For the first time, Mastercard is offering the ability to send money over a blockchain rather than by swiping a credit card. This does not mean they will use Bitcoin. After developing its own version of the blockchain over the past couple of years, Mastercard opened its blockchain to certain banks and merchants as an alternative—and potentially more efficient—method of paying for goods and services.
In a sign that mainstream adoption of the technology underpinning cryptocurrency is increasing, Mastercard is the second Fortune 500 company, after IBM that started blockchain payments.
Like IBM, Mastercard is also targeting cross-border payments between businesses as the primary purpose for its blockchain, which can only be used by invitation. The Mastercard blockchain, however, differs from the tech giant’s in an important way: While the IBM blockchain only transmits money in the form of Lumens, a virtual currency created by the non-profit Stellar, Mastercard’s blockchain operates independently of a cryptocurrency, and instead accepts payments in traditional local money.
“We are not using a cryptocurrency, and we are not introducing a new cryptocurrency, because that introduces other challenges—regulatory, legal challenges,” says Justin Pinkham, a senior vice president at Mastercard Labs, who leads the credit card company’s blockchain initiatives. “If you do a payment, then what we can do is move those funds in the way that we do today in fiat currency.”
On the other hand, Pinkham says, Mastercard has one advantage that the bitcoin blockchain doesn’t have: A settlement network that includes 22,000 banks and financial institutions around the world.
Mastercard hopes to provide the benefits of blockchain technology—including a more secure and transparent way of making and tracking payments—within the existing financial system, without the hassle of digital currency.
A number of corporations have already signed up to use Mastercard’s blockchain, Pinkham says, though he declined to name any of them. Besides payments, Mastercard envisions that companies could use its blockchain to track the movement of pharmaceuticals as well as luxury goods such as handbags and diamonds, thereby reducing fraud by providing “proof of provenance.”
But consumers won’t be able to pay with the Mastercard blockchain instead of plastic, at least not anytime soon, he says. Nor does he see bitcoin as a threat to Mastercard in general. “Quite frankly, we feel that card payments are simple, safe and easier to use—and better meet the needs of consumers—than, let’s say, a cryptocurrency payment,” Pinkham ends.