During yesterday’s earnings call, Mastercard CEO Michael Miebach clarified the company’s position on digital currencies. Last week it announced a deal with stablecoin firms Paxos and Circle. Previously, Mastercard had stated it may natively support stablecoins as settlement currencies. However, the term “might” was still used towards the end of Miebach’s comments yesterday giving slightly mixed signals.
So it seems there is not yet a definitive decision, perhaps relating to the need for regulatory clarity. In the meantime, it seems technical integration is a work in progress. Miebach stated the card firm would only work with stablecoins that are regulatory compliant, provide consumer protection, and are stable.
The purpose of the relationships with Paxos and Circle is to enable cryptocurrency users to cash out. They sell their cryptocurrencies for stablecoins. And the stablecoin providers convert it to fiat for Mastercard.
Miebach also briefly spoke about central bank digital currencies (CBDC). The Mastercard virtual test infrastructure enables central banks to trial design choices while still working with the existing financial infrastructure.
On the topic of cryptocurrencies, Mastercard provides cryptocurrency exchange customers with cards. It still has no plans to natively support cryptocurrencies for settlement. In the last three weeks, it’s seen a slowdown in the purchase of cryptocurrencies using Mastercard. Visa reported something similar.
One thing that’s still unclear is the nature of the collaboration with Ethereum software firm ConsenSys. Yesterday, Miebach stated the partnership would “accelerate the development of crypto applications and services to our customers”. However, the Mastercard announcement about the ConsenSys partnership in April focused more on enterprise blockchain.
Mastercard recently launched an accelerator program for blockchain and digital assets.
Transcript of Michael Miebach digital currency comments:
During introductory remarks:
In terms of cryptocurrency, we’re making it easier for cryptocurrency wallets to connect seamlessly to our network through a pilot with Paxos, Circle and Evolve Bank & Trust, which simplifies the conversion of crypto into fiat. Separately, we’re partnering with ConsenSys, the Ethereum software engineering firm, to accelerate the development of crypto applications and services to our customers.
Responding to an analyst question:
It’s obviously a vibrant space around digital currencies. Let me go back to what we discussed in the previous call, where we said there’s broadly three different categories that are at play here. Which is the central bank digital currencies and there’s private sector stablecoins and there is floating cryptos.
So we told you that we want to be playing a role across all of them. We also said in the first-quarter call that as far as stablecoins are concerned, we are getting ready to technologically enable our network to carry these stablecoins as settlement currencies provided they meet all three of our criteria, which is regulatory compliance, consumer protection and stability.
So none of that has changed. Let me just give you a view on what has happened since we had that conversation. So on the central bank digital currency front, things are definitely continuing to move forward. You see a lot of central banks engaged on the topic.
The ECB has just recently announced that they will actually move forward with the digital euro after a period of industry consultation. The Bank of England is in its period of industry engagement at this point, right now. So there is clear progress.
What is our value proposition to central banks and the government in this space? First of all, we bring a unique perspective to the market, to these players, as a multi-rail provider because all these countries have to make the trade-off, what is my existing financial system delivering, my existing financial infrastructure, and what else is the central bank digital currency solving for? Everybody has different motivations ranging from financial inclusion to cross border payments. And hence, we’re a sought after party because we have experience in all of that.
I think a particularly critical proposition here is our virtual test platform. Because all of these design choices that governments have to make and that we consult them on, will then have to live in the wild, so to say. They’ve got to work with the existing financial infrastructure, and that’s what our virtual test platform does for them. So that’s the proposition at this stage for central banks.
On the private sector stablecoins, nothing much different other than us engaging with private sector players as well as regulators on what does good policy look like around private sector stablecoins. Because this question about regulatory compliance is still unresolved. The regulators do need to weigh in and we’re a part of that dialogue.
On floating cryptos, here, the point of currency stability is not solved. So we won’t be enabling that as settlement currency on our network.
But clearly, people want to invest in that. And they want to sell their investments, and we’re going to make this as easy as possible. So we have all these partnerships out there.
Now, here’s the thing with our announcement last week. And that is that digital currency wallets out there oftentimes prefer to stay in crypto as these transactions are selling and buying of investments. And here’s where our partnerships, for example, with Paxos come in. It is our partner that allows the digital wallet to stay in crypto as they settle with Paxos and then Paxos settles with us in fiat. That’s an interim step for us, as and when we reach the point that we might be enabling stablecoins on our network itself.
So that’s kind of where we are, playing a role across the board. This is a relevant technology. As a multi-rail player, we got to be in this space because people are looking for answers.