Something big happened last week in the card payment industry. So big that the usual quick-off-the-mark social media analysts paused to think about it.

That big.

Let’s say you are a humble shopkeeper in South Africa. A customer comes in, buys an item and pays with her Visa credit card. Only she is from Armenia. As her credit card is accepted by your point-of-sale (POS) terminal, a long chain of cogs and wheels begins to turn behind the scenes. The first checks whether the buyer has good credit. This takes only a few seconds to hit Visa’s backend systems, and if approved, she will walk out of the store with her item.

But you, the shopkeeper, now need to be paid. From some bank in Armenia. Which can take a while. Days, sometimes weeks. Because the cogs and wheels in the settlement process have to navigate everything from foreign exchange rates to time differences to local regulations to IT batch-processing schedules in far-off data centres.

And so, you, the humble shopkeeper, sailing (as you occasionally do) financially close to the wind, twiddle your nervous thumbs for some relatively unpredictable amount of time until the money arrives in your account.

Which brings us to a story about national versus borderless tech.

Last week, after a few years of experimenting, Visa announced a new partnership with the crypto world to solve this thorny problem of torpid cross-border settlement to merchants. The elegant machine built over the past few months by this partnership has simply eradicated a whole section of that grinding chain of cogs and wheels. And it is also a shot across the bows of the most powerful financial entities on earth – the legacy banks. 

What Visa has said to the global banking community is, “Get your crypto act together or we might well go elsewhere to settle our merchants”. They didn’t say anything like that in the press release, but that was certainly what was heard in the bowels of the world’s banks.

New partners

Let’s take a look at who jumped into bed with Visa. The first was US-based Circle and its crypto stablecoin, called USDC, currently the second largest by market cap, representing liquidity of $25-billion. This dollar-priced cryptocurrency whips around the world in real time, unbothered by borders, banks or banking regulations.

The next partner is Solana. A blockchain. Not a newbie, but well established and having the distinction of being very, very fast. Faster than Ethereum (with whom Visa has also played) and much, much faster than Bitcoin. If there is one thing you want above all else when it comes to settlement, it is speed.

Then there are two very big global acquirers (or acquiring banks), Worldpay and Nuvei. Among other services they offer, they focus on merchants and the “card-to-payment” value chain. They keep merchants happy and paid in exchange for a cut of all their transactions. They focus less on the consumer side of banking, such as taking deposits and making loans, which is why most people have not heard of them.

Together they are connected to 500,000 merchants globally and they clear and settle card transactions in 25 currencies – and they process north of $700-billion in transactions every quarter.

Settlement in seconds

So what’s the big game changer? Working with these acquirers, Visa intends to completely sidestep the complexity of cross-border payments when settling the half-million merchants serviced by these two partners.

The money owed to the merchants will simply flow from Visa’s rather large USDC crypto account with Circle, directly to the USDC crypto wallets of the two big acquirers and from there directly into the merchant accounts. Within seconds. No matter where they are in the world and without stopping off at old-style national acquiring banks for a sclerotic set of processes that they have to crank up and finish.

If you are a merchant, whether a humble or a giant one, and you are offered the chance of settlement in seconds versus days or weeks, it’s going to be a short conversation – not only because it’s good for your cash flow to be paid quickly, but because of the knock-on effects. This is what is known as the “velocity” of money through the economy, and it is directly related to a country’s financial strength, robustness and integrity. Every central banker in the world dreams of an instant settlement system like this.

This is the reason that countries are pursuing CBDCs – Central Bank Digital Currencies, also blockchain-based. It is why they also promise to achieve this sort of speeding up – but can only do so within a single country (or economic currency bloc like the EU).

National CBDCs are not going to help with cross-border payments because they are likely to be designed differently in accordance with local policies and regulations. Also, CBDCs are not really deployed yet, at least not at scale. Stablecoins like USDC are already here – mature, secure, frictionless, borderless. Visa knows this and is very clearly grasping the nettle.

‘De-banking the banks’

This leaves all non-crypto-capable legacy banks in a pickle. They will eventually have to board the crypto train – there is no other option. And it’s not going to stop with merchant payments, either – the blockchain will power much more than that. And, for those who have howled and evangelised exhaustingly for years about the transformative nature of this technology, it is a huge moment. Because Visa has now joined the team.

It is going to be deafening for traditional bankers.

So I leave you with this quote, from one of the big thinkers in the world of future finance, Linas Beliūnas: “Zooming out, this means that Visa is not only quietly bringing crypto to one billion users. More importantly, it shows that stablecoins might eventually become the de facto interbank settlement solution via card networks. In other words, Visa is de-banking the banks…”. DM