Recently, payment technology giant, Visa, announced that it would now support the settlement of transactions in USDC, a stablecoin that is powered by the ethereum blockchain. The new move by Visa was great news for the global crypto community. However, understanding what this means requires a fundamental understanding of what payment settlement is.
Everytime you make a purchase using a Visa card, for example, a bundle of complex processes take place beneath the hood to ensure that the money moves from your bank account to the seller’s account. Without the money being transferred from your account to the recipient’s account, it would be impossible to make transactions without the use of cash. The mechanism of this “movement of money” is the crux of payment settlement. This settlement of transactions is made possible by a payment technology company like Visa, MasterCard, etc. Although the process is invisible to the everyday customer who makes financial transactions with a Visa card, it is what actually powers these transactions.
As some businesses, fintechs and other crypto adopters shift to the use of digital currencies for transactions and running their business, the need for a settlement process that makes crypto transactions as seamless as possible becomes necessary. A company like Crypto.com has a crypto-linked visa card which allows its customers to use their visa cards to make payments in digital currencies. However, Crypto.com has to handle a bunch of additional backend complexities to ensure that this is possible. This is because Visa’s settlement process requires business partners, like Crypto.com, to convert digital currencies into traditional fiat which Visa accepts. This adds complexities to their operations, costing them additional money and time. However, Visa’s new upgrade will relieve its partners of the need to convert digital currencies to fiat, thereby, saving them time and money.
This means that it would become easier for crypto-native companies to pay their employees in digital currencies without having to set up an infrastructure for converting to fiat currency to settle the transactions with Visa. This would also mean that crypto-native businesses can store their balances entirely in crypto without having to convert part of their crypto treasury reserves to traditional fiat at an extra conversion cost. More platforms would now also be able to easily help customers carry out transactions with cryptocurrencies.
With Visa’s new capability, the experience of the end customer remains the same. The process that happens behind the scenes is what changes. According to Visa’s Head of Crypto, Cuy Sheffield, “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.”
As the financial ecosystem anticipates functional and efficient frameworks that allow the use of digital currencies for everyday transactions, Visa’s acceptance of settlements in USDC signals a significant progress towards achieving this goal. The upgrade will, undoubtedly, facilitate the use of digital currencies for routine transactions.
Visa’s blog post on its announcement of the upgrade emphasizes the significance of Visa’s work. “The implications of our work with stablecoins are potentially far reaching — enabling our ability to one day support new Central Bank Digital Currencies (CBDC) as they become available. Central Banks are ramping up CBDCs, with 80% reporting that they are engaging in some CBDC-related effort, according to research from the BIS1. We are committed to supporting these initiatives so they can be integrated into the existing payments ecosystem,” the post states.
The potential of Visa’s work in facilitating the integration of CBDCs conveys how much impact it would have on the global financial ecosystem. As Central Bank Digital Currencies (CBDCs) become available, it is important that they are seamlessly integrated into financial systems. Visa’s new capability is an example of how transactions could be seamlessly settled with CBDCs, through a Visa card, thereby, allowing anyone to easily spend it. On a broader scale, it represents an example of how upgrades in payment technology to support the use of digital currencies, could open the doors for a better financial experience for everyone across the globe.
Visa’s USDC Crypto Acceptance And Its Impact On The Financial Ecosystem