Visa and Mastercard are laying out stablecoins, what are the giants competing for?

Visa and Mastercard are competing for dominance of the Web3 payments market. This article is from an article written by 100y, collated, compiled and written by TechFlow. (Summary: Citi predicts: stablecoins will become mainstream economic sectors in 5 years, and the market value will look at trillions of dollars) (Background supplement: payment giant Stripe launched a "stablecoin account" to support USDC and USDB, open more than 100 countries, is it available in Taiwan?) Visa and Mastercard are the two major operators of the global payment network, and it is no exaggeration to say that they almost dominate the global payments market. Global payment transactions are expected to total $20 trillion by 2024. If card payments can be processed through blockchain networks in the future, this will bring huge opportunities for the blockchain and stablecoin industry. While the front-end experience of today's payment systems has been vastly enhanced by innovations from various fintech companies, the back-end systems that actually process transactions still rely on outdated technology. There are still many problems in settlement and cross-border payments, and blockchain provides an exciting solution to solve these problems. In April, Visa and Mastercard unveiled their roadmaps for blockchain and stablecoin applications, respectively. Both companies have plans in the following areas: 1) card services linked to stablecoins; 2) Stablecoin-based settlement system; 3) Peer-to-peer international remittance; 4) Institutional tokenization platform. Who will take the lead in the Web3 payments market remains to be seen. 1. Background – Can blockchain be used for payments? 1.1 Two giants of traditional payments Source: Statista and Nilson Visa and Mastercard are the world's leading payment network companies. As of 2024, Visa has a 39% share of the global payments market, with Mastercard accounting for 24%. Given that China UnionPay mainly handles transactions based on China's domestic market, it's no exaggeration to say that Visa and Mastercard almost dominate the global payments landscape. The two companies make huge profits by providing card payment networks that process transactions between consumers and merchants and settle between card issuers and acquirers for a small fee. (We'll explore the payment process in more detail below.) In fact, Visa and Mastercard have operating margins of 67% and 57%, respectively, in 2023. This reflects its low fixed-cost network business characteristics based on large-scale transaction volumes. According to Upgraded Points, card network payment transactions in the U.S. alone are expected to reach around $10.5 trillion in 2024. Combined with China UnionPay's domestic trading volume, the global transaction volume is expected to be around $20 trillion. If card payment processing takes place through blockchain networks in the future, this will bring huge opportunities to the blockchain and stablecoin industry. 1.2 Card payment process Both Visa and Mastercard operate open card payment networks using a "four-party model" that includes card issuers, acquirers, merchants and cardholders. Visa and Mastercard do not issue cards directly or offer loans, but only payment networks. The basic flow of the four-party model, widely used in the United States, is as follows: Payment request (D+0: same day of transaction): When the cardholder makes a purchase at the merchant, the payment request is initiated through the card. The payment information is passed from the merchant to the acquirer, to the card network, and finally to the card issuer. On the day of payment authorization (D+0: on the day of the transaction): The card issuer checks the cardholder's credit limit, card validity, and signs of fraud before deciding whether to approve the payment. The approval information is returned to the merchant in reverse order to complete the transaction. Settlement (D+3: 3rd business day after transaction): The card issuer pays the acquirer after deducting the settlement fee, and the acquirer pays the merchant after deducting the merchant fee. Card networks charge card issuers and acquirers network fees for each transaction. Billing & Repayment (D+30: 30th business day after transaction): The cardholder receives a bill from the card issuer the following month and reimburses the amount due. 1.3 Can blockchain be used for payments? Over the past few decades, various payment-related fintech services have emerged, from the initial PayPal to Stripe, Square, Apple Pay, and Google Pay later. These services bring innovation on the front end, enabling users to complete payments faster and easier than ever before. However, the back-end processes that actually execute payments have changed little. As a result, there are still a number of problems with existing payment systems. The first issue is settlement time. In the traditional payment process, most merchants and acquirers process transactions in bulk on a daily basis. This batch processing is usually done once a day. In addition, settlement is usually processed only on weekdays, so if holidays or weekends are involved, the overall settlement time may be extended. The second problem is the high cost of international transactions. When the card issuer and merchant belong to different countries, cross-border fund transfer is required during the authorization and settlement process. This adds about 1% of cross-border transaction fees and 1% foreign exchange fees, making international payments more expensive than domestic payments. There is a system that solves both of these problems, and that is blockchain. As a decentralized network, blockchain is able to operate 24 hours a day, regardless of borders, enabling fast settlement and low fees even for international transactions. Based on these advantages, Visa and Mastercard have actively adopted stablecoins and blockchain technology in their payment networks in recent years. So, how exactly do they leverage blockchain? 2. Key takeaway: Payment wars have begun Visa's four strategies Source: Visa Visa operates one of the world's largest payment networks, VisaNet, which processes up to 65,000 transactions per second and supports payments at 150 million merchants in more than 200 countries. Visa sees stablecoins as a core component of the digital payment system of the future, announcing four specific strategic initiatives in April to integrate stablecoins into existing payment networks. 1. Modernization of settlement infrastructure Since 2021, Visa has been piloting payment settlements using USDC (US Dollar Stablecoin) through its existing VisaNet network. To date, more than $225 million has been settled. Traditionally, card issuers were required to send money to Visa in U.S. dollars for settlement, but now they can also settle directly in USDC. This not only improves settlement efficiency, but also reduces cross-border transaction fees. For example, the Crypto.com Visa card offered by Crypto.com allows users to make payments through their cryptocurrency accounts. In the past, these cryptocurrency-focused companies needed to convert digital assets into fiat currencies such as USD to complete payment processing, a time-consuming and costly process. Now, they can be settled directly in USDC. In partnership with Anchorage, Visa set up an escrow account...