Do stablecoin payments pose a threat to banks and credit card networks?

Article author:Heechang Kang, Jinsol Bok Article compilation: Block unicorn

Key Points

• Although the current use of stablecoins mainly stems from cryptocurrency transactions, blockchain and stablecoins have the potential to change traditional complex and cumbersome financial systems such as securities markets and payment systems.

• Recently, the adoption of stablecoins as payment systems has been gaining momentum, with two main directions: 1) integrating stablecoin functions around credit card networks; 2) bypassing credit card networks and issuing banks completely.

• In the latter direction, PayPal's PYUSD and the USDC payment system in collaboration with Shopify, Coinbase, and Stripe are typical examples. As the stablecoin industry develops, it is expected that more companies with large user and merchant bases will build their own payment systems. This may pose a threat to banks and credit card networks.

1. Potential of Stablecoins

1.1 Use of Stablecoins ...3 style="text-align: center">

Stablecoins have attracted much attention not only in the United States but also around the world. Discussions are actively underway on their potential for innovation in areas such as remittances, payments, real assets (RWA), and interbank settlements. However, according to a report by the Boston Consulting Group (BCG), 88% of stablecoin transaction volume in 2024 will come from crypto transactions. This reflects the current limitations of stablecoin usage and shows that its application in the real world has not yet met expectations.

1.2 Stablecoins can fundamentally change the financial system

Although advances in fintech have significantly improved the user-friendliness of the financial system, the back-end systems that handle actual transactions remain inefficient and outdated. In this regard, blockchain and stablecoins have the potential to revolutionize the back-end of the financial system. This is not just about supplementing the existing infrastructure, but providing a technology that can completely replace the existing system, similar to the transformation of the financial system in history.

1.2.1 Securities Market

The complexity of the securities market backend has its roots in the paperwork crisis in the US securities market in the 1960s and 1970s and the policy responses to address this problem. At the time, securities transactions were processed on paper. As trading volumes surged, the system almost came to a standstill. To address this problem, the US Congress passed the Securities Investor Protection Act (SIPA) and amendments to the Securities Act, establishing a centralized clearing and settlement structure and an indirect securities holding system.

Initially, this system achieved the digitization of securities ownership and improved settlement efficiency. However, it also made numerous intermediaries such as brokers, clearing houses and custodians indispensable, causing structural complexity and cost issues. Today's securities market is the product of policy compromises and incremental improvements under technological limitations. In the absence of better technologies such as blockchain, this system has continued for decades.

1.2.2 Cross-border Remittances

SWIFT is the most widely used system for cross-border remittances. It was established in Brussels in 1973 by 239 banks 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 speed and security issues. To address these issues, SWIFT developed a common language and secure network.

However, SWIFT only transmits messages. The actual funds transfer is carried out through the accounts of the correspondent bank or the central bank, and the settlement between the accounts is handled separately. The involvement of multiple intermediary banks increases delays caused by fees, KYC/AML checks, currency conversion, time zone differences, holidays, etc. This leads to high costs and low transparency. If blockchain and stablecoins existed at the time, message transmission and funds transfer could be processed on a single unified platform, enabling a more efficient cross-border payment infrastructure.

2. Can stablecoins change the payment market?

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

To judge whether stablecoins can truly change the existing payment system, we must first understand how the current payment system works, the reasons for its inefficiency, and whether stablecoins can solve these problems.

2.1 How the existing payment system works

2.1.1 How the payment system works

When a customer pays a merchant, the process is as follows:

Authorization

1. The customer attempts to pay using a credit card.

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

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

4. The credit card network passes the request to the issuing bank.

Verification

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

2. After verification, the approval or rejection response is sent to the recovery agency through the credit card network.

3. If approved, the corresponding amount will be temporarily withheld from the customer's account.

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

Capture

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

Batching

Transactions authorized throughout the day are grouped into batches and sent all at once to the acquirer after the close of business.

Clearing and Interchange Fees

1. The acquirer sends the batch data to the card networks.

2. The card networks route each transaction to the relevant issuing bank, calculating interchange fees in the process.

Settlement

1. Funds are transferred from the issuing bank's settlement account to the acquiring bank's settlement account. The credit card network aggregates daily transactions and generates settlement documents to reconcile the two parties, but the actual funds transfer is carried out through the interbank payment network.

Funds Transfer

1. The acquiring institution deposits the payment amount (after deducting relevant fees) into the merchant's account and sends the funds to the merchant via ACH or wire transfer.

Reconciliation

1. Finally, the merchant checks that the funds received match their records and reviews whether there are any discrepancies, omissions, or duplicate charges.

2.2 What is the problem? What is not a problem?

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

2.2.1 About Payment Fees

First, let's look at the fees for credit card payments. From the merchant's perspective, there are three main fees involved in card transactions:

1. Interchange fees:

   1. The largest part, charged by the issuing bank.

   2. Scheme fees:The fees charged by the card networks for processing the transaction.

   3. Acquirer markup fees:The fees charged by the acquiring bank.

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

   The second area is to bypass the credit card network and the issuing bank to reduce fees. What is the essence of the credit card network? It is a communication network that connects the bank where the customer holds funds and the bank where the merchant receives funds. If stablecoin payments are fully adopted, customers can pay directly from their self-hosted stablecoin wallet to the merchant's Web3 account through the blockchain network.

   2.2.2 About Settlement Time

   Next, let's look at settlement time. In credit card payments, transaction authorization is almost real-time. In this regard, the scalability of public blockchain networks may be far less than that of centralized credit card networks. However, in traditional credit card payments, clearing usually takes an additional 1 to 2 days, and settlement takes another 1 to 5 days.

   There are multiple reasons why settlements take time, some of which can be solved and some of which cannot:

   • Clearing time:Creditcard payments typically batch all daily transactions and settle once a day. Systems based entirely on blockchain or stablecoins do not need to follow this daily settlement cycle.

   • Disputes, suspicious transactions, cancellations, refunds:

     • Even with stablecoin-based payments, these issues cannot be solved. As these situations are inevitable in payments, settlement delays are still necessary.

     • Cross-border payments:When conducting cross-border transactions, funds must be settled via SWIFT, causing further delays. This is an obvious area where blockchain can provide a solution.

     3. Stablecoin-based payment systems

     Recently, we have seen various financial institutions and companies begin to move towards stablecoin-based payment systems. I believe this huge shift is happening through twostrategies. The first is the strategy led by card networks such as Visa and Mastercard. The second strategy is to try to bypass the card networks and issuing banks entirely.

     3.1 Card Network-Centric Stablecoin Payments

     

     As I discussed in my article “Visa and Mastercard, Designing the Next Generation Payment System,” Visa and Mastercard are actively exploring ways to integrate stablecoin functionality into their infrastructure.

     • Crypto debit cards:These cards allow customers to pay with stablecoins stored in Web3 wallets or exchange accounts. In this case, the customer's stablecoins are either converted into fiat currency by the issuing bank and processed through existing payment systems, or the card network receives the stablecoins directly through its funding account and then processes them according to the process of traditional card payments.

     • Stablecoin settlement:As mentioned above, the card network can accept stablecoins through a funding account and settle with the acquirer in stablecoins.

     

     Essentially, card network-centric stablecoin payments simply add stablecoin payment and settlement support to the traditional system. The participants and infrastructure remain unchanged. Therefore, the system does not provide significant advantages in terms of cost or time. However, for customers and companies that naturally use stablecoins, such a system can reduce transaction friction by skipping the conversion process between fiat currency and cryptocurrency. In addition, cross-border transactions will have obvious benefits if the entire payment process is settled in stablecoins.

     3.2 Initiatives to Bypass Card Networks and Issuing Banks

     Meanwhile, some payment service providers (PSPs) are using stablecoins to process payments bypassing card networks such as Visa and Mastercard. These cases include PayPal’s PYUSD payments and the USDC payment program in partnership with Shopify, Coinbase, and Stripe.

     3.2.1 PYUSD Payments

     PayPal users can use their PYUSD balances to make payments within the PayPal app. These PYUSD holdings are not stored in the user's own wallet, but in the account of Paxos, the issuer of PYUSD. When a PYUSD payment occurs, there is no actual movement of PYUSD on the chain. Instead, the ownership of PYUSD is transferred from the customer to the merchant in the background of PayPal. If the merchant wishes to settle in fiat currency, PayPal will convert PYUSD to US dollars at a ratio of 1:1 and settle the payment to the merchant through a bank network such as ACH.

     If the customer's PYUSD balance is insufficient, they can top up through a bank account or card, which may incur fees. Similarly, if the merchant requires settlement in fiat currency, going through the bank network may result in additional fees and time. However, if the entire payment cycle is completed in PYUSD, there is no need to go through the card network or issuing bank, which can significantly reduce time and costs.

     3.2.2 Shopify x Coinbase x Stripe Payment

     

     PayPal's stablecoin payment does not directly involve the blockchain network, while Shopify's USDC payment goes a step further.

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

     Here, the smart contract "Commerce Payments Protocol" on the Base network uses the traditional "authorize first, capture later" process to authorize payments in advance, and the actual funds transfer will be carried out later. Shopify and Coinbase will aggregate USDC transaction data within a day and clear it 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 through bank payment networks such as ACH or SEPA. This conversion is handled by Stripe's infrastructure. Merchants can also choose to settle directly in USDC, thus getting their funds faster.

     4. Final Thoughts

     The most frequently asked question about stablecoin-based payment systems is:"Since blockchain transactions are inherently irreversible, how are cancellations or refunds handled?"While a fully peer-to-peer payment system between customers and merchants may eventually emerge, issues such as fraud detection,cancellationsandrefundswill always exist, so intermediaries in the payment process will still be necessary. Therefore, the role of card networks and issuing banks, which traditionally perform these functions, will not disappear completely.

     However, in the above-mentioned stablecoin payment cases of PayPal and Shopify, intermediaries such as PayPal and Stripe took on the role of payment service providers (PSPs), handling issues such as fraud detection, cancellations, and refunds. In the case of PYUSD, transactions are not processed on-chain, but in PayPal's backend, which leaves room for dispute resolution. In the case of Shopify, the Commerce Payments Protocol smart contract on the Base network introduced a buffer time instead of approving payments immediately, allowing disputes to be handled. In addition, USDC issuer Circle released a refund protocol for non-custodial dispute resolution.

     

     Stablecoin-based payments are the inevitable future. Just as issuance is important, distribution is equally important. As Dragonfly's Robbie Petersen points out, companies with large merchant and customer bases will increasingly adopt stablecoin payments and bypass card networks and issuing banks. Stablecoins may even enable interoperability between these closed-loop payment systems. Given these trends, stablecoins may pose a real threat to card networks and issuing banks, and these institutions need to explore new opportunities in this unstoppable wave of the stablecoin industry.