In the huge realm of digital payments, a turf war is erupting, and the established players are suddenly playing defense. Tech companies and cryptocurrency startups are encroaching on areas that Visa Inc. and Mastercard Inc. have long controlled. They are doing it by using a new kind of currency called a stablecoin, which has an alluring offer to merchants: reduced costs, quicker settlement, and a means to avoid those two companies completely.
It poses both a financial and a technological risk. Customers may pay retailers straight from their cryptocurrency wallets using digital tokens, which are usually based on the dollar, rather than transferring money via a bank or card network. Businesses in the United States spent an estimated $187 billion in swipe fees last year alone, primarily through the networks of Visa and Mastercard. Stablecoins have the potential to significantly reduce that number or even render it obsolete.
Christian Catalini, the founder of the MIT Cryptoeconomics Lab, stated that it is evident that this entire area may someday pose a danger to TradFi providers. However, credit card networks are not doing nothing. In order to maintain their pivotal position, the card networks will strive to collaborate with several stablecoins.
Visa and Mastercard are branding themselves as the foundation for all types of digital transactions, including those that were initially intended to avoid them, in response to this demand, rather than as traditional toll collectors. The law that establishes official government regulation of stablecoin issuers is about to be signed by President Donald Trump, and they are promoting improvements to previous initiatives in areas like stablecoin settlement and crypto-linked cards. Additionally, Visa and Mastercard have emphasized their efforts in cross-border payments, which is one of the most common applications for stablecoins.
Their impact is reciprocal. Threats from competitors have long been eliminated by Visa and Mastercard by incorporating them into their own networks, frequently in ways that maintain their price dominance. With the stablecoin market already valued at $253 billion and expected to reach $2 trillion in the coming years, Treasury Secretary Scott Bessent says that bringing stablecoins closer might be the latest example of the big guns coopting the market.
The inclusion of stablecoins in the financial disruption tale is a rare break from the crypto industry’s reputation for speculation and gambling. In that sense, stablecoins provide something radical: a tool that has the potential to improve financial institutions, finally providing the crypto community with a socially valuable purpose.
This momentum is starting to change how businesses behave. According to the Wall Street Journal, major retailers such as Walmart Inc. are thinking of launching stablecoin pilots. To help smaller financial institutions stay up to date with payment innovations, Fiserv Inc., a bank technology provider, unveiled its own fiat-backed token earlier this month.
However, eliminating card networks will be difficult, particularly in the United States, where users are accustomed to incentives, fraud protection, and credit access, all of which are difficult to replace. Stablecoins provide minimal benefits at the checkout, and many people are still unfamiliar with or suspicious of cryptocurrency. Stablecoin accounts are unlikely to be insured by the FDIC, and consumer safeguards may differ significantly from those provided by traditional credit cards. For merchants, new technology may introduce regulatory, tax, and operational issues.
Regardless, digital advocates continue to push forward. Shopify Inc. recently teamed with Stripe Inc. and Coinbase Global Inc. to allow retailers to accept USDC, Circle’s dollar-backed stablecoin. Behind the scenes, the payment may be made without ever contacting a card network. Instead, it is totally handled on a blockchain technology, allowing retailers to receive USDC straight into their crypto wallets or instantaneously convert it into local currency and deposit it into their bank account.
Customers that purchase with USDC will receive a 1% cashback incentive from Shopify. Rewards will also be awarded in USDC. Coinbase has created its own payments network to increase stablecoin acceptance among e-commerce companies.
Although altering customer payment preferences is challenging, Richard Crone, CEO of the payments consulting business Crone Consulting, stated that, unlike in the past, the process is underway for a significant change in consumer payment preferences.
Visa and Mastercard, which together account for more than 85% of all credit card spending in the US, are being forced to take action by this pressure. Their worldwide merchant reach, fraud prevention, customer privacy, and brand trust are all being promoted. For instance, the networks’ tokenization technology hides private account information to safeguard customers when they make purchases online.
For a very long time, we have been tokenizing access to value, according to Visa Chief Product and Strategy Officer Jack Forestell. There is no reason why that token cannot be a stablecoin or another cryptocurrency, but the value that underpins it is often either bank accounts, credit lines, debit cards, or credit cards.
The Future of Digital
Since at least 2021, both networks have experimented with incorporating stablecoin into their ecosystems; however, the increased interest in the technology is increasing investment and bringing those efforts back into the public eye. Earlier this year, Visa Ventures, for instance, made an investment in BVNK, a stablecoin infrastructure provider. A network platform may be used by financial institutions to produce digital tokens backed by fiat money.
With Mastercard’s recent announcement that it is joining the Paxos Global Dollar Network, Paxos will be able to assist institutions on its network in minting and redeeming USDG, in addition to supporting other stablecoins like Circle’s USDC, PayPal’s PYUSD, and Fiserv’s FIUSD.
Users can also have complete control over the network’s payment routing. Under $100 transactions may be drawn from a checking account, bigger ones from credit lines, and specific merchants from cryptocurrency wallets; all of these transactions are connected to a single payment identity.
“We shouldn’t expect stablecoins to replace fiat or current card payments overnight,” stated Jorn Lambert, Mastercard’s chief product officer. “We believe that, particularly in the areas of remittances, disbursements, and business-to-business payments, this is much more about new use cases and new opportunities than it is about replacing the current system.”
According to Forestell of Visa, identical warnings were sent in response to every previous interruption, including buy-now-pay-later and mobile wallets. Ultimately, corporate adaption prevailed.
According to Forestell, “you can send money back and forth when you’re a crypto native, but if you want to use that on a large scale for your daily purposes, you need that hyperscale connectivity, and we provide the best on-ramp to that.”
