Stablecoins won't displace credit cards for consumer payments

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The cryptocurrency world loves to predict the imminent demise of traditional financial intermediaries. Enthusiasts argue that stablecoins will soon render payment networks like Visa obsolete, but this view oversimplifies the dynamics at play. In fact, it misunderstands consumer behavior and the sophisticated ecosystem that makes credit cards more resilient than they appear. The future likely isn't about replacement — it's about coexistence and evolution.

The standard analysis focuses on transaction fees, pointing out that merchants pay 2% to 3% for credit card processing when blockchain-based alternatives might cost a fraction of that. However, this perspective fails to account for the complex incentive structure that makes the current system so deeply entrenched. This ecosystem creates stickiness that's hard to disrupt.

Credit card networks have created what economists call a multisided platform where every participant except the merchant benefits financially. Networks collect fees, banks receive interchange, processors take their cut and — this is crucial — consumers get rewarded through points, miles or cash back. In this equation, consumer loyalty is effectively bought, making it difficult for new systems to break through.

The discussion often overlooks the fact that credit cards are fundamentally lending products. When a consumer swipes their card, they're not spending their own money — they're borrowing the bank's money, typically interest-free, for about 30 days. This built-in credit function makes cards not just payment tools, but financial instruments that offer liquidity and flexibility unmatched by stablecoins today. Even with stablecoins' lower fees, the incentives to switch remain limited.

Most consumers prefer spending borrowed funds rather than their own capital, and they especially like being rewarded for doing so. The psychology here is powerful: Getting 2% to 5% back on purchases creates a dopamine hit that pure "cost saving" can't match. Even if stablecoins offer lower fees, they don't yet provide a clear consumer incentive to switch. I would rather charge purchases to my card offering 5% back and let my stablecoins continue earning yield for as long as possible before eventually paying my credit card bill.

What about risk? Consider this scenario: You can spend $30,000 on your Visa card, and Chase Bank might never get paid back. This credit risk doesn't exist in a pure stablecoin transaction. Additionally, try recovering a stablecoin accidentally sent to the wrong address — it's gone forever. By contrast, Visa's dispute resolution system offers a safety net that consumers have come to expect. Unauthorized charges are reversed with a phone call, no questions asked.

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These consumer protections aren't free. They're funded largely through interchange fees that merchants pay. The price isn't arbitrary, they are the cost of maintaining a system that provides security, credit and incentives for users.

History consistently shows how difficult it is to change payment behavior. Many large retailers have tried steering customers toward lower-cost payment options by offering discounts exceeding the card fees they try to avoid. Yet most consumers stick with credit cards. The combination of short-term credit, purchase protection and rewards creates a compelling value proposition that modest discounts can't overcome.

That said, stablecoins aren't without potential. The interesting twist is that Visa itself may not be particularly threatened by stablecoins. As a "network of networks," Visa could just as easily connect two stablecoin-based financial institutions as it currently connects traditional banks. The company has already begun piloting settlement using USD coin on ethereum. Rather than displacing Visa, stablecoins could simply become another rail within its existing infrastructure. Traditional banks, rather than networks, may face the greater existential threat as stablecoins gain adoption in cross-border transactions and institutional settlements.

For stablecoins to meaningfully disrupt consumer payments, they'll need to solve three challenging problems simultaneously: offering credit solutions that don't require immediate spending of assets, creating compelling reward programs and providing robust fraud protection with transaction reversibility. Without these, stablecoins remain an interesting alternative — but not a true rival to major networks.

Direct wallet-to-wallet payments do represent a legitimate long-term concern for payment networks. But the path to disruption is longer and more complex than stablecoin enthusiasts typically acknowledge.

The most probable outcome isn't replacement but integration — Visa and other networks will likely incorporate stablecoins into their existing infrastructure while preserving the features consumers value. Instead of an overnight upheaval, we're more likely to see a slow evolution where stablecoins enhance, rather than overthrow, the current system. The radical transformation of consumer payments will come eventually but don't expect your Visa card to become obsolete anytime soon.