Odaily Frontline | Visa's crypto strategy is fueling its next phase of growth
This article comes from"Forbes""Forbes"
Odaily translator |
, by Steven Ehrlich & Michael del Castillo
Odaily translator |
Bitcoin was created to disrupt the existing monetary system, which many felt was too expensive and exclusive. With this in mind, it was given a much broader value proposition than a deflationary issuance policy, and a hard cap of 21 million tokens. Through a novel application of blockchain technology, it also allows anyone to send money to counterparties around the world in minutes and at low cost.
This feature puts existing payment platforms such as credit card networks and interbank messaging systems directly in Bitcoin's crosshairs. While some companies shrug off these concerns, others see the potential and are looking for ways to create value for partners and shareholders.
To investigate this further, we recently interviewed two Visa executives in charge of crypto and blockchain strategy, Terry Angelos (Senior Vice President of Fintech, Visa) and Cuy Sheffield, Senior Director, Visa Head of Crypto. The pair shed substantial light on how Visa is innovating and evaluating opportunities to incorporate promising technologies such as encryption and blockchain into its operations. They also detailed how next-generation digital assets, such as stablecoins and assets that will soon be directly issued by central banks, will be handled. It was a fascinating discussion, and it made one thing clear: digital assets and blockchain technology will be a big part of Visa's future.
The following is excerpted from Forbes CryptoAsset & Blockchain Advisor.
"Forbes": Can you two talk about the status and respective roles of blockchain and encryption technology in Visa?
Terry: In short, it's distributed. Within Visa, we have many teams that are developing products based on blockchain technology or working with clients involved in the crypto industry. We also have Visa Research, a B2B team and a core network team in this area.
Forbes: Cuy, as Head of Crypto at Visa, can you talk about how you got into this new industry?
Cuy: My main role is to understand our growing customer base, which means that fintech companies that may add a crypto business line or are crypto companies may leverage Visa's existing products. Specifically, my responsibilities are divided into three parts. First, I work closely with the partnerships team. We have strong relationships with many of the leading crypto wallets and exchanges, and we help them gain access to our network of over 60 million merchants. As part of this mission, we work with Visa programs such as the Fast Track program to assist crypto partners who want to issue Visa credentials. Second, we partnered with Visa Research to study the underlying technology behind digital currencies. Third, we try to identify new use cases in the payment process for which digital currencies are best suited.
Forbes: Visa recently published an article on its blog titled "Advancing our approach to digital currency," which consolidates many of your recent activities into one concise document. What was the motivation for writing this article? Why is now the right time to release it?
Cuy: In the past two years, we have been advancing the work of digital currency, including products and research. However, while this strategy is evolving, we don't talk much about it. In this vacuum, we see different narratives and speculation about our activities, so this article is mainly to shed light on why Visa invests and spends time in digital currencies. We also want to propose some principles to guide our strategy.
Forbes: Thanks for the background. Can you be more specific and talk about how your work in blockchain and crypto fits into this idea?
Terry: One of the important developments of Visa over the past few years is that it has gradually become a "network of networks". This means initiating and terminating transactions in multiple networks, some of which we own and others we don't, such as SWIFT or the native ACH network.
In this regard, while not doing so today, we would consider interoperating with blockchain networks we do not control to be no different than third-party real-time payment platforms.
Forbes: How has this thinking led you to work with companies in this space so far?
Terry: From the point of view of the emergence of blockchain, if it is legal and regulated, we don't think the blockchain network is different from a strategic point of view, we can cooperate in the same way as other networks . To that end, Cuy is helping to build product sets that can interface with these networks. Take for example our partnership with Coinbase (in February 2020, Coinbase became the first crypto company to issue a Visa card directly with Prime membership). This is an example of a Visa credential being linked to a Coinbase account, which happens to be a store of value in the form of a digital asset. Coinbase is ultimately converting assets to fiat currency (in order to connect to our network), but is also effectively connecting a digital asset to the Visa network.
Forbes: Coinbase’s announcement caused a stir, but your company is also working with other crypto payments companies like Fold. Can you tell us the number of potential partners? Also, does your company serve every customer in the same way, or are there differences?
Terry: We're seeing huge demand and strong interest from crypto companies looking to partner with Visa and connect their customers to our network of over 60 million merchants. So far, we have brought in 25 companies from all over the world and at different stages of development. Given their diversity, we can take different paths. First, large established companies like Coinbase, which we view as strategic fintech customers.
However, there is a vibrant ecosystem of native crypto companies built directly on top of the blockchain. In these cases, our Fast Track program is a critical success factor. It provides participating companies with a single point of contact with Visa so they can learn how to engage with Visa and its partners and be able to issue credentials. In fact, we have vetted our partners to help them set up an AML/KYC program, finding bank guarantors or partners with issuer processors where necessary.
While discussing this topic, I would also like to point out that we make an internal distinction between cryptocurrencies and digital currencies, as this will help you better understand our customer base. We think of cryptocurrencies as native assets issued on blockchains, while we broadly define digital currencies as tokenized versions of fiat currencies, as in the case of Coinbase and Circle with USDC. Most of our crypto clients fall into the latter category.
Forbes: Is Coinbase Still the Only Crypto Company to Receive Visa Prime Membership?
Terry: Yes. But I think we have some potential other options.
Note: Since the interview began, Visa has announced that Cred, a digital asset-based lending platform, has joined the Fast Track project. We followed up with Visa to ask why Cred stood out as a candidate for membership. Here's their response:
Cuy: We are seeing significant innovation in new financial services for consumers holding digital currencies. The growing demand for digital currency lending is one example. We're excited to be working with a fintech company like Cred - which develops new products in this ecosystem and for Visa to find new ways to improve fiat on-ramps associated with those products.
"Forbes": Let's change the subject and talk about Visa's investment in this space. You guys have invested in Anchorage, a crypto custodian. Is there anything else that can be revealed?
Cuy: Anchorage is our only public investment directly in digital assets. We believe the company is providing a fundamental security infrastructure that is critical to the development and use of digital currencies.
Forbes: On that basis, what do you look for when it comes to crypto portfolio companies? What do you hope to get out of these arrangements?
Terry: If you look at our overall investment strategy, we get very excited about payment infrastructure companies (see our 2015 investment in payment processor Stripe). This is something we want to focus on in the crypto space. In fact, you can think of Anchorage as digital infrastructure. Custody is one of the most important and hardest-to-manage technical issues of any digital currency, and a necessity for a healthy payments ecosystem.
We can even go a little further. Consider a central bank digital currency (CBDC). There are several distribution methods, but the one model we see the most is traditional banks as the main access point for funds. In fact, this is exactly the status quo of the digital yuan in China. So if you're a bank in the market with a CBDC, you need to host a legal digital version of that currency. We think a company like Anchorage will be one of the partners these banks will have to look to.
Forbes: Regarding CBDC, do you see Visa playing a broader role in this new ecosystem?
Cuy: Visa is in close contact with central banks around the world on a number of different topics, of which CBDCs are gaining traction. We believe that if a central bank were to issue a CBDC, they would need to consider many of the same factors that private companies face when issuing tokenized stablecoins.
These include: How do you make sure it's consumer-friendly? Can you ensure customers can use a wide variety of digital wallets to protect, access and spend funds? Additionally, in order for assets to have utility, they need to be accepted at merchants. Taken together, we believe there is a strong opportunity for Visa to leverage its existing network, assets, and expertise, both to add value to central banks as they consider CBDCs, and to other private sector entities that are exploring these privately issued stablecoins .
Forbes: Visa is a founding member of the Libra Association, which has close ties to Facebook. However, you quickly withdrew. Could you give us a sense of what Visa was thinking at the time, and more broadly, how you plan to engage with the consortium in the future?
Cuy: I'm going to point you to one of the core principles we outlined in our blog post, which is that we view Visa as remaining currency and network agnostic. We want to support the digital currencies required by different customer groups. So part of Visa's network strategy isn't trying to pick a winner. Rather, it is able to have products and services that work with many different digital currencies and networks.
Terry: If we join a consortium, it's because we want to influence and help implement some of the principles we believe in. That said, we haven't made any decisions to join a consortium at this point, and I doubt we'll even join any consortium individually.
Note: Since the interview began, Visa has joined the Chamber of Digital Commerce.
"Forbes": I want to talk briefly about patents. We are very happy to see that you filed for a stablecoin patent a few months ago. Are you still working on other related patents? Also, how does your patent strategy fit into all this blockchain work?
Cuy: A lot of the patent work comes from Visa Research, and they are doing fundamental work around how to improve blockchain technology as a whole. For example, they focus on general topics like scalability, Layer 2 payment channels, and privacy. Much work remains to be done on how to commercialize these technologies for mainstream payments.
"Forbes": What is your outlook for Layer 2 scaling technologies such as the Lightning Network?
Cuy: In order for retail payments to scale on a permissionless blockchain, it needs to rely on Layer 2 technology. This enables instant authorization of high-throughput transactions when using "on-chain" transactions for settlement. In a way, that’s how payment networks work today: Quick, instant authorization to tens of millions of merchants, who then pay through a large settlement network. There are already many open source projects creating this layer of technology, and our research team will continue to explore these projects to determine their suitability for payments.
"Forbes": Has the research team produced any exciting new projects related to encryption?
