On Wednesday, Visa Inc. (NYSE: V) issued a press release announcing its new Crypto Advisory Service, an offering within its Visa Consulting and Analytics division, designed for its network partners and customers – i.e. banks. The new consulting offering is designed to educate and advise the financial institutions that comprise Visa’s network on how best to understand current consumer sentiment and engagement with cryptocurrencies, and how to design strategies for accommodating consumer demands for cryptocurrency products and service offerings.
For some, the announcement of the new crypto service may seem a bit counterintuitive. After all, why would Visa want to educate traditional financial institutions (FIs) on crypto strategies if the point of using cryptocurrencies is to disintermediate, and make unnecessary, the same FIs Visa is trying to help? Without getting too much in the weeds, there are two valid explanations for this.
One: Visa draws a distinction (correctly) between cryptocurrencies and digital currencies, which include Stablecoins and Central Bank Digital Currencies (CBDCs). In the case of the latter, CBDCs and Stablecoins need to be integrated with existing banking infrastructure: CBDCs are fiat in digital form, and even though Stablecoins run on a decentralized network (Ethereum) and utilize cryptographic keys, their stability comes from a fiat peg, which requires banks to custody the fiat assets. Therefore, these digital currencies don’t pose an immediate threat to Visa or its network banks. If anything, they will depend on them.
And even though cryptocurrencies – like Bitcoin and Ethereum for example – do run on public, permissionless blockchains, outside the scope of traditional banks, the threat they pose to traditional banks through disintermediation isn’t lethal, at least not yet. This is because their throughput, in terms of transactions per second – Bitcoin can run 7 transactions per second to Visa’s 24,000 transactions per second – doesn’t make them commercially viable in a developed financial system.
The actual report that Visa, and its market research partner LRW published, which informed Visa’s decision to launch its new crypto advisory consulting offering, shows that the majority of consumers who own or transacted with cryptocurrencies, have done so either to hold cryptocurrencies for appreciation (wealth creation) or convert it into cash through cryptocurrency linked cards. The latter being the closest to actually transacting in cryptocurrency for goods and services, but, still not directly: the crypto-linked Visa branded cards are converting cryptocurrency to fiat for use in payments. In sum, consumer spend for consumption is not being conducted directly with cryptocurrency.
When considering reason One and Two above, it’s easier to see why (though perhaps counterintuitively) Visa’s new initiative to help its partners formulate and implement a commercially viable cryptocurrency strategy is not an instance of Visa working against its own interests, or its clients’.
But the announcement buries the lede… the research report itself.
The research that Visa and LRW published contains a wealth of insights on how consumers perceive and engage with cryptocurrencies and other digital currencies. But what differentiates this report from the information that we, the consumers, are used to receiving about cryptocurrency engagement and adoption is that the Visa and LRW report is data driven. Per the report:
“This study…included 9 focus groups and 10 in-depth interviews in the United States, Germany, and Argentina from July 14th – July 26th of 2021, and collected 6,430 online survey responses across Argentina, Australia, Brazil, Germany, Hong Kong (SAR), South Africa, the US, and the UK between August 25th and September 13th, 2021. The research reflects the views and opinions of online populations in these markets and is demographically representative based on age, gender, household income, region and ethnicity. In order to qualify for the survey, respondents had to:
• Be at least 18 years old
• If 25 years old or older, have a household income of at least $35,000
(or market equivalent)
• Have shared or joint financial decision-making responsibility in their
There’s rigor behind this research, and as a consequence, the insights derived are more meaningful, which is a far cry from the usual “puff” news, specious stories, and straight-up propaganda we consume about crypto.
A common attribute of quality research in investment banking is the extraction of signal from noise. And when it comes to cryptocurrency, almost everything we believe to be true about consumer perception, engagement, and usage, is unfortunately, derived from noise.
The report/ white paper that Visa and LRW published has a lot of signal, and as such, offers meaningful insights on the subject.
There are two that really stand out.
The first is more confirmational than anything else. The report’s survey results reinforce the conclusion that the majority of consumer engagement with cryptocurrencies involves investment, and not commerce. Consumers are buying it, holding it, and trading it. And to the extent that consumers are conducting commerce with cryptocurrencies, its usage ultimately entails its conversion into fiat. By extension, this means that (at least today) cryptocurrencies (not CBDCs or Stablecoins) have become an effective medium of exchange, but not a unit of account or store of value, which would be necessary for mass adoption as a currency.
The second insight, and one that’s a bit more nuanced, comes from the report’s finding that when comparing consumer perceptions of cryptocurrency between those engaging with it in developed countries, versus those engaging with it in under-developed countries (emerging markets), there’s greater adoption in the under-developed countries.
Per the report:
“Engagement with cryptocurrency is stronger in Emerging Markets. While only 29% of crypto-aware (“crypto-aware consumers” include respondents that meet all qualifying criteria, including having financial discretion and being aware of cryptocurrency) consumers in Developed Markets own cryptocurrency, a full 37% in Emerging Markets own cryptocurrency.”
The finding suggests there’s greater commercial viability – where cryptocurrencies are used for the purchase and sale of goods and services – for cryptocurrencies in emerging markets, where banking systems aren’t fully developed, and/or the political and regulatory environment isn’t conducive to a financial system that people trust.
The insights in this report warrant consideration by crypto-enthusiasts, entrepreneurs, and investors everywhere, and I can’t recommend reading it enough.
Again, for your convenience: The Crypto Phenomenon: Consumer Attitudes & Usage