Al Kelly — Visa CEO — was interviewed by Mad Money’s Jim Cramer where he gave his take on cryptocurrencies. Kelly’s statements on cryptocurrencies were relatively typical of banking and payment executives who have spoken on the technology.
According to Kelly, cryptocurrencies pose no threat to the Visa hegemony “certainly not in the short to medium-term in any way.”
Consistent Trend Among Financial Institutions
Visa’s payment processing capacity currently surpasses cryptocurrencies by a substantial margin. For reference, Bitcoin can only process roughly 4 – 6 transactions per second while Visa can reach tens of thousands at capacity. This difference may be behind Kelly’s reasoning as he commented:
“We want to be in the middle, Jim, of every payment flow in the world regardless of how it happens or what the currency is behind it. So if we have to go there, we will go there. But right now, it’s more of a commodity than a payment vehicle.”
Despite some recent developments in a more friendly approach to cryptocurrencies by regulators and institutional finance, there still seems to be a lack of understanding of the technology underlying cryptocurrencies. Kelly’s comments clearly identify this disconnect as Bitcoin and other payment-focused cryptocurrencies are designed to bypass centralized service providers and intermediaries.
Scalability — in regards to payment processing capacity — is a problem facing cryptocurrency platforms currently. However, there have been meaningful advances on this front, particularly with the proliferation of Bitcoin’s Lightning Network and innovations such as atomic swaps and submarine swaps. Despite this, payment processing capacity is not the primary reason that users seek to use Bitcoin anyways. Many see it as a safe haven from trusted third parties, custodial services, high fees, and as a flexible and private store of value only rivaled by gold in its effectiveness.
Visa recently announced its blockchain-based digital identity system for cross-border payments which also represents the disconnect between Kelly’s comments and the technology. The slow adoption curve by the broader financial industry and persistent attempts to separate blockchain and cryptocurrency (especially Bitcoin) is further represented by the 2018 World Payments Report.
According to the report, only 38 percent of top global banks said they are planning on developing new payment systems to fend off competition from banking alternatives like crypto. Again, the disconnect is bizarre considering that MasterCard recently patented a fractional-reserve system that uses “blockchain currencies” for fiat payments and their concurrent plan to classify crypto as “high-risk.”
The acknowledgment that cryptocurrencies do not pose an immediate large-scale threat to payment network business models is understandable, but the lack of urgency to take into account the implications of decentralized networks and their social scalability is a very near-sighted approach. Moreover, classifying cryptocurrencies as “high-risk” while usurping the blockchain name for a fractional-reserve system based on “blockchain currencies” is confounding.
The sentiment among the financial industry has shifted from one of categorically condemning Bitcoin in its early stages as a means for funding illicit activities to one of evaluating it as more of a fringe asset. Bitcoin has continued to show its resilience despite this and the broader cryptocurrency community continues to build some cutting-edge solutions in spite of the mainstream criticisms and misunderstanding.