Visa’s digital dollar concept opens a door to central bank currencies

The coronavirus recovery is accelerating government involvement in payments, providing Visa a chance to turn a developing currency concept into a route for federal transactions.

The U.S. Patent office on Friday published a Visa patent application to create a technology gateway that could allow central bank currencies for any nation to be digitized. Visa filed the application in November, predating the coronavirus crisis that has generated more interest in digital money.

The application details a centralized computing system that receives information and denomination of a traditional currency, which is then converted to a digital form and recorded on a distributed ledger. This could work with any traditional currency, placing Visa in the middle of the process.

“This is clever. It positions Visa as a potential government partner to quickly deploy a digital currency that, with some significant effort, could ride the Visa rails,” said Tim Sloane, vice president of payments innovation and the director of the emerging technologies advisory service at Mercator.

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It’s also a way for Visa to respond to changes in money movement that could potentially compete with the card network. Visa was initially part of Facebook’s Libra project, but left the initiative along with several other high-profile payment companies when regulators and politicians pressured Libra — mostly over Facebook’s role and the potential to circumvent government monetary policy.

“Widespread adoption of digital currencies would be bad for Visa’s traditional retail payments franchise,” said Eric Grover, a principal at Intrepid Ventures, adding this may be a case of Visa hedging against central bank or Libra-style digital currencies. “A digital currency supported by Visa and issued by banks could fit nicely with Visa’s business model of delivering payment products through license banks, albeit with thinner transaction economics.”

Visa did not return a request for comment by deadline. Visa’s application says cryptocurrency systems have advantages over traditional currencies, such as faster transfers, and the immutable record of transactions on a blockchain, which creates trust. Visa also argues governments likely cannot convert their systems entire to a crypto model, since that requires more technology than is widely available.

Like the card company’s tokenization and standardized buy button for online payments, Visa's effort is an ongoing project that’s happening as millions of consumers and businesses digitize payment much faster than the previous trend.

The same can be said for central bank digital currencies. Many central banks were already working on digitizing their currencies to respond to the increasing role of cryptocurrency and blockchain technology, as well as the global attention given to Facebook’s Libra project.

But this focus has turned to the delivery of government stimulus, which in theory can work faster with more broadly available digital alternatives rather than government checks. U.S. legislators have pushed for “digital dollars” or a public P2P app to speed government disbursement. These proposals would require the government to add digital payments technology.

The European Union has considered a “digital euro” to spur coronavirus recovery, and dozens of other countries are working on similar projects, giving Visa plenty of opportunities to partner with governments.

The controversy over the Libra project caused the association overseeing Libra to change the structure of the stablecoin underpinning the payments product. Instead of pegging the stablecoin to a group of traditional currencies, Libra will instead rely on local currencies in each market. Libra has also expressed a willingness to work with central banks on digital currency and financial inclusion.

In this way Visa’s patent, which does not propose a cryptocurrency, is also a nod toward working with governments that may be anxious about how blockchain and cryptocurrency could impact traditional monetary policy, particularly in a time of quantitative easing and potential effects on currency values.

“Visa isn’t trying to displace existing currencies; it will extend existing currencies into cyberspace,” Sloane said.