Despite Regulator Skepticism, Mastercard Steps Up To Compete With Visa On Stablecoin Payments

Despite Regulator Skepticism, Mastercard Steps Up To Compete With Visa On Stablecoin Payments

Electronic payments company Mastercard is streamlining its payments card offerings for cryptocurrency wallet and exchange companies, making it easier for them to offer customers crypto-enabled debit cards.

Today Mastercard announced a partnership with Evolve Bank & Trust, Paxos Trust Company, a member of the 2021 Forbes Blockchain 50, and Circle, the principle issuer behind the world’s second-largest stablecoin USDC, to make it easier for crypto firms to issue debit cards and holders to spend their digital assets.

Specifically, Mastercard will pilot a new capability to settle transactions with USDC so that crypto card issuing firms avoid the friction that comes with making direct crypto to fiat conversions. Mastercard will accept USDC from card issuers and then exchange the stablecoin fiat currency to settle with the merchant in their local currency.

“Today not all crypto companies have the foundational infrastructure to convert cryptocurrency to traditional fiat currency, and we’re making it easier,” Raj Dhamodharan, executive vice president of digital asset and blockchain products & partnerships at Mastercard, said in a release. “Through our engagement with Evolve, Paxos, Circle and the larger digital assets community, Mastercard expects to deliver on our promise of consumer choice to provide options to people around the world on how and when to pay.”

Despite this progress, Mastercard is behind its biggest rival, Visa. In March of this year, Visa became the first payments network to settle a transaction in USDC through a partnership with the first federally chartered digital asset bank, Anchorage. Earlier this month, Visa also partnered with crypto services company BlockFi to offer the first crypto credit card.

While stablecoins such as USDC have seen rapid growth this year — its current market capitalization is above $25 billion — they are facing challenges including regulatory scrutiny due to their expanding presence in the crypto lending and investment spaces. Government-issued competitors also pose a threat: more than 85 countries around the world are investigating or developing their own form of sovereign digital currency, known as a central bank digital currency (CBDC). If issued, CBDCs ensured by central banks would be fierce competitors to privately-issued stablecoins like USDC. Central banks are already making progress: the Bahamas has issued the first CBDC, the sand dollar; China is piloting a retail digital yuan in major cities; and just last week the European Central Bank launched its digital euro project.

In addition to exploring issuing CBDCs, government regulators are doubtful of stablecoins’ potential. During testimony last week, Federal Reserve Chairman Jerome Powell expressed skepticism towards stablecoins, stating that he does not see them becoming a significant part of the payments universe. Just yesterday US Treasury Secretary Janet Yellen convened a President's Working Group on Financial Markets (PWG), joined by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, to discuss stablecoin regulations. In a readout provided after the meeting, Secretary Yellen “underscored the need to act quickly to ensure there is an appropriate U.S. regulatory framework in place.”

There also remains significant concern and controversy surrounding the constitution of collateral reserves underpinning leading stablecoins. Industry leader Tether, which has a $64.35 billion market cap, recently released an update of its collateral where it divulged that 75% was backed by commercial paper from undisclosed issuers. While USDC claims to be more transparent and issues regular attestations, it recently invested some of its collateral into unknown short-term assets, leading to similar skepticism from regulators and users. In response, Circle CEO Jeremy Allaire promised to provide better transparency in the future.