Visa wants to help you pay with central bank digital currency

Visa has no intention of being left behind as digital assets go mainstream. 

Fresh off a landmark trial in which it became the first major payments network to use a stablecoin to settle a transaction, the card giant is now positioning itself to capitalize on the advent of central bank digital currencies (CBDCs).

Cuy Sheffield, head of crypto at Visa, told The Block in a recent interview that the company decided to invest in upgrading its systems in part because of the momentum behind CBDCs in various countries around the world.

Sheffield said Visa aims to be in a position to “bridge” the existing payment system with CBDCs in a way that makes adoption easier for users and merchants.

“We think that for CBDC to be successful, it’s important that CBDC can be accepted at any merchant that already accepts Visa credentials today, instead of merchants having to upgrade their terminals just to be able to access and let a consumer spend from a balance of CBDC,” he said.

The CBDC era has already begun. In October, the Central Bank of The Bahamas launched its digital “Sand Dollar.” Last month, the Eastern Caribbean Central Bank launched a digital currency called DCash. 

Central banks from major economies may soon follow. Earlier this month, the Bank of Japan began testing a digital currency.  Only yesterday, the Bank of England and HM Treasury announced the creation of a new task force to explore the potential for a CBDC in the U.K. The European Union ramped up its research into whether to issue digital euros late last year. And in the U.S., there have been frequent policy discussions about a hypothetical “digital dollar.”

China is perhaps leading the pack, having already conducted significant testing of its digital yuan and even mulling making the currency available to foreign visitors during the Beijing Winter Olympics in 2022.

It’s still an open question as to how most of these systems will be designed, to what extent those designs will vary, and what that will mean for merchants. According to Sheffield, Visa’s recent stablecoin demonstration can be seen as a rough blueprint for how the firm would like to integrate CBDCs too — at least from the perspective of merchants.

In March, the card company partnered with wallet firm Crypto.com to settle a transaction using the Ethereum-based stablecoin USDC. This means that customers can make payments with Crypto.com cards — using balances held in a variety of cryptocurrencies — without merchants having to re-engineer their own point-of-sale processes.

The way it works is that Crypto.com converts whatever currency is spent into USDC, which is then sent to a Visa account operated by Anchorage, the chartered crypto custodian. Visa has an Ethereum address connected to that Anchorage account. Once received, the USDC gets converted back into fiat currency and Visa then pays the balance owed to the merchant.

Sheffield said the effort required to redesign Visa’s treasury processes to allow for stablecoin settlement was significant. Unique considerations included: finding a way to transmit a crypto address to a partner instead of bank account information, sending settlement reports to confirm Anchorage received USDC on schedule and being able to calculate how much fiat money would need to be held in order to convert the USDC received.

“Most acquirers [firms which process credit or debit card payments on behalf of merchants] — every acquirer today — still wants to get paid in a traditional fiat currency,” said Sheffield. “We want Visa to be that bridge in between those crypto wallets and our network of 70 million merchants and those merchants’ acquirers.”  

With the initial Crypto.com test complete, the two firms are now working to make a full transition to the USDC settlement system over the summer. Once that’s done, Visa will begin inviting other crypto wallet operators to settle transactions in stablecoin — which, as Sheffield put it, tends to be how “crypto native” card issuers manage their corporate treasuries.

Visa is currently working with around 35 crypto wallet firms which are all at different stages of rolling out card programs.

It has also been meeting central bankers. Sheffield thinks Visa’s approach to stablecoin settlement can also be a fit for CBDCs.

“Most central banks are still in the early stages of how CBDC should be designed,” said Sheffield.  

“We’ve been providing our perspective that we think it’s important to design and solve for acceptance from day one — and if the only way that CBDC is used is that every small business is upgrading their point-of-sale terminals, it’s going to be a long time before it is used.”