On June 18, Visa and Mastercard shares fell by about 5% as investors became nervous about the possibility that stablecoins could destroy traditional payment networks. This is because the day before The US Senate has passed a bill known as the GENIUS Act, which will regulate stablecoins in the country. Do they really pose a threat to the Visa and Mastercard payment systems?
The fall in the value of Visa and Mastercard shares reflected the fact that investors are betting on stablecoins. The latter can be used in many consumer payments and will quickly change the way we pay for goods and services.
After the U.S. Senate passed a bill last week to regulate stablecoins, shares of large crypto companies such as Circle Internet Group and Coinbase Global rose sharply. Visa and Mastercard, on the other hand, fell to their lowest monthly performance in two years.
The biggest benefit for consumer payments is that there are already many so-called rails, both public and private, on which money can move. Bank cards are the universal backbone. In most countries, almost every adult has a credit or debit card and is accepted by most merchants. Cards provide banks and consumers with financial incentives to continue using them: convenience, widespread use, and security.
Merchants are usually the ones who pay card payment fees. Therefore, they are very interested in accepting other payment methods that can reduce these costs. For example, Amazon and Walmart are already looking towards stablecoinsto stop paying Visa and Mastercard fees.
Dollar (and not only) stablecoins can use public blockchains to move funds over the Internet. They are especially attractive for residents of countries that want to make payments in US dollars but cannot open bank accounts in this currency.
Both Visa and Mastercard allow partners to offer cards that support stablecoins.
This is convenient for merchants, as no major changes need to be implemented. But what is the benefit for consumers? Cardholders are often paid generous rewards, bonuses, and cashback every year.
Stablecoins have a potential mechanism for something similar. Each coin has a reserve fund to ensure that it can be exchanged for a fixed value of fiat (regular) currency. Such funds generate interest income. This creates a treasury for discounts or points to be awarded to holders.
However, this reserve income goes to the issuers of the coins, not to the merchants who accept payments. Therefore, merchants would need to negotiate with players or banks to get their share.
If merchants start issuing their own coins, they could theoretically fully fund their own loyalty programs. This is similar to the Starbucks system, where they store preloaded customer funds in accounts. They can also receive interest on these funds.
To encourage customers to keep money in such accounts, merchants can issue cards linked to their wallets. Customers can then use these funds to pay at other merchants.
What about credit cards? This requires both the lender and the conventional card network to facilitate transactions. Coinbase, for example, has already announced that it launches a credit card with rewards through the American Express network.
Meanwhile, Visa and Mastercard managed (so far) to jump on the wave of hype in time: Visa signs partnership with African fintech company Yellow Card to expand its stablecoin settlement system in the Central and Eastern Europe, Middle East, and Africa (CEMEA) region.
Mastercard has joined the global dollar network of Paxos.
This allows the stablecoins USDG, USDC, PYUSD, FIUSD to be supported.
On June 24, the relative strength rating (RS) of Mastercard (MA) was upgraded from 68 to 71. The stock price increased by 2.80%.
Shares of Visa (V) also rose by 2.29% and are now worth $351.63.
As of June 25, the total capitalization of stablecoins exceeded $253 billion. This is an increase of 2.33% over the month. Tether remains the leader with the USDT stablecoin, which accounts for 62.21% of the market.
Record numbers indicate that stablecoins will be discussed more and more often. However, the fastest way to most people’s wallets is still a regular card.
However, the process has started. The transition will not be instantaneous, but it has already begun. So far, the access to credit and loyalty programs, which stablecoins cannot boast of, is the key to the transition.
Ambiguity in regulations in different countries, lack of trust for users, and problems with wallet infrastructure create additional obstacles to the widespread adoption of stablecoins.
Visa and Mastercard are exploring innovations in the field of stablecoins, investigating how to modernize cross-border payments using various blockchain-based systems. Therefore, we may see some interesting hybrid solutions in the near future.