Payment Revolution: When Stablecoins Start to Eat into the Territory of Visas

Original Title: "When Stablecoins Target the Payment Market, Can Traditional Payment Giants Still Hold Their Throne?"

Original author: 100y

Original compilation: Saoirse, Foresight News

Translator's Introduction: Today, the presence of stablecoins is no longer limited to the realm of cryptocurrency trading. With the potential to transform the backend of the financial system, they are quietly knocking on the doors of the payment market. You may wonder how this emerging role will disrupt the landscape of traditional payments. The answer lies within the article: on one hand, there are attempts to collaborate with card organizations like Visa and MasterCard to embed stablecoin functionalities into the existing networks; on the other hand, there is a desire to bypass card organizations and banks to create a new payment system. PayPal's PYUSD and the USDC payment system jointly launched by Shopify are vibrant examples of this transformation. Will stablecoins pose a threat to traditional payment giants, or will they give rise to a new industry ecosystem? This article will explore the context and direction of this payment domain transformation with you.

Although the current application of stablecoins is mostly concentrated in the cryptocurrency trading field, blockchain and stablecoins are expected to change traditional and complex financial systems such as the securities market and payment systems.

In recent years, the application of stablecoins in payment systems has been gaining momentum, and this trend is mainly advancing in two directions: 1) integrating stablecoin functions centered around card organizations; 2) attempting to completely bypass card organizations and issuing banks.

In the latter direction, PayPal's PYUSD and the USDC payment system jointly launched by Shopify, Coinbase, and Stripe are typical examples. With the development of the stablecoin industry, it is expected that more companies with a large user and merchant base will build dedicated payment systems, which could pose a threat to banks and card organizations.

The use of stablecoins is still dominated by exchanges

Source: BCG

Stablecoins have garnered significant attention both in the United States and globally. There is a lively discussion around their innovative potential in areas such as remittances, payments, real-world assets (RWAs), and interbank settlement. However, according to a report by Boston Consulting Group (BCG), cryptocurrency transactions account for as much as 88% of stablecoin trading volume in 2024. This figure reflects the current limitations in the use of stablecoins, which have not yet achieved the widespread application in the real world that we anticipate.

Stablecoins can fundamentally change the financial system

Despite the advancements in financial technology that have significantly optimized user experience in financial systems, the backend systems handling actual transactions still face inefficiencies and outdated technology. In this regard, blockchain and stablecoins are expected to bring innovation to the backend of financial systems. This is not merely an addition to the existing infrastructure, but a technology that can completely replace the current model, much like the historical transformations in financial systems.

securities market

The complexity of the backend system of the securities market is rooted in the paperwork crisis that erupted in the U.S. securities market during the 1960s and 1970s, as well as a series of policies implemented to address this crisis. At that time, securities trading relied entirely on paper documents for processing, and with the surge in trading volume, the entire system was nearly paralyzed. To address this, the U.S. Congress passed the Securities Investor Protection Act (SIPA) and amended the Securities Act, establishing a centralized clearing and settlement mechanism and an indirect securities holding system.

Initially, this system realized the digitization of securities ownership, enhancing settlement efficiency. However, at the same time, it made numerous intermediaries, such as brokers, clearing houses, and custodians, indispensable, thereby bringing about structural complexity and cost issues. Today's securities market is essentially a product of policy compromises and gradual improvements made to overcome technical limitations. Before the emergence of more advanced technologies like blockchain, this system had been in use for decades.

cross-border remittance

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is currently the most widely used system in the field of cross-border remittances. It was established in 1973 by 239 banks in Brussels as a global messaging network. Its creation aimed to replace the then existing telegraph-based international interbank communication system, which was slow and prone to errors, along with various banks adopting their own communication standards, leading to poor compatibility, inefficiency, and security risks. The emergence of SWIFT was precisely to address these issues by providing a universal communication standard and secure network.

However, SWIFT itself is only responsible for transmitting information, while the actual flow of funds must be completed through the accounts of correspondent banks or central banks, and the settlement between accounts is handled separately. The entire process involves multiple intermediary banks, each of which may cause delays due to factors such as fees, KYC/AML reviews, currency exchange, time zone differences, and holidays, ultimately resulting in high costs and low transparency for cross-border remittances. If blockchain and stablecoins had been available at that time, information transmission and fund transfer could have been completed on the same unified platform, leading to a qualitative leap in the efficiency of cross-border payment infrastructure.

Can stablecoins revolutionize the payment market?

Although there is much discussion about the innovative potential of stablecoins in various fields such as the securities market and cross-border remittances, the most anticipated next application scenario outside of exchange trading is payment systems. In fact, in the payment sector, not only Web3 companies but also mainstream Web2 companies like Visa, MasterCard, Stripe, and PayPal are actively exploring new business opportunities.

To determine whether stablecoins can truly change the existing payment system, we must first understand the operational mechanisms of the current payment system, the root causes of inefficiencies, and whether stablecoins can address these issues.

How existing payment systems work

First, understand the operation process of the payment system. When a customer makes a payment to a merchant, the process is as follows:

Authorization

1. The customer attempts to complete the payment using a bank card.
2. The POS terminal or online payment gateway sends an authorization request containing payment information to the acquiring institution.
3. The acquirer will forward the request to the card organization (e.g., VisaNet, MasterCard network).
4. The card organization forwards the request to the issuing bank.

Verification（验证）

1. The issuing bank verifies the validity of the bank card, account balance, credit limit, and whether the transaction poses any suspicious risk.
2. After verification is complete, the approval or rejection result will be returned to the acquiring institution by the card organization.
3. If the transaction is approved, the corresponding amount will be temporarily frozen in the customer's account.
4. If the transaction is rejected, the merchant will receive feedback that includes the reason for the rejection.

Capture Confirmation

• In some industries such as gas stations, hotels, and online shopping, the final amount is confirmed only after the initial authorization. Therefore, the moment the merchant sends the "deduction confirmation request" is the point at which the transaction is actually completed, and this request will be sent to the acquiring institution.

Batching

• Authorized transactions throughout the day will be consolidated into a batch and sent to the acquiring institution in one go after the business closes.

Clearing and Interchange

• The acquiring institution sends batch transaction data to the card organization.
• The card organization sends each transaction to the corresponding issuing bank and calculates the interchange fee in the process.

Settlement

• Funds are transferred from the settlement account of the issuing bank to the settlement account of the acquiring bank. Card organizations will aggregate daily transactions and generate settlement files to coordinate the settlement between both parties, but the actual transfer of funds must be completed through the interbank payment network.

Funding

• The acquirer will deposit the payment amount into the merchant's account after deducting the relevant fees, usually completed via Automated Clearing House (ACH) or wire transfer.

Reconciliation

• Finally, merchants should verify whether the received funds match their own records, checking for discrepancies in amounts, transaction omissions, or duplicate charges.

What problems exist in the current payment systems?

The two major issues often criticized in traditional bank card systems are high fees and slow settlement speeds. Are these flaws inevitable, or can they be resolved?

Source: a16z crypto

Payment Fees

Let's first look at the composition of the fees for bank card payments. From the merchant's perspective, bank card transactions involve three main types of fees:

• Exchange fee: The largest proportion, charged by the issuing bank.
• Card organization service fee: The fee charged by the card organization for transaction processing.
• Acquiring institution markup fee: A service fee charged by the acquiring bank.

Can blockchain and stablecoins reduce these costs? The first potential cost-saving point lies in global transactions. When merchants and cardholders are in different countries, settlements must go through the SWIFT system, whereas using blockchain or stablecoins instead of this process could significantly lower costs.

The second cost-saving point is to bypass card organizations and issuing banks. The essence of card organizations is to connect the communication network between the customer's bank and the merchant's acquiring bank. If stablecoin payments are fully adopted, customers can transfer directly from their self-custodied stablecoin wallet to the merchant's Web3 account through the blockchain network.

Settlement Time Aspect

Next, let's look at the settlement time. Transactions authorized via bank card payments are almost completed in real-time; in this regard, the scalability of public blockchain networks may be far inferior to that of centralized card organizations. However, in traditional bank card payments, clearing usually takes an additional 1-2 days, and settlement takes 1-5 days.

There are many reasons for the time taken for settlement, some of which can be resolved, while others are difficult to avoid:

• Settlement Cycle: Bank card payments typically aggregate daily transactions into batches and settle only once a day. In contrast, systems fully based on blockchain or stablecoins do not need to adhere to this single-day settlement cycle.
• Disputes, suspicious transactions, cancellations, and refunds: Even with stablecoin payments, these issues cannot be eliminated. Due to the inevitability of such situations during the payment process, delays in settlement are still necessary.
• Cross-border payments: When conducting cross-border transactions, funds must be settled through the SWIFT system, which further exacerbates delays. Clearly, blockchain can provide solutions in this area.

Stablecoin-Based Payment System

Recently, various financial institutions and enterprises have been turning to payment systems based on stablecoins. I believe this significant shift is mainly driven by two strategies: the first is led by card organizations such as Visa and Mastercard; the second is an attempt to completely bypass card organizations and issuing banks.

stablecoin payment centered around card organizations

As I mentioned in the article "Visa and Mastercard: Designing the Next Generation of Payment Systems," Visa and Mastercard are actively exploring ways to integrate stablecoin functionality into their own infrastructure.

• Crypto Debit Card: This type of card allows customers to make payments using stablecoins stored in their Web3 wallets or exchange accounts. Specifically, customers' stablecoins can be processed in two ways: first, they can be converted by the issuing bank into fiat currency and processed through existing payment systems; second, the card organization can receive stablecoins directly through a funding account, and then complete the transaction according to the traditional credit card payment process.
• Stablecoin settlement: As mentioned earlier, card organizations can receive stablecoins through funding accounts and can also use stablecoins to settle with acquirers.

Essentially, stablecoin payments centered around card organizations only add support for stablecoin payment and settlement within the traditional system, without changing the participants or infrastructure. Therefore, this model does not have significant advantages in terms of cost and efficiency. However, for clients and enterprises that use stablecoins natively, this model can eliminate the funding entry and exit process, reducing transaction friction; moreover, if the entire payment process is settled in stablecoins, cross-border transactions will benefit significantly.

Attempts to bypass card organizations and issuing banks

At the same time, some payment service providers (PSPs) have begun to bypass card organizations like Visa and Mastercard, directly using stablecoins to process payments. Typical examples include PayPal's PYUSD payments and the USDC payment solution jointly launched by Shopify, Coinbase, and Stripe.

PYUSD Payment Plan

PayPal users can use their PYUSD balance to complete payments within the app. These PYUSD are not stored in the user's personal wallet but are held on behalf of the users by the issuer of PYUSD, Paxos. When a PYUSD payment occurs, there is no actual on-chain transfer operation; instead, the ownership of PYUSD is internally transferred from the customer to the merchant within PayPal's backend system. If the merchant wishes to settle in fiat currency, PayPal will convert PYUSD to USD at a 1:1 ratio and transfer the funds to the merchant's account via banking networks such as ACH (Automated Clearing House).

If the customer's PYUSD balance is insufficient, they can recharge through a bank account or bank card (fees may apply); similarly, if the merchant requires fiat settlement, processing through the banking network will also incur additional fees and time costs. However, if the entire payment cycle is completed using PYUSD, it can significantly shorten time and reduce costs, as there is no need to go through card organizations or issuing banks.

Payment solution launched jointly by Shopify, Coinbase, and Stripe

Unlike PayPal, which uses stablecoins in the payment process without directly involving the blockchain network, Shopify's USDC payment solution goes a step further.

In June 2025, Shopify announced a partnership with Coinbase and Stripe to integrate USDC payments into Shopify Payments. Customers at Shopify stores can select USDC as a payment method and complete the payment through a crypto wallet that holds USDC connected to the Base network.

In this process, the smart contract "Commercial Payment Agreement" on the Base network adopts the traditional "authorization first, charge later" model to complete the payment authorization in advance, while the actual fund transfer is delayed. Shopify and Coinbase will consolidate the day's USDC transaction data and complete the settlement on the Base network.

The default method for the settlement process is as follows: Shopify converts USDC into the local currency of the merchant's region through Stripe's infrastructure, and then deposits it into the merchant's account via bank payment networks such as ACH or SEPA. Merchants can also choose to receive settlement funds directly in USDC, allowing them to access their funds more quickly.

Summary and Reflection

Regarding payment systems based on stablecoins, the most frequently asked question is: "Since blockchain transactions are inherently irreversible, how do we handle cancellations or refunds?" Although a fully peer-to-peer payment system may ultimately emerge between customers and merchants, issues such as fraud detection, chargebacks, and refunds will always exist, thus necessitating the presence of intermediary institutions in the payment process. Therefore, it is clear that the roles traditionally played by card organizations and issuing banks will not completely disappear.

However, in the aforementioned stablecoin payment cases of PayPal and Shopify, intermediary institutions such as PayPal and Stripe play the role of payment service providers (PSP), responsible for handling issues like fraud detection, transaction cancellations, and refunds. Specifically, PYUSD transactions are not processed on-chain but are completed in PayPal's backend system, which leaves room for dispute resolution; in the case of Shopify, the "Commercial Payment Protocol" smart contract on the Base network does not immediately approve payments but introduces a buffer time to deal with potential disputes. In addition, the issuer of USDC, Circle, has also launched a "Refund Protocol" for non-custodial dispute resolution in stablecoin payments.

Source: X (@robbiepetersen_)

Payment based on stablecoins is an inevitable trend of the future. The issuance process is crucial, and the circulation process should not be overlooked. As Robbie Petersen from Dragonfly pointed out, companies that already have a large base of merchants and users will increasingly adopt stablecoin payments, thereby bypassing card organizations and issuing banks. Stablecoins may even enable interoperability between such closed-loop payment systems. Given these trends, stablecoins may pose a real threat to card organizations and issuing banks, and they need to explore new opportunities in this unstoppable wave of stablecoins.

【Disclaimer】The market has risks, and investment should be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at your own risk.

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