Every day, in every corner of the Earth, people have a choice of how to spend, whether it is cash, checks, or using Visa, Mastercard or a local card in their market, and new fintech platforms. The post-Covid world does not look great for cash and checks — just look at the stock price of a payments fintech Square this year versus that of a cash security company like Brink’s.
For Visa CEO Alfred Kelly, there’s opportunity in the rapid changes in the way people pay for things.
«The battleground always is out in the local market, every day,» Kelly said at the recent CNBC Evolve Summit. «We operate in 230 countries and territories and want to win as many transactions as we can.»
The Visa CEO cited an estimated $18 trillion still spent in cash and checks as an opportunity that will «accelerate with coronavirus and concern about germs.»
One of the digital accelerants during Covid-19 is cryptocurrency. Bitcoin, the most prominent example, is approaching a record and Visa sees digital currencies playing a greater role in its business in the years ahead.
The price of bitcoin has soared in 2020 in a world beset by a virus that increases fears about exchanging physical currency and has led to massive central bank monetary stimulus.
Underlying Visa’s view of cryptocurrencies is an evolving definition of the company as a network.
«We’re a network and increasingly trying to become a network of networks,» Kelly said.
It is an idea behind the recent acquisition of Plaid, which has attracted antitrust scrutiny.
Plaid sits between 11,000 financial institutions in the U.S. and 2,700 fintech developers, facilitating the movement of data. Visa, meanwhile, facilitates the movement of money.
«Plaid is just at its most simple level another network that we believe fits into a desire to have multiple networks on which we move information and money around the world,» the Visa CEO said.
Mastercard announced it planned to buy Finicity, a Plaid competitor, for roughly $1 billion earlier this year.
The idea of combining data and money is also a way to define digital currency.
«Crypto is a developing part of payments in the world,» Kelly said.
«As a payment rail, the company has to connect to every market and commerce venue available. As digital assets (in all their forms) are more seriously considered by governments to be legitimate and an actual economic instrument, it becomes more strategic for a card network to plug into it,» said Lex Sokolin, a fintech expert and global fintech co-head at ConsenSys, which focuses on the ethereum digital currency, in an email to CNBC discussing Visa’s strategy.
A woman passes in front of a Bitcoin exchange shop.
Artur Widak | NurPhoto | Getty Images
A few years back in 2018, Kelly told CNBC’s Jim Cramer that Visa would only move into cryptocurrencies if it evolved beyond use as a store of value. «If we actually think that crypto starts moving from being more of a commodity to actually really being a payment instrument,» he said in 2018.
While he said this sector is still in its «nascent stage» as a payments phenomenon, it seems to be happening, though it will take years to play out in a major way as part of Visa’s platform.
Visa’s interest is not in cryptocurrencies as a commodity markets play, though many market experts see it as a viable alternative to gold, the most famous commodity market store of value.
Visa, instead, is targeting digital currencies that «become fiat-based,» Kelly said at the CNBC Evolve event, providing a clear understanding of the value.
«A lot of the work in the space over the last two years is coming together to create a new story in the mainstream. … Companies like PayPal are supporting bitcoin purchases, and Square is using it as a treasury asset. The OCC claims that American banks can custody crypto assets as well,» Sokolin explained, adding that within the crypto space, one can use decentralized finance to save, pay, trade, invest, and insure, and there are new ways to manufacture financial products.
Visa, Mastercard moving digital currency
Visa, which already works with roughly two dozen cryptocurrencies, said the opportunity is in the exchange of crypto for the purchase of a good or service, and adding the Visa credential to those new systems so the cryptocurrencies can be converted to fiat currency and the funds put in a wallet to be used anywhere Visa is accepted.
«Ultimately, we could see digital currencies running on the Visa network on a more regular basis,» Kelly said, though he added it would be «a number of years out.»
«We are certainly open to any vehicle that helps facilitate the movement of money around the world. We want to be in the middle of it,» he added.
The Visa CEO said one of the biggest opportunities for cryptocurrencies will be in countries where there are underbanked and unbanked individuals, especially in emerging markets, though also in the U.S.. «There are 1.7 billion people on the face of the Earth we think are not banked in a mainstream banking system in whatever country they live in, including some here in the U.S.,» Kelly said.
Cryptocurrencies – particularly the Bitcoin system – have long posed an ‘existential risk’ to the payment networks. By their design, systems like bitcoin are intended to make centrally-controlled payments systems like Visa and Mastercard obsolete.
analyst at MoffettNathanson
Visa will also be working with central banks around the world as they increase focus on their own digital currencies. The central banking efforts are still what Kelly described as being in the early stages, with China’s work the furthest advanced. «We continue to expect to work with central banks around the world as they develop digital currencies for the future,» the Visa CEO said.
«Large global institutions are also moving further along the adoption curve in developing capital market settlement and global trade systems. On top of that, central banks continue to push forward with CBDCs [central bank digital currencies], which would require blockchain systems to flourish,» Sokolin said, whose ConsenSys has four CBDC-related projects across Thailand, France, Australia, and Hong Kong in the last quarter alone.
Bitcoin moving beyond existential threat
Lisa Ellis, an analyst at MoffettNathanson who covers Visa and Mastercard, said the interest from the payments networks right now is more helpful to the crypto space than it is to Visa.
«The sharp move in BTC year-to-date is largely driven by more ‘mainstream’ payments companies (e.g., PayPal, Visa, Mastercard) getting more openly and actively involved in crypto – essentially giving it their ‘blessing’ & vote of confidence,» she wrote in an email to CNBC.
One reason she cited was the payments networks’ high bars for security, quality of technology, and regulatory compliance.
«Their entire businesses are built on trust – the trust of consumers, of merchants, of banks, government, etc. Visa and Mastercard now openly saying that they are working with governments to help design & implement digital fiat, and saying that they will enable multiple cryptos on their networks, means that these technologies have now matured enough that they pass the networks’ credibility litmus tests.»
Though she added for Wall Street and investors in companies like Visa, there has been a «a collective sigh of relief» to see Visa and Mastercard actively playing a role in shaping the digital currency and cryptocurrency space.
«Cryptocurrencies – particularly the Bitcoin system – have long posed an ‘existential risk’ to the payment networks. By their design, systems like bitcoin are intended to make centrally-controlled payments systems like Visa and Mastercard obsolete,» Ellis said.
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Michael Sonnenshein, managing director at digital currencies investment firm Grayscale Investments, said Visa’s support for cryptocurrencies will lead to more mainstream adoption, but the performance of cryptocurrencies in 2020 comes from many factors, including the store of value and commodity investment case accelerating parallel to the payments sector interest.
«The investor class is more interested than ever, and you’re seeing influential figures like Paul Tudor Jones and Stanley Druckenmiller saying they have exposure to bitcoin,» he said.
One of the biggest bitcoin backers of all, former Goldman Sachs partner and current CEO of cryptocurrency investment firm Galaxy Digital Michael Novogratz, told CNBC this week that bitcoin can rise to $60,000 next year. The digital currency was trading between $18,000 and $19,000 on Friday. Bitcoin’s all-time high in 2017 was just under $20,000.
BlackRock chief investment officer of fixed income Rick Rieder told CNBC on Friday that bitcoin is «here to stay» and could rival gold as a primary «store of value.»
«Bitcoin has proven itself to be a resilient investment during times of economic crisis. From Brexit to the US/China trade war and now through the Covid-19 pandemic and trillions in money printing we’ve seen from the Federal Reserve and other central banks,» Sonnenshein said.
The pandemic has changed the way people create and consume content and access entertainment. But are these changes permanent? Join the CNBC Evolve Livestream on December 3 for a conversation about changing consumer trends and how far media companies should go in changing their strategies to reach their customers and meet their needs.