Market Opportunities for Stablecoins from the Perspective of Credit Card Networks
In the credit card ecosystem, major enterprises rise through coordination, issuing innovations, and empowering factors of form, and stablecoins are similarly applicable.Original Title: “What Credit Card Networks Can Teach Us About Stablecoin Opportunities”
Author: Alana
Compiled by: Deep Tide TechFlow
Stablecoins represent the most transformative evolution in payment forms since credit cards, changing the way money flows. With low cross-border fees, near-instant settlement, and global access to widely demanded currencies, stablecoins have the potential to improve the financial system. For those holding dollar deposits that back digital assets, they can also be very profitable businesses .
Currently, the total amount of stablecoins globally exceeds 150 billion dollars. There are five stablecoins with a circulation of over 1 billion dollars: USDT (Tether), USDC (Circle), DAI (Maker), First Digital USD (Binance), and PYUSD (PayPal). I believe we are moving towards a world with more stablecoins—a world where every financial institution will offer its own stablecoin.
I have been considering the opportunities that arise with this growth. I think observing the maturity of other payment systems, especially credit card networks, may provide some insights.
How Similar Are Credit Card Networks and Stablecoin Networks?
For consumers and merchants, all stablecoins should feel like dollars. However, in reality, each stablecoin issuer handles dollars differently, stemming from various issuance and redemption processes, reserves backing each stablecoin supply, different regulatory frameworks, the frequency of financial audits, and so on. Addressing these complexities will be a huge business opportunity.
We have seen this situation before in credit cards. Consumers use assets that are almost interchangeable but not entirely interchangeable to make purchases, which act as dollars (they are loans against dollars, but these loans are not comparable because people's credit scores vary). There are networks—such as Visa and Mastercard—that coordinate payments across the entire system. Moreover, the stakeholders in both systems (who may eventually) look similar: consumers, consumers' banks, merchants' banks, and merchants.
An example may help illustrate the similarities in network structure.
Imagine you go out to eat and pay the bill with a credit card. How does your payment reach the restaurant's account?
Your bank (the credit card issuing bank) authorizes the transaction and sends the funds to the restaurant's bank (known as the acquiring bank).
An interchange network—such as Visa or Mastercard—facilitates the exchange of funds and charges a small fee.
The acquiring bank then deposits the funds into the restaurant's account but deducts a fee.
Now, suppose you want to pay with a stablecoin. Your bank, Bank A, issues the AUSD stablecoin. The restaurant's bank, Bank F, uses FUSD. These are two different stablecoins, although they both represent dollars. The restaurant's bank only accepts FUSD. So how does the payment in AUSD convert to FUSD?
Ultimately, this process will be very similar to the process of the credit card network:
The consumer's bank (issuing AUSD) authorizes the transaction.
A coordination service exchanges AUSD for FUSD and may charge a small fee. This exchange can occur in several different ways:
Path 1: Using a decentralized exchange for stablecoin-to-stablecoin swaps. For example, Uniswap offers multiple liquidity pools with fees as low as 0.01%. (3)
Path 2: Converting AUSD to dollar deposits, then depositing those dollar deposits into the acquiring bank to issue FUSD.
Path 3: The coordination service can offset the flow of funds within the network; this may only be realized when scale is achieved.
FUSD is deposited into the merchant's account, possibly deducting a fee.
Where Analogies Start to Diverge
The above describes what I believe to be the obvious similarities between credit card networks and stablecoin networks. It also provides a useful framework for thinking about where stablecoins might effectively upgrade and surpass certain elements of credit card networks.
The first difference lies in cross-border transactions. If the above scenario involves a U.S. consumer dining at a restaurant in Italy—the consumer wants to pay in dollars while the merchant wants to receive euros—the existing credit cards charge fees exceeding 3%. In contrast, the conversion between stablecoins on a decentralized exchange (DEX) can have fees as low as 0.05% (a 60-fold difference). Applying such a reduction in fees broadly to cross-border payments makes it clear how much productivity stablecoins could add to global GDP.
The second difference is in the payment flow from businesses to individuals. The time between payment authorization and the actual departure of funds from the payer's account is very rapid: once funds are authorized, they can leave the account. Instant settlement is both valuable and sought after. Additionally, many businesses have a global workforce. The frequency and amount of cross-border payments may far exceed those of ordinary consumers. The trend of globalization in the workforce should provide strong momentum for this opportunity.
Thinking About the Future: Where Might Opportunities Exist?
If the comparison between network structures holds directionally, it helps reveal potential entrepreneurial opportunities. In the credit card ecosystem, major players emerge through coordination, issuance innovation, and structural factors. The same applies to stablecoins.
The previous example primarily described the role of coordination. This is because moving funds is a big business. Visa, Mastercard, American Express, and Discover all have market capitalizations of at least several billion dollars, with a total value exceeding 1 trillion dollars. The existence of multiple credit card networks indicates that competition is healthy and the market is large enough to support major players. It is reasonable to speculate that similar competition will exist for coordination in stablecoins in mature markets. We only have 1-2 years to build sufficient infrastructure for stablecoins to succeed on a large scale. New startups still have ample time to pursue this opportunity.
Issuance of stablecoins is another area for innovation. Similar to the growth of corporate credit cards, we may see a similar trend where businesses want to have their own white-label stablecoins (Note: white-label stablecoins are those issued by companies or organizations, with branding and identifiers customized by the issuer rather than identified by the stablecoin's technology provider). Having a unit of expenditure can better control the entire accounting process, from expense management to handling foreign taxes. This could become a direct business line for stablecoin coordination networks or an opportunity for emerging startups (for example, similar to Lithic). Derivatives of this corporate demand may lead to the emergence of more new businesses.
Issuance can also become increasingly specialized in many ways. Consider the emergence of tiers. In many credit cards, customers can pay upfront fees to receive better reward structures, such as Chase Sapphire Reserve or AmEx Gold. Some companies (typically airlines and retailers) even offer exclusive credit cards. If similar experiments with tiered stablecoin rewards emerge, I would not be surprised. (4) This could also provide an opportunity for startups.
In many ways, all these trends mutually reinforce growth. As issuance diversifies, the demand for coordination services also increases. As coordination networks mature, this will lower the barriers to competition for new issuers. All of this represents a tremendous opportunity, and I look forward to seeing more startups in this space. In the long run, these markets will reach trillion-dollar scales and should be able to support many large enterprises.
