Visa V -0.5% is taking robust steps to connect digital currencies to its global electronic payments network in order to prepare for a financial future where digital assets comprise a meaningful amount of a saver's wealth.
To date, 54 crypto companies have partnered with Visa to enable crypto spending. Much of this progress comes from the issuance of debit cards using Visa's FastTrack program, which is targeted towards integrating fintech companies with the Visa network. Over the summer, the firm launched two more products, a crypto rewards credit card in partnership with BlockFi and a debit card with major crypto exchange FTX, which just raised a record $900 million at an $18 billion valuation.
Other crypto-friendly card partners include CoinZoom, Coinbase, Zap, Crypto.com, Bitpanda, Fold, Upgrade, Wirex, and ZenGo.
"We saw this opportunity as these crypto platforms grow, as consumers want to gain access to the liquidity that they have held in these assets, issuing a Visa card could become a bridge that unlocks that value and enables it to be spent at any merchant that accepts Visa," Head of Crypto at Visa, Cuy Sheffield said.
These projects have gained traction — crypto-linked Visa debit cards facilitated over $1 billion worth of transactions across Visa's 70 million merchants worldwide in the first half of 2021 alone. $1 billion is only a small fraction of the trillion-dollar payments industry, however retail interest in cryptocurrencies is picking up, suggesting the market has room to grow, especially with younger generations. Sheffield says that no single predominant spending category has emerged in crypto-linked card use.
Survey data suggests that younger generations are increasingly diverting wealth into cryptocurrencies and digital assets. This is especially true for the most affluent members of these generations, which are especially prized by financial institutions and card networks.
A Michelmores survey of 501 'affluent Millennials' in the United Kingdom found that one in five have invested in cryptocurrencies and a CNBC survey of 750 investors conducted in April and May of 2021 reports that nearly half of Millennial millionaires have at least 25% of their wealth in cryptocurrencies. Millennial interest in crypto isn't limited to the Western world — a recent Mastercard MA -0.1% survey found that Middle Eastern and African Millennials surveyed during February and March of 2021 are especially interested in crypto with 67% agreeing they are more open to using crypto now than they were in 2020.
Meanwhile in Asia, India and China each account for 33% of the $9.4 million worth of weekly peer-to-peer payments volume in the region. In both nations, tech savvy millennials with aspirations of wealth are leading the trade. The Covid-19 pandemic only accelerated this trend by simultaneously spurring savings ambitions and interest in cryptocurrencies.
Approximately 70% of burgeoning retail brokerage platform Robinhood's $80.9 billion assets under custody came from users aged between 18 and 40. $11.5 billion of those assets under custody are cryptocurrencies, according to the firm's S-1 filing, and for the three months ended March 31, 2021, 17% of its total revenue was derived from transaction-based revenues earned from cryptocurrency transactions. This number is up from 4% for the last three months of 2020. All of this data suggests high interest among retail traders between 18 and 40 in crypto assets.
As retail brokerage accounts boomed, the crypto market was also hitting new heights, adding to the excitement among younger generations. Bitcoin reached its all-time-high price of $64,654 on April 14, 2021, just after the one year anniversary of the start of the pandemic. The market crashed a month later, bottoming out in July at a $1.2 trillion value for all cryptocurrency in circulation. Since then, the crypto economy has started to recover. The market broke past $2 trillion again on Wednesday, August 11, for the first time in nearly three months.
While investors are still mostly thinking long-term, a time will come when they need to generate liquidity from their holdings. Speaking to that effect, Sheffield argues that even if crypto owners intend to HODL (hold on for dear life, a crypto rallying cry), the day will come when they want to spend.
When that happens, Lisa Ellis, partner and senior equity analyst at research firm MoffettNathanson noted that they won't want to go through the often arduous process of converting that crypto into fiat because of what Visa is doing.
"Brokerages like Fidelity figured out a long time ago that they should — and Merrill Lynch — figured out that they should issue a card against the balance in your brokerage account because that way you can keep your money in the brokerage account and you're not constantly moving money," Ellis said. "It's basically the same. This is just allowing people to keep funds in what's essentially a brokerage account and keep it in crypto. And then if they need it for spending fine and people like to do that."
These developments are unlikely to stop with crypto-fiat payments. In pursuit of creating opportunities for seamless crypto transactions, Visa is finding new ways to appeal to crypto platforms who are looking to expand client offerings. Among these upgrades is the ability for crypto firms to settle payments using a dollar-pegged and quickly-growing stablecoin, USDC. As of writing, USDC's market cap stands at $27.39 billion.
Typically when transactions are carried out with a crypto-linked debit card offered by a company like Crypto.com, that company converts the crypto to fiat and then sends the funds to Visa, who then sends the funds to the merchant's bank for the appropriate amount and in the correct currency. Through a partnership with the first federally chartered digital asset bank, Anchorage, Visa will now accept USDC, instead of fiat, from card providers like Crypto.com.
"The goal is if we can make it easier for crypto platforms to issue Visa cards and interact with Visa we think many more — and we're already seeing a ton of demand in crypto companies coming to us — will have a path to creating a Visa card," Sheffield said. "We are committed to Visa being the preferred network for crypto wallets and so we want to meet them where they are."
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