After Coinbase’s Success, Can Crypto Flourish Beyond Assets?

Last week, the public listing of Coinbase on the Nasdaq

NDAQ
marked a key milestone in cryptocurrency’s rise to mainstream acceptance, but how strong is its future in cross-border payments? 

Entering the market with a $76bn valuation, Coinbase is the largest cryptocurrency exchange in the US, and a key proxy for the growing success of crypto more widely. When it was founded in 2012, such digital currencies were predominantly being used for illicit online payments, but now currencies such as bitcoin and etherium have become increasingly popular trading assets for institutional investors. 

However, crypto’s use is increasingly extending to the payments world, where some are extolling its benefits for cross-border transactions, arguing that it does not require conventional currency conversions, bringing speed and cost benefits.

“Trading and speculation were the first major use cases to take off in cryptocurrency, just like people rushed to buy domain names in the early days of the internet. But we’re now seeing cryptocurrency evolve into something much more important,” said Coinbase CEO Brian Armstrong in a letter included in the company’s filing documents prior to its public listing. 

“People are using cryptocurrency to earn, spend, save, stake, borrow, lend, vote and perform many other types of economic activity.”

Bitcoin’s 2021 rise

Cryptocurrency comes to cross-border payments

Cryptocurrency has been used for payments in some form or another since its inception, and in the last few years, growing numbers of companies have focused on using it to facilitate payments. This includes in the cross-border space, with companies such international cryptocurrency payments provider BitPay citing its high speed and low friction as key benefits over more traditional methods.

However, with the exception of the occasional outliers, this has until recently mostly seen digital innovators and challengers embrace cryptocurrency, while established payments companies remained skeptical about the technology. 

But in the last 12 months this has changed. Major companies including Microsoft

MSFT
, Tesla

TSLA
, Expedia and WeWork have begun to accept payments in cryptocurrencies, while established payment companies have announced their own initiatives to accept the technology.

Card networks Visa

V
and Mastercard

MA
have both announced hesitant moves in the space – the former having settled its first crypto transaction using US dollar-pegged USD Coin, while Mastercard has announced plans to accept payments in cryptocurrency on its network. 

“We are preparing right now for the future of crypto and payments,” wrote Mastercard executive vice president for blockchain Raj Dhamodharan of the move. 

“Mastercard isn’t here to recommend you start using cryptocurrencies. But we are here to enable customers, merchants and businesses to move digital value.”

There has also been increased support for crypto in cross-border ecommerce, most notably with PayPal

PYPL
. The company initially made it possible for users to buy and hold cryptocurrencies, before adding the capability for US customers to pay merchants around the world in a variety of cryptocurrencies, which are converted into local currency during the transaction. 

This approach, while decried by crypto purists as not a true example of cryptocurrency payments due to the end-point conversion, has the benefit of protecting merchants from the volatility of many digital currencies.

“We think it is a transitional point where cryptocurrencies move from being predominantly an asset class that you buy, hold and or sell to now becoming a legitimate funding source to make transactions in the real world at millions of merchants,” Dan Schulman, CEO and president of PayPal, told Reuters ahead of the formal announcement.

Schulman is bullish about the prospects of its checkout with crypto offering. At a recent Forbes event, he predicted that it would achieve $200m transaction volume within the first few months, although how much of this is likely to be cross-border is currently unclear.

Paying in cryptocurrency: The positions of key companies

Cryptocurrency shows potential in remittances

While there are signs of interest for cross-border ecommerce, the remittance space is also seeing the rise of cryptocurrency, thanks to a number of startups and other challengers.

BitPesa, which provides cryptocurrency-based remittances for five currencies across Africa, has transacted $235m bitcoin to date and currently serves more than 26,000 customers, up from 6,000 in 2017.

Coinbase also offers a service to send money internationally using a selection of cryptocurrencies. Promising instant transfers, the service comes with with zero fees for transfers to another Coinbase account or a small fee for sending money outside of the platform.

Ripple, meanwhile, has long been the organisation focused on working with the remittance space and until recently, had a major partnership with MoneyGram

MGI
. However, Ripple is currently facing an ongoing lawsuit with the US Securities and Exchange Commission, forcing the end of the partnership for the foreseeable future. Ripple still works with many other players in the space and has been focused on Asia as key growth market. 

There are also reports of informal cross-border remittance services using cryptocurrencies, with customers accessing agents via messaging platforms such as WhatsApp.

For the established remittance players, however, cryptocurrency remains a marginal element, if it is used at all. 

Western Union

WU
, for example, has tested the water with cryptocurrency through a partnership with Coins.ph. Serving customers in the Philippines with mobile wallets that allow them to hold and spend with both local and cryptocurrencies, Coins.ph’s partnership with Western Union is designed to make it easier for those in the country to receive cash remittances. 

Meanwhile, MoneyGram has made no announcements to indicate firm future plans in the cryptocurrency space following the end of its Ripple partnership. 

In remittances, then, cryptocurrency is yet to make serious inroads, despite being available to those that seek it.

Cryptocurrency support in B2B payments

Cryptocurrency, global payments and the business world 

Notably, such developments are not confined to consumer-facing businesses. Some B2B cross-border payments companies have also began to make moves in the space, citing interest from customers for access to the technology.

One such company is UK-based Equals Group, which recently added support for cryptocurrencies in global payments through a partnership with Tap. And for CEO Ian Strafford-Taylor, adding support for cryptocurrency doesn’t represent an entry into a brave new world so much as adding support for “an exotic” in much the same way as for an unusual fiat currency.

“We don’t take positions, we’re not traders, we’re flow enablers, and there’s a demand for this stuff,” he says. “We should try and provide it and we should understand it.”

However, not all payment companies are so keen. Adyen CEO Pieter van der Does, for example, told CNBC that it had no plans to add crypto payment methods, arguing that the volatility of cryptocurrencies such as bitcoin made it “more of an investment asset than a payment method”. 

Strafford-Taylor, too, expresses some concerns.

“I fear that at some point it’s just driven by speculation and pop money and nothing to underpin it. So it all could go horribly wrong, and then you’ll get retail people, consumers going, ‘you should have regulated it’,” he says.

Nevertheless, with interest and support growing from consumers and payment companies alike, it’s clear that we’ll be seeing more use of cryptocurrencies as a cross-border payment method in the future. 

Whether it ever rivals the flows of traditional remittance and card payments, however, remains to be seen. It certainly has a long way to go to reach such heights.