Authors: Heechang Kang, Jinsol Bok
Compiled by: Block unicorn
Key Points
While the current use of stablecoins mainly stems from cryptocurrency trading, blockchain and stablecoins have the potential to transform traditional complex and cumbersome financial systems, such as the securities market and payment systems.
Recently, there has been a growing momentum for adopting stablecoins as a payment system, primarily in two directions: 1) integrating stablecoin functionalities around credit card networks; 2) completely bypassing credit card networks and issuing banks.
In the latter direction, PayPal's PYUSD and the USDC payment system in collaboration with Shopify, Coinbase, and Stripe are typical examples. As the stablecoin industry evolves, it is expected that more companies with a large user and merchant base will build their own payment systems. This could pose a threat to banks and credit card networks.
1. The Potential of Stablecoins
1.1 The Use of Stablecoins is Still Primarily Exchange-Based
Stablecoins are attracting attention not only in the U.S. but globally. Discussions are actively ongoing regarding their potential for innovation in areas like remittances, payments, real-world assets (RWA), and interbank settlements. However, according to a report by the Boston Consulting Group (BCG), 88% of stablecoin transaction volume in 2024 is expected to come from crypto trading. This reflects the current limitations of stablecoin use and indicates that its applications in the real world have yet to reach expectations.
1.2 Stablecoins Can Fundamentally Change the Financial System
Although advancements in fintech have significantly improved the user-friendliness of financial systems, the backend systems that handle actual transactions remain inefficient and outdated. In this regard, blockchain and stablecoins have the potential to revolutionize the backend of the financial system. This is not just about supplementing existing infrastructure, but providing a technology that can completely replace the existing systems, similar to historical transformations in the financial system.
1.2.1 Securities Markets
The complexity of the backend of the securities market stems from the paperwork crisis in the U.S. securities market during the 1960s and 70s and the policy responses taken to address this issue. At that time, securities trading was processed through paper. With a surge in trading volume, the system nearly came to a halt. To resolve this issue, the U.S. Congress passed the Securities Investor Protection Act (SIPA) and amendments to the Securities Act, establishing a centralized clearing and settlement structure and an indirect securities holding system.
Initially, this system achieved the digitization of securities ownership and improved settlement efficiency. However, it also made numerous intermediaries such as brokers, clearinghouses, and custodians indispensable, resulting in structural complexity and cost issues. Today's securities market is the product of policy compromises and incremental improvements under technological constraints. Without better technologies like blockchain, this system has persisted for decades.
1.2.2 Cross-Border Remittances
SWIFT is the most widely used system for cross-border remittances, established in 1973 by 239 banks in Brussels, aimed at replacing the slow and error-prone telex-based international interbank communication system. At that time, banks used their own communication standards, resulting in low compatibility, slow speeds, and security issues. To address these issues, SWIFT developed a universal language and secure network.
However, SWIFT only transmits messages. Actual fund transfers occur through the accounts of correspondent banks or central banks, and settlements between accounts are handled separately. The involvement of multiple intermediary banks adds delays caused by fees, KYC/AML checks, currency conversions, time zone differences, holidays, and more. This leads to high costs and low transparency. If blockchain and stablecoins had existed at the time, message transmission and fund transfers could have been processed on a single unified platform, achieving a more efficient cross-border payment infrastructure.
2. Can Stablecoins Change the Payment Market?
While potential use cases such as securities markets and cross-border remittances are considered areas where stablecoins can innovate systems, the most widely anticipated next use case after exchange trading is payment systems. In fact, in the payment space, not only Web3 companies but also major Web2 companies like Visa, Mastercard, Stripe, and PayPal are actively exploring new business opportunities.
To determine whether stablecoins can truly change existing payment systems, we must first understand how current payment systems operate, the reasons for their inefficiencies, and whether stablecoins can address these issues.
2.1 How Existing Payment Systems Operate
2.1.1 How Payment Systems Operate
When a customer makes a payment to a merchant, the process is as follows:
Authorization
Customers attempt to make a payment using a credit card.
The POS terminal or online payment gateway sends an authorization request containing payment information to the acquirer.
The acquirer forwards this request to the credit card network (e.g., VisaNet, Mastercard Banknet).
The credit card network passes the request to the issuing bank.
Verification
Issuing banks verify the validity of the card, account balance, credit limit, and whether the transaction is suspicious.
Once verified, a response indicating approval or denial is sent back to the acquirer through the credit card network.
If approved, the corresponding amount is temporarily withheld from the customer's account.
If denied, the merchant receives a response with the reason for the denial.
Capture
In industries such as gas stations, hotels, and online shopping, the final amount is confirmed after the initial authorization. Thus, the timing of the merchant's capture request is when the transaction is actually completed, and this request is sent to the acquirer.
Batch Processing
Transactions authorized throughout the day are grouped into a batch and sent to the acquirer in one go at the end of business.
Clearing and Exchange Fees
The acquirer sends the batch data to the credit card network.
The credit card network routes each transaction to the relevant issuing bank and calculates exchange fees in the process.
Settlement
Funds are transferred from the issuing bank's settlement account to the acquirer's settlement account. The credit card network aggregates daily transactions and generates settlement files to coordinate both parties, but the actual fund transfer is carried out through interbank payment networks.
Fund Allocation
The acquirer deposits the payment amount (after deducting relevant fees) into the merchant's account and sends the funds to the merchant via ACH or wire transfer.
Reconciliation
Finally, the merchant checks whether the received funds match their records and reviews for any discrepancies, omissions, or duplicate charges.
2.2 What are the Issues? What is Not an Issue?
The biggest problem often pointed out in traditional credit card systems is the high fees and slow settlement times. Are these drawbacks inevitable, or can they be resolved?
2.2.1 About Payment Fees
First, let's look at the costs of credit card payments. From the merchant's perspective, there are three main fees involved in card transactions:
Exchange Fees: The largest portion, charged by the issuing bank.
Scheme Fees: Fees charged by card networks for processing transactions.
Acquirer Markup Fees: Fees charged by the acquirer bank.
Can blockchain and stablecoins reduce these costs? The first potential area for savings is in global transactions. When merchants and cardholders are in different countries, settlement must go through SWIFT. If this process can be replaced by blockchain or stablecoins, costs can be significantly reduced.
The second area is to bypass credit card networks and issuing banks to reduce costs. What is the essence of credit card networks? It is a communication network that connects banks holding customer funds with banks receiving merchant funds. If stablecoin payments are fully adopted, customers can pay directly from their self-custodied stablecoin wallets to merchants' Web3 accounts via blockchain networks.
2.2.2 About Settlement Time
Next, let's look at settlement times. In credit card payments, transaction authorizations are almost real-time. In this respect, the scalability of public blockchain networks may fall short compared to centralized credit card networks. However, in traditional credit card payments, clearing typically takes an additional 1 to 2 days, while settlement takes another 1 to 5 days.
There are multiple reasons why settlement takes time, some of which can be resolved, while others cannot:
Clearing Time: Credit card payments typically batch all daily transactions and settle once a day. A system completely based on blockchain or stablecoins does not need to follow this daily clearing cycle.
Disputes, Suspicious Transactions, Cancellations, Refunds: Even with stablecoin-based payments, these issues cannot be resolved. Since such situations are inevitable in payments, settlement delays remain necessary.
Cross-Border Payments: When conducting cross-border transactions, funds must be settled through SWIFT, leading to further delays. This is an obvious area where blockchain can offer solutions.
3. Stablecoin-Based Payment Systems
Recently, we have seen various financial institutions and companies begin to shift towards adopting stablecoin-based payment systems. I believe this significant transformation is achieved through two strategies. The first is led by card networks like Visa and Mastercard. The second strategy seeks to completely bypass card networks and issuing banks.
3.1 Card Network-Centric Stablecoin Payments
As I discussed in 'Visa and Mastercard: Designing the Next Generation of Payment Systems,' Visa and Mastercard are actively exploring ways to integrate stablecoin functionalities into their infrastructure.
Crypto Debit Cards: These cards allow customers to make payments using stablecoins stored in Web3 wallets or exchange accounts. In this case, the customer's stablecoins are either converted to fiat currency by the issuing bank and processed through existing payment systems, or directly received by card networks through their funding accounts, then processed according to traditional card payment processes.
Stablecoin Settlement: As mentioned above, card networks can accept stablecoins through funding accounts and settle with acquirers in stablecoins.
Essentially, card network-centric stablecoin payments only add support for stablecoin payments and settlements on top of traditional systems. Participants and infrastructure remain unchanged. Therefore, the system does not provide significant advantages in terms of cost or time. However, for customers and companies that naturally use stablecoins, such a system can reduce transaction friction by skipping the conversion process between fiat and cryptocurrency. Furthermore, if the entire payment process is settled in stablecoins, there will be significant benefits for cross-border transactions.
3.2 Initiatives to Bypass Card Networks and Issuing Banks
Meanwhile, some payment service providers (PSPs) are processing payments by using stablecoins to bypass card networks like Visa and Mastercard. These cases include PayPal's PYUSD payments and the USDC payment program in collaboration with Shopify, Coinbase, and Stripe.
3.2.1 PYUSD Payments
PayPal users can use their PYUSD balance to make payments within the PayPal app. These PYUSD holdings are not stored in the user's own wallet but exist in the account of the PYUSD issuer, Paxos. When a PYUSD payment occurs, there is no actual movement of PYUSD on-chain. Instead, the ownership of PYUSD is transferred from the customer to the merchant in PayPal's backend. If the merchant wishes to settle in fiat currency, PayPal converts PYUSD to USD at a 1:1 ratio and settles the payment to the merchant via banking networks like ACH.
If a customer has insufficient PYUSD balance, they can recharge via bank account or card, which may incur fees. Similarly, if a merchant requests settlement in fiat currency, using the banking network may lead to additional costs and time. However, if the entire payment cycle is completed in PYUSD, there is no need to go through the card network or issuing banks, which can significantly reduce time and cost.
3.2.2 Shopify x Coinbase x Stripe Payments
PayPal's stablecoin payment does not directly involve the blockchain network, while Shopify's USDC payment goes a step further.
In June 2025, Shopify announced a partnership with Coinbase and Stripe to integrate USDC payments into Shopify Payments. Customers can select USDC as a payment method in Shopify stores and connect a crypto wallet holding USDC on the Base network to make payments.
Here, the smart contract 'Commerce Payments Protocol' on the Base network adopts a traditional 'authorize first, capture later' process to pre-authorize payments, with actual fund transfers occurring later. Shopify and Coinbase aggregate USDC transaction data throughout the day and settle on the Base network.
For settlement, the default method is for Shopify to convert USDC to the merchant's local currency and deposit it into the merchant's bank account via banking payment networks like ACH or SEPA. This conversion is handled by Stripe's infrastructure. Merchants can also choose to settle directly in USDC, allowing them to access funds more quickly.
4. Final Thoughts
Regarding stablecoin-based payment systems, the most commonly asked question is: 'How to handle cancellations or refunds since blockchain transactions are inherently irreversible?' While a fully peer-to-peer payment system between customers and merchants may eventually emerge, issues like fraud detection, cancellations, and refunds will always exist, making intermediaries in the payment process still essential. Therefore, the roles traditionally performed by card networks and issuing banks will not completely disappear.
However, in the aforementioned PayPal and Shopify stablecoin payment cases, intermediaries like PayPal and Stripe serve as payment service providers (PSPs) handling issues like fraud detection, cancellations, and refunds. In the case of PYUSD, transactions are not processed on-chain but handled in PayPal's backend, leaving room for dispute resolution. In Shopify's case, the Commerce Payments Protocol smart contracts on the Base network introduce a buffer time instead of immediately approving payments, allowing for dispute handling. Additionally, Circle, the issuer of USDC, has released a refund protocol for non-custodial dispute resolution.
Stablecoin-based payments are the inevitable future. Just as issuance is important, distribution is equally crucial. As Robbie Petersen from Dragonfly pointed out, companies with a large base of merchants and customers will increasingly adopt stablecoin payments and bypass card networks and issuing banks. Stablecoins may even enable interoperability between these closed-loop payment systems. Given these trends, stablecoins could pose a real threat to card networks and issuing banks, which will need to explore new opportunities in this unstoppable wave of the stablecoin industry.
