Are Stablecoins A Real Threat to Visa and Mastercard Stock?

Visa stock (NYSE: V) and Mastercard stock (NYSE:MA) fell about 5% apiece on Wednesday, June 18th, as investors reacted to growing concerns that stablecoins could threaten traditional payment networks following the U.S. Senate’s passage of landmark stablecoin legislation. So was this an overreaction, or do stablecoins pose a real risk to the future growth of Visa and Mastercard?

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Stablecoins Threat To Payment Networks

Stablecoins are a category of cryptocurrencies designed to hold their value steady against fiat currencies such as the U.S. dollar and other government-issued money. In essence, stablecoins bring the U.S. dollar onto the blockchain — combining the familiarity and stability of fiat with the speed, transparency, and programmability of crypto. Stablecoins are increasingly being considered as a means of payment, not just a store of digital cash. The new stablecoin legislation is a notable win for the crypto industry, as it provides a framework to regulate digital tokens pegged to the dollar, with requirements including full reserve backing for issuers, monthly audits, and anti-money laundering compliance. Such moves could help increasingly legitimize cryptocurrencies and drive more mainstream acceptance. This could potentially enable non-financial players, such as large retailers, to issue their own dollar-backed stablecoins under federal oversight.

The implications of such a move are significant. Merchants are likely to be attracted to stablecoins’ ability to reduce processing costs by bypassing traditional payment networks like Visa and Mastercard. Unlike credit card transactions, which involve interchange fees and multi-day settlement delays, stablecoin payments can settle almost instantly. See: Can Stablecoin issuer Circle stock reach $300? 

This threat became more tangible this week with the launch of crypto exchange major Coinbase’s Coinbase Payments platform. The platform lets merchants accept USDC stablecoin payments with ease. Mimicking credit cards, the system removes much of the cost and complexity of traditional processing. Coinbase is targeting e-commerce majors such as Shopify and eBay to deploy its solutions, as this gives it access to thousands of small and medium-sized businesses who are likely to be more price sensitive. The Wall Street Journal reported that Walmart and Amazon have been exploring the option of issuing their own stablecoins in the U.S. These high-volume retailers stand to gain even more from stablecoins. Besides the cost advantage that stablecoin transactions could offer, these retailers might have more leverage to negotiate lower interchange rates with Visa and Mastercard. This could allow them to save potentially billions of dollars in fees and boost profitability. The most at-risk revenue stream for Visa and Mastercard could be cross-border payments, where fees are high and settlement is slower. Stablecoins can process these transactions much faster and cheaper, threatening a key driver of the card networks’ profitability.

Not An Immediate Shift

That said, the shift won’t be immediate, and we don’t think stablecoins will supplant card networks anytime soon. Credit cards have become a way of life for consumers and are deeply embedded in consumer behavior, offering not just convenience and familiarity but also credit access and loyalty rewards that stablecoins currently lack. Regulatory uncertainty, user trust, and wallet infrastructure challenges also remain hurdles to the widespread adoption of stablecoins at this point. Additionally, Visa and Mastercard are looking to innovate in the stablecoin space. Visa has already piloted settling transactions in USDC, and both networks are exploring ways to modernize cross-border payments using blockchain-based infrastructure. These moves could help them stay relevant even if the industry takes steps towards crypto.

Visa and Mastercard stock could see volatility as stablecoins gain traction. On the other hand, the Trefis Reinforced Value (RV) Portfolio has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics

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