Where Digital Assets Meet Payments: Mastercard’s View

Stablecoins were supposed to disintermediate the card networks. So why is Mastercard the one doing the building? In the latest “From the Block,” PYMNTS CEO Karen Webster and Citi’s Ryan Rugg puts the question straight to Mastercard’s Raj Dhamodharan—and get an answer that challenges almost everything the crypto faithful assumed.

Transcript

Narrator 0:03

Welcome to From the Block, where Ryan Rugg, City's Global Head of Digital Assets, and Karen Webster, CEO of Payments, unpack the real questions CEOs and CFOs are asking about stable coins. From infrastructure to innovation, it's the practical path from concept to competitive advantage. In this episode, Karen Webster and Ryan Rugg sit down with Raj Demodrin, EVP of Blockchain and Digital Assets at MasterCard to discuss MasterCard's view on where digital assets meet payments.

Karen Webster 0:36

Hi everyone, welcome to From the Block, where Ryan Rugg and I promise straight talk about digital assets, where they are today, where they're headed, and how they get to scale. Hey Ryan, how are you today? Good. You, Karen? I'm great. I love the fact that we're dressed like the Bobsy twins.

Ryan Rugg 0:54

And not even planned. Just pull this closing there. All I did was make sure that I wasn't wearing the same thing as last time.

Raj Dhamodharan 1:00

I'm like, and I did not get the memo.

Karen Webster 1:03

So, Raj, we'll forgive you for not wearing gray.

Raj Dhamodharan 1:06

Great to be here. Thanks, uh, thanks for inviting me. Look forward to chatting with you all.

Karen Webster 1:11

It's gonna be a fun conversation. Um, you know, Ryan, I know um just by way of context, you know, the Card Network's MasterCard, obviously, probably one of the most single, most important bridges between crypto native stablecoin ecosystem and the billions of people who will only ever interact with digital money by solving the last mile problem of acceptance settlement. We'll talk about that as well. Um I'm sure you have thoughts to provide some context before we get into it. What what do you say?

Ryan Rugg 1:41

Raj and I have spoken extensively on this topic and really about where, you know, what makes stable coins and blockchain kind of move beyond just investment into like practical everyday use and really that future of networks, you know, moving past like kind of what the internet got wrong, not being able to move, you know, value at the speed of data, and really how we're gonna transform that. So that interoperability of payments layer really is like the next wave of capabilities. And I know Raj has been working on it for you know quite some time, and we've talked about MTN, and I think it's gonna be a really interesting conversation with some of the strategic investments they've made, some of the partners they formed, and how they're starting to think about like this future of networks, right? And how how we're all gonna interconnect as this becomes more and more enterprise ready.

Karen Webster 2:28

So, can we start with maybe a little bit of I don't know whether it's the elephant in the room or the question that nobody wants to ask, but I'm gonna ask it anyway, because you know that's where we're all about straight talk. Um, you know, we know that stable coins move a lot of volume. Most of that is is really trading, not payments, but we see that the infrastructure can clearly work at scale. But the premise of crypto originally was about disintermediating what exists today. And I think you know, MasterCard's counterclaim is well, you can move volume, but without someone solving the last mile acceptance, it's really nothing. And there's a lot of roadkill in the payments ecosystem where that has fallen flat, and that's obviously what you bring. So so, with that context, how do you frame the relationship MasterCard and digital assets? Do stable coins and digital assets uh need MasterCard to become a real player in global payments and commerce, or does MasterCard need digital assets to stay relevant as global money movement evolves? I told you it was straight talk.

Raj Dhamodharan 3:46

Yeah, look, it's uh it's a good um it's a good discussion point, right? It's uh look, we think of uh stable coins as is as rails. Um and the rail is uh initially, as you uh pointed out, it's being used largely for trading. And that made sense because the assets were on-chain and it they needed a stable value to to pay and buy assets with, and and and it that's where it started. But since it's I I think of it as like a global ACH, each stablecoin can be thought of it as a global ACH. And uh, as you know very well, Karen, uh ACHs don't make networks because you need a lot of other uh functionality. First, uh we think of it cards as a good access layer into it. Look, if you go to here from here to, let's say, London and you tap on the tube, we're using two ACHs behind the scenes to move money, but the consumers and the businesses don't really think about it that way. Uh, it's a simple tap, and and uh all the money moves and uh from one currency to another, one ACH to the other, one bank to another, to bring that together, a simple consumer value proposition for a tap. Um, so similarly, the the so when stable coins uh come about and may available uh broadly beyond the trading, now it is available in multiple coins, multiple chains, all of that is great. We think about it the same way. So we have you know a number of card programs that are that are actually providing that access to either a stablecoin store of value, even if a consumer is not actually storing a stable coin uh in a in a in a wallet and wanting to access, uh, stablecoin actually can power the rail behind the scenes in order to settle the transaction between the the uh between the uh the bank that issues the card or a partner or a fintech that issues the card and a merchant that um that wants to receive value. Uh, they may continue to do most of them continue to want to receive value in fiat because their everyday expenses are in fiat. And so that customer in uh uh in UK would want in British pounds and will deliver that. And a consumer may want to access and spend their stable coin value, and we they can they can do that. So it's really about repeatedly delivering the choice and convenience for both ends of the ecosystem with a simple with a simple tap or a simple click. Um, so it is not one versus the other. I think this is an evolving uh rail and uh a powerful rail, and I think we can all benefit from it, and that's what we strive to do. I hope that makes sense.

Ryan Rugg 6:26

Yeah, I was gonna say that makes a lot a lot of sense, and like, you know, similar to like you know, echoing your sentiment around this is just another set of rails, and if our clients want to use it, being able to, you know, enable that, and like we formed some partnerships out there, like with Coinbase, and you know, just to be able to provide that, you know. But when I start thinking about building networks, and you know, someone commented on our last podcast, like how I'm an OG in this space, which I don't know if that's a good thing or a bad thing, but back in 2000. You're seasoned, you're seasoned. Unseasoned, I like that word better. Back in 2000 you know, 17, 18, when I was at R3, we, you know, we kicked off what was called quarter network, right? And similar idea about bringing all at the time 65 different banks together onto one network to truly be able to create kind of that multi-bank, you know, future of networks that was always on. It was hard. Like I'm not gonna, it was really hard. And ultimately we ended up, you know, having to, you know, close the network down from technology, compliance, regulatory. I mean incentives, incentives. Incentives, like the global nature of these networks. Like we're very used to, you know, payments being like in country and regulated. We're moving to like a completely global network, which has that's always on. Like a lot of these networks aren't set up to have like no downtime, right? Like it's 24-7, 365, it's not batch settlement, it's always on. And it's like, it's not just know your client, it's know your token, know your transaction, like the whole origin of it. So, how are you thinking about some of these really tough, I mean, decisions and you know, as you're bringing, you know, MTN together?

Raj Dhamodharan 8:05

First of all, um, MasterCut as a company has a long history of bringing the ecosystem players together under a common framework, not from a just a experience, a product experience perspective, but also uh equitable economic incentives across the board that people can contribute value to the network and derive value from it. And often when the network effects scale, you contribute, uh you derive more from it than you contribute. And that's really how um this works. And and it worked great in COD network, and we've been um we've been applying similar principles. So it it's it's really uh it's really about making sure that if you think about, for example, uh what we're trying to do in um tokenized deposits, which is something that we've spoken to uh you guys about, and uh we're starting to work with the industry, uh, it requires a common set of standards, um, it requires a common set of incentives for people to um people to participate in, and that approach um is is I think starting to work well. Um, I think it it also, uh as you apply this to digital assets, as you apply this to blockchain, it also presents a new set of standards, uh new set of uh challenges, I think. As we talked about what makes a stablecoin rail a network, you need a set of um KYC standards for people to participate in. You need a set of um uh providers who would actually KYC participants, uh the businesses and consumers. All of that we've been making investments in. For example, cryptocredential is a common standard that we're proposing to uh to the industry where people can come and have a wallet as a business or as a consumer on a public chain. But in order for you to uh interact with other people, you need to know who the other people are and under what KYC standards they come onto the network so that you can actually make a payment transaction in a fully compliant way. Crypto Credential just proposes that. We've started applying that to P2P first, and now uh people are interested in providing uh KYC services on a more generic basis into the public chains. Uh, I think that is one of the essential infrastructure that makes the rail into more of a payment service.

Karen Webster 10:26

But Raj, how do you how do you do that though? Because you know, how do you KYC the many hops along the journey between you know an initial funding of a of a of a wallet and then it's its ultimate use at a point of sale?

Raj Dhamodharan 10:45

So I think there are two different things. I think we're we're talking about two different flows. On the card side, it's actually quite straightforward. What we do is that a person, so for example, we have a card. I'll use this real example. MetaMask is a very popular self-custody wallet. Um they issue MasterCard today. So you could have self-custody funds and immediately get a MasterCard card, put it on your Apple device, go tap away. The process, what happens behind the scenes, is a very good question, Karen, is that we have providers who would do the KYC. So you have a wallet, you go to a KYC provider and get uh yourself KYC'd. At the end of the KYC process, they can actually issue a card because we've licensed them to issue a card because they meet our KYC standards. And then once you have the card, you can go and tap away anywhere MasterCard card is accepted, which in itself is KYC by an acquirer. Every merchant is brought on board by an acquirer. So it's really the beauty of this is that they could walk into any of the MasterCard locations, independent of whether the merchant is interested in a stable coin or crypto or anything of that sort. Or they could actually choose to receive their proceeds and stable coins through their acquirers too. So it's really that kind of a choice. So that is on the card side, but when it comes to, let's say, a P2P transaction or a remittance transaction that doesn't typically go through a card rail, then the standards are different because the travel rule standards that you need to apply to for a P2P remittance transaction is very different. And that's where the crypto credential standards come in, because then we look for what are the compliance and regulatory requirements that you need to follow in that jurisdiction for that use case. I think it's it's really very activity-specific. Um, cards take care of um the standards for COD network and and uh even if they happen on the stablecoin rails, and uh and we have standards for other transaction activity through crypto credential.

Karen Webster 12:47

Yeah, Raj, what are some of the assumptions about stable coins and digital assets um have changed since uh MasterCard has really started investing and becoming present in that conversation? Which wasn't, you know, it's not it's not a recent thing that you got. I mean, you guys have been looking at this for more than a decade. So but but the but the space has moved and regulation has moved. I mean, what are some of the assumptions that no longer hold? And what are some of the new assumptions that you are basically building your strategy around?

Raj Dhamodharan 13:24

Yeah, it's a very good question. So you're right, we we issued our first crypto card in 2019. I think uh that was uh now we have over 130 programs live. A lot has changed. The big pivot that I saw I saw is when um when governments actually had a clear set of rules on on crypto, especially stables. It started in Europe, now it it is in the US. That is a big change. Previously, we had to come up with our own kind of standards about which stable coins that we would actually use in the network and which ones you owned, and uh independent of, and uh, sometimes uh uh we were putting uh wanted to make sure that we have the right set of uh safeguards in the in the ecosystem. Now we have a set of principles that we can actually start to use that is derived from Genius Act, derived from Micah, and so on. So that was a big unlock. The second unlock was um uh actually people um uh uh making sure that there is a wide availability of um robust chain infrastructure that um we can rely upon to build use cases um on on top of. That I think is the is the second unlock. Now you have a plenty of choice on chains, plenty of choice on coins. Um and uh I think I think that that is uh that is becoming another unlock, and uh that is why we are seeing um the traffic, the stablecoin traffic starting to move uh beyond just uh the trading into disbursements, into remittances. Uh so we have MasterCard Move, which is a one of the largest um remittance uh networks that is out there. Now we are adding stablecoin support and we customers want it. You know, people want to send us the stable coins and have somebody receive a fiat in, say, Philippines, uh, or the reverse, and somebody wants to send us um uh dollars and uh and uh some a wallet in Argentina wants to receive stable coins and move enables that now. Uh and that I think is a big unlock as well. And all of this wouldn't be possible without kind of that regulatory backing that saying, you know, clearly delineating uh which coins kind of uh provide the right set of protections and which ones don't.

Ryan Rugg 15:42

You you mentioned multiple chains, multiple tokens, and you know, kind of being an unlock. I also see it, you know, bridges are a nightmare, right? Like that's where like the majority of the hacks happen, you know, finality and settlement on some of these networks, like Bitcoin versus, you know, probabilistic versus deterministic, and like some of this like ordering, and it's interesting that you know, it has its pros, but it also has its con. Love to think about like, you know, as you're connecting to these various networks, how you mitigate some of these risks. Like it's like, you know, once you get enterprises into this space, like finality, right? Settlement is like so key to them. Like, you know, we move trillions of dollars on a day. Like we can't say, like, oh, sorry, we're going through there was a hack on the day, or uh, you know, there's a reordering, you know, kind of going on right now. You're it's not settled, which could take, you know, as we know. So love to understand like how you're thinking through some, and these are tough questions. Like, I don't expect you to have all the answers. Like the industry has not solved them yet, right? You know, it's been primarily, you know, retail base, but we'd love to get your thoughts on that.

Karen Webster 16:43

But I but I do, but I do think that that's what could be holding back enterprise adoption, right? I mean, there's still a lack of clarity on the regulation, it's still in rulemaking, and there are experiments, but there also there is a lot of clarity. I mean, you bring up a lot of really interesting points, Ryan, but but it's also you know, I'm curious, I'm piloting, but I need more clarity, not to play on words with the regulation. But I do need, you know, more assurance that this is the right move.

Raj Dhamodharan 17:19

Yeah, I think uh Ryan has a good point, and you're bringing highlighting this as well. So uh our view on this is that the technology that underneath this is quite powerful, and that but that alone is not sufficient. Uh, you made the point about bridges and hacks and so on, where where money moves from one chain to another is actually a problem. So, this the solution I think lies in enterprises using this technology, but building a layer on top of it to stand in guarantee of the end-to-end service, that orchestration and assurance using um a combination of technologies that we've invested over over time. Uh, I'll give you a very, very tangible example. Um I talked about move. So let's say an enterprise wants to disperse uh funds into their um into gig economy workers that they're working with around the world. Uh those workers would want different, uh they would be into having different wallets. Some people will have bank accounts, some people have a telco account, some people may have a stable coin account. The enterprise may want to pay in US dollars from US and uh or a stable coin um uh uh from from uh from the sending side. People need to be able to take that coin, convert the coin in different varieties and different forms and deliver them. And that ubiquity of distribution is what that enterprise is looking for. So a corporation standing in the middle, in this case, uh MasterCard is doing this with Move. Uh, we convert, we take the dollars and we convert this into one stable coin for one wallet and another stable coin to another wallet, or in some cases, uh just a fiat delivery into a telco wallet, for example, that as an end-to-end service, making sure that each endpoints actually meet our KYC requirements, and uh it is delivered through a single API connection for the enterprise is what brings the value. And I know you guys have done, I know you have 24 by 7 in City, and that does at mass scale between institutions, and this is this is this is no different. So to unlock the full value, really, that orchestration needs to be provided by um by enterprises and uh by networks, and and we are uh we are just doing that, and and we are going use by use case by use case, not just for gods, right?

Karen Webster 19:51

What what are the use cases where you see green shoots now developing scale and the things that you know may not necessarily be relevant today, but at some point down the road they will be, and you're not paying much attention to them for that reason?

Raj Dhamodharan 20:11

Um so the order uh is um um we'll put the cards aside because cards themselves um can benefit from better settlement, and we are all uh we are supporting stablecoin settlement, so putting that aside. The uh the order of things that are happening really are you're seeing a lot of assets um getting tokenized, real-world assets getting tokenized. Um, that is starting to have some green shoots, and and that requires payments on chain. Um, but more on the traditional uh stack um uh disbursements, this is giga economy payments. That's the example that I was just giving. Uh, this is real and now today, and um people want to be able to send and receive this. Remittances um would follow that as the second. Um, corporate B2B payments. People talk about it, but I haven't seen much um in terms of SME, yes. Um, there are some SME um payments and invoices that are that is uh starting to see demand. Classic B2B payments are still in the realm of banking world, and Brian can uh jump in and provide her, and she's been upgrading her their infrastructure to be able to make that uh more efficient between jurisdictions. Um and uh that I think is is not uh is not coming yet. But uh I don't see um I see a world where you could go into a payment tab of a bank or a fintech. Today you see um uh ACHs, wires, Swift payments. I think you're gonna see a world where you would see, okay, pay somebody who can only receive a stablecoin, get paid from somebody who can only receive uh send stable coins. I I see that tab evolving uh to add that over time.

Karen Webster 22:00

Uh but it I think I don't know, Raj, we're still trying to get real-time payments as as a as a use case, you know, with ubiquity. It you know that's time, right?

Raj Dhamodharan 22:12

But but why is that, right? So the the it is because um each market uh gets into a real payment, real-time payment infrastructure in different cycles, right? And uh there is no simple, one simple way to do it, and it lacks a service layer about. And and what we are talking about here is that as we as you take um, for example, as you take solutions like move, it is really providing that um glue between networks that move at different speeds in different formats under a common uh set of terms, which is essential, I think, to scale. Right. Um yeah, you're right that the real-time payments itself is making progress in different speeds at different markets.

Ryan Rugg 22:57

But I think but I think what like really like listening to Raj and like talking about like the current use cases, and then obviously I could go in extensively about kind of like the corporate use cases, but like you know, Raj and I have had the conversation like about agentic commerce, like the the speed that AI is moving right now, like the fact that you know we went past just like you know, asking your bot questions, like helping you like make better presentations, to like completely like reorganizing my day, like go through my taxes, tell me where I could have been more efficient, to like looking at my messages, like did I most effectively use my time today to like moving into that commerce, right? Where they're effectively buying your daily needs, knowing better what you need than you need. Like they need digital cash, they need instant, right? And like that's where I think is like a massive gonna, we're gonna see a massive unlock and the speed that these technologies are moving are much faster than I anticipated, right? So the art of what's possible out there is absolutely incredible. And like it's I feel like it's you know, these use cases that we're talking about now are here, but the future unlock of this digital economy, this agentic commerce that we're moving towards, I think needs digital cash. Like there's no there's no alternative there.

Karen Webster 24:05

But but but that that suggests that the what we're using now just won't work on a on a global scale, but it does work now on a global scale.

Raj Dhamodharan 24:14

Yeah, look, um, I I actually think uh that um as consumers, as agent e-commerce picks up and we put out solutions out there, and you may have seen us do it, is um I look at that the first stage of that evolution to be very similar to when people didn't have mobile devices to uh pay their card payments with. And the work that we did to secure um card payments and devices so that you could use that in a very, very uh simple way. The similar transition, you we just need to make sure that the agents that are acting on your behalf is in the the intent is synchronized with your intent. And if you have a card and it's going to be used by the agent for the purposes that you actually approve of, and um and there is no uh nefarious use of that funding source. And that's why we put the agent in commons framework out, um, where it allows all the cards to be able to use um in a successful fashion by agents. And you do see that there is some portion of that a mission-to-mission payments would benefit from digital cash-like solutions as well. I think that is uh that is that is likely to happen. And uh uh really yeah, we are starting to work with partners on this very topic.

Karen Webster 25:30

But but I think it from a consumer perspective, there needs to be reversibility, there needs to be wars because the expectations now are that when something goes wrong, I know who to call and I can get resolution.

Ryan Rugg 25:44

There's a massive amount of details that need to be addressed. Like I mean, a lot of their security technology, and yes.

Karen Webster 25:51

I am but but Raj, where where do the card networks collaborate and where do they compete from your perspective? Because there is there does need to be this coalescing around standards, just like there there are in the you know the the world today in which we conduct commerce, but there's also obviously plenty of of space for competition. How do you see it in the digital assets realm?

Raj Dhamodharan 26:14

Yeah, in the digital asset space, look, I think we are um there is a lot of opportunity to uh standardize how people we deal with security. Security is a common problem that um that everyone needs to deal with. Um so we uh we think there is opportunity in, for example, uh uh many banks, including Citi, have talked publicly about um tokenized deposits and how they would interact between. So when you send uh one uh bank's tokenized deposits to another bank, how that interoperability works. I think there is room for industry to collaborate on that standard. Uh we put out our own solution first as a as a is a as a contribution in this, that is our multi-token network, which some of the banks are starting to connect to. But I think there is opportunity to collaborate there. Uh, there is opportunity to collaborate on um KYC standards and how we make sure that uh when a a party interacts with another party on-chain, how do you know that they are all on a common uh security standard, compliance standard? I think there is a lot of room to collaborate. Uh uh all industry partners, not just networks. Uh I think people starting to work on these these things, and I think there is a lot of opportunity there. And there's a lot of plenty of opportunity to compete, compete as well, which we are which we are doing across the board. Um but on the on the standardization, um these are some of the areas that I think we could we could all benefit from.

Karen Webster 27:49

Yeah, no, because you you don't want the fragmentation where everyone has their own standard, and then that becomes another another um interoperability um uh problem. A hyper-reality, um large merchant ecosystems creating their own coins to do business inside their ecosystem to avoid having to use any network other than the one they've created inside of it.

Raj Dhamodharan 28:17

I think look, this is nothing to do with stable coins or any of the any of this, I think. It's more about um what is the right payment method, what are the right incentives for consumers and businesses to use. We've collaborated with all of those players in in the previous iterations of it. Some people have uh private label cards, some people have uh cards that are private label but very open loop because consumers don't want just one card that is one merchant only. Uh, and so often they they have a uh a completely open loop card, and we have with many of the partners there. So I think this is really about um providing a payment method that is uh delivering the full set of protections and accessibility and reach for consumers, and and uh I think this this uh this collaborative approach that we've taken with our partners, uh with all those merchants as well, I think we'll continue with the stablecoin era as well. Um I don't think it changes fundamentally anything, primarily because of where we started this whole conversation today, which is um the the value prop comes from not just being able to move value, but to be able to actually offer all those protections and the simplicity of experience. And really, it's a scale across the world, right? You know, people don't want to use 15 different mechanic mechanic uh mechanisms uh from a user experience perspective uh as they as they go interact with um various merchants and conducted uh go go on about their lives, right? So I think that's what drive what comes to the market than than some of the other things.

Karen Webster 29:56

Ryan, you have the last word, last point of view.

Ryan Rugg 30:00

No, I think that it's been an amazing conversation, Raj. Always appreciate your insight. I do think that we're here building the future of networks. You know, there's a lot of you know, incredible things being done out there. There's still a lot of open-ended questions that we have to solve as an industry collectively to really make this become a reality, as Karen mentioned, like real time. Is that a reality still? You know, yet now we're introducing this new technology and the complexities and the hacks and the we want to make sure that we're doing in a safe and sound way for our large institutions, right? Like that's who, you know, at the end of the day, it's about our clients and you know, providing that safety and soundness. So I think that, you know, your insight, the work that you're doing is incredible. Uh, keep it up, you know, keep pushing forward. I think that as you said, our businesses will look very different in the next you know decade as we kind of move forward, as it looked different in the prior. So, you know, thank you for joining. As always, a pleasure, Karen. Um, so thanks for coming on.

Karen Webster 30:57

Thanks, everyone. And Raj, thanks for hang thanks for hanging with us on the block.

Raj Dhamodharan 31:02

Of course. Um, anytime.

Karen Webster 31:04

Thank you. Thank you, guys.

Ryan Rugg 31:05

Bye bye now.

Narrator 31:06

That's it for this episode of the Payments Podcast, the thinking behind the doing. Conversations with the leaders transforming payments, commerce, and the digital economy. Be sure to follow us on Spotify and Apple Podcasts. You can also catch every episode at payments.com forward slash podcasts. Thanks for listening.