Mastercard has outlined a strict set of criteria that cryptocurrencies will have to fall under to be directly supported on its payments network as part of changes being made this year.
The financial services giant, during 2021, will begin to support select cryptocurrencies if they prove to be secure, compliant with industry standards and regulations, as well as proving stable enough to be used as a "vehicle for spending".
Not all cryptocurrencies will be supported on Mastercard’s network, however, and the company has strongly suggested many of the most mainstream assets, such as Bitcoin, won’t make the cut. The firm has hinted, instead, that it will rely on partnerships with central banks to create new digital assets that are likely to be so-called 'stable coins' - cryptocurrencies that are pegged to fiat currencies, such as the dollar.
“Mastercard isn’t here to recommend you start using cryptocurrencies,” said Mastercard’s EVP for blockchain, digital asset products and partnership, Raj Dhamodharan. “But we are here to enable customers, merchants and businesses to move digital value - traditional or crypto - however they want. It should be your choice, it’s your money.
“Doing this work will create a lot more possibilities for shoppers and merchants, allowing them to transact in an entirely new form of payment."
Bitcoin is the most widespread cryptocurrency, making it an ideal candidate, on paper. Although it has enjoyed a surge in valuation and popularity in recent months, it's this wild fluctuation in price that makes it unlikely that Bitcoin will be supported.
Mastercard has outlined four criteria that cryptocurrencies must firmly fall under before they can be considered for support on its payments network:
- Consumer protections: The same level of privacy and security of consumer information that people have come to expect in their credit cards.
- Strict compliance with protocols: Cryptocurrencies must follow standards in the financial industry, including Know Your Customer, which is designed to “snuff out” illegal activity and deception in payment networks.
- Legally-sound: Candidates must be legal and compliant with local regulations in the regions in which they’re used.
- Stability: Most importantly, Mastercard will only support digital assets that offer the stability people need in a vehicle for spending, not investment.
Considering the likes of Ether and Bitcoin, two of the most widely-used cryptocurrencies, are deemed highly volatile and subject to surges and crashes, it’s unlikely they’ll be deemed stable enough to be considered. This isn't to mention the likes of Dogecoin, which has similarly surged wildly in recent weeks due to interest from figures like Elon Musk.
Cryptocurrencies have also been at the centre of organised crime in recent years - famously used to launder money by those behind Silk Road. Bitcoin is also among cyber criminals’ preferred payment methods following a ransomware attack, due to the high degree of anonymity it offers.
Regulation is also a major barrier, with governments across the world investigating the role of cryptocurrencies in the broader financial landscape. While the Financial Conduct Authority (FCA) in the UK has blocked crypto-linked financial products from being marketed, it’s widely believed that India might go one step further and ban Bitcoin altogether.
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Stablecoins, meanwhile, such as Facebook’s Libra coin, are consciously designed to minimise volatility by being tied to a stable asset. TrueUSD is the second most popular stablecoin, for example, according to CB Insights, and is backed 1:1 with the US Dollar.
These are nowhere near as widely used as the likes of Bitcoin, however, and likely won’t receive much uptake should Mastercard decide to support these.
The most likely path the company will follow as it seeks to support cryptocurrencies on its network is to lean on its partnerships with several major central banks around the world. These institutions are planning to launch new cryptocurrencies, dubbed central bank digital currencies (CBDCs), in the near future. Mastercard says it even created a test platform for these banks to experiment with these cryptocurrencies and assess their viability.
Instead of waiting for the more mainstream cryptocurrencies to clear what many may consider an unrealistically high bar, Mastercard could instead adopt a selection of these CBDCs and thrust them into the spotlight.
PayPal launched a similar service last year that lets customers trade and exchange digital assets, although, unlike Mastercard, the company didn’t make support conditional on stability or other factors.
Mastercard has supported projects in the past, teaming up with Wirex and BitPay in 2020, for example, to create crypto cards that allow people to use cryptocurrencies to make payments. However, in this case, and all others, cryptocurrencies never moved through Mastercard’s own network.
