Credit Card Companies Embrace Blockchain, Just Not Bitcoin
Cryptocurrencies like Bitcoin, Ethereum, and Ripple may be making all the headlines, but the fact is, blockchain technology really hasn’t caught on yet in a practical way. There simply aren’t that many merchants that accept blockchain payments. But that is about to change. And one credit card company is leading the way. With or without Bitcoin.
Mastercard (NYSE:MA) is looking at blockchain as a means for speeding up payments and cutting costs, thereby guaranteeing merchants don’t need to wait days before receiving money for their products.1 Mastercard’s blockchain technology would also keep a record of any transactions, verifying that a merchant was actually paid after an individual sale.
What is blockchain technology? In a nutshell, blockchain is a technology where a group of connected, computing systems compute the authenticity of a transaction in a decentralized way. In other words, blockchains use complex mathematical functions to create a secure record of who owns what and when. On a practical level, blockchain is a mathematical ledger that businesses can use to track credit, debits, and other transactions.2
Blockchain technologies like Bitcoin are becoming more and more popular and banks, businesses, and credit card companies do not want to be left behind. In fact, IBM (NYSE:IBM) also recently started to process payments using its own proprietary blockchain between banks.
But, where IBM uses its own virtual currency, Mastercard’s blockchain works independently of a cryptocurrency. Instead of using something like Bitcoin, it accepts payments in local currency and moves those funds using blockchain technology.
What does Mastercard’s blockchain have over Bitcoin and other cryptocurrencies? Access. Mastercard has a network that includes 22,000 banks and financial institutions around the world. Whether it’s an online business or traditional bricks-and-mortar store, companies still rely on fiat currency to do business, and as a result, it would be impractical to convert cash into cryptocurrency or vice versa.
Essentially, Mastercard wants to use the benefits of blockchain technology within the existing financial system—without the need of actually using an alt-currency.
Not all credit card companies think this is the way to go though. Visa (NYSE:V) has partnered with blockchain startup Chain to develop its own way to process business-to-business payments.
Why would businesses want to use Mastercard or Visa’s blockchain technology? The blockchain technology underlying Bitcoin and other cryptocurrencies helps speed up transactions and cuts cost.
Keep in mind, when businesses send payments to other countries, they usually go through several foreign banks, which leads to increased fees. Mastercard’s blockchain cuts out the middlemen, connecting banks and businesses directly.
So, will blockchain payments replace credit cards? Not any time soon. If anything, credit card companies are embracing blockchain technology to make their current offerings even better.
Bitcoin may be minting new millionaires every day, and investors are afraid of missing out, but it isn’t accepted by many online retailers (yet). Even though Bitcoin is trading at around US$15,000 (CN$18,600) only three major online retailers accept it, compared to almost 490 who accept Mastercard and Visa.
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- Rohlfing. Joan Lee. et al. “Method And System For Instantaneous Payment Using Recorded Guarantees,” U.S. Patent and Trademark Office, November 9, 2017; http://appft.uspto.gov/netacgi/nph-Parser?Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv.html&r=1&p=1&f=G&l=50&d=PG01&S1=20170323294.PGNR.&OS=dn/20170323294&RS=DN/20170323294
- Wieczner, Jen. “Mastercard Will Now Let You Pay With Blockchain—But Not Bitcoin,” Fortune, October 20, 2017; http://fortune.com/2017/10/20/mastercard-blockchain-bitcoin/
Photo Credit: iStock.com/Zapp2Photo
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