Stablecoins’ Steady Rise

In an astonishingly brief time, crypto backed by fiat currency has been thrust from the margins to the main stage of the payments industry.

It was easy to miss because it wasn’t widely reported outside of the business press, but it carried massive meaning for the payments industry. The Wall Street Journal carried a story late in May that said payments companies controlled by the nation’s biggest banks were considering a venture to issue a joint stablecoin.

Citing “people familiar with the matter,” the story said companies jointly owned by JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and “other large commercial banks” were involved in these conversations. It wasn’t clear how far the talks have gone, though they are in “early, conceptual stages,” the paper said.

The alleged talks, the story said, had come about as a result of worries at the big banks that stablecoins could ultimately divert transactions and deposits the banking goliaths have traditionally controlled.

Whether real or not, this fear is widely recognized among the companies that enable stablecoin transactions. “Banks are losing deposits today. If they don’t offer [stablecoins], they’re going to keep leaking deposits,” says Carlos Netto, co-founder and chief executive of Matera Inc., a provider of software for core banking and instant payments. Matera is working with Circle Internet Group Inc., a stablecoin issuer.

Clearly, stablecoins have shifted rapidly from the sidelines of the payments industry to the center of the action, and in an astonishlngly brief time. “It’s the new bandwagon everybody wants to jump on,” says Enrico Camerinelli, a strategic advisor with the consultancy Datos Insights.

‘We Love That’

The move by big U.S. banks to consider a joint stablecoin isn’t the only sign that the digital currency—once considered to be among the exotica of cryptocurrencies—is now being taken seriously at the highest levels of banks, payment companies, and governments.

Last month, the U.S. Senate voted 68 to 30 to pass a bill that would establish a legal framework for stablecoin issuance and use. That vote sent the legislation, known as the Genius Act, to the House of Representatives and marked a key milestone for stablecoin acceptance and use—and probably for digital currency in general.

Now, even the biggest payments processors are sitting up and taking notice—and seeing opportunity. “We are hearing from financial institutions—what happens if [the Genius Act] passes, how do we stand it up?” noted Fiserv Inc.’s new chief executive, Michael Lyons last month, referring to creating a stablecoin business. He spoke at the Baird 2025 Global Consumer Technology and Service Conference. Fiserv processes for banks and merchants.

With respect to “standing up” a stablecoin for a bank or a merchant, the potential business isn’t lost on the Fiserv CEO. “Somebody needs to help,” said Lyons, who cited the opportunity for his company. “We love that,” he said. “We want to give our clients some basic infrastructure, that’s what’s super interesting to us. We’ve got 13,000 super-smart engineers.” Lyons this spring succeeded long-time CEO Frank Bisignano, who left to take charge of the Social Security Administration.

The Genius Act would establish a number of provisions for stablecoin regulation, but key ones include a federal route for licensing to avoid state-by-state strictures; restriction of issuance to units of insured depository institutions or entities approved by the Office of the Comptroller of the Currency; choice of federal or state oversight; a one-to-one reserve ratio based on U.S. currency or other liquid assets; and a ban on claiming stablecoins are backed by the U.S. government or the Federal Deposit Insurance Corp.

Merchant groups support the legislation, hoping it will inspire innovation that could lead to lower transaction costs. “Our view is we should have more innovation in payments,” says Doug Kantor, general counsel for the National Association of Convenience Stores and an executive committee member of the Merchants Payments Coalition.

But Kantor sees a dark side, as well. “Visa and Mastercard are also engaged in looking at stablecoins,” he notes. “If it’s just a replication of their dominance [in payments], that’s not helpful.”

‘A Fun Ride’

For many in the stablecoin universe, the importance of such regulation can’t be understated. “There are relatively few jurisdictions that have put a clear legal framework around stablecoins,” leaving banks and processors uncertain about moving ahead, says Nabil Manji, a senior vice president at the big processor Worldpay. With rules in place, “financial institutions can go explore [stablecoins] without concern whether it’s legal or not.”

Now, processors are eyeing opportunity in major markets like cross-border payments, where the ease and speed of stablecoins can help reduce transaction costs.  “Stablecoins are real-time Internet money,” says Ruben Galindo Steckel, chief executive of Airtm Inc., a 10-year-old payments platform supporting digital wallets in 190 countries.

Based in Mexico City and with an office in Delaware, Airtm recently paired with Bridge, a stablecoin-infrastructure startup acquired in February by Stripe Inc. for $1.1 billion.

With stablecoins, Airtm can convert fiat money to the digital currency, send the stablecoins to the designated wallet, and convert to local currency for the recipient. “We’re basically PayPal built on stablecoins and cross-border technology, ”Steckel says.

Another company seeing similar advantages is OpenFX, an 18-month-old startup based in San Francisco that relies on stablecoins for cross-border transfers. “Effectively, what we’re replacing here is SWIFT,” says Prabhakar Reddy, the company’s founder and chief executive, though, as he adds, “that’s 1970s infrastructure.”

Indeed, to come anywhere that kind of speed without stablecoins, “we’d have to keep money in every country,” Reddy says. For his company and those like it, “that’s no longer the case.” Now, volume is building fast. Reddy says he thought OpenFX would process $1 billion in its first year; instead, it processed $10 billion. “It’s been a fun ride,” he says.

‘Real Value’

While regulations like the Genius Act are expected to set rules that will boost stablecoins by standardizing how they must be used, there are other factors working in favor of the digital money.

One of the keys to success for stablecoins, experts point out, is their programmability—the ability to designate how the money they represent can be paid. This technology is not only key in cross-border payments but also for payments generally, observers say. “The value is in the so-called smart contracts,” says Camerinell. “That’s why stablecoins are getting so much traction.”

The key is that the smart contracts ensure a given transaction is tied to the underlying assets. “This is the value of executing a transaction without intermediaries, and once the transaction happens, you can be sure the money is there immediately,” Camerinelli adds.

But, for all their sophistication, in the end stablecoins must be backed by real, old-fashioined value, such as cash in the bank. “It’s a digital representation of something that sits somewhere else,” says Camerinelli. “You have to have real value that sits behind the stablecoin.”

As with credit and debit cards, accessing that real value carries a cost for merchants. All estimates are that cost is much less than with cards. Still, a precise figure is hard to come by. “You can reduce 60% of the cost” merchants pay for credit card transactions by accepting stablecoin, Camerinelli estimates, though he adds, “that’s my guess.”

His estimate, though, applies mainly to high-value, low-volume business-to-business cases, such as those cross-border transfers. By comparison to debit cards, stablecoin-acceptance costs may be roughly similar, say some, particularly after the transaction-pricing strictures set some years ago for debit pricing by the Durbin Amendment.

“Compared to Durbin, it’s going to be close,” estimates Cliff Gray, proprietor of the payments consultancy Gray Consulting, particularly after factoring in the merchant’s cost to convert the digital money to fiat.

“But the guy to beat is credit,” Gray says, not debit. And that means most merchants are likely to be at least open to accepting stablecoins, particularly given that crypto transactions are inherently suited to e-commerce, where merchants’ credit card costs are much higher than they are for in-person transactions.

“For debit, [merchants] don’t care because the cost is so low,” says Gray.

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Why Walmart And Amazon Are Eyeing Stablecoins

Stablecoins are starting to move beyond niche status. Both Walmart Inc. and Amazon.com Inc. are investigating whether to issue the digital currency in the U.S. market, The Wall Street Journal reported early last month.

Details are sketchy. Neither megamerchant responded to queries about the matter from Digital Transactions. It also remains unclear whether the purpose of the stablecoins, should they become a reality, would be for supplier payments or for use by consumers. But both companies operate stores and e-commerce sites in the U.S. and internationally, creating a strong incentive to adopt a currency for payments that transcends geographic boundaries, observers say.

Stablecoin technology could also offer a tempting alternative to credit cards at a time when merchants are increasingly sensitive to transaction costs. Experts point to the potential for savings on merchant acceptance if stablecoins can ultimately displace a significant share of credit card volume.

“Retailers of all sizes are looking for a go-around to branded interchange,” notes Cliff Gray, principal at Gray Consulting, in commenting on the news regarding Walmart and Amazon.

Besides savings on interchange, merchants are eyeing the coins for their ability to offer a constant value. That not only offers a potential alternative to standard bank accounts, experts say, but also an advantage for supplier payments.

Another factor merchants are weighing is a bill in Congress that would set out and clarify rules for stablecoin acceptance and use. Called the Genius Act, the potential law could ignite more moves by merchants and blockchains to cooperate on stablecoins, observers say. The bill has passed the Senate, so the action now moves to the House of Representatives.

In the case of the interest allegedly coming from Walmart and Amazon, the benefits of stablecoins could extend well beyond savings on transaction costs if offered or accepted by merchants. “Whether for suppliers or consumer purchases, stablecoins make lots of sense for retailers. No more funds volatility, and interchange costs are virtually eliminated, leaving the retailer only to negotiate fiat-to-stablecoin exchange rates,” notes Gray.

The advantages for merchants could grow as they issue more stablecoins, according to Gray. “At scale, they empower themselves as a financial network,” he says.

But while stablecoins may offer major advantages for wholesale payments, there could be drawbacks for merchants if they move to stablecoins at the point of sale, particularly in the incentives needed to move consumers en masse to a new form of payment, some observers say.

“If they issued their own stablecoins, with sufficient incentives, they could probably persuade some consumers to use them. But the incentives (yield on stablecoin deposits which might be in the form of credits to spend at Amazon and Walmart), likely would be greater than any reduction in interchange and network fees,” cautions Eric Grover, proprietor of the consultancy Intrepid Ventures, in an email message.

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Stablecoins for Payments: A Quick Primer

For those unfamiliar with the process, here’s a quick summary of how various sources describe a basic payment using stablecoins:

First, get a digital wallet from an app store. Next, buy stablecoins from an online exchange dealing in cryptocurrency. To send a payment, use the recipient’s wallet address, which is alphanumeric and unique to that user.

To send the payment, enter the sum of stablecoins you’re sending. Since blockchain transactions are irreversible, you’ll be asked to confirm the transaction. Confirm using your password, and hit send. At this point, the blockchain takes over, sending the payment to the recipient with nearly immediate effect.