Virtual currencies exchanged online for goods and services became a little less mysterious Monday, when global payments giant Visa said it will allow transactions to settle on its payment network for the first time in a cryptocurrency rather than in money issued and backed by a central government.
Visa, which connects merchants, banks and consumers by allowing money transactions to move through its global payment system in more than 200 countries and territories, traditionally has dealt only with so-called fiat, or government-issued, currencies such as the dollar, pound, or yen. That meant if a customer bought a cup of coffee with a cryptocurrency Visa card—a card tied to an account that works with cryptocurrency—the transaction first would have to be converted into fiat currency in the settlement process.
Now, Visa says, those transactions can be settled directly in a stablecoin called USD Coin over the Ethereum blockchain. (Stablecoins are digital currencies that are tied to an outside asset, usually a fiat currency, to reduce their volatility; the Ethereum blockchain is a digital database platform that serves as a popular exchange for cryptocurrency transactions.)
Visa is piloting the move to accept USD Coin at Visa’s Ethereum address, or wallet, with two partners. They are Crypto.com, which offers its own Visa-branded card and has a platform allowing users to buy, sell, store, and spend their cryptocurrencies, and Anchorage, the first federally chartered digital asset bank.
By removing the step of converting cryptocurrency into fiat currency, Visa says it’s saving time and money for companies that do business in cryptocurrencies. It expects to expand the pilot program to more of its partners later this year.
Visa’s push toward making cryptocurrencies more widely used for transactions reflects growing interest in digital currencies as everyday money. Tesla recently announced it would accept Bitcoin, considered to be the original cryptocurrency, as payment for one of its new cars, and Federal Reserve Chairman Jerome Powell said at a recent Bank of International Settlements (BIS) event that the Fed is continuing to examine the need for its own Central Bank Digital Currency (CBDC).
In January 2020, the BIS estimated that 80% of central banks around the world were looking at developing a CBDC. So the question increasingly seems like when—not if—central banks and more companies will enter the digital coin world.
Visa’s upgrade of its processing system to make cryptocurrency transactions more seamless “marks a major milestone in our ability to address the needs of fintechs managing their business in a stablecoin or cryptocurrency, and it’s really an extension of what we do every day, securely facilitating payments in all different currencies all across the world,” said Jack Forestell, Visa executive vice president and chief product officer, in a statement. Visa estimates nearly $10 billion worth of USD Coins are in circulation.