Editor's note: Stable coins may challenge the market monopoly of Visa and Mastercard, especially among merchants and consumers. In the context of the desire to reduce payment processing fees. The idea of ​​a stablecoin bank could become a mainstream payment method by offering lower payment fees and a better user experience. However, the widespread adoption of stablecoin payments still faces multiple challenges, including legal regulation, changes in consumer behavior, and competition with traditional financial institutions. Despite the promise, the current regulatory and legislative environment is uncertain, and the actual implementation of stablecoin banks still faces great difficulties.

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Stablecoins are a problem for the $1 trillion Visa and Mastercard duopoly. Unless Visa and Mastercard learn to adapt, pro-cryptocurrency regulations and aggressive emerging competitors will leave them in an ever more vulnerable position.

The Credit Card Competition Act (CCCA), if passed, would require big banks to provide merchants with at least one additional payment network (in addition to Visa and Mastercard, merchants are being These two payment networks are locked) to process credit card transactions. This would reduce the pricing power of Visa and Mastercard and more importantly could provide a golden opportunity for stablecoin networks to compete by lowering fees. It's worth mentioning that while the odds of this bill passing are (sadly) only 3% (in the Senate) and 9% (in the House), so while it would be nice to pass, it's currently not very likely.

Currently, Visa and Mastercard charge merchants as much as 2-3% in swipe fees - often the second largest expense for merchants, after payroll costs . Unfortunately, small merchants are disproportionately burdened with these card swipe fees. Corporate giants like Walmart are able to negotiate lower interchange fees so they can get better rates than smaller stores, which are locked into Visa and Mastercard's system. This is one reason why both Visa and Mastercard have profit margins above 50%: small businesses have no choice but to accept Visa and Mastercard because they control 80% of creditcard market. In short, merchants simply cannot disengage from these two payment networks—a “classic monopoly [bi-opoly] behavior” (Sen. Josh Hawley).

A stablecoin network could reduce these swipe fees to near zero. Merchants hate swipe fees - and quite rightly - if they can choose one. A lower network, and this network does not limit their market size (TAM), they will switch over without hesitation.

Merchants trying to avoid card processing fees is nothing new, but the real question is how to properly incentivize consumers to switch payment methods: "Why would the first person use a A new way to pay, not the millionth person?” (Peter Thiel). The growing popularity of bank-to-pay (A2A) as an option is already a small demonstration that under the right conditions, consumers will change their behavior.

Fred Wilson of Union Square Ventures even predicts that by 2025, direct bank-to-bank payments will surpass Credit card exchange payment. Better regulations, specifically Consumer Financial Protection Bureau (CFPB) Section 1033, have made it easier for retailers to offer A2A transactions — allowing them to avoid card processing fees.

More importantly, the A2A user experience may be better for consumers - imagine something like ShopPay. Walmart has launched an A2A payments product, and retailers large and small are starting to follow suit. To convince consumers to choose this payment method, Walmart is adding an instant transfer feature so consumers can avoid overdraft issues caused by multiple pending transactions.

"New technology is making A2A payments more accessible to small merchants, providing a viable alternative to avoiding card processing fees." - Ansa United Founder Sophia Goldberg.

The demand for cheaper, faster and more efficient payment methods (i.e. stablecoins) is clearly strong. The question then becomes: How exactly does the transformation of stablecoin networks work? Functionally, do consumers need a credit card with a different brand? Or they can use a normal Visa/Mastercard card, and merchants have the option to route payments to theirHis network?

This is not explicitly stated in the CCCA bill, so we will need to see how card compatibility develops for these new networks. Mass adoption requires: 1) strong incentives for customers to switch cards entirely (active adoption); or 2) a back-end transformation that allows consumers to continue using their existing cards, but with actual processing happening through the stablecoin network (passive adoption) .

One ​​incentive mechanism that would get all parties on the same page might be to launch a brand new stablecoin bank: account holders can exchange funds with participating merchants (e.g. Amazon and Walmart) get discounts, and merchants are happy to offer incentives for avoiding Visa/Mastercard’s 2-3% swipe fees.

Consumers are already increasingly concentrating their spending on a few dominant platforms, so as long as: 1) the rewards customers receive are enough to compensate for switching friction costs; and 2) the reward offered by the merchant is lower than the 2% transaction value (TPV) it pays to Visa/Mastercard, then the stablecoin bank will be a win-win situation. Consumers will still be able to earn on their deposits, as the stablecoin will operate behind the scenes, and the credit issuance itself can also be done through the stablecoin. But from a user experience perspective, consumers are still just paying with a plastic card. At that point, banks can be completely bypassed: when a customer spends money at a retailer, they're actually just transferring money from one wallet to another.

Stablecoin banks can benefit from processing fees (obviously lower than current fees), deposit earnings (revenue sharing), and when users exchange stablecoins for fiat currency Charge fees to make money. Some argue that stablecoin issuers are effectively shadow banks, but for mainstream adoption, a new stablecoin bank that works with merchants and operates from the top down may be the most effective option. If incentives are in place, consumers will join.

Take Brazil's Nubank: It succeeded at a time when banks were both the status quo and notorious for charging exorbitant fees. By offering a full-featured, mobile-focused product, Nubank lowers fees and stands out at a time when traditional banks in Brazil fail to provide convenient basic financial services.

In contrast, America’s traditional banks—while far from perfect—offer enough online and mobile features to keep most customers from switch. Nubank is known for its excellent user experience – something that could theoretically be replicated in the US. But oneA unified financial platform is more than just a great interface: it must allow customers to move across deposit accounts, stablecoins, cryptocurrencies, and even BNPL or other credit products—without forcing them to switch between different platforms. This is what Nubank does so well and demonstrates a gap in the U.S. market.

Of course, regulatory issues in the United States are also a big obstacle: Challenger banks trying to replicate a Nubank-style approach in the United States (but with stablecoins) face challenges from the OCC, the Federal Reserve and overlapping regulatory requirements from state regulators. The question of whether a stablecoin bank is viable lies in whether it would require a bank charter, the required money transfer licenses (MTLs), and other regulatory issues.

The last bank to receive a charter in the United States was Sofi (via the acquisition of Golden Pacific Bank), which received its charter almost three years ago in January 2022 . Stablecoin banks could consider creative avenues: for example, partnering with existing FDIC-insured banks or trust companies rather than pursuing a franchise directly. However, without CCCA, any new bank stablecoin payment network – even if franchised – would be limited to non-merchant payments (i.e. B2B and P2P payments).

The bipartisan stablecoin bill recently introduced by Lummis and Gillibrand will help this goal - the clear goal of the bill is to "create clarity for payment stablecoins." regulatory framework, protect consumers, promote innovation, and promote the dominance of the U.S. dollar.” While this bill is certainly a first step in the right direction, it is far less specific than the CCCA, which explicitly requires forcing banks to comply.

One ​​factor affecting the chances of a stablecoin bank’s success is the banking industry’s outsized influence in Washington; it is one of the most powerful lobbying forces in the United States. Because of this, there will be intense pressure to get the necessary legislation through Congress. Combined, the banking industry (including large, medium and small banks) spent approximately $85 million on lobbying in 2023. It’s worth noting that the numbers we see for public lobbying spending are actually much higher given the creative operations lobbyists operate through, for example, different complex entities.

A stablecoin bank needs to have a clear regulatory strategy from the beginning and sufficient financial support to withstand the lobbying pressure of traditional financial institutions. Still, the potential rewards are huge. A successful challenger could bring an integrated financial model that is missing in the United States, built entirely on stablecoins.on the basis.

If executed correctly, this will be the biggest transformation in the way consumers, merchants and banks interact – something we haven’t seen since the advent of the internet. While this is a (literally) trillion dollar market and is entirely technically feasible, stablecoin banks unfortunately rely on CCCA, which has a very slim chance of passing. Traditional institutions will fight this with all their might, because the law of nature is that the old always opposes the new. But a new one will come eventually—at least in some form.