Mastercard's New Cryptocurrency Division: Why It's Important

Mastercard (MA -1.20%) is already a partner with Facebook (META -2.28%) on its Libra cryptocurrency project, but it seems like the payments giant has even greater ambitions. In this segment from Industry Focus: Financials, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss what Mastercard could have in mind.

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This video was recorded on Aug. 19, 2019.

Jason Moser: Let's pivot over to one of our favorite companies out there, Matt, Mastercard. Mastercard, obviously, the big payments provider, one of the owners of the rails, so to speak, that help all of these payments get from point A to point B. We've been talking a lot about cryptocurrency and bitcoin and stuff like that over the past couple of years. Digital currency, cryptocurrency, is gaining a little momentum, a little bit more credibility. We're seeing a lot of companies out there with big and respectable positions in the space start experimenting with cryptocurrency, bitcoin, things like that a little bit more. It sounds like Mastercard is starting to place some more bets in this space, actually looking to establish its own digital currency team. Not necessarily to establish its own digital currency, but it looks like more how they're going to be a part of this digital currency world as it gains a little bit more share in our lives. I tell you, Matt, the first thing I thought of when I read this was that it adds to my skepticism that Facebook, whether directly or indirectly, is equipped to deal with a market like this. A lot of that goes back to two things. For all of the strengths that Facebook has, No. 1, it has a brand problem. I don't know that I look at Facebook and think that I'd trust them with my money. But then also, it goes to show you that there are companies out there that have been building themselves on this payments space for a very long time. This is stuff that Mastercard and Visa and other companies like this are equipped to deal with and build versus something like a Facebook. So, when we see Mastercard partnering up with Libra and being a part of that network, that's a very small bet on Mastercard's part. That could evaporate tomorrow, and it's nothing. To see Mastercard wanting to get in there and take their ownership and build this space out a little bit, though, I think it is interesting.

Matt Frankel: Yeah. Mastercard has said in the past that so-called stable coins, which means cryptocurrencies that are pegged to the U.S. dollar or some other currency, definitely will play a role in its future. It's not hard to see why. MoneyGram and Ripple is a big example. They just partnered. The idea is, how much does it cost you to wire money overseas right now? $30, $40 is about standard. So, the idea is, if you have these so-called stable coins, you can use them to transfer money internationally for a few pennies instead of $30 or $40. And the same technology could theoretically be applied to domestic money transfers as well, which is where a Mastercard would come in. If they could cut down fees, it can make them more competitive with, say, Visa and American Express when getting merchants to accept their card. There's a big war on fees going on, as we know. The payments company that can offer the cheapest services is going to win long-term. Mastercard, this is the first step in them doing that.

This ties in with the discussion we had last time I was on about the question of whether payments companies had something to worry about from cryptocurrencies. We mentioned that it's an error in thinking to consider them as two separate types of companies. Cryptocurrencies and blockchain are technologies that will eventually be incorporated into these companies, especially as they gain traction.

Moser: Sure. It's a new facet to this overall market as it evolves.

Frankel: Right. You can bet, if cryptocurrencies really start picking up traction, that Mastercard is not going to be the last one to do this. I wouldn't be surprised if Visa and American Express already had similar discussions. American Express partnered with Ripple, I already mentioned, a few years ago, in order to investigate the applications of that technology. That was Ripple's biggest-name partnership until this point. It's definitely an interesting development. I don't think it'll be the last. They're definitely the first of the big payments companies to start hiring for their own cryptocurrency division. But I would be really surprised if we didn't see this coming from the other ones pretty soon.