Visa and Mastercard—the two goliaths of traditional payment processing—are making significant inroads into the world of cryptocurrencies. These trusted brands, which power most credit cards, are lending their considerable reputation to crypto companies and developing institutional crypto services.
In this article, we’ll look at the inroads these companies have made thus far in both consumer and institutional markets and what the future may hold.
A Brief History
Developed during the financial crisis, Bitcoin was originally designed to eliminate intermediaries in financial transactions. Its creator, Satoshi Nakamoto, envisioned a peer-to-peer electronic cash system that would operate independently of global financial institutions. Unfortunately, Bitcoin’s high transaction fees and long processing times limited its practical use for everyday transactions.
Enter Visa and Mastercard—companies that epitomize the very intermediaries Bitcoin sought to bypass. These payment giants have been watching the crypto industry for years, recognizing it as both a potential threat and an opportunity. After public statements and exploratory research, they began partnering with crypto firms and launching very real products, making crypto more accessible and usable in everyday transactions.
Enabling Crypto Payments
Visa and Mastercard have made significant strides in enabling crypto payments, bridging the gap between traditional finance and the crypto world. In particular, they’ve focused on creating crypt-linked debit and credit cards, making it easier for consumers to use their digital assets in everyday transactions and earn crypto rewards.
One of the most prominent examples is Coinbase Card by Visa, which allows users to spend either cash or cryptocurrency anywhere Visa debit cards are accepted, without incurring additional fees. At the same time, users can earn crypto rewards on their everyday purchases, effectively turning routine transactions into more crypto income.
Coinbase is the most established way to use crypto to make payments. Source: CoinDesk
On the Mastercard side, Gemini’s credit card enables users to earn cryptocurrency rewards with each purchase, similar to traditional credit cards offering cash back or points. By allowing consumers to accumulate crypto through regular spending, Mastercard provides an accessible entry point into digital assets.
That said, the path to enabling crypto payments has not been without its challenges—several crypto card initiatives have faced setbacks or been discontinued. The BlockFi and Upgrade cards were discontinued, while the much-anticipated Abra and Unifi cards never made it to launch, underscoring the complexity of crypto payment solutions.
Building Institutional Solutions
Consumer-facing crypto debit and credit cards have garnered much attention, but Visa and Mastercard are also making substantial strides in developing institutional-trade solutions for the crypto. These projects aim to create a more robust infrastructure for digital asset management and transactions.
Visa recently unveiled its Visa Tokenized Asset Platform (VTAP), which aims to enhance digital asset issuance and management. The platform will support a broad range of tokenized assets, including stablecoins and central bank digital currencies (CBDCs), representing a significant step toward integrating crypto into conventional finance.
VTAP makes it easy for banks to mint, burn, and transfer fiat-backed tokens with minimal technical integration. In addition, banks can use these tokens within smart contracts to enable things like administering complex lines of credit or releasing payments when you meet payment terms. And it’s all interoperable across different blockchains.
Mastercard has also been active in the institutional space. Over the past few years, it launched Crypto Secure and Crypto Source to help with security and trading capabilities. And more recently, it launched Crypto Credential to facilitate peer-to-peer transactions without needing a long and complex blockchain address.
The Crypto Credential service verifies users and assigns them an alias. When users send crypto, the platform checks the validity of the alias and ensures protocol compatibility before sending digital assets. This check prevents the loss of funds due to user error (a common occurrence in crypto) and protects against scams like the address poisoning scam.
Ultimately, these institutions are trying to position the two companies for a future where stablecoins and CBDCs are more than just buzzwords. By lending their credibility to the digital asset ecosystem, they could help accelerate the adoption of these projects among large institutional or governmental entities.
Tax & Compliance Concerns
Visa and Mastercard have robust infrastructure and relationships with financial institutions worldwide, putting them in an excellent position to assist with compliance. Using the same strategies they use with fiat currency transactions, their systems could track and report crypto transactions and help banks and other institutions remain compliant.
However, consumers using Visa and Mastercard-powered solutions are still responsible for their own taxes. Unlike fiat currency, the IRS considers crypto “property” subject to capital gains taxes, meaning that users must track their cost basis and any profits above that cost basis whenever they make a transaction—even if it’s buying a coffee.
For example, consider if you transfer Bitcoin from a wallet to your Coinbase account and then use the Coinbase Card to purchase a new laptop. The IRS requires you to determine how much you originally paid for the Bitcoin, record the price on the day you used your card, and pay capital gains taxes on any increase in value.
ZenLedger simplifies your tax preparation work. Source: ZenLedger
Fortunately, ZenLedger makes it easy to comply with these rules and regulations without the burden of manually looking up crypto prices. After connecting your wallets and exchanges, the platform automatically computes your cost basis, records capital gains or losses, and generates the tax forms you must file yearly.
Beyond Visa and Mastercard
While Visa and Mastercard are embracing crypto for payments, other financial institutions are bringing digital assets into the fold for investors. These actions could add significant liquidity to the crypto ecosystem, helping to stabilize prices and make cryptocurrencies more viable as a medium for everyday financial transactions.
The launch of spot Bitcoin ETFs was a significant milestone, enabling investors to gain exposure to the world’s largest cryptocurrency without purchasing it independently. Since these funds purchase physical Bitcoin, they help add substantial liquidity to the market and could help stabilize prices over the long term.
But, as with crypto payments, the crypto-as-an-investment space faces its own challenges. The SEC has taken the stance that substantially all cryptocurrencies are “securities” under the Howey test. And the agency has been aggressively pursuing crypto issuers and exchanges for not registering these “securities.”
The good news is that lawmakers are actively working to provide more clarity. Congress recently grilled SEC Chairman Gary Gensler, questioning the agency’s handling of digital assets. Meanwhile, Vice President Harris followed in the footsteps of Republicans by softening her tone on cryptocurrencies relative to President Biden.
The Bottom Line
Visa and Mastercard’s foray into the crypto space marks a significant milestone in the journey towards mainstream adoption of digital currencies. From crypto-linked cards to sophisticated institutional solutions, they could help bridge the gap between traditional finance and crypto through credibility and compliance solutions.
However, the road ahead is not without challenges. Tax and compliance remain significant hurdles to widespread crypto adoption for payments. Fortunately, ZenLedger can help streamline the process, even when using crypto-linked credit and debit cards.
Get started with ZenLedger today!
This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.
