Mastercard offers for the first time the possibility to send money via a blockchain instead of using a credit card.
After developing its version of blockchain technology over the past two years, Mastercard announced on Friday that it is now opening up blockchain technology to individual banks and merchants as a potentially more efficient alternative to paying for goods and services.
A sign that the widespread adoption of crypto technology is on the rise, Mastercard is the second Fortune 500 company this week to start making payments easier with it. On Monday, IBM revealed that it had also begun making payments on its proprietary blockchain between banks in the South Pacific.
Like IBM, Mastercard also targets business-to-business payments as the primary objective of its blockchain, which can only be used by invitation. Mastercard, however, differs from the technology giant importantly: while IBM’s blockchain transmits only money in the form of Lumens, a virtual currency created by the non-profit company Stellar, the blockchain Mastercard operates independently of a cryptographic currency and instead accepts payments in traditional local currency.
Not a real currency?
On the other hand, according to Pinkham, Mastercard has an advantage that the Bitcoin does not have: a settlement network that includes 22,000 banks and financial institutions around the world.
After all, Pinkham adds, companies still rely primarily on government-issued money for business, which makes it impractical to convert cash into cryptographic money, or vice versa, for every payment on a blockchain. Even in the bitcoin system, there needs to be a trading platform that allows Bitcoin to be exchanged for the euro, which creates complications,” Pinkham explains.
Mastercard hopes to offer the benefits of this technology, including a safer and more transparent way to make and track payments within the existing financial system, without the drawbacks of digital money. What Mastercard brings to the table here is a unique combination of this blockchain capability and Mastercard’s settlement network,” Pinkham explains. (The competitor credit card provider Visa, for its part, has partnered with startup Chain to develop its own similar business-to-business payment system.
Some companies have already signed up to use Mastercard’s blockchain, Pinkham said, although he refused to name them. In addition to payments, Mastercard envisages that businesses could use this blockchain to track the movement of pharmaceuticals and luxury goods such as handbags and diamonds, thereby reducing fraud by providing “proofs of origin.”