Over the last decade, the fintech revolution has dramatically altered the payments landscape. But Mastercard (MA 1.89%) has adapted admirably, forging partnerships with start-ups and launching new products that supplement its core payment cards.
More recently, cryptocurrencies have taken the investing world by storm. And once again, Mastercard is showcasing its adaptability. Rather than maintaining the status quo, the company is embracing change by supporting digital currencies like Bitcoin. Here's what investors should know.
Mastercard powers crypto payment cards
According to Mastercard, as many as 20% of consumers now own cryptocurrency in certain countries, and that growing interest has not gone unnoticed by merchants and financial institutions. To capitalize on this trend, Mastercard expanded its cryptocurrency program last year, making it easier for partners to issue crypto payment cards.
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In the U.S., Mastercard teamed up with BitPay -- a payment processor that allows merchants to accept digital currencies like Bitcoin at checkout -- to launch a prepaid crypto card in June 2020.
The BitPay card allows consumers to make in-store and online purchases (anywhere Mastercard is accepted) with funds loaded from their BitPay wallet. In other words, consumers can fund the card with currencies like Bitcoin or Ether (Ethereum's native cryptocurrency token), and BitPay converts those funds into fiat currencies like U.S. dollars.
Following the prepaid card's June launch, BitPay transactions hit a new high in July. And last month, BitPay announced support for Apple Pay, meaning consumers can now use an iPhone to make contactless cryptocurrency-funded purchases in stores. The company also plans to roll out support for Samsung Pay and Google Pay later this quarter.
In Europe, Mastercard has partnered with London-based fintech Wirex to launch a crypto debit card. This product differs slightly from BitPay's prepaid card. Whereas BitPay offers instant conversion, Wirex allows consumers to spend up to 18 digital and traditional currencies in real time, meaning the funds are not converted until the moment a purchase is made. The Wirex debit card also allows consumers to earn 2% cash back (in cryptocurrency) on any in-store or online purchase.
Mastercard will support cryptocurrencies
Despite the differences, these crypto payment cards have one thing in common: They all convert digital currency to fiat currency at some point prior to the transaction, meaning it's fiat currency (not cryptocurrency) that's flowing through the Mastercard network. But that's about to change.
During Mastercard's most recent earnings call, CEO Michael Miebach announced plans to add digital currencies directly to the company's network. This will eliminate the need to convert between digital and traditional currencies, making it easier for consumers and merchants to adopt crypto payments.
Ultimately, this looks like a big win for crypto enthusiasts, since it dispels one of the core arguments against digital currencies (i.e., that they are difficult to spend). But it also allows Mastercard to tap into another form of payments, which could be a powerful growth driver for the company if cryptocurrency continues to gain traction.
Why it matters
In the past few decades, numerous titans have been reduced to relics because they failed to evolve as new technologies emerged and consumer preferences shifted.
For instance, IBM's mainframes dominated the computing landscape in 1980. But when Apple brought personal computers to the market, IBM failed to adapt and the company faded from relevance. Similarly, Blockbuster's failure to embrace streaming media resulted in its downfall as Netflix rose to prominence. There are other examples, but the takeaway is this: Times change, and successful businesses must adapt.
Mastercard's decision to support cryptocurrencies highlights the company's strong leadership and forward-thinking culture. That trait is hard to quantify with numbers, but that doesn't make it any less important. In fact, it's one of the biggest reasons I'm a Mastercard shareholder, and why I plan to continue being a shareholder for many years.
