Author: Sam Broner, a16z crypto investment partner; Compiled by: 0xjs@金财经

Today’s payments landscape is dominated by gatekeepers who charge exorbitant fees that undermine everyone they touch profitability of the business and justify these fees in the name of ubiquity and convenience—while they stifle competition and limit builders’ creativity.

Stablecoins can do better.

Stablecoins have lower fees, greater competition among payment providers, and wider accessibility. Because stablecoins reduce transaction costs to almost zero, they allow businesses to escape the friction that comes with existing alternatives. Stablecoin adoption will start with businesses most affected by current payment methods, a process that will disrupt the payments industry.

Stablecoins have become the cheapest way to transfer U.S. dollars. Last month, 28.5 million unique stablecoin users sent over 600 million transactions. Stablecoin users are found in almost every , and they use stablecoins because they provide a safe, cheap, and inflation-proof way to save and spend. Besides cash and gold, stablecoins are the only widely adopted payment method that can operate without gatekeepers such as banks, payment networks or central banks. At the same time, stablecoins are permissionless to program, scalable, and integrated—anyone can help build stablecoin payment platforms on the stablecoin payment rails.

This disruption may take time, but it may happen faster than many expect. Businesses such as restaurants, retailers, businesses, and payment processors will benefit the most from stablecoin platforms, with profit margins increasing significantly. This demand will drive adoption, and as stablecoin adoption continues to increase, the other benefits of stablecoins—permissionless composability and improved programmability—will bring greater benefits to on-chain users, businesses, and products. What a benefit. I’ll share more of the whys and hows below, starting with some background on the payments industry.

Payment Track

•Payment Channel: The technology, rules and networks that process transactions

•Payment Processor: The operator on the payment track that facilitates transactions

• Payment service provider: An entity that provides access to payment systems to end users or other systems

• Payment solution: Products provided by payment service providers

•Payment Platform: A suite of related payment solutions covering providers, processors and rails

Payments Industry Background

The scale of the payments industry cannot be underestimated. In 2023, the global payments industry processed 3.4 trillion transactions worth up to US$1.8 trillion, generating US$2.4 trillion in revenue. The U.S. alone accounts for $5.6 trillion in credit card payments and $4.4 trillion in debit card payments.

Despite the industry’s ubiquity and scale, payment solutions remain expensive and complex, and payment apps often block consumptionreader’s experience. For example, while peer-to-peer payments app Venmo has a deceptively simple front-end, on the back-end, the product hides intricate bank integrations, debit card vulnerabilities, and myriad compliance obligations. Payment solutions often rely on each other, which adds to the complexity, and people still use a variety of payment methods: cash, debit cards, credit cards, peer-to-peer payment apps, ACH (Automated Clearing House), checks, etc.

The four main metrics for payment products are timeliness, cost, reliability and convenience.

Consumers’ priority questions include “How much will I pay?” Merchants will ask “Will I get paid?” But in fact these four indicators are very important to both parties. Said it is essential.

Ever since businesses have had to hunt for fraudulent credit cards in their physical ledgers, waves of innovation have improved the payment experience. Each wave of innovation has led to faster, more reliable, more convenient and cheaper payment methods, which in turn has led to an increase in transaction volumes and dollar amounts spent.

But many customers still do not enjoy modern services, or do not enjoy adequate services. For merchants, credit cards are expensive, directly eroding their profits. Despite the increasing adoption of real-time payments (RTP), U.S. bank transfers are still too slow, taking days. And peer-to-peer applications are region and network specific, making transfers between ecosystems slow, costly and complex.

While businesses and consumers have come to expect more sophisticated functionality from payment platforms, not all users benefit from existing solutions. In fact, most users pay too much and don’t use all bundled payment products. But they accepted the current situation.

Stablecoins fit in here

The key to stablecoins disrupting the industry lies in the failure of existing payment solutions (high cost, low usability, or high friction), and the bundled products of payment solutions (including identity, Lending, compliance, fraud protection, and bank integration) are least necessary.

Take remittances, for example, which were born out of desperation. Many remittance users are underbanked and use highly fragmented banking services. As a result, these users see no value in native integration between traditional payments and banking services. Stablecoin payments offer instant certainty, low costs and no middlemen, which are structural advantages for any payments user or builder. After all, with stablecoins, sending $200 from the United States to Colombia costs less than $0.01, but would cost $12.13 via traditional channels. (Remittance users who need to send money home regardless of transaction costs would greatly benefit from lower fees.)

International business payments, especially small businesses in emerging markets, also face high fees , slow processing times and low bank support ratings. For example, a payment between a Mexican clothing manufacturer and a Vietnamese textile manufacturer will involve four or more intermediaries - local bank, foreign exchange, correspondent bank, agentBanking, foreign exchange, local banks. Each intermediary charges a certain percentage of fees and runs the risk of the middleman going bankrupt.

Fortunately, these transactions occur between partners who have a regular relationship. With stablecoins, Mexican payers and Vietnamese payees can experiment and eliminate slow, bureaucratic and expensive intermediaries. They may have to work hard to find local channels and workflows, but ultimately they can enjoy faster, cheaper transactions and more control over the payment process.

Small transactions (especially face-to-face transactions with low fraud, such as those conducted in restaurants, coffee shops, or corner stores) are also a promising opportunity. These businesses are cost-sensitive due to low profit margins, so the 15-cent transaction fee charged by a payment solution has a big impact on their profitability.

For every $2 a customer spends on coffee, only $1.70 to $1.80 goes to the coffee shop, with the remaining nearly 15% going to the credit card company—just to facilitate the transaction. But credit cards are here just for convenience: Neither consumers nor stores need the extra features to justify the charge. Consumers don't need fraud protection (they just got a cup of coffee) or a loan (the coffee is only $2). And coffee shops have limited compliance and banking integration needs (coffee shops often use comprehensive restaurant management software or not at all). So if there is a cheap, reliable alternative, these businesses will take advantage of it.

Cheaper payments improve profitability

Current payment system transaction fees directly harm the bottom line of many businesses. Reducing these expenses will result in huge profitability. The first boots have already dropped: Stripe announced that they will charge 1.5% for stablecoin payments, which is 30% lower than the fee they charge for credit card payments. To support this effort, Stripe announced the acquisition of Bridge.xyz for approximately $1 billion.

Wider adoption of stablecoins will significantly improve the profitability of many businesses – not just small ones like coffee shops or restaurants. Let's look at the fiscal 2024 financials of three public companies to get a rough idea of ​​the impact of lowering payment processing rates to 0.1%. (For convenience, this evaluation assumes the business pays a 1.6% blended payment processor cost and minimal deposit and withdrawal costs. See below for more information on this.)

Walmart Annual Revenue 6,480 billion, potentially paying $10 billion in credit card fees and generating $15.5 billion in profits. Do the math: Factor in the elimination of payment fees and Walmart's profitability, so its valuation (controlling for all other factors) could potentially increase by more than 60% just from a cheaper payment solution.

Chipotle is a rapidly growing fast food restaurant with annual revenue of $9.8 billion. Its annual profits are $1.2 billion, and its$148 million was paid in credit card charges. Just by lowering expenses, Chipotle could improve profitability by 12%—a staggering number not found elsewhere on its income statement.

National grocer Krogers has the lowest profit margins and therefore the most profit. Surprisingly, Krogers' net revenue and paid costs are likely nearly equal. Like many grocery stores, its profit margins are less than 2%, less than what businesses charge to process credit card payments. With stablecoin payments, Krogers could double its profits.

How will Walmart, Chipotle and Krogers reduce transaction fees through stablecoins? First, consider an idealized scenario: consumers won’t accept stablecoins all at once, and until a stablecoin gains enough acceptance, there will still be considerable fees, especially when starting and stopping use. Second, both retailers and payment processors are opposed to high-fee payment solutions. Payment processors are also low-margin businesses, giving up most of their profits to credit card networks and issuing banks. When payment processors process transactions, much of their fees are passed on to the payment network. So when Stripe handles the online retail checkout process, they take a 2.9% fee and a $0.30 fee from the total transaction, but they pay over 70% of the fee to Visa and the issuing bank. As more payment processors (such as Block - formerly known as Square, Fiserv, Stripe and Toast) adopt stablecoins to improve profit margins, they will make stablecoins more accessible to more businesses.

Stablecoins have low fees and no network gatekeeper fees. This means that payment processors receive much higher profit margins on stablecoin transactions. Higher profit margins may prompt payment processors to support and encourage more businesses and use cases to use stablecoins. But as payment processors begin to adopt stablecoins, stablecoin payment fees are expected to compress over time: Stripe’s 1.5% fee is likely to decline.

Next step: mass consumer adoption

Today, stablecoins are a new, permissionless way to send and store money. Entrepreneurs are already building solutions to transform stablecoin rails into stablecoin platforms. As with previous innovations, adoption will happen gradually, starting at the fringes of consumer demand, then forward-thinking enterprises, until the platform matures enough to meet the needs of everyday users and cautious enterprises. Three trends will drive more mainstream enterprises to adopt stablecoins.

1. Increased backend integration through stablecoin aggregation

Stablecoin aggregation (the ability to monitor, guide and integrate stablecoins) will soon be integrated into payment processors such as Stripe. These aggregated products enable businesses to process payments at a much lower cost than current mechanisms, without the need for significant process or engineering changes. Consumers may end up being more convenient without even realizing itThe best product because invoicing, payroll, and subscriptions have lower structural costs by default.

Many of these stablecoin aggregators have begun onboarding customers who want instant settlement, low cost, and widely available business-to-business or business-to-consumer payments. By integrating stablecoins in the backend, businesses will benefit from the advantages of stablecoins — without interrupting or reducing the quality of service users expect from payment providers, while stablecoin adoption will increase.

2. Improve the enterprise entry process and increase shared incentives

The stablecoin business is becoming increasingly mature in bringing end users into the chain through shared incentives and improved entry solutions.

Entry is becoming cheaper, faster, and more common, making it easier for users to start using cryptocurrencies. At the same time, a growing number of consumer applications support cryptocurrencies, allowing users to benefit from the expanding stablecoin ecosystem—without the need to adopt new applications or user behaviors. Popular apps like Venmo, ApplePay, Paypal, CashApp, Nubank, and Revolut all allow their customers to use stablecoins.

Moreover, companies are more motivated to use these channels to integrate stablecoins and deposit funds into stablecoins. Issuers of fiat-backed stablecoins like Circle, Paypal, and Tether are sharing profits with regular businesses, much like Visa shares profits from signed-up credit card users with United and Chase. Such collaborations and integrations benefit stablecoin issuers as they can create larger pools of assets to generate revenue from. But they can also benefit businesses that successfully convert users from credit cards to stablecoins. These businesses can now earn a portion of the money generated from their products, a business model typically reserved for banks, fintechs and gift card issuers that make money off user float.

3. Increase regulatory transparency and availability of compliance solutions

When companies are confident in the regulatory environment, they are more likely to adopt stablecoins. While we have yet to see comprehensive global regulation of stablecoins, many jurisdictions have issued rules and guidance for stablecoins, allowing entrepreneurs to begin the hard work of building compliant, user-friendly businesses.

For example, the EU’s Markets in Crypto-Assets Regulation (MiCA) sets out rules for stablecoin issuers, including prudential and conduct requirements. The regulation has significantly transformed the European stablecoin market since stablecoin provisions came into effect earlier this year.

Although the United States currently lacks a stablecoin framework, framers from both parties are increasingly recognizing the need to formulate effective stablecoin legislation. Such regulation needs to ensure that issuers fully back their tokens with high-quality assets, have their reserves audited by third parties, and take comprehensive measures to combat illegal financial activities. At the same time, legislation needs to preserve the ability of creators to create decentralized stablecoins by eliminating intermediariesTo reduce user risks and take advantage of decentralization.

These efforts will allow companies across a variety of industries to consider moving from traditional payment methods to stablecoin infrastructure. While compliance solutions are unattractive, everyone who adopts a stablecoin helps demonstrate to existing businesses that stablecoins are a reliable, secure, regulated, and improved solution to traditional payments problems.

As stablecoins gain popularity, the network effect of the platform will become stronger and stronger. While it may still be several years before stablecoins are available at the point of sale or as a replacement for bank accounts, as the number of stablecoin users grows, stablecoin-centric solutions will become more mainstream and beneficial to consumers, It is also more attractive for businesses and entrepreneurs.

Trends: Why stablecoins will continue to improve

As adoption progresses, the products themselves will continue to improve. The web3 community is celebrating stablecoin adoption, and for good reason: stablecoins are climbing the value innovation S-curve thanks to years of investment in infrastructure and on-chain applications. As infrastructure improves, on-chain applications become more abundant, and on-chain networks grow, stablecoins will become more attractive to users. This will be achieved in two ways.

First, the painstaking engineering of crypto infrastructure makes sub-1 cent stablecoin payments possible. Future investments will continue to make transactions cheaper and faster. At the same time, stablecoin aggregation and an improved onboarding experience are only possible through better wallets, bridges, deposits and withdrawals, developer experience, and AMMs.

This technological foundation provides entrepreneurs with increasing incentives to build stablecoins that provide a better developer experience, a rich ecosystem, a broad Permissionless composability of applications and on-chain currencies.

Secondly, stablecoins unlock new user scenarios through the permissionless composability of on-chain currencies. Other payment platforms have gatekeepers that force entrepreneurs to work with withdrawal networks, such as costly intermediaries in credit card transactions or international payments. But stablecoins are self-custodial and programmable, lowering the barriers to creating new payment experiences and integrating value-added services. Stablecoins are also composable, allowing users to benefit from increasingly powerful on-chain applications and increasing competition. For example, stablecoin users are already benefiting from DeFi, on-chain subscriptions, and social applications.

Conclusion

Stablecoins can lead us into a world of free, scalable, and instant payments. As Stripe CEO Patrick Collison puts it, stablecoins are “the room-temperature superconductor of financial services.” They will enable businesses to pursue new opportunities that would otherwise not be able to withstand the burden of existing payment channels or the friction of traditional gatekeepers.

In the short term, stablecoins will produce structural changes in financial products as payments become free and open. Existing payments companies will seek new ways to make money, either by charging a percentage of revenue or by selling services that complement this new commoditized platform. As these traditional businesses recognize the changing landscape, entrepreneurs will create new solutions to help these businesses take advantage of stablecoins.

In the long term, as stablecoins gain popularity and technology advances, startups will seize the opportunities presented by a world of free, frictionless and instant payments. These startups will be launched today, unlocking new and unexpected scenarios and further democratizing the opportunities offered by the global financial system.

Acknowledgements: Special thanks to Tim Sullivan, Aiden Slavin, Eddy Lazzarin, Robert Hackett, Jay Drain, Liz Harkavy, Miles Jennings, and Scott Kominers for their thoughtful feedback and suggestions that made this article possible.