POLAND – 2020/03/23: In this photo illustration a VISA logo seen displayed on a smartphone. (Photo … [+] by Mateusz Slodkowski/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
Bitcoin was invented to disrupt existing monetary systems that many felt were too expensive and exclusionary. With this in mind, it was given a much broader value proposition than a deflationary issuance policy and hard cap of 21 million units. Through the novel use of blockchain technology, it also allows anyone to send money to a counterpart around the world in a few minutes for fractions of a dollar.
This functionality placed incumbent payment platforms such as card networks and interbank messaging systems directly in bitcoin’s crosshairs. While some firms dismissed these concerns, others saw the potential and looked for ways to derive value for their partners and shareholders.
To investigate this issue further, we recently spoke with the two Visa
executives most responsible for its crypto and blockchain strategy Terry Angelos, SVP global head of fintech at Visa and Cuy Sheffield, senior director, head of crypto at Visa. The pair shed substantial light on how Visa approaches innovation and evaluates opportunities to incorporate promising technologies, such as crypto and blockchain, into its operations. They also went into significant detail on how they are approaching next generation digital assets, such as stablecoins and forthcoming assets that will be issued directly by central banks. It was a fascinating discussion that leaves one thing clear, digital assets and blockchain technology are going to be important parts of Visa’s future.
Excerpted from Forbes CryptoAsset & Blockchain Advisor.
Forbes: Can you talk a little bit about how blockchain and crypto fall within the organization and your respective roles?
Terry: The short answer is that it’s distributed. Inside of Visa, we have a number of groups that are either building products that are based on blockchain technology or engaging with clients who are involved in the crypto industry. We also have pockets in Visa Research, our B2B teams and our core network teams.
Forbes: Cuy, as Visa’s head of crypto can you talk a little about how you are approaching this new industry?
Cuy: My main role is to understand how our growing set of clients, meaning fintech companies that may be adding crypto business lines or firms that are natively crypto, can leverage Visa’s existing products. Specifically, my responsibilities fall into three buckets. First, I work closely with the partnerships team. We have close relationships with a number of the leading crypto wallets and exchanges, and we help them access our network of over 60 million merchants. As part of that mission, we work with Visa initiatives such as the Fast Track Program, where we help crypto partners that want to issue Visa credentials. Second, we partner with Visa Research to study the underlying technologies behind digital currencies. Third, we try to identify new use cases in payment flows for which digital currencies could be well suited.
Forbes: Visa recently published an article on its blog titled, Advancing our approach to digital currency, which consolidated a lot of your recent activities into one concise document. What was the impetus behind its creation and why was now the right time to release it?
Cuy: We’ve been advancing our work on digital currency, both on the product and research side, for the last two years. However, while the strategy has continued to evolve, we haven’t talked about it very much. In this vacuum, we’ve seen different narratives and speculation about our activities, so the post was primarily to articulate why Visa is investing in and spending time on digital currencies. We also wanted to lay out some of the principles that are guiding our strategy.
Forbes: Thank you for that background. Can you get a little more specific and talk about how your work in blockchain and crypto fits into this thinking?
Terry: One of Visa’s significant developments over the last few years was its evolution to becoming a “network of networks.” This means initiating and terminating transactions across multiple networks, some of which we own and others that we don’t, such as SWIFT or local ACH networks.
In that context, although we don’t do this today, we would think of interoperating with a blockchain network that we don’t control as being no different than a third-party real-time payments platform.
Forbes: How has this thinking guided your engagement with companies in the space so far?
Terry: Because we don’t think of blockchain networks as being different from a strategy perspective, to the degree that blockchain networks emerge, are legal and regulated, we can engage with them in the same way as any other network. To that end, Cuy is helping to build the product set that can interface with those networks. Consider our partnership with Coinbase (in February 2020 it became the first crypto company to become a direct Visa card issuer with principal membership). That’s an example of a Visa credential being linked to a Coinbase account, which has a store of value that happens to be in digital assets. Coinbase is ultimately doing the conversion into fiat (for the purposes of navigating our network), but you’re effectively connecting a digital asset to the Visa network.
Forbes: The Coinbase announcement made a big splash, but you’ve also partnered with other crypto payments firms such as Fold. Can you give us an idea of the number of potential partners in the pipeline? Additionally, do you onboard each of these clients in the same way or are there differences?
Terry: We are seeing significant interest in demand from crypto companies that want to work with Visa and connect their clients to our network of 60-plus million merchants. So far, we have onboarded about 25 companies from around the world that are at various stages of development. Given this diversity, our engagement with them can go down a few different paths. First, there are very large and established companies like Coinbase, which we simply treat as strategic fintech clients.
However, there is this vibrant ecosystem of crypto-native companies building directly on top of blockchains. In those cases, our Fast Track program has been a key success factor. It gives participating companies a single point of contact with the firm so that they can learn how to engage with Visa and its partners and be able to issue credentials. In fact, we have vetted partners to help them set up AML/KYC (anti-money laundering/know your customer) programs, find a bank sponsor or partner with an issuer processor, should those things be necessary.
While we are on this topic, I also want to point out that we make an internal distinction between the terms cryptocurrency and digital currency because that will help you better understand our client base. We think of cryptocurrencies as assets that are natively issued onto a blockchain, while we broadly define digital currencies as tokenized versions of fiat, such as what Coinbase and Circle are doing with USDC. Most of our crypto clients fall into the latter category.
Forbes: Is Coinbase still the only crypto company that is still a principal member of Visa?
Terry: Yes. But I think we have some that are potentially in the queue.
NOTE: In the time since the interview was conducted, Visa announced that the digital asset-based lending platform Cred joined the Fast Track program. We followed up with Visa to ask why Cred stood out as a candidate for membership. Here is their response:
Cuy: We’ve seen significant innovation in new financial services for consumers that hold digital currencies. The growth in demand for lending and borrowing of digital currencies is an example of that. We’re excited to partner with fintechs like Cred that are building new products in this ecosystem and to find new ways for Visa to improve the fiat on-ramps and off-ramps connected to those products.
Forbes: Let’s switch gears and talk about Visa’s investments in the space. You’ve made an investment in the institutional crypto custody firm Anchorage. Are there others you can disclose?
Cuy: Anchorage is the only public investment that we’ve made directly in digital assets. We think the company is providing a fundamental security infrastructure that’s going to be critical for digital currencies to be able to be developed and be used.
Forbes: Building on that, what do you look for when it comes to a crypto portfolio company? What do you hope to get out of these engagements?
Terry: If you look at our investment strategy overall, we get very excited about payment infrastructure companies (see our 2015 investment in Stripe, the payment processor). This is something that we want to focus on in the crypto world. In fact, you can think of Anchorage as digital infrastructure. Custody is one of the most important and technologically difficult things to manage for any digital currency, and it is necessary for a healthy payment ecosystem.
We can even take this line of argument further. Consider central bank digital currencies (CBDCs). There are a few ways to issue them, but one of the models we see most is where traditional banks serve as primary access points for funds. In fact, that’s exactly what’s happening in China right now with the digital yuan. So, if you are a bank in a market with a CBDC, you will need to custody the legal digital version of that currency. We think companies like Anchorage will be one of the partners that those banks would have to turn to for that capability.
Forbes: Staying on the topic CBDCs, do you see Visa playing a broader role in this new ecosystem?
Cuy: Visa engages very closely with central banks across the world on a number of different topics, with CBDCs being one that’s gaining increasing interest. We think that if a central bank is going to issue a CBDC, they will need to consider a number of the same factors that are facing private companies building tokenized stablecoins.
These include how do you make sure that it’s consumer friendly? Can you make sure that customers are able to use a wide variety of digital wallets to be able to secure, access, and spend the funds? Additionally, for the assets to have utility, they need to be accepted at merchants. All that considered, we think there’s a big opportunity for Visa to leverage our existing network and assets and expertise to add value to both central banks as they think about CBDCs, as well as to other private sector entities that are exploring these privately issued stable coins.
Forbes: You were one of the founding members of the Libra Association, which is closely affiliated with Facebook. However, you withdrew shortly thereafter. Walk us through your thought process there and more broadly how do you plan to approach consortia in the future?
Cuy: I’d point you to one of the core principles that we outlined in the blog post, which is that we see Visa as remaining currency and network agnostic. We want to support the digital currencies that our diverse set of clients demand. Therefore, part of the network of network strategy isn’t to try and just pick a winner. Rather, it’s being able to have products and services that work with many different digital currencies and networks.
Terry: If we join a consortium, it’ll be because we want to influence and help some of those principles that we believe in be executed. That said, we haven’t made any decisions to join consortiums right now and I doubt that we would join any exclusively.
NOTE: In the time since the interview was conducted, Visa joined the Chamber of Digital Commerce.
Forbes: I want to briefly touch on patents. We were excited to see that you filed for a stablecoin patent a few months ago. Are there any others you are looking into? Additionally, how does your patent strategy fit into all this blockchain work?
Cuy: A lot of the patent work has come out of Visa Research, where they are doing fundamental work around how to improve blockchain technology overall. For instance, they are looking at general themes like scalability, second-level payment channels and privacy. There’s still a lot of work to be done to improve how these technologies can be commercialized and used for mainstream payments.
Forbes: What is your outlook for 2nd level scaling technologies such as the lightning network?
Cuy: For retail payments to scale on non-permissioned blockchains, 2nd layer technologies will need to emerge. These could enable high-throughput transactions to be instantly authorized while using “on-chain” transactions for settlement. In some ways, this is how payment networks operate today: fast, instant authorizations at tens of millions of merchants, followed by payments over large-value settlement networks. There are already many open-source projects creating this layer and our research teams continue to explore these to determine their suitability for payments.
Forbes: Are there any exciting new projects coming out of the research team related to crypto?
Cuy: One area that we’ve spent time on as well is offline digital currency payments. When central banks think about CBDCs, one of the potential features that they are paying attention to is offline payments. There are a lot of technical challenges around enabling this functionality in a secure manner. So we are continuing to advance research on that front and we’ll hopefully have more to talk about in the coming year.
Forbes: Thank you both for your time.