Visa Becomes Ethereum’s Starbucks

The Account Abstraction update of Ethereum has led to the emergence of many new business ideas. Especially, the arrival of banking services and automations provided by banks to Ethereum became possible. Consequently, the interest of traditional economic players increased. Visa added Account Abstraction to its ongoing work on stablecoins and CBDCs.

In this new work, the GAS fee we pay when making transactions will now be covered by Visa. The GAS amount will be deducted from your Visa card, which means your bank account. However, Visa has designed an interesting system here to generate profit, resembling Starbucks’ application that turns the company into a bank through its own wallet app. Let’s first discuss how the model operates and then move on to its potential outcomes.

When you want to make a transaction on the Ethereum network, your request is sent directly to the Ethereum network for confirmation. In Visa’s method, an additional intermediary is involved. You need to have a registered wallet like Metamask with Visa, a wallet that you control and is unrelated to the exchange.

• The registered wallet first sends the information about the intended transaction to Visa’s created Paymaster. The Paymaster is essentially a smart contract wallet that has come with Account Abstraction.
• The Paymaster calculates the maximum GAS amount that could be requested for the transaction.
• Then, it generates an approval key for a limited period.
• After the transaction request, it’s sent to Ethereum with two keys: one belonging to your wallet and the other provided by the Paymaster.
• The transaction takes place, and the GAS fee is paid from the Paymaster’s wallet. The same fee is automatically deducted from your bank account.

The limited duration of the Paymaster key is designed to prevent potential opportunism. For example, a wallet owner could send a transaction with a low GAS fee to the Paymaster, receive the approval key, and then choose not to send this transaction to Ethereum. Later, they could use the approval key for a high GAS fee transaction. To prevent this, security standards are in place, such as a validation period for the key and the requirement for information within to match. Without a match, the GAS payment isn’t processed.

Let’s talk about the resemblance of this system to the Starbucks wallet… With the Starbucks mobile wallet, you can load money and benefit from various campaigns and discounts, making it an appealing application. However, each coffee has a certain fraction. For example, when you purchase a 9.99 lira coffee with a 10 lira loading, even though 1 kuruş might appear in your account, it’s actually readily available in Starbucks’ account. The millions of liras earned from millions of people are turning Starbucks into something akin to a bank.

In the model I described above, Visa calculates the maximum gas fee for the Paymaster, which actually makes the model quite similar to Starbucks. This is because most of the time, a fee lower than the maximum gas fee is paid. Whenever Visa secures the maximum amount from the card, it effectively transfers the difference between the paid gas fee and the maximum fee into its own pocket.

In this way, Visa needs to hold a substantial amount of ETH in its wallet to make payments through the Paymaster. Thanks to the maximum gas fee, it covers the commission it pays to acquire ETH by a significant margin. It also avoids the commissions it would have to bear to convert ETH into fiat money. Especially for foreign individuals entering the market, this serves as a facilitating method and proves to be an extremely profitable system for Visa.

This system will have very positive effects on the price of ETH. First of all, due to the absence of GAS fees, there might be a minimal decrease in individual ETH demand. However, this decrease in demand will be more than compensated by Visa. Because if the average demand is 1000 ETH, it would make sense for the Paymaster wallet to hold, for instance, 1300 ETH just to be prepared for any scenario. Therefore, Visa will create an additional demand. Additionally, the consolidation of large amounts of ETH in a single wallet could also reduce the intensity of panic selling. This is because Visa won’t sell ETH all of a sudden in a panic. As the market enters a bear phase and transaction volume decreases, I assume that the amount of ETH in the Paymaster wallet will be gradually reduced, thus minimizing its impact on the market. This seems to be the best scenario for Visa.

In conclusion, thanks to Account Abstraction, we won’t have to wait long to see banking services on Ethereum. It’s possible to implement these systems in a short amount of time. Especially considering the influx of many new users during bullish periods, Visa’s model is inevitably poised to become extremely popular. If Visa generates significant revenue with the Starbucks model, I don’t think Mastercard will lag behind either. After all, both giant companies are actively engaged in the industry. Of course, as a result of such competition, the only winners will be us users.