Visa’s Exploitation of Digital Assets for Cross-Border Payments
Many financial entities have ventured into the stablecoin domain, but Visa’s exploration could be transformative. It marks the first major payment rail to adopt a stablecoin, processing international transactions. While significant, this innovation is still in its nascent stages.
Visa’s pilot program will enable businesses to prefund Visa Direct transactions using stablecoins instead of fiat currency. This treatment equates stablecoins with funds on deposit, allowing instant payouts without tying up capital across multiple currencies until needed.
This initiative positions the stablecoin as more than just a convenience but also a tool for enhanced liquidity management. Previously, businesses had to commit substantial capital in advance and endure multi-day settlements for cross-border transactions. With stablecoins, these inefficiencies can be substantially reduced.
Impact of Stablecoins on Cross-Border Transactions
Stablecoins have been highly beneficial in cross-border payments due to their stability and lower volatility. They offer predictable settlement, making cross-border markets adopt them rapidly.
Stablecoin settlement volumes surpassed combined settlement volume from Visa and Mastercard last year,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. SWIFT and Mastercard’s blockchain solutions show this new rails are where it’s all headed—normalizing tokenized dollars for cross-border payments.”
Regulatory clarity also played a significant role in Visa’s decision to integrate stablecoin technology into their payment infrastructure. The passage of the GENIUS Act in July established clear rules for stablecoin issuers, following Europe’s MiCA regulations. These regulatory advancements have bolstered confidence among financial institutions.
Higher Efficiencies in Cross-Border Payments
High transaction costs have been a hurdle, especially in Latin America. According to Mastercard, the average cost of sending remittances in Latin America is 6.3%, significantly higher than the UN’s target of 3%. Stablecoins can streamline transactions and eliminate the need for currency conversion, simplifying expense planning.
Multiple Stablecoin Initiatives
Several financial entities are launching or considering their own stablecoins. For instance, the Mexican government is developing a coin pegged to the peso. Zelle’s proposed coin aims for cross-border market access and PayPal has launched its own stablecoin through Xoom.
In contrast, Visa’s program works with existing stablecoins rather than creating new ones, leveraging over $200 billion already circulating in the market.
Arguments for and Against Visa
It would be more logical for Visa to build its own stablecoin-focused layer 1 network rather than issue a stablecoin,” said Joel Hugentobler. Their core strength is in connecting moving parts, like consumers, businesses, and financial institutions. They should stay focused on their core competencies.”
Hugh Thomas added: Visa and Mastercard are payments networks and switches. They don’t bear any of the risks involved in making payments, a key reason why they’re so popular among investors. Launching a stablecoin would feel like entering banking territory, moving away from their core focus.”
Regulatory Uncertainty Still Prevalent
Despite the rise in popularity and adoption, several challenges remain. Economist Jean Tirole emphasizes that payments systems should be built on public infrastructure to avoid speculative tokens. Regulatory failures like those seen with money market funds highlight risks, as evidenced by Tether’s fines for misrepresenting reserves and Circle’s exposure to Silicon Valley Bank’s collapse.
While past regulatory breaches may keep some players cautious, increasing regulatory clarity can bolster confidence. Visa plans a cautious approach, testing through 2026 before deciding on full deployment. This might mark the true tipping point.
