(Bloomberg) — Stablecoins have become one of the hottest buzzwords in the world of finance as of late with US lawmakers on the cusp of passing the first guidelines for mainstream use of the cryptocurrencies designed to mirror the dollar.
Everyone from banks to securities firms to fintech startups are experimenting with the tokens as a means of making payment systems faster and cheaper. That apparently even includes Walmart Inc. and even Amazon.com Inc., the Wall Street Journal reported Friday.
But for most retailers, stablecoins are more likely the newest avenue to gain traction for themselves in a long-running dispute with the likes of Visa Inc. and Mastercard Inc. over the fees merchants pay to accept consumer cards.
In the US, most consumers carry credit or debit cards which offer convenience, fraud protections and, in the case of credit products, rewards programs. The plastic conveniences are handy for consumers but frustrate merchants who pay fees for card processing to banks and networks like Visa and Mastercard. Additionally, funds from card transactions can take a couple days to settle in merchant accounts.
“The reason why the fees are so high is that Visa and Mastercard each organize banks all around the country into the dictionary definition of a pricing cartel, and they tell them how much to charge merchants,” said Doug Kantor, general counsel for the National Association of Convenience Stores. “The result is all of these banks that are supposed to be competitors, don’t compete on the price to merchants of accepting a card.”
The card networks say they’re taking proactive steps to be key infrastructure providers in the stablecoin ecosystem. Last year, Visa announced a platform to help banks issue their own fiat-backed tokens. More recently, the network partnered with Stripe’s Bridge unit to allow businesses to launch stablecoin-linked cards. Mastercard, for its part, recently added stablecoin settlement support for merchants.
Mastercard referred Bloomberg News to a statement last month where Chief Product Officer Jorn Lambert said that “unlocking this is core to how we navigate the rapidly changing world, giving people and businesses the freedom they want by providing the choices they deserve.”
A Visa representative didn’t respond to a request for comment.
Meanwhile, Shopify Inc. announced this week it would allow merchants on its platform to accept stablecoin payments in an offering powered by Stripe Inc and Coinbase Global Inc. Stripe’s recently acquired Bridge unit also offers a platform helping businesses launch their own stablecoins.
While instant settlement for merchants sounds appealing, it’s not a useful change if merchants can’t use the stablecoins to pay vendors or run their operations, Sanjay Sakhrani, managing director and senior analyst at Keefe, Bruyette & Woods Inc., said. PayPal Holding Inc. is attempting to address this concern by building a platform helping merchants pay their vendors abroad in stablecoin.
Another key hurdle stablecoins face for retail transactions is convincing consumers there’s a meaningful advantage over the cards they’re accustomed to using and, in the case of credit products, allow them to earn rewards. Stablecoins also require consumers have cryptocurrency wallets which often need to be set-up via third party platforms like MetaMask or Coinbase Wallet and add friction to the buying experience.
“The price and settlement time is really beneficial to the merchant, but it doesn’t really mean a whole lot to the consumer,” KBW’s Sakhrani said.
The landmark stablecoin legislation progressing through the Senate has won enthusiastic backing from retailers eager to explore the technology’s potential as a bargaining chip in negotiations for lower rates from the networks, or to circumvent them altogether.
The reigning alternative payment method is pay-by-bank, a category of products enabling consumers to pay merchants directly from their bank accounts, without using a credit or debit card. Walmart has emerged as a leader in that category, and last year announced an upgraded pay-by-bank offering. Fintech Plaid Inc. is also taking strides in the pay-by-bank category, and a bid by Visa to acquire the firm was abandoned amid a prolonged antitrust fight with the US Justice Department over concerns the network was attempting to eliminate a nascent competitor to its online debit business.
A Walmart spokesperson declined to comment on the Wall Street Journal report. Amazon representatives didn’t respond to requests for comment.
Despite the longtime efforts to popularize an alternative to card payments, pay-by-bank has been slow to gain traction in the US and has left a graveyard of attempts in its wake. Merchant Customer Exchange (MCX), for example, was behind an effort by a consortium of US retailers, including Walmart and Target, which didn’t gain widespread adoption before it was acquired by JPMorgan Chase & Co. nearly a decade ago.
The long history of attempts to popularize pay-by-bank may foreshadow some of the speed bumps ahead for stablecoin adoption.
“Any new system will have its challenges, its risks, its costs, and stablecoins will be subject to these same forces” said Scott Talbott, executive vice president at the Electronic Transactions Association.
More stories like this are available on bloomberg.com
