https://a16zcrypto.com/posts/article/how-stablecoins-will-eat-payments/
Their arguments look promising at first glance, especially about how low-margin business like grocery stores can immediately double their margin by simply getting rid of the 2-3% credit card transaction fees if they switch to stable coins.
Now, with only my consumer brain, does what they say actually make sense? Do merchants actually want to get rid of the 2-3% transaction fees?
They view these fees as a mere burden imposed to merchants by the financial system, however, I think the fees are actually the financial system helping the merchants. These fees enable consumers to potentially spend more than what they have, and also earn rewards (sometimes tied directly to particular stores, so a essentially a loyalty program) by spending. Hence I think paying these high transaction fees is essential in driving up sales.
Here is the dilemma of stablecoins in daily transactions. Sure we can eliminate the high transaction fees, and we can even setup a service for consumers to borrow stablecoins, but if transaction fees are removed, who is going to pay the rewards (and loyalty program) modern CC carry? I feel as a consumer this is a very hard sell. Merchants can force adoption of stablecoin payments if they are desperate to save the transaction fees, but isn't this just going back to the age when financial systems weren't developed enough to help merchants acquire and maintain customers ? Also, there are already ways to pay with low transaction fees like a debit card or third-party app.
The argument of a $2 coffee is convincing, on the ground that transaction fees can make up as much as 15% of the total transaction. However, there is almost no $2 coffee in the real world, and for those really low-value transactions normally the use of a credit card is just not allowed.
There is a very similar argument from the founder of coinbase 13 years ago (he is really way ahead): https://news.ycombinator.com/item?id=3754664
but again, are these just pipe dreams? Am I missing something?
Except that you are now at the mercy of MasterCard/Visa. Sure it might not be a problem now, but things can change quickly. 14 years ago they turned off Wikileaks donations because it violated their "moral standard" while still allowing donations on the Klu Klux Klan home site. They often impose arbitrary rules on adult sites to the point where many small vendors can't keep up, and that is ignoring the 20% fee that they charge for being at high risk of chargebacks.
> who is going to pay the rewards (and loyalty program) modern CC carry?
These loyalty programs are simply offsetting some of the existing costs. If you remove the transaction fees entirely, more money would be saved than leaving them in combination with a rewards program. Maybe that is a hard sell from a Product PoV, but it is not like the rewards are coming from nowhere.
> but isn't this just going back to the age when financial systems weren't developed enough to help merchants acquire and maintain customers ?
Like when the card companies used aggressive tactics and lobbying to prevent vendors from upcharging card payments to offset the costs of transaction fees?
It sounds like you are institutionalized in the sense that you are familiar with all the existing institutions and can't imagine any changes.
edit: Everything I said is more generally in line with cryptocurrencies however. The biggest advantage of stablecoins is for the minter / maintainers. It is a relatively low cost product that can generate a boat load of interest if you can garner enough interest like USDT and USDC have. The only advantage to users is that the prices are (ideally) pegged and less impacted by wild speculation that has been rampant in the cryptocurrency space.
I am all for changes but they can't take vigors out of markets!
If adoptions ever takes hold, I think it is unlikely to start with the replacement of payment cards. It is more likely to take hold is specific niches that currently suffer under the MasterCard/Visa duopoly as well as in emerging markets. In the adult industry, I'm sure products being 20% cheaper would sway consumers. Also not to mention the omission of purchases from your credit history which may be judged harshly by others. Low margin businesses could support online and international sales while offering competitive prices. Some markets aren't serviced well by the duopoly. Some consumers value pseudonimity/anonymity in their financial transactions. These can develop into niches where crypto has potential to take hold, and then from there it might expand and compete with the larger markets (and their vigor) if it grows into a competitive product based on fees and usability.
If it ever hits critical mass, vendors will surely either drop card support or strongly encourage cryptocurrency usage. Albeit that is a big "if" that likely comes down to solving a lot of scalability and usability issues right now. There is also a need for regulatory clarity. I think we are a long way away, but I wouldn't write it off simply because I personally find Visa/MasterCard to be convenient in my own life.
Stablecoins are useful when your use case calls for avoiding traditional, sanctioned financial infra, including the ability to move value between counterparties who may not be given access to traditional financial systems.
https://www.frbservices.org/financial-services/fednow
https://news.ycombinator.com/item?id=36801491
Does FedNow operate outside of the US?
[1] https://www.volt.io/real-time-payments-world-map/
[2] https://en.wikipedia.org/wiki/ISO_20022
Where I think stables will surpass credit cards will be on users’ rewards. It should be possible to build a stable coin that “just grows” eg more than 4%/a saving account, so the final product may look like and integrated saving account + credit card.
But this is a marketplace, before getting user adoption you need to get merchant adoption, so definitely cutting the 2-3% fee looks like the right message to me.
> These fees enable consumers to potentially spend more than what they have.
Where's the money coming from? You can't spend out of thin air...
Let's say I offer to provide an automated payment system in exchange for 0.1% transaction fees, which is an equitable exchange. My inclination is to then raise the transaction fees, but when the fees become burdensome I jeopardize my business. So I both raise the fees to 2-3%, and introduce rewards cards to justify the raise. The problem is that not everyone is eligible, or willing, or able to qualify for rewards cards. So I've mollified the consumers that matter while managing to rip off the disadvantaged.
Rewards cards can be seen as loyalty programs for merchants, but only merchants who command dominant market positions. I think franchises are particularly bad because the link between owner and brand is hidden. A small franchise (ie print/ship stores) cannot differentiate itself. A large franchise (ie gas stations) is essentially a monopoly which does not benefit from loyalty. That's why you have so many small retailers offering discounts for cash payments.
Now as a merchant stuck covering transaction fees, my incentive is to increase loyalty. This means increased rewards through steeper discounts on higher prices, but this is a network effect that only benefits businesses with a large customer base. Just as with disadvantaged consumers, retailers with smaller customer bases simply cannot compete. Large businesses with higher prices can also negotiate better agreements with payment networks.
What we have here is are two rent-seeking trends and a hidden network of rewards agreements that obfuscate market signals for the consumer. If you are banking on rewards to buy something otherwise outside of your means, chances are that blood money was unwittingly liberated from someone less fortunate.
So yes, control of payment rails is crucial and is responsible so many large-scale social trends.
Of course you can - It is a credit card
But your point about support — eg reversibility and fraud prevention — is very valid. Credit cards aren’t merely transactions in databases, but a set of customers and services.
Even excluding illegal stuff it's a great business though. USDC have issued $60bn worth and they get to invest that and keep all the interest.
And Tether have $144bn although they are sketchier and may end up in jail one day. There's quite an entertaining 2021 article on Tether https://www.bloomberg.com/news/features/2021-10-07/crypto-my...
Yes. Merchants want to get rid of the 2-3% tax. I've been going to Bangkok since 2014 and it usually had close to 100% adoption of credit card payments for pretty much all shops. In the last few years, more and more shops started charging 3-5% more if you paid with card.
In this last year (a few months ago), I was surprised by the number of shops that straight out rejected cards. They suggest you download their ewallet thing, and pay them through it (essentially paying the 2-3% tax through the ewallet) or going to the ATM and withdrawing cash.
The problem with stablecoins is not the market (the merchants will straight out accept them). The problem is the UX. With the ewallet, you just scan or get scanned and everything happens instantly. With stablecoins... oh it's a long story.
tl;dr: If stablecoins had a good UI/UX for P2P and B2C transactions, they'd have taken over.
TL;DR: "stablecoins" are just adding another level of indirection with a different (not necessarily better) tradeoffs than other payment methods / mediums of exchange
So called "stablecoins" (Transferrable USD Depositary Receipts / Commerical Paper) are not cheaper than credit cards. They're just moving the fees to other places in the pipeline: converting fiat to a "stablecoins", and/or converting "stablecoins" back to fiat
The transactions themselves are much more expensive than CC transactions, unless u use a less secure L2 chains, which are just databases in disguise
Add to this issuance/underwriting fees, and insurance b/c of the possibility of losing the principal and/or your coins being blacklisted or stolen
For "stablecoins" to be cheaper the majority of economy should adopt them, and then part of the conversion to fiat fees will cancel each other
The main problem is that credit card companies sign up merchants to offer the same prices for CCs as for cash, in essence puninshing people who pay with cash. This trick is what subsidizes this entire industry. In the jurisdsictions were this is illegal - the cash is still the king
Right now the VC game is closer to a giant ponzi scheme. The whole goal is to sell it to the next fool down the road and if not any then retail investors.