Initially, I thought that Visa $V
and Mastercard $MA
wanted to pause their push
into crypto as the industry has seen high-profile firms like FTX and 3AC collapse.
Initially, I thought that Web 3 would be a threat to traditional financial intermediaries like big banks and credit card companies. The deflationary aspects of DeFi would put an end to their business models. For example, Solana $SOL.X
was said to be the "Visa of crypto
" because it could theoretically process 24,000 transactions per second (TPS) compared to Visa's 1,700 TPS capability. Some go as far as to call Solana the "Visa of digital assets
" because it has lower transaction costs and faster speeds than the Visa network.
While issues need to be worked out with the Solana network, wouldn't crypto firms want to bet on the demise of a Web 3 startup that's best positioned to disrupt them?
As for the decentralization aspect of Web 3, wouldn't credit card companies also be against transforming themselves into a Web 3-style business because it would mean less money for them and more money for the participants of the network?
There are also reasons why credit card companies and other traditional financial intermediaries would adopt crypto-related technologies like blockchains. Things like: scalability, security, improved customer experience, reducing fraud risk, and other ways to lower operating costs are all reasons why firms would embrace crypto-related technologies. Knowing that these financial services firms have immense resources, I would assume that they would rather build those technologies from the ground up on their own than partner with existing crypto companies in developing them.
But, as we've seen lately, we have Visa sharing plans
for their "ambitious" crypto products and Mastercard partnering
with Polygon $MATIC.X
, Solana $SOL.X
, Ava, and other Web 3 firms to create a crypto credential system. While Visa is focused on boosting mainstream adoption of public blockchain networks and stablecoin payments, Mastercard is focused on instilling trust in blockchain technology as well as enhancing verification techniques for NFTs, ticketing, enterprise, and other payment solutions.
Both approaches towards building the infrastructure needed for the mass adoption of crypto are vital and both companies are helping each other grow and adapt to the Web 3 world. But what if all of these efforts only empower the true disruptor of the Visa-Mastercard duopoly: the Bitcoin Lightning Network?
There's some merit to the Bitcoin Lightning Network being able to disrupt the credit card duopolies. Firstly, according to Glassnode data, the Bitcoin Lightning Network is 1,000x cheaper
than Visa and Mastercard in terms of commission costs. Then there's the idea of having a Visa-like network that's decentralized and where node operators share the profits that the Lighting Network makes. In a twitter thread
by @stackhodler, @stackhodler gives the idea that having people set up their own Lightning Network node allows them to have a share of the payment processing fees rather than have a centralized payment network like Visa take all the fees for themselves. As MicroStrategy $MSTR builds
SaaS applications relating to the Lightning Network, Cash App by $SQ integrating
the Lightning Network in Cash App, and Coinbase $COIN
integrating the Lightning Network onto its exchange
, the amount of resources being poured in commercializing the Lightning Network is still small but fast growing. Being cheaper and providing faster settlement times, it's understandable why businesses would prefer
to receive payments through the Lightning Network than through the traditional Visa network.
However, because the $BTC.X
Lightning Network will be entirely new to people compared to the Visa network, it may be harder for people to adopt it. People will need to go out of their way to create a crypto wallet in order to use it rather than be able to seamlessly participate in it through their credit card.
The way I see Visa and Mastercard aggressively investing in Web 3 is that they're hoping to remain relevant to consumers and the present day while also preparing for the future. I don't see this move as creating significant new revenue streams as the payments industry looks to be a saturated industry overall but instead see this as a sign of the duopoly preparing for a world transacting in CBDCs and crypto coins instead of dollars and cents. As wisdom has it, by embracing these innovations, they should be able to see lower fraud risk and lower operational costs on their end and consumers nad merchants see lower payment processing fees on their end. It's a win-win for everyone.
It's possible that we will see more economic activity as a result of lower payment processing fees. Businesses become more profitable and are able to pay workers more. People are able to use their higher earnings to buy more goods & services and in the process, the payment processing giants see higher transaction volumes. But if the Bitcoin Lightning Network ramps up development and goes mainstream, all the effort that Visa and Mastercard have put in boosting the adoption of crypto has done more harm than good for themselves and for shareholders.
Bing Image Creator (powered by DALL-E) for all the art work displayed in this memo