How the EMV migration paved the way for crypto payments

When the card networks began pushing merchants to upgrade their point-of-sale terminals for EMV-chip card payments a decade ago, some saw it as a Trojan Horse for contactless payments. The same migration may also have paved the way for crypto acceptance.

Cryptocurrencies thus far have had limited appeal for retail payments, in large part due to the volatility of assets such as bitcoin, and the complexities of converting between digital and mainstream currencies. But with the momentum around stablecoins — which limit their volatility by tying their values to government-issued money — merchants and consumers may finally warm to the idea of using crypto for payments.

"I do believe consumers will use digital assets at the point of sale, at a checkout terminal or e-commerce at a laptop," said Tim Vanderham, chief technology officer at NCR in Atlanta. "It's still nascent right now, but you can see it starting to grow in reports."

NCR just completed its acquisition of LibertyX, a Boston-based cryptocurrency software provider. Digital payment software firm Bleu is planning an upgrade to support cryptocurrency payments, while NCR's traditional rivals, Diebold Nixdorf and Verifone, are developing crypto-friendly updates for point of sale acceptance.

"Will we see tokens like Dogecoin available at the point of sale? Probably not yet. But I do see movement toward payments in stablecoins or some sort of digital token that's tied to a [traditional] currency," said Sesie Bonsi, founder and CEO of Bleu, a Los Angeles-based technology company that builds contactless payment and checkout technology for retailers.

NCR and LibertyX will integrate their technology, combining LibertyX's digital currency systems with NCR's Pay360, which supports payments for financial institutions, retailers and other businesses such as restaurants, covering about 25,000 merchants initially. LibertyX's technology also runs on ATMs and kiosks, and will combine with NCR's Cardtronics unit to support access for digital assets over the Allpoint ATM network in convenience stores, pharmacies and supermarkets.

"When you look at how the technology to support payments has evolved, it's all stacked on top of each other," said Vanderham, noting the evolution at point-of-sale terminals to support contactless mobile wallet transactions involving QR codes or Near Field Communication laid groundwork for digital assets by enabling remote software updates rather than fully replacing checkout hardware.

Today, most systems for making cryptocurrency payments in stores convert those funds to traditional currency before reaching the merchant, and that option will be retained for merchants that want to offer stablecoin or CBDC transactions, as well as merchants that want to directly accept some forms of digital currency, Vanderham said.

"We'll be able to present merchants or consumers with the exchange rate between crypto and fiat in real-time, or a stablecoin option that wouldn't be as volatile," Vanderham said.

The value of stablecoins in circulation has expanded rapidly. In January the market capitalization of stablecoins was $172 billion, according to an analysis in the Times of India, which used data from Coingecko.com. That's up from $130 billion that was reported by the U.S. Treasury in October as part of the President's Working Group on Financial Markets report on stablecoins. There were also more than $5.5 trillion worth of stablecoin transactions in 2021, according to Guidehouse and Messari. That's up from $1.35 trillion in 2020 and $250 billion in 2019.

"We are definitely seeing more brands accepting crypto in 2022," said Talie Baker, a strategic advisor for Aite-Novarica in Denver. "I would say there are not a wide range of mainstream merchants accepting crypto yet, but we will probably see a ton more this year and next."

The trend has attracted attention from many payment companies that want to play a part in the use of digital assets for payments. These companies are also projecting demand for central bank digital currencies. More than 100 countries are engaged in or considering CBDC projects, with an emphasis on payments and government disbursements.

"We want to use the existing payment real estate, such as the phones and the payment terminals," Bonsi said.

Bleu plans to launch a product this year that allows stablecoin transactions at the point of sale through a mobile device, using Bluetooth to connect the smartphone to an existing point of sale terminal.

Bonsi hopes to allow consumers with stablecoin wallets to use funds from that wallet at a point of sale. It's an emerging use case that could become a competitive necessity if PayPal or Block were to develop their own stablecoins to accompany existing cryptocurrency trading services.

Bleu is looking at a peer-to-peer payment model, wherein the stablecoin or CBDC payment rail could enable digital transfers between two consumers, between consumers and merchants, or between a stablecoin wallet and a merchant, Bonsi said. That account could be used for contactless payments in stores as well, according to Bonsi.

Among NCR's traditional rivals, Verifone recently partnered with BitPay, a Bitcoin and cryptocurrency payment service provider, to make it easier for merchants to access blockchain payments in stores and on e-commerce sites via the cloud. Diebold-Nixdorf is operating a pilot of its cryptocurrency payment platform, which uses an application programming interface to allow merchants to support crypto transactions.

The QR codes that have supported contactless payments in dozens of markets for years could be useful in helping merchants avoid upgrading to accept stablecoin, CBDC or cryptocurrency payments, given the code's ubiquity, according to Avivah Litan, a vice president and analyst for Gartner Research in Potomac, Maryland.

"The consumer gets a QR code that reflects what they are paying," Litan said, adding that updating a merchant terminal to support crypto QR payments requires little change for the merchant that would likely be handled by their payment company. "The end users will go to the processors and say 'do this for us.'"