How Visa's rising support for stablecoins could popularize the tech

David Paul Morris/Bloomberg

A new initiative from Visa, which uses stablecoins to declutter cross-border business-to-business payment processing, could open digital assets to a vast new range of users.  

The card network announced Tuesday that it has enabled settlement with Circle's USDC stablecoin at merchant acquirers Worldpay and Nuvei, with more users anticipated in the future. Using Visa's Circle account, the card network can send settlement payouts in USDC to Worldpay and Nuvei, which then route these payments in USDC to their merchant clients —  a process that attempts to cut time and expense for cross-border business payments.  

Visa's initiative comes as PayPal works on its own stablecoin and Mastercard adds partners to work on central bank digital currencies and other forms of crypto, including stablecoins. The payments companies are seeking to carve out a place in the burgeoning digital-asset industry by offering scale and technology to merchants and issuers that need to support a growing range of payment options while containing expenses. 

Payments

Visa working with Brazil's farmers to cultivate uses for CBDC

May 23, 2023 9:26 AM

"[Visa's announcement] is an important step for stablecoins specifically and digital currencies more generally as it demonstrates some of the utility that has been promised for a long time," said James Wester, co-head of payments research for Javelin Strategy & Research. 

Visa's Worldpay/Nuvei announcement follows a Visa stablecoin issuer pilot with the cryptocurrency exchange Crypto.com, which uses the USDC stablecoin to settle obligations for Visa cards in Australia and intends to expand to other countries. Visa envisions its support for both issuing and settlement in stablecoins as options for merchants that are seeking more customers in new markets and for larger B2B transactions that require faster, less expensive settlement. 

"The types of merchants that are interested in it today are already in the crypto sector, such as a crypto exchange or an NFT marketplace," said Cuy Sheffield, head of crypto for Visa. "But as more merchants understand how these new methods work, there may be interest from other kinds of companies that may find it easier to use a blockchain or a stablecoin instead of international wires, Swift and correspondent banks."

Visa is using Solana, a blockchain designed for mass usage that can process about 5,000 transactions per second at a cost of $0.00025 per transaction — this cost and volume are better than most traditional international payment methods and settle in near real-time rather than several business days, Sheffield said. The card network also supports ethereum, a blockchain that powers smart contracts, which automatically trigger transactions when certain preset conditions are met. 

Costs for cross-border B2B payments can be tens or hundreds of dollars per transaction, depending on the payment and parties, according to Richard Crone, a payments consultant.  "This is about cost takeout. International B2B settlements are nearly all manual operations that use wires, which are very expensive," Crone said. 

USDC, Solana and ethereum can improve the speed of cross-border settlement and provide an easier option to send and receive funds via Visa's treasury management service, according to Sheffield. 

"For treasury executives, if you use stablecoins and a faster blockchain it's easier to know where the funds are with instant settlement, rather than tracking payments through a number of stops such as correspondent banks," said Sheffield. 

Worldpay did not provide comment by deadline. In Visa's announcement Worldpay said Visa's USDC settlement capability enables the payment processor to bring more treasury operations in-house and offer merchants a more diverse and flexible range of funding options. 

Worldline's assertion that the Visa/USDC partnership enables it to retain more cross-border payment processing is a key point, according to Crone. 

"The existing international methods are up to 70 years old and based on mainframe batch processing, taking days to clear and settle," Crone said. "They're being replaced by systems that take fractions of a second at fractions of a penny." 

Stablecoins are a form of cryptocurrency that are backed by reserves, normally U.S. dollars or U.S. Treasuries. This backing is designed to achieve the speed that decentralized finance provides by avoiding traditional processing steps such as foreign exchange conversion and correspondent banking while avoiding the volatility of other cryptocurrencies. 

Stablecoins have faced controversy, reluctant bank support and in some cases outright failure. Visa's collaboration with Circle and the payment processors addresses a major concern for merchants of all sizes as they seek more consumers and suppliers outside of their home markets while managing compliance and foreign exchange. Correspondent banks have traditionally managed these needs, adding time and costs to processing, creating an opportunity for new payment technology. For example, the blockchain company Ripple for years has enabled international payments as an alternative to traditional methods. 

By providing a faster settlement mechanism, and by allowing acquirers to move money to their merchants instantly, even across borders, Visa's support for stablecoins via USDC offers significant opportunities for liquidity, Wester said. "It allows merchants to access their funds immediately but in a way that eliminates a lot of the complexity that working with crypto has required to this point," Wester said. 

Visa's announcement Tuesday builds on several digital currency projects at Visa. Visa is engaged with multiple central banks on potential central bank digital currencies, and recently worked with Brazil's central bank to use CBDCs to increase potential investors in the country's agricultural sector, which has traditionally been limited to local in-person investment. 

"If you are an issuer bank you can settle through wires as long as you like. But if you have merchants that are interested in experimenting with new rails, it's another option," Sheffield said. There is more interest from banks outside the U.S. in new digitized assets such as stablecoins and central bank digital currencies, but Visa is laying the groundwork for greater interest from banks over time, according to Sheffield.  "We want Visa to be a resource for banks if and when they are ready and still make this technology available to fintechs and other companies."