Payment giants drive crypto adoption by engaging with startups

Financial services giants Visa and Mastercard have shown an increased interest in the trillion-dollar digital payment sector through their recent acquisitions of innovative fintechs. 

In January this year, Visa acquired fintech firm Plaid for $5.3 billion. The San Francisco-based firm enables data sharing of financial information between different fintech apps like Venmo and Chime, supporting over 2,000 financial institutions. As such, the acquisition could strengthen Plaid’s global wire transfer capabilities.

Mastercard has also made some major fintech acquisitions. In June this year, the payment giant announced plans to acquire financial data aggregation startup Finicity for $825 million. Mastercard’s announcement states that the addition of Finicity’s technology will strengthen the firm’s open banking platform, providing customers with more options in financial services.

Alex Tapscott, author of the book Financial Services Revolution, told Cointelegraph that Visa and Mastercard have benefited enormously from the steady migration from cash to digital payments, a notion that has been heightened by the COVID-19 pandemic:

“This has been accelerated by the increase in spending online which has been turbocharged by the pandemic. So naturally, it makes sense for Visa and Mastercard to acquire businesses like Plaid (which was pre-pandemic) to defend their dominant position by providing them greater insight into consumer spending habits.”

Driving adoption

While both Visa and Mastercard have been focused on traditional payment startups, it’s interesting that these financial services giants are also showing interest in the crypto space. According to Tapscott, this shouldn’t come as a surprise, as he noted that the future of finance in crypto assets is starting to catch on. “I believe Visa and Mastercard also recognize that the future of finance isn’t the ‘digital wallpaper’ of traditional fintechs but deep structural change enabled by crypto assets,” he said.

Additionally, financial services giants may be laying the groundwork for the future of crypto adoption. For example, Visa recently formed a partnership through its Fast Track program with a Bitcoin Lightning startup called LastBit that enables payment in U.S. dollars using Bitcoin (BTC).

Prashanth Balasubramanian, CEO and founder of LastBit, told Cointelegraph that the project was created with the goal of putting Bitcoin in the hands of as many people as possible. He noted that partnering with incumbents like Visa is imperative for the company to achieve this:

“We realize that the FinTech space is highly regulated, technical and complex with high barriers of entry not just from a capital perspective but also from a business perspective. Visa’s expertise here helps us overcome these barriers and bring to life our vision in a manner we possibly couldn’t do single handedly.”

According to Balasubramanian, LastBit spent about six months seeking a bank that would allow the startup to open a corporate account for depositing fiat checks from investors. “This was purely because our product and website had the word ‘Bitcoin’ in it,” he confirmed.

As Balasubramanian believes that it’s unrealistic to drive mainstream Bitcoin adoption without the support of larger players like Visa, he understands the value that a large financial services giant can bring to a crypto-focused startup.

More established crypto companies are also becoming increasingly aware of the benefits that partnerships with Visa and Mastercard can bring to the industry. Bill Zielke, chief marketing officer of BitPay, one of the largest blockchain payment providers, told Cointelegraph that financial services giants are openly embracing change in the payment industry through new partnerships:

“Payments are undergoing massive transformation, and digital payments are among the fastest growth areas. Visa and Mastercard have both announced partnerships with leading blockchain payment companies like BitPay and Coinbase.”

What this means in practice is that crypto-powered plastic cards backed by Mastercard can easily enable customers to convert crypto into fiat to be spent anywhere Mastercard debit is accepted. The concept has been groundbreaking in terms of driving mainstream adoption of cryptocurrency. To put this into perspective, BitPay claims on its site that it has processed over 100,000 cryptocurrency transactions per month in 2020.

Mastercard has also recognized the value in becoming involved with digital currency growth. In July this year, the payment provider announced the expansion of its cryptocurrency card program. Mastercard mentioned that all cryptocurrency card partners are invited to join the company’s Accelerate program in order to innovate faster.

Forgetting the roots?

While partnerships between financial service giants and crypto startups are promising for growth, some may question if these relationships go against the foundations that Bitcoin and other cryptocurrencies have been built upon. Afterall, Bitcoin’s value lies in the fact that it is decentralized and therefore not regulated by government entities.

J. P. Thieriot, CEO of Uphold, a cryptocurrency payment platform, told Cointelegraph that there’s a delicate balancing act in capturing the opportunities presented by digital currencies and app-based financial services, all while protecting the bank-controlled rails that keep cryptocurrencies on track. “Of course, once acquired by a company like Visa or Mastercard, a fintech will become subject to these same constraints,” he said.

While this may be, Balasubramanian remains optimistic, pointing out that large payment networks are slowly but surely making things easier for crypto companies looking to drive innovation:

“Previously, a massive hierarchical chain of program managers, card issuers and processors blocked the gates to innovation of bitcoin-to-fiat payment technologies. Since inception, we have literally seen this landscape change from a series of conversations with various fintech players that end or begin with ‘No Bitcoin companies allowed’ to ‘Let’s build something usable with Bitcoin.’”