believe that crypto can go hand in hand with traditional payments. They can very much benefit from this movement by becoming part of the on-ramp to the decentralised finance world.

Is this move by credit card giants a threat to decentralised finance?

The short answer is, far from it. The remarkable thing about decentralised finance (DeFi) is that it is permissionless and siloed from traditional finance, yet connected to it. This allows individuals to be comfortable in their own zone, which is somewhere along two extremes of a spectrum.

At one end of the spectrum, someone can enter the DeFi realm once, make money off of DeFi platforms, and never need to exit. This is for as long as they could trade their crypto for goods and services.

At the other end of the spectrum, a user can inadvertently own some crypto from cashback reward programmes. In between these two extremes, we have retail and professional investors and traders who frequently cross the two worlds. 

Related: What is DeFi (Decentralized Finance)?

Therefore, with the heavy investment of credit card giants, the spectrum can extend further to meet the needs of the less engaged crypto users. In the long-term, this could add more real-life utility to cryptocurrencies, adding some price support and stabilising the market.

We may still be a long way from having to see ice cream priced in satoshis at a local shop. However, using crypto-backed payment cards, a hodler can indulge themselves in ice cream paid in short-term gains as a self-reward.

Life could be more enjoyable for crypto investors, too.