Are Stablecoin Payments a Threat to Banks and Card Networks?

*Asia Stablecoin Alliance is launched by Heechang Kang and Jinsol Bok from Four Pillars, along with Alex Lim (Jongkyu Lim), the Korea lead at LayerZero, to accelerate stablecoin adoption across Asia and to serve as a research and community hub for establishing clear stablecoin strategy and technical infrastructure. (X Link, Substack Link)

Key Takeaways

• While most current use of stablecoins originates from cryptocurrency trading, blockchain and stablecoins hold the potential to transform traditionally complex and heavyweight financial systems such as securities markets and payment systems.
  

• Recently, there has been growing momentum to adopt stablecoins in payment systems, and this is largely taking place in two directions: 1) integration of stablecoin functionalities centered around card networks and 2) efforts to bypass card networks and issuing banks entirely.
  

• In the latter direction, PayPal’s PYUSD and the USDC payment system by Shopify x Coinbase x Stripe are representative examples. As the stablecoin industry develops, more companies that already have large user and merchant bases are expected to build their own payment systems. This could pose threat to banks and card networks.

1. The Potential of Stablecoins

1.1 Stablecoin Usage Still Dominated by Exchanges

Source: BCG

Interest in stablecoins is high not only in the United States but also globally. Discussions are actively taking place around their potential to innovate in areas such as remittances, payments, RWAs, and interbank settlement. However, according to BCG’s report, crypto trading accounted for 88 percent of stablecoin transaction volume in 2024. This reflects the current limitations of stablecoin usage, showing that it still falls short of the real-world applications we hope for.

1.2 Stablecoins Can Fundamentally Transform the Financial System

While fintech advancements have made financial systems significantly more user-friendly, the backend systems that handle actual transactions remain inefficient and outdated. In this regard, blockchain and stablecoins have the potential to innovate even the backend of the financial system. This is not merely about complementing the existing infrastructure but about offering technology that can completely replace it, much like the historical transformation of financial systems.

1.2.1 Securities Market

The reason the backend of the securities market has become so complex lies in the paperwork crisis of the 1960s and 1970s in the US securities market and the policy responses aimed at resolving it. Back then, securities transactions were processed on paper. As trading volumes surged, the system reached a near standstill. To address this, the US Congress introduced the Securities Investor Protection Act (SIPA) and amendments to the Securities Act, establishing a centralized clearing and settlement structure along with an indirect securities holding system.

Initially, this system brought about digitalization of securities ownership and improvements in settlement efficiency. However, it also made numerous intermediaries such as brokers, clearinghouses, and custodians essential, creating structural complexity and cost issues. Today’s securities market is ultimately a product of policy compromises and incremental improvements made to overcome technological limitations. It is a system that has persisted for decades in the absence of better technology like blockchain.

1.2.2 Cross-border Remittances

SWIFT, the most widely used system for cross-border remittances, is a global messaging network established in 1973 in Brussels by 239 banks. It was created to replace the slow and error-prone Telex-based international interbank communication system. At the time, each bank used its own communication standards, resulting in low compatibility, slow speeds, and security issues. To solve this, SWIFT was developed to provide a common language and secure network.

However, SWIFT itself only transmits messages. The actual movement of funds occurs through the accounts of correspondent banks or central banks, with settlement between accounts handled separately. Multiple intermediary banks are involved, each adding delays due to fees, KYC/AML checks, currency conversion, time zone differences, holidays, and more. This results in high costs and low transparency. If blockchain and stablecoins had existed back then, messaging and fund transfer could have been handled on a single unified platform, enabling a far more efficient infrastructure for cross-border payments.

2. Can Stablecoins Transform the Payments Market?

While various potential use cases such as securities markets and cross-border remittances are discussed as systems that stablecoins could innovate, the most widely anticipated next use case after exchange trading is the payment system. In fact, in the payments sector, not only Web3 companies but also major Web2 companies such as Visa, Mastercard, Stripe, and PayPal are actively exploring new business opportunities.

To determine whether stablecoins can truly transform the existing payment system, we must first examine how the current payment system works, where inefficiencies arise, and whether stablecoins can address these issues.

2.1 How the Existing Payment System Works

2.1.1 How the Payment System Works

When a customer makes a payment to a merchant, the process works as follows:

Authorization

1. The customer attempts to make a payment using a card.

2. The POS terminal or online payment gateway sends an authorization request containing payment information to the acquirer.

3. The acquirer forwards this request to the card network (e.g., VisaNet, Mastercard Banknet).

4. The card network delivers the request to the issuing bank.

Verification

1. The issuing bank verifies the validity of the card, the account balance, credit limit, and whether the transaction is suspicious.

2. Once verification is complete, the approval or decline response is sent back to the acquirer through the card network.

3. If approved, the corresponding amount is temporarily held on the customer’s account.

4. If declined, the merchant receives a response with the reason for the decline.

Capture

1. In some industries such as gas stations, hotels, and online shopping, the final amount is confirmed after initial authorization. Therefore, the point at which the merchant sends a capture request is when the transaction is effectively finalized, and this request is sent to the acquirer.

Batching

1. Authorized transactions throughout the day are grouped into a batch and sent to the acquirer all at once after business closes.

Clearing and Interchange

1. The acquirer sends the batched data to the card network.

2. The card network routes each transaction to the relevant issuing bank and calculates the interchange fees during this process.

Settlement

1. Funds move from the issuing bank’s settlement account to the acquiring bank’s settlement account. The card network aggregates daily transactions and generates a settlement file to coordinate between both parties, but the actual movement of funds takes place via interbank payment networks.

Funding

1. The acquirer deposits the payment amount to the merchant, minus the applicable fees. ACH or wire transfer is used to send funds to the merchant.

Reconciliation

1. Finally, the merchant checks whether the received funds match its own records and reviews for any discrepancies, omissions, or duplicate charges.

2.2 What Is the Problem and What Is Not?

The biggest issues often pointed out in the traditional card system are high fees and slow settlement times. Are these drawbacks inevitable, or can they be solved?

Source: a16zcrypto

2.2.1 In Terms of Payment Fees

Let us first look at card payment fees. From a merchant’s perspective, there are three main types of fees incurred during card transactions:

1. Interchange Fee: The largest portion, collected by the issuing bank.

2. Scheme Fee: A fee charged by the card network for processing the transaction.

3. Acquirer Markup Fee: A fee collected by the acquiring bank.

Can blockchain and stablecoins reduce these fees? The first area of potential savings is in global transactions. When the merchant and the cardholder are in different countries, settlement must go through SWIFT. If this process is replaced with blockchain or stablecoins, it can significantly lower costs.

The second area is bypassing the card network and issuing bank to reduce fees. What is the essence of a card network? It is a communication network that connects the bank where the customer holds funds with the bank where the merchant receives them. If stablecoin payments are fully adopted, the customer could pay directly from their self-custodied stablecoin wallet to the merchant’s Web3 account via a blockchain network.

2.2.2 In Terms of Settlement Time

Next, let us examine settlement time. In card payments, transaction authorization happens almost in real time. In this respect, public blockchain networks may be far less scalable than centralized card networks. However, in traditional card payments, clearing typically takes an additional 1 to 2 days, and settlement another 1 to 5 days.

There are multiple reasons why settlement takes time. Some are solvable, while others are not:

• Clearing Time: Card payments typically batch all daily transactions and process clearing once per day. A fully blockchain or stablecoin-based system does not need to follow this one-day clearing cycle.

• Disputes, Suspicious Transactions, Cancellations, Refunds: These issues cannot be solved even with stablecoin-based payments. Since such cases inevitably occur in payments, a delay in settlement remains necessary.

• Cross-border Payments: When making a cross-border transaction, funds must go through SWIFT for settlement, causing further delays. This is clearly an area where blockchain can offer a solution.

3. Stablecoin-based Payment Systems

Recently, we have seen various financial institutions and companies move toward adopting stablecoin-based payment systems. I believe this massive shift is happening through two strategies. The first is led by card networks such as Visa and Mastercard. The second involves efforts to bypass card networks and issuing banks altogether.

3.1 Stablecoin Payments Centered on Card Networks

As I discussed in my article “Visa & Mastercard, Designing Next-Gen Payment Systems,” Visa and Mastercard are actively exploring ways to integrate stablecoin functionality into their infrastructure.

• Crypto Debit Cards: These allow customers to pay using stablecoins stored in their Web3 wallets or exchange accounts. In this case, the customer’s stablecoin is either converted into fiat by the issuing bank and processed through the existing payment system, or the card network receives the stablecoin directly through a treasury account and then follows the same process as a traditional card payment.

• Stablecoin Settlement: As mentioned above, card networks can accept stablecoins via treasury accounts and also settle with acquirers in stablecoins.

In essence, stablecoin payments centered on card networks merely add stablecoin payment and settlement support to the traditional system. The participants and infrastructure remain unchanged. Therefore, this system does not offer significant advantages in terms of cost or time. However, for customers and companies that natively deal with stablecoins, this system can reduce transaction friction by skipping the on/off ramp process. Additionally, if the entire payment flow is settled in stablecoins, there can be clear benefits for cross-border transactions.

3.2 Efforts to Bypass Card Networks and Issuing Banks

At the same time, there are cases where PSPs bypass card networks such as Visa and Mastercard to process payments using stablecoins. These include PayPal’s PYUSD payments and the Shopify x Coinbase x Stripe USDC payment initiative.

3.2.1 PYUSD Payments

PayPal users can use their PYUSD balances within the PayPal app to make payments. These PYUSD holdings are not in the user's own wallet but exist in the account of Paxos, the issuer of PYUSD. When a PYUSD payment occurs, there is no actual on-chain movement of PYUSD. Instead, ownership of the PYUSD is transferred internally from the customer to the merchant on PayPal’s backend. If the merchant wants to settle in fiat, PayPal converts PYUSD to USD at a 1 to 1 ratio and settles the payment to the merchant via bank networks such as ACH.

If the customer lacks sufficient PYUSD balance, they can top up through their bank account or card, which may incur fees. Likewise, if the merchant requests settlement in fiat, going through bank networks can result in additional fees and time. However, if the entire payment cycle is conducted in PYUSD, there is no need to go through card networks or issuing banks, and this can significantly reduce time and cost.

3.2.2 Shopify x Coinbase x Stripe Payments

Whereas PayPal uses stablecoins without directly involving a blockchain network in the payment process, the USDC payments on Shopify take a step further.

In June 2025, Shopify announced a partnership with Coinbase and Stripe to integrate USDC payments into Shopify Payments. Customers can select USDC as a payment method on Shopify stores and connect a crypto wallet holding USDC on the Base network to make the payment.

Here, the Commerce Payments Protocol, a smart contract on the Base network, authorizes payments in advance using a traditional “Authorize Now, Capture Later” flow, with the actual fund transfer occurring later. Shopify and Coinbase aggregate USDC transaction data over the course of a day and perform clearing on the Base network.

For settlement, the default method is for Shopify to convert USDC into the merchant’s local currency and deposit it into the merchant’s bank account via bank payment networks like ACH or SEPA. This conversion is handled using Stripe’s infrastructure. Merchants may also opt to receive direct settlement in USDC, allowing for faster access to funds.

4. Final Thoughts

The most frequently asked question about stablecoin-based payment systems is, “Since blockchain transactions are inherently irreversible, how can cancellations or refunds be handled?” While a fully peer-to-peer payment system between customers and merchants could eventually emerge, issues such as fraud detection, chargebacks, and refunds will always exist, so intermediaries in the payment process will continue to be necessary. Therefore, the roles of card networks and issuing banks that have traditionally fulfilled these functions will not disappear entirely.

However, in the stablecoin payment cases discussed above from PayPal and Shopify, intermediaries such as PayPal and Stripe serve the PSP role and handle issues like fraud detection, cancellations, and refunds. In the case of PYUSD, transactions are not processed on-chain but within PayPal’s backend, which allows room for dispute resolution. In the Shopify case, the Commerce Payments Protocol smart contract on the Base network introduces a buffer time instead of approving payments immediately, allowing for dispute handling. Additionally, USDC issuer Circle has released a Refund Protocol for non-custodial dispute resolution in stablecoin payments.

Source: X (@robbiepetersen_)

Stablecoin-based payments are an inevitable future. Just as issuance is important, so is distribution. As Robbie Petersen from Dragonfly noted, companies that already have a large base of merchants and customers will increasingly adopt stablecoin payments and bypass card networks and issuing banks. Stablecoins may even enable interoperability between such closed-loop payment systems. Given these trends, stablecoins could pose a real threat to card networks and issuing banks, who will need to explore new opportunities within this unstoppable wave of the stablecoin industry.