‘Embrace the disruption’: Why crypto could destroy Visa and Mastercard
When the US government passed the GENIUS Act earlier this year, establishing the country’s first stablecoin legislation, it was seen as a major victory for the crypto industry.
But the passage has also launched a race between the crypto industry and Wall Street gatekeepers to try and capture a share of what’s expected to be a $3.7 trillion market by 2030.
This has led banks to push for a ban on crypto companies offering rewards with their stablecoins, which they claim is a loophole to get around the ban on offering interest on stablecoins.
The crypto industry has responded with their own lobbying campaign, which includes industry giant Coinbase (COIN) recently launching a marketing campaign accusing the banks of seeking a “bailout” from the government in order to stifle competition.
The reality though is that both sides might end up finding ways to work together.
Wall Street will seek out partners in the crypto industry that already have the built-in infrastructure to manage digital assets, while crypto companies can leverage the scale and compliance framework that the big banks have embedded in their operations.
And this merging of the two worlds is already happening.
Citigroup (C) said last week that it would be collaborating with Coinbase on an initiative to develop digital asset payment tools for the bank’s institutional clients. Coinbase previously announced a partnership with JPMorgan Chase (JPM) this year as well.
And now payments giant Mastercard Incorporated (MA) appears to be the latest traditional financial services company looking to join forces with a crypto upstart.
Fortune reported last week that the company is closing in on a deal to acquire crypto and stablecoin infrastructure startup Zerohash for between $1.5 and $2 billion.
Mastercard has actually been more active in the crypto space than some of its peers, having acquired the blockchain analytics firm CipherTrace in 2021.
The company also joined a stablecoin consortium this past summer called Global Dollar Network, which includes Robinhood (HOOD) and Kraken.
Fed could become a crypto ally
But despite some of the partnerships that are forming between crypto firms and Wall Street, stablecoins are ultimately seen as a way for the former to upend the payments industry and cut into the long-held dominance of companies like Mastercard, Visa (V) and banking goliaths like JPMorgan.
And the US Federal Reserve looks to be ready to soon help the digital asset players take on the industry giants.
Federal Reserve Gov. Christopher Waller recently held the central bank's first payments-innovation conference, which he said was organized in order to hold “a vibrant discussion about payments between the traditional payment incumbents and the new entrants from the DeFi world.”
“I wanted to send a message that this is a new era for the Federal Reserve in payments — the DeFi industry is not viewed with suspicion or scorn,” Waller said in his keynote address.
In fact, Waller said that he’s asking his staff to explore offering a “skinny” version of what’s called master accounts — which creates financial guardrails and gives banks direct access to the Fed's payment systems and the money supply, providing a record of financial obligations.
The “skinny” version of these master accounts would allow crypto firms to avoid having to partner with third-party institutions within traditional finance that have master accounts.
Instead, this lighter version would likely contain some restrictions that full accounts don’t have, but "would provide access to the Federal Reserve payment rails, while controlling for various risks the Federal Reserve and the payment system to control the size of the accounts and associated impacts on the Fed's balance sheet," Waller said.
Waller, who is reportedly one of President Trump’s top choices to succeed Jerome Powell as chair of the Fed — and is an unabashed ally of the crypto industry — said that the financial services industry is “well into a technology-driven revolution in payments” and that the Fed should welcome it.
"My view from the Fed from now on is embrace the disruption, don't avoid it," Waller said. "The Fed intends to be an active part of that revolution."
As expected, Waller’s proposal was cheered on by the crypto industry.
“This is a huge step by the Fed, and a visionary initiative by Governor Waller, to widen the ecosystem of payment innovation and reduce debanking risks,” Faryar Shirzad, chief policy officer at Coinbase, said in a post on LinkedIn. “Lots of details to work out, but a huge step forward.”