Visa nudges banks and credit unions to hop on crypto bandwagon

With consumer interest in cryptocurrency soaring, Visa has accelerated its effort to coax card-issuing financial institutions into the digital-asset market.

"A lot of banks are telling us they are watching deposits leave their institutions and going to crypto exchanges, and they're asking if there is a potential role for banks to play," said AJ Shanley, vice president of crypto at Visa.

Visa on Wednesday launched a crypto advisory service that's designed to help the company's banks and credit unions further their cryptocurrency strategies. The move comes as Block (formerly Square), PayPal and other fintechs aggressively use cryptocurrency to court new customers and as rival Mastercard rolls out its own crypto-related services.

The card brands have a "logical role" in cryptocurrency as clearinghouses enabling global interoperability, said Eric Grover, a principal at Intrepid Ventures in Minden, Nevada. "Both card networks have been expanding into cryptocurrency services, using card and noncard rails," Grover said.

Visa's advisory service builds on the network's work with more than 60 cryptocurrency platforms to help the company’s clients, which include more than 15,000 banks and other financial institutions, evaluate opportunities in cryptocurrency and develop and test new products.

The cryptocurrency products that come out of Visa's advisory service could increase volume on Visa's network, as well as advance Visa's “network of networks” strategy to build ancillary services for clients.

"We see digital currency sitting on top of blockchain networks, similar to" automated clearing houses and real-time payments, Shanley said. "Our goal is to act as a bridge between the crypto ecosystem and our 15,000 financial institutions and our merchant network."

In its announcement Visa specifically mentioned cryptocurrency-reward programs, consumer wallets integrated with central bank digital currencies and nonfungible tokens (NFTs) as examples of use cases.

"Some banks may want investment products, some are interested in stablecoins, some may come in with an eye on playing a role in central bank digital currency rollouts," Shanley said. "This could take a number of paths."

Recent cryptocurrency reward programs include the cryptocurrency exchange Bakkt's partnership with Wyndham Resorts and a partnership between Mastercard and the crypto exchange Gemini. These and other cryptocurrency incentives are designed to attract new consumers to cryptocurrency and create a prepaid balance that consumers can convert to traditional currency for shopping or other purposes.

NFTs are digital assets that represent objects such as art, music, gaming and videos. Both Visa and Mastercard view NFTs as a potential source of payments as people buy the NFTs, as well as a potential reward as part of incentive marketing.

Visa and Mastercard have also expressed interest in working with governments to help facilitate central bank digital currency transactions, as well as support for stablecoin payments.

"Cryptocurrencies will require new ways to manage settlement risk, which is a competency at payment networks," said Richard Crone, a payments consultant in San Mateo, California. "Cryptocurrency support is a greenfield opportunity for Visa and other traditional payment networks."

Banks are not yet active in cryptocurrency on a large scale. Cryptocurrency is rarely used to pay merchants directly. And only a handful of banks specialize in providing services for cryptocurrency companies, such as La Jolla, California-based Silvergate Bank, which is expected to support the Diem stablecoin, Signature Bank in New York and Customers Bank in West Reading, Pennsylvania.

Visa's partners in its new cryptocurrency advisory service include UMB Financial. "While education is currently our primary focus, we are also having discussions with the lines of business throughout the bank to focus on their needs and develop a digital currency roadmap that will be nimble, flexible, responsive and scalable for our clients," said Uma Wilson, executive vice president, chief information and product officer at UMB Bank, in an email.

The Office of the Comptroller of the Currency in 2020 cleared banks to offer custody service, and more bank-related cryptocurrency regulations are expected early next year.

Cryptocurrency's total valuation has passed $2.5 trillion, according to the Associated Press. The price of Bitcoin, while volatile, is generally around $60,000, or 100 times higher than it was five years ago.

Banks face competition from technology-focused payment companies that offer cryptocurrency services. Block earns more than 70% of its revenue from supporting Bitcoin trading and investments on its Cash App. And PayPal has extended support for cryptocurrency trading to its Venmo peer-to-peer app in an attempt to bring new users into the cryptocurrency market and build prepaid balances for Venmo accounts.

Other technology companies are active, including the cryptocurrency exchange Circle, which has said it wants to obtain a bank charter, and Meta, the company formerly known as Facebook, which is part of the group of companies that plan to launch the Diem stablecoin. Mastercard is also aggressively expanding its cryptocurrency services, recently acquiring CipherTrace to bolster cryptocurrency security.

Visa referenced internal research that demonstrates demand for cryptocurrency. The card brand reports 94% of consumers that make financial decisions in their households are aware of cryptocurrency, citing research the card brand conducted in the U.S., U.K., Argentina, Australia, Brazil, Germany, Hong Kong and South Africa. Visa also found 33% of those consumers own or use cryptocurrency, with 62% of that group reporting an increase in usage over the past year.

Among current cryptocurrency owners, 81% are interested in cryptocurrency-linked cards, and 84% are interested in cryptocurrency rewards, according to Visa. Another 18% of consumers say they are likely or very likely to switch their primary bank to one that offers cryptocurrency-related products in the next 12 months.

Venture capitalists invested more than $27 billion in cryptocurrency startups in 2021, more than the previous 10 years combined, according to The New York Times' PitchBook.

"As a leader of a card network, can you tell the investment analysts that you are ignoring blockchain and crypto?" asked Rick Oglesby, president of AZ Payments Group in Phoenix.