Visa: Too Long Since The Last Misinformed Panic, Enter ‘Stablecoin’

Summary Stablecoin regulation and headlines have sparked fears about Visa’s future, but concerns are overblown given Visa’s adaptability and expansive competitive moat. It’ll be long before stablecoins replicate that, if ever. Visa’s competitive moat is its unmatched consumer trust which drives conversions, robust payment ecosystem, and unparalleled capabilities that are critical for global commerce. Even if stablecoins gain traction, Visa is already positioned to participate and benefit through existing partnerships and stablecoin-related services. Visa’s fundamentals remain strong; I see the recent dip as a buying opportunity and reiterate my ‘buy’ rating on Visa shares. It’s been too long since the last time markets panicked over a possible disintermediation threat to payment networks, right? The tension has been building up for a while, and the ‘Stablecoin Threat’ has now started to take its toll on Visa ( V ) and Mastercard ( MA ) valuations. What is a stablecoin, what’s in the ‘Genius Act’, and should Visa investors be worried? Let’s dive in. Stablecoin 101 One of the core original visions for the blockchain technology, and specifically bitcoin, was that it will enable a world of commerce based on a decentralized currency, meaning that there won’t be a central authority like a bank or government that controls it. Over time, it became clear that bitcoin and other cryptocurrencies are perceived by many people as store-of-value assets, resembling gold. However, unlike gold, cryptocurrencies are not backed by a physical asset. In addition, for reasons that are beyond the scope of this article, cryptocurrencies turned out to be extremely volatile, making them unreliable for day to day commerce. Data by YCharts Enter stablecoin. The idea behind this type of cryptocurrency is quite simple. Every stablecoin is backed by an asset, the most popular one being the US Dollar, making it a stable representative of value. The two largest stablecoin tokens by market cap are Tether, issued by iFinex, with a $156 billion market cap, and USDC, issued by Circle ( CRCL ) and Coinbase ( COIN ) in a joint venture, with a $61 billion market cap. The amount in circulation grew rapidly since their inception. In the case of USDC , it nearly doubled over the past year, and rose 200x since 2019. That said, it remains miniscule compared to the US Dollar, which is in the trillions, no matter which measure you choose. The Genius Act & Stablecoin Mania What’s all this noise about stablecoin all of a sudden? Well, I think it’s the result of several developments over the past year. The most critical of which is the Genius Act. The act, which seeks to create a regulatory framework for stablecoins, was passed in the Senate yesterday. The primary acts of the bill include a formal definition of payment stablecoins, establishing an issuance licensing procedure, mandating a 1:1 reserve, and implementing transparency and auditing requirements. A clear regulatory framework is something the industry has been clamoring for a while, and even before the passing of the bill in the Senate, business activity in the industry accelerated. In February of this year, Stripe, one of the largest private companies based on valuation and one of the largest fintech companies in the world, closed a deal to acquire Bridge. The acquisition was priced at $1.1 billion, for a company that’s focused solely on stablecoin payments. Data by YCharts Two weeks ago, Circle Internet Group, which has a stablecoin business, completed an IPO valuing the company at a ~$7 billion market cap. With the passing of the bill and the surging interest in stablecoins, the stock is up nearly 7x from the IPO price and almost 2.5x from the actual initial public trading price. Meanwhile, Coinbase, which is a partner in the USDC joint venture, owns an equity stake in Circle, and has a revenue sharing agreement with the company, has also seen its shares rise nearly 21% over the past month. Lastly, and perhaps the most important part from Visa’s perspective, is that two of the largest retailers in the world, Amazon ( AMZN ) and Walmart ( WMT ), are reportedly looking to issue their own stablecoins. In addition, Shopify ( SHOP ), which is responsible for huge payment volumes itself, announced a partnership with Stripe and Coinbase to accept USDC payments. Visa Faced Many ‘Life-Ending Threats’ Over The Years, This Time It’s Different? From digital wallets and open banking , to buy-now-pay-later , retailer consortiums , local payment schemes , or crypto, the list of threats that were supposed to bring the end of Visa and Mastercard’s domination is quite long. Stablecoin could be the biggest threat yet, with a total transfer volume higher than $27 trillion in 2024. I’ve seen some people comparing and contrasting these figures to the payment volumes reported by the payment networks, but that’s not a relevant comparison, as the majority of that volume is just for buying and selling crypto. Now, just like the other threats in the list above, the biggest misconception is Visa’s opportunities in the new line of business. Digital wallets and tap-to-pay turned out to be one of the single-most important growth drivers for the legacy payment networks. Open banking is one of the fast-growing segments under Visa’s Value-Added Services , BNPL players are key partners, and local payment schemes are big customers. In stablecoin, Visa already has a decently-sized business , and major partnerships with Stripe, Bridge, and Crypto.com. It also settled over $225 million in commerce payments, and expects to cross $1 billion over the next 12 months. Further, it has a treasury business and stablecoin-linked Visa cards. The Role Of Payments, And Visa’s Real Moat More often than not, companies that are demonized for their dominant position in their respective markets have attained and kept their position by simply offering the best solution. Apple ( AAPL ) is constantly criticized for its App Store practices, but it turns out most users want to install and make purchases through Apple rails rather than third-party options. Google ( GOOG ) (GOOGL) is constantly scrutinized for monopoly practices in the search and ads space, but for many years Google held over a 90% share because users preferred its product over all the alternatives, and it increasingly seems like the websites that demonized Google for unfairness have needed Google much more than it needed them. There are many more examples, and in my view, it’s a key lesson for Visa and Mastercard bears. The reality is consumers have almost zero complaints over the way payments are done today. Network-based fraud is minimal. The capabilities are almost endless, from returns and cancellations to multi-stage transactions and real-time FX. The ecosystem is extremely evolved, with millions of participants, reward systems, and discounts. So, the real question is, what’s stablecoin right to win? And the answer is that consumers aren’t really the ones asking for change, it’s the retailers, who seem to believe they can find a cheaper way to facilitate payments (and remember, the majority of their costs are actually because of fees that go to banks and issuers, not the payment networks). Now, for stablecoins to be beneficial to retailers, they need to meet several hurdles. One, their overall costs, comprising fees and adoption incentives, need to be lower than those of legacy networks. Two, and that’s the most critical one, they need to at least be on par when it comes to conversion. It seems very long ago, but paying with a credit card used to be something many people were scared to do. That was a common phenomenon not only on the internet, but also physically. Today, it’s almost a no-brainer for most people, but payment ethos remains a major factor in converting a sale. In fact, one of Shopify’s biggest value propositions with Shop Pay is that it drives conversion because of its trustworthiness and familiarity. To sum up, the way I see it is that stablecoins don’t have a right-to-win with most consumers. Retailers and companies like Bridge will have to carry the load of driving its adoption over legacy payment methods, and it will be very hard to do so at a net positive value due to costs and conversion rates. And, even if stablecoins do become a major way of conducting commerce, Visa is already right there to take part. Visa – Valuation & Outlook Visa laid out its growth framework for the next few years in its February 2025 investor day, with revenue growth of 9%-12%, and EPS growth faster than revenues, driven by margin expansion and buybacks. Consumer payments are expected to grow at a 5%-7% rate, while value-added services and commercial & money movement solutions (previously new flows) are expected to grow in the range of 16%-18%. Seeking Alpha. Right now, consensus is at ~10% revenue growth and ~13% EPS growth for the foreseeable future, which I find to be on point. Stablecoins, whether they are a huge thing or a complete failure, will have very little to do with Visa’s ability to deliver on these expectations. That said, they could have a meaningful effect on the multiple that the market would be willing to pay for Visa, at least as long as the mania lasts. Data by YCharts At $340 a share, Visa, with its fortress balance sheets, unparalleled profitability, and double-digit growth prospects, is trading at ~26 times 2026 earnings, reflecting about a 2x PEG. Historically, Visa trades above 30 times forward earnings, and I expect that if it weren’t for the stablecoin risk, it would have traded somewhere in that range, reflecting a $400 price target by the end of 2025. Conclusion I view stablecoins as another threat that doesn’t justify the near-term panic reflected in Visa shares, which have shed about $50 billion in value due to stablecoin worries. Visa’s dominant position in the value chain isn’t a fluke, and it’s not only because of simple first-movers advantage. It is the result of years of innovation, meeting all the needs of its stakeholders, and an unparalleled value proposition across costs and conversion rates. Even if stablecoins become huge, I expect Visa will be a leader in the space, especially in everything related to commerce. As such, I encourage investors to exploit the dip, and reiterate Visa as a ‘Buy’.

Source: Seeking Alpha