Stablecoins, Don’t Call Them A Visa Killer

Summary Stablecoins pose a limited threat to Visa; regulatory, operational, and consumer protection hurdles make overnight disruption highly unlikely. Visa’s global brand, trusted infrastructure, and consumer protections ensure continued dominance, even as stablecoins gain traction for niche use cases. Visa is proactively integrating stablecoins, leveraging its network to offer stablecoin-linked cards and settlement, especially benefiting cross-border and emerging markets. I remain highly bullish on Visa’s long-term prospects; stablecoins will enhance, not replace, its business, making Visa an even stronger investment. Last week, the Wall Street Journal reported that Amazon and Walmart are planning to release their own stablecoin to bypass traditional payment methods offered mainly by Visa ( V ) and Mastercard ( MA ). Now more than ever, it seems that the dominance of these two giants is being challenged, especially after the Senate’s approval of the Genius Act. A few days later, doubts continue to grow, and several analysts are predicting catastrophic scenarios. After all, if alternative payment methods are created, Visa and Mastercard will no longer be necessary. Why would companies pay them billions of dollars in transaction fees if they can create their own payment system through stablecoins? This is the main theme of the bearish arguments against Visa and Mastercard, but in my opinion, it is too superficial and takes for granted too many assumptions that clash with the current financial system. I believe that Visa and Mastercard currently have the best business model in the world, and I find it absurd to think that it could be called into question overnight. Do you really think that management has not considered the ‘threat’ of stablecoins in recent years? In this article, I will show you all the reasons why I believe that stablecoins will not replace Visa, and logically the same applies to Mastercard. However, before moving on to a direct comparison, I think it is essential to thoroughly understand the enemy Visa is facing. Stablecoins: Advantages And Disadvantages Compared To Traditional Methods A stablecoin is a cryptocurrency whose value is pegged to a stable asset, in 99% of cases to the US dollar (1 Tether = $1). Ironically, stablecoins are supposed to limit the power of the Visa-Mastercard duopoly, but currently their supply (around 90%) is also dominated by just two companies: Tether and Circle. Boston Consulting Group In 2024, stablecoin transaction volumes reached a staggering $26.10 trillion, but 88% of this figure comes from trading on the cryptocurrency market: stablecoins are not yet widely used for everyday payments. Could they be in the future? It depends, as they have both advantages and disadvantages compared to traditional payment methods. Boston Consulting Group recently published a very interesting study on this topic, comparing the strengths and weaknesses of stablecoins with traditional payment methods. Here are the results I found most relevant. Transaction Speed And Costs The current payment system is very efficient for domestic payments, but more cumbersome when it comes to international transfers, despite significant improvements since the introduction of SWIFT GPI in 2017. Through this system, banks can transfer money internationally faster and with real-time payment tracking. However, it is not a perfect system, and this is where stablecoins have a clear advantage. Stablecoins operate directly on a 24/7 blockchain network and transactions take place almost instantly, regardless of where the payment originates. Revolutionary, right? Yes, but only up to a point. As mentioned, domestic payments are already instantaneous, while international payments have improved greatly thanks to SWIFT GPI. So when is it useful to use stablecoin payments? They are particularly effective in the Global South, where infrastructure is rather outdated and the banking system is underdeveloped. Encyclopedia Britannica If you are a US citizen and want to transfer your money to France, there should be no particular restrictions using traditional transfer methods, but if you want to transfer it to Africa, the procedure could be much more complicated. In this case, stablecoins are very useful, as the transfer is immediate and, among other things, very cheap. International bank transfers can cost as much as $50 or even up to 13.65% of the amount sent. Using Tether seems like a faster and cheaper solution, but there is one hurdle to overcome: that money has to be converted twice. If you have a friend in Africa who needs $1,000 right away, the procedure to speed things up is as follows: Convert your $1,000 into 1,000 Tether. Send the money from your wallet to his wallet; thanks to blockchain technology, this happens immediately. Your friend will have to convert the 1,000 Tether into $1,000 in order to use it. There are no intermediaries in this process, but the mere fact of converting the money several times is in itself a cost, especially if you rely on crypto-enabled ATMs ( fees up to 7% ). Overall, the use of stablecoins in transactions appears to be advantageous, especially for money transfers to countries with underdeveloped banking systems. In the case of transactions within the same country, it does not seem necessary; on an international basis to developed countries, it can be helpful but is not a game-changer. Traceability And Automation Thanks to blockchain, stablecoins enjoy a high degree of traceability, but only up to a point. It is possible to see in real time where the transferred sum is located and the parties involved. This is very useful, as it resolves issues related to the outcome of transactions: with blockchain, you can immediately know whether the other party has received the sum you sent. With bank transfers, the process is not always so simple/immediate, but it is not just a matter of inefficiency. In the banking system, there are rules to follow when money is transferred from one financial institution to another, which is less common with stablecoins, or more generally with cryptocurrencies. There are not the same anti-money laundering and consumer protection rules. Keep this in mind, because it will be important when we talk about Visa. If I send 5,000 Tether to a friend, I don’t have to enter a reason or even their name. All I need is their wallet address associated with their account and that’s it. If the amounts are higher, I may be asked for more information about my transfer, but it’s still a ‘less controlled way to send money’. In terms of traceability, we can know exactly what transactions are taking place between different accounts, but we may not know who they are linked to. If transactions take place on a centralized exchange, your identity is known (even if it cannot be directly observed from your wallet address), but if they take place on decentralized exchanges it is much more complex: this is why cryptocurrencies are often associated with criminal activity. Overall, the traceability of transactions within the blockchain is more efficient than that of the banking system, but it lacks the same reliability. There is not yet a comprehensive regulatory framework for this, but when there is (and there must be), stablecoins may lose some of their advantages. Providing more information and undergoing more checks are all factors that discourage money transfers and ‘transaction anonymity’. As far as automation is concerned, stablecoins have an important advantage dictated by ‘smart contracts’, something that is not possible in the banking system. Through them, it is possible to automate payments upon the fulfillment of certain conditions thanks to the code within the smart contract. For example, the two parties can use a smart contract for immediate payment of $1,000 at the exact moment a specific item is delivered. To determine whether or not it has been delivered, the contract can rely on FedEx’s real-time tracking. This prevents fraud and problems related to non-performance. Through the banking system, it is not possible to create such a contract that is fully automated by code: there will always be a person behind it, and this means higher costs. Why Stablecoins Probably Won’t Replace Visa Amazon and Walmart are considering issuing their own stablecoin to replace Visa, and riding the wave of the Genius Act, they are looking for a way to avoid paying billions of dollars a year in transaction fees. I’ve heard all sorts of things lately, and I think some people have a strange idea of what might happen. I have read that Amazon will guarantee checking deposits for its customers (without being a bank), that Walmart will create its own stablecoin to be used by all merchants, and that Visa and Mastercard will collapse by 50% within the next year. I think all of this is very unrealistic, and I will explain why. Problems With The Economic/Monetary System The Genius Act aims to regulate stablecoins, recognize them, and integrate them into the current financial system to further improve it. The limitation of cryptocurrencies is that they are unlikely to be used to pay for goods/services due to their volatility, but stablecoins are different because their value is still pegged to a stable asset, almost always the US dollar. If 1 Tether = $1 (from now on I will use Tether to give examples of stable coins), it can potentially also be useful as a payment method. But how does 1 Tether guarantee its value of $1? The Genius Act explains this, as it has issued the requirements that companies issuing stablecoins must follow. For every Tether issued, there must be collateral on the balance sheet that can guarantee the convertibility of that Tether into dollars. The collateral must be secure and easily convertible, such as a T-Bill or an insured deposit with a bank. Otherwise, the asset underlying the Tether risks losing value, triggering a potential ‘run on the stablecoin’ in the event of a loss of confidence by the public. Given these conditions, here is how Amazon could act if it decided to issue its own stablecoin. First, it must have the underlying asset, let’s assume $100 billion invested in T-Bills that currently yield > 4%, and then it could issue 100 billion Amazon stablecoins, each worth $1. The advantage for Amazon in this case is twofold: It would avoid paying annoying fees to Visa for every purchase. It would earn 4% from the return on T-Bills. Since cashback on Visa credit cards tends to be around 1.50%-2%, Amazon could incentivize consumers to convert their dollars into Amazon stablecoins by offering them 3-4% discounts on their purchases. This way, everyone wins except Visa. It could even incentivize the holding of Amazon stablecoins by guaranteeing an annual return on holdings, as if it were a savings account. This is all well and good, except that it underestimates all the problems that could arise. The first and most important is that the idea of Amazon as a bank where you can deposit money to get discounts on purchases is too simplistic. Amazon is not a bank; it is a company that sells products/services unrelated to traditional banking. Before it can get to the point of taking deposits and paying interest on them, it must obtain licenses that it does not currently have. By the way, Walmart has been trying to obtain a banking license for decades but has never succeeded. The reason is that the regulations are extremely strict; you can’t just become a bank overnight, especially if you do something completely different. But now there are stablecoins, right? Can companies issue their own currency and effectively receive deposits? Not exactly. Although I haven’t found much discussion on the subject at the moment, I’m fairly confident that stablecoin deposits will be subject to stricter regulations in the future. The reason is pretty intuitive: if it makes sense for consumers to deposit their money with Amazon rather than traditional banks (Visa partners), the latter will inevitably have less capital available for their operations, inhibiting their ability to lend money. Then try asking Amazon if they’ll give you a mortgage. But that’s not even the most serious consequence. If banks lose their importance, the economy will lack the fundamental building block for the transmission of monetary policy. Banks play a key role, and if they lose their influence, the Fed will lose its power too. No matter how much it cuts rates, banks will generally have less money to lend because depositors have moved their capital elsewhere. In my opinion, there are many flaws in the theory that Amazon and Walmart are capable of supporting their own payment system using stablecoins. Another could simply be the variation in T-Bill yields. Today, we are in a high-interest-rate environment, and we may have forgotten that until a few years ago, bonds yielded almost 0%. In the event of a recession, T-Bill yields will plummet, and Amazon (like other companies) will have to dig into its pockets to keep offering 3-4% discounts; interest income would dry up and, as a result, so would the discounts. At that point, wouldn’t it be better to get 2% cashback from Visa? And wouldn’t it be better for the company to simply entrust this laborious process to Visa? Finally, I would not take it for granted that all companies behave in an extremely transparent and correct manner. The Genius Act does not provide for capital ratios to be met by stablecoin issuers, unlike banks, because they are not expected to lend to other entities. The underlying assets of stablecoins (T-bills, cash, insured bank deposits) are held in external reserves from which the company cannot draw to finance its projects; their sole purpose is to guarantee convertibility. This is the rule, but we know that we can never trust any company 100%, and unfortunately, over the years some of them have acted in bad faith (some have done so, and we don’t even know about it). This is not the case with Amazon, as it is an extremely well-organized company, but the stablecoin of a less reliable company may not necessarily be ‘truly stable’. What if the company does not comply with the deposit segregation rule? What if it has overestimated its reserves or, worse still, is lying about them? Banks today are unlikely to make mistakes, as controls/requirements have become very stringent under Basel III, but with stablecoins the situation is not the same. Regardless of bad faith, it is not easy for a company to manage a huge amount of reserves for the issuance of stablecoins: managing deposits is something new for them. Banks have mastered this skill over decades, but to do so they have invested money and time, as it is fundamental to their core business. Amazon sells products online (not only this, of course), and although I believe it is one of the best companies in the world, it is not a given that it will be able to manage this situation in the best possible way, let alone smaller companies. While companies save on Visa fees, they may spend more on the infrastructure and staff to coordinate each transaction. Visa has an extremely scalable and cutting-edge infrastructure because it has been doing this for decades, but for a company that has never invested in its own payment system, the road ahead is uphill. Furthermore, if companies mess up with their reserves backing stablecoins, your deposits could be worth much less than you think. This is very serious because, unlike banks, there will be no FDIC to bail you out. All this for just 1-2% more return on your spending/deposited capital, assuming rates remain high. The Global Importance Of The Visa Brand The aspect that surprised me most about this whole story is that some analysts declared Visa’s demise overnight, as if what it does could be immediately replaced. This is not the case at all, otherwise this company would not be growing at double digits every year with one of the best profit margins in the world. The value it brings to the society is enormous: through it, you can pay with your card in seconds, anywhere in the world, and securely. To achieve this, Visa has built a network of millions of people who accept its payment system and have been doing so for generations. Visa’s biggest advantage is that its service is flawless, and most people don’t feel the need to switch to something new. Assuming that stablecoins are the biggest revolution in digital payments, are we really sure that people will accept this new technology regardless? Some people don’t even trust credit cards, let alone cryptocurrencies. Sure, it’s based on liquid collateral, but it’s still less reliable than currency issued by a central bank. Younger people may be more open to this alternative, but I doubt that those who have been using Visa for decades will want to change everything to get 1-2% discounts at best. Another thing that makes me think is the chaos that would arise if many companies created their own stablecoins. Amazon stablecoins would not be valid for payments at Walmart, just as Walmart stablecoins would not be valid for payments at Target. We have always had a single effective solution for everything, and it is difficult to change such a deeply rooted habit. Visa has become the company it is today because, over the decades, it has proven itself to be reliable, both for merchants and, above all, for consumers. In the US, many Visa cards have a ‘Zero Liability’ policy, meaning that you are not responsible for payments that you have not personally authorized. If your card is cloned, you are scammed, or anything else happens that harms your consumer rights, Visa is there to help you get back what you are owed by working with your card-issuing bank. Guess what happens with a stablecoin? Any payment is irreversible. The seller clearly has the advantage, but at the end of the day, the universally accepted payment method is decided by the consumer, because if they don’t feel protected, they simply won’t buy. If Amazon issued its own stablecoin, this situation would not change because it is inherent in the stablecoin system; it does not depend on the company. If someone steals your Amazon wallet credentials, the fraudster can buy whatever they want, and not only will you not receive any compensation, but you may not even know who did it. From this point of view, stablecoins have a clear disadvantage over Visa, even if they were issued by the best companies in the world. What if Amazon managed to develop a payment system as secure as Visa’s? I don’t think that’s possible, simply because I believe it has more interest in developing its own business (e-commerce, cloud) than investing tens of billions and time to compete with one of the best companies in the world. It’s much more convenient to pay the fees and focus on what is its competitive advantage. Would you buy something without any protection? Merchants would probably welcome this situation, not only because they receive the money immediately and regardless of the circumstances, but also because they would pay lower fees. Visa’s interchange fees can cost merchants up to 3% of the transaction value, which is significantly higher than the 1% charged by stablecoins. But that 2% difference covers numerous services that protect consumers, which they are unlikely to do without, not least because they do not bear the costs. Furthermore, while it is true that merchants would pay lower fees by accepting stablecoins, it is not certain that the overall result would be favorable once the stablecoins are converted into USD: conversion fees should not be underestimated. And returning to the previous question, are we sure that merchants want to hold their funds in stablecoins? They would have to blindly trust the company that issues them, as there is no FDIC to guarantee deposits. Overall, in light of these considerations, I don’t see why stablecoins should be able to dismantle Visa’s business in a short period of time. Consumers will always prefer the payment method that gives them the most protection, and it is not a given that merchants will want to accept stablecoins: their value depends on how well a company manages its reserves, and the conversion cost can be high. Personally, I see no reason for widespread use of stablecoins in developed countries in the short term; it’s a different story if you live in a country with a weak currency. In a context of double/triple-digit inflation, it makes sense to accept payment/hold in Tether to preserve your purchasing power. Are We Sure Stablecoins Are A Threat To Visa? So far, I have analyzed the relationship between Visa and stablecoins as if they were two rivals, in order to help you understand why consumers will likely continue to prefer Visa regardless. However, it is now time to make an important point: Visa has never felt threatened by stablecoins; on the contrary, it sees them as an opportunity. I cannot understand how people can really believe that a company like Visa would be caught unprepared on something we have all known about for years. In fact, Visa itself publishes stablecoin transaction volumes on its website , a sign that it is closely monitoring the situation. Visa website Management knows that stablecoins have long-term potential, which is why it is seeking to integrate them into its business rather than avoid them. It knows that transactions are faster (especially cross-border) and potentially less expensive. But at the same time, it knows that they lack consumer protections and can be inconvenient if fees must be paid to convert everything back into dollars. Blockchain is an innovative way to exchange money, but it needs Visa’s infrastructure and network to be truly appreciated by consumers on a daily basis. Visa is excited and uniquely positioned to be a leader in this space. Our scale — settling payments across a network of more than 150 million Visa-accepting merchant locations and more than 14,500 financial institutions — combined with our ability to orchestrate transactions in both fiat and stablecoins, enables us to remove market roadblocks and realize the potential of stablecoins and blockchain technology. We operate as a trusted bridge, helping connect both platforms and new technologies, including stablecoin-native players, with our global network to provide fair and open access to banking services. In the not-too-distant future, it will not be uncommon to have Visa cards with a balance in stablecoins and a balance in dollars. For over half a decade, Visa has been facilitating crypto transactions and is now further expanding the applications for stablecoins with stablecoin-linked cards, settlement and programmable money. Bridge, a Stripe company, is working with Visa on a new card product that enables fintech developers to offer stablecoin-linked Visa cards to their end customers in multiple countries through a single API integration. This will make a difference because consumers will be able to rely on the Visa ecosystem to pay in stablecoins and be protected. When you go to a store or online and want to pay with a stablecoin, Visa will automatically convert it into dollars, and the transaction will then pass through its specialized network to prevent fraudulent use. If a fraudster misuses your card, you will still be protected because the transaction ultimately takes place in dollars and not in Tether. Nothing changes for the merchant because they receive dollars, but the buyer has made their purchase with Tether instantly converted into dollars (potentially transferred at low cost on the same day from the other side of the world). The advantage of having a stablecoin-linked Visa card is not at the moment of payment, but in the holding and rapid cross-border transfer of stablecoins. This way, everyone wins, especially emerging economies with underdeveloped banking systems: this is where Visa’s big opportunity lies. We know that society is moving towards a cashless future, but without the infrastructure in developing countries, the road ahead is uphill. Visa, through stablecoins, could accelerate this process. Finally, I would like to mention one last but not least important point. Due to the nature of their business, banks (rather than Amazon or Walmart) seem to be the ideal candidates to integrate stablecoin services. They have experience in managing deposits, must comply with stringent capital requirements, and their role as ‘monetary policy intermediaries’ would not be affected. In fact, some of them are already exploring this possibility , but it has not received the same media coverage. Well, Visa could be at the forefront of this process thanks to its Visa Tokenized Asset Platform (VTAP). In practice, through this platform, banks would be able to manage and create their own stablecoins: the VTAP acts as an intermediary between the blockchain and the banks themselves. These processes are very complex, and a company like Visa has all the prerequisites to become the benchmark for this revolution in the banking sector. Visa website The giant BBVA is the first bank to test these features, which could become an integral part of their business as early as this year: We are proud to continue spearheading the exploration of tokenized solutions with Visa through its VTAP platform. This collaboration marks a significant milestone in our exploration of the potential of blockchain technology and will ultimately help enable us to broaden our banking services and expand the market with new financial solutions. Francisco Maroto, Head of Blockchain and Digital Assets at BBVA. As Steve Jobs would say, it is impossible to connect the dots looking forward (especially for such a complex topic); we can only sow seeds in the present with the aim of reaping rewards in the future. I have no doubt that Visa is sowing seeds, and I think it is much more likely that it will also manage stablecoin payments in the future than the opposite. Visa website Regardless of how many stablecoins there will be, I believe that Visa will always be at the core of the payment system. Individual companies cannot manage all of this on their own, simply because it is not their core business. Conclusion If I had the opportunity to invest in just one company, I would probably choose Visa. It is currently one of my largest holdings in my portfolio, and if the market continues to view stablecoins as a threat, I would not think twice about increasing my investment. Seeking Alpha Visa has everything I look for in a company: growing revenues, high profit margins (among the best in the world), and exceptional return on capital invested. I don’t see stablecoins as a threat; on the contrary, they are a way to spread Visa’s services to less developed countries. Stablecoins will be part of its ecosystem, and I don’t believe consumers will ever do without its protections to avoid being scammed. Visa is in the midst of its growth phase, as the world is far from being completely cashless. There are still many countries lagging behind in this regard, including my own, Italy. Its user base is set to grow over time, as are transaction fees, making it an exceptional business regardless of stablecoins. The latter will be the icing on the cake.

Source: Seeking Alpha