Mastercard asks: Is crypto still too complicated for payments?

diy13/Adobe Stock

The widespread adoption of mobile and digital payments stems from their simplicity — consumers can make a payment with almost any device, without having to type a full account number and with all of the protections they already get from their payment cards. It's a compelling pitch, but is it one that cryptocurrency providers can match?

Mastercard is arguing that it can create parity between these two payment methods, and to this end it is adding its scale and name recognition to cryptocurrency credentials, an older concept that attempts to ease the manner in which people identify the rails involved in cryptocurrency payments. 

This move follows an earlier one from PayPal, another large payment provider that is recruiting crypto-focused companies to support accessibility for payments. Both initiatives are an attempt to generate more demand to expand crypto beyond the most knowledgeable, tech-savvy users and early adopters.

Mastercard's crypto credentials employ an alias that crypto exchanges use to process cryptocurrency payments, replacing the blockchain addresses that are normally used. A blockchain address varies in size and structure, but it's usually between two and three dozen characters that identify the sender and recipient of a cryptocurrency transfer. The alias is a smaller, plain-language identifier that is easier to remember, conceptually similar to an email address. 

"There are multiple blockchains out there, all operating on the premise that there is a decentralized infrastructure to provide access," said Raj Dhamodharan, executive vice president of blockchain and digital assets at Mastercard. "That is good and is here to stay. But if you want a healthy transaction, what you want is a verified identification. We want to put standards behind that verification." 

Crypto exchanges verify a user based on Mastercard's crypto credential standards. The user then receives a substitute identifier or alias to send and receive funds. If a recipient's wallet does not support the asset or blockchain involved in the payment, the sender is notified and the transaction does not proceed. This procedure is designed to protect the parties from a loss of funds and to simplify the task of determining whether the recipient can receive a specific crypto transaction. 

Transfers between Latin America and Europe began earlier in June, with nonfungible tokens, tickets and digital assets to follow. Mastercard also plans to add more cross-border corridors.  

In the coming months, the crypto credentials and aliases will be available to about 7 million users who access Mastercard's network of supported cryptocurrency exchanges. Bit2Me, Lirium and Mercado Bitcoin are among the early crypto exchange adopters, with Foxbit and Lulubit in the pipeline. 

"The value of the payments is still moving in a blockchain, but the parties are verified. Know-your-customer checks have been done so the parties know this is secure," Dhamodharan said.

Cryptocurrency

What's holding back cryptocurrency payments?

May 20, 2024 11:16 AM

The crypto credential product follows Mastercard's release of the multi-token network, a venue for third parties to develop digital-asset products. In May, Mastercard's multi-token network closed its first transaction with Standard Chartered Bank, which used tokenized deposits to perform a carbon-offset trade.

"There are a lot of real-world assets that can fit this model," Dhamodharan said. 

One of the major issues with consumer adoption of crypto and digital assets has been the user experience, according to James Wester, research director for digital assets and crypto at Javelin Strategy & Research.

"It's not intuitive to send and receive crypto using most crypto wallets, and the consequences of getting it wrong, such as sending the wrong crypto to the wrong wallet type, is the potential loss of the assets," Wester said.

That makes cryptocurrency an unattractive option for most payment types, especially given how many other familiar payment methods are already available, according to Wester.

"With its crypto credential, Mastercard is looking to solve both the challenge of sending and receiving crypto and the potential for sending crypto to the wrong type of crypto address," Wester said. "These are the types of solutions that crypto is going to need to address the issues around the clunky user experience."

Visa and Mastercard have pursued cryptocurrency by focusing on stablecoin acceptance, working with governments on central bank digital currencies and simplifying credentials to access blockchain-powered products. 

Neither card network has aggressively supported using traditional cryptocurrency such as bitcoin to make payments directly. The volatility of bitcoin and similar cryptocurrencies have limited those coins to investment and trading, Dhamodharan said. Visa did not provide comment for this article. 

While cryptocurrency has never fulfilled its promise of disrupting the banking industry as a payment vehicle, the value of cryptocurrency and related structures is based on payment-related blockchain concepts such as smart contracts, which trigger payments based on certain conditions being met, said Enrico Camerinelli, a strategic advisor for Datos Insights.

Expanding use of these concepts requires keeping the complexity of cryptocurrency hidden, Camerinelli said. 

"This is called crypto, but in reality it's actually trading digital assets on blockchain rails, so there is the possibility of adding a credential to improve that process," Camerinelli said.