How Stripe's Stablecoin Strategy Could Disrupt Visa

TL;DR

Stripe is acquiring crypto-bridging tech to bypass Visa & MasterCard with stablecoins. ¹This could slash merchant fees and reshape global payments forever. #Fintech #Stablecoin #VentureStep

INTRODUCTION

For decades, Visa and MasterCard have maintained an unshakable duopoly over the global payments landscape, processing an estimated 90% of all transactions outside of China. ³³This dominance has created a complex, multi-step system for merchants and consumers, riddled with fees and settlement delays. ⁴⁴⁴But the tides may be turning as new technology threatens to dismantle this long-standing structure. ⁵

In this episode of Venture Step, host Dalton Anderson breaks down a strategic move by payment processing giant Stripe that could fundamentally change the game. ⁶Stripe's recent acquisition of a crypto-bridging company called Bridge, along with Triangle Platform, positions it to aggressively push into stablecoin-fueled payments. ⁷⁷This technology could allow Stripe to build its own payment network, effectively cutting out the middlemen—Visa and MasterCard. ⁸

Dalton explores the mechanics of stablecoins, the inefficiencies of the current transaction system, and the immense potential of a decentralized alternative. ⁹⁹⁹From eliminating foreign transaction fees to providing instant settlement for merchants, this strategy could create a faster, cheaper, and more efficient global payment system. ¹⁰¹⁰¹⁰

KEY TAKEAWAYS

• Visa and MasterCard's current system involves a complex, seven-step process for authorization and settlement, creating delays and adding costs. ¹¹
• Stripe, a major payment processor that handled $1 trillion in transactions in 2023, is acquiring companies like Bridge to build a payment protocol for cryptocurrencies. ¹²¹²¹²
• Stablecoins—cryptocurrencies pegged to a stable asset like the U.S. dollar—can facilitate instant, low-fee transactions without the volatility of Bitcoin or Ethereum. ¹³¹³
• By using stablecoins, Stripe could bypass the Visa and MasterCard networks entirely, eliminating 2-3% transaction fees for merchants and removing foreign exchange costs. ¹⁴
• The duopoly is also facing pressure from traditional finance, with Capital One's acquisition of Discover aimed at creating a third major payment network to reduce reliance on Visa and MasterCard. ^1515151515

FULL CONVERSATION

Dalton: Welcome to VentureStep Podcast, where we discuss entrepreneurship, industry trends, and the occasional book review. ¹⁶

The Unwavering Dominance of Visa and MasterCard

Dalton: For decades now, Visa and MasterCard have been dominant in the payment processing space. ¹⁷The tides may turn with Stripe's acquiring of a company called Bridge. ¹⁸The idea is they're going to aggressively push into what is called stablecoins, fueled by the acquisition of Bridge, which would allow them to have the technology to potentially cut out a powerful, unwavering duopoly: Visa and MasterCard. ¹⁹

Dalton: Today, I'm going to talk about Visa and MasterCard's dominance, the stablecoin strategy with Stripe, and before I dive into that, I'll provide some background on what is a stablecoin, who is Stripe, and who is Bridge. ²⁰We'll also cover the threat to Visa and MasterCard and some potential scenarios for the future of payment processing. ²¹

Dalton: Visa and MasterCard are dominant, and to say that they're anything but would be delusional. ²²They process 90% of all transactions outside of China. ²³

How Does a Traditional Transaction Work?

Dalton: I would like to go over the current flow of how a transaction works so you can understand the difference later in the episode. ²⁴Currently, the user has a payment request. ²⁵The merchant requests authorization, which goes to the acquirer's contact network, which would be Visa or MasterCard. ²⁶The network contacts the issuer, and the issuer either declines or accepts. ²⁷After that, it would be authorized. ²⁸

Dalton: After authorization between the merchant and the customer, there would be settlement, and settlement isn't right away because if there's a scam, the user can get their money back. ²⁹There are many steps, approximately seven back-and-forths between the customer, the payment network (Visa, MasterCard), and the merchant. ³⁰The merchant makes the request to the network, the network replies back and requests additional information to verify against the request, and once it's authorized, the payment goes through, but it isn't necessarily settled until later. ³¹

Dalton: Visa and MasterCard have some strengths. ³²They have immense brand recognition and are deeply integrated with financial institutions like Chase, Capital One, and Discover. ³³Because you only need to communicate with two companies, you can move a little bit faster on certain initiatives, and it's clear how you can execute on a global scale. ³⁴

Understanding the Key Players: Stripe, Bridge, and Stablecoins

Dalton: So, who is Stripe? ³⁵Stripe is a payment processor similar to PayPal. ³⁶When a developer was building a website, they had to integrate a payment processing system if they were going to sell goods online. ³⁷PayPal integration was a nightmare, and Stripe came along with, "Hey, we're new on the block." ³⁸

Dalton: "please just give us a chance, just copy in this one line of JavaScript, and you're good to go." ³⁹

Dalton: That's the place where Stripe operated, and they have slowly grown. ⁴⁰In 2023, their total payments in dollars processed was one trillion. ⁴¹ So they're not a a small company by any means.

Dalton: Then who is Bridge, the company that Stripe is acquiring? ⁴²Visa and MasterCard are payment networks, not payment processors. ⁴³A payment processor typically would connect to various networks. ⁴⁴ Bridge is essentially the same thing. It's a payment protocol for cryptocurrencies. ⁴⁵It bridges different networks together, which in the crypto world is called bridging. ^46464646

Dalton: Stripe is acquiring Bridge for approximately a billion. ⁴⁷To add to the confusion, there is another company called Triangle Platform, whose founder was a previous employee of Stripe. ⁴⁸Triangle Platform makes it easy for businesses to integrate payment processing for crypto. ⁴⁹With the technology of Bridge and Triangle Platform being acquired by Stripe, it gives Stripe a good opportunity to use what is called a stablecoin. ⁵⁰

What Exactly Is a Stablecoin?

Dalton: What is a stablecoin? ⁵¹I would talk about the biggest type, which is fiat-collateralized stablecoins. ⁵²It would be collateralized on a fiat currency like the U.S. dollar. ⁵³Funny enough, if you add up all of the treasury bonds owned by stablecoins, it puts them in the top 25 of treasury bond holders. ⁵⁴Back in the day, everything was backed by gold; it's a similar thing, just backed by fiat money. ⁵⁵

Dalton: Then there's crypto-collateralized, which collateralizes the stablecoin against a cryptocurrency. ⁵⁶I don't necessarily think this is as good as fiat-collateralized. ⁵⁷There is also another method, which is algorithmic. ⁵⁸Basically, it uses the supply and demand of the fiat currency that it is collateralized against. ⁵⁹If the dollar goes up, they would decrease the supply of the coin, and if the dollar goes down, they would increase the supply. ⁶⁰

Dalton: "If that was confusing, think of Bitcoin or Ethereum without the wild price swings." ⁶¹

Dalton: It's engineered to stay very steady and doesn't fluctuate in valuation. ⁶²So $1 of stablecoin is supposed to be $1 of US dollar. ⁶³

Stripe's Strategy: Bypassing the Old Guard with Stablecoins

Dalton: Now you have a background of what a stablecoin is, who Bridge is, and an idea of Stripe. ⁶⁴With this acquisition, Stripe now has the ability to transact stablecoins. ⁶⁵Instead of those seven steps I talked about earlier, the process for this would be: customer requests to pay, there's an interaction with the customer's digital wallet, a transaction broadcast, validation and confirmation, and then settlement. ⁶⁶The settlement is instant and the transaction is pretty much instant. ⁶⁷

Dalton: "That would allow you to cut out the two to 3% of the transactions with Visa and MasterCard." ⁶⁸

Dalton: That would allow you to instantly transact with any currency with no fees. ⁶⁹So if I was transacting in USD and buying something in pounds, there would be no foreign transaction fees. ⁷⁰Stablecoins would cut out the middleman, and there's no need for issues with foreign transactions. ⁷¹Overall, it's just better for the customer and the merchant because the merchant gets more money. ⁷²

The Hurdles Ahead: Can Stripe Drive Adoption?

Dalton: The only issue would be, how are they going to get people to set up a wallet? ⁷³People don't understand what wallets are. ⁷⁴People don't normally transact in crypto. ⁷⁵I just don't know how they're going to get a seamless process for the user and the merchant. ⁷⁶The merchant would love the user to do it, but they can't just demand them to set up a wallet to do a transaction. ⁷⁷

Dalton: "I like the idea of using stable coins as a disruptor for a network to have faster transactions, ease of use, lower fees, access to new markets and bypass the Visa and MasterCard network." ⁷⁸

Dalton: This technology stack really allows them to vertically integrate not only the acquisition of the merchant's payment processing, but it allows them to cut out other payment networks like Visa or MasterCard and control the relationship between the merchant and the customer. ⁷⁹ That is a very powerful relationship if you can manage it correctly.

Dalton: "I wouldn't be comfortable with someone else having that much power over me on anything I do." ⁸⁰

Dalton: And so I'm going to build my own thing. I'm just not going to accept that someone can just control me for what I want to do. 81

The Bigger Picture: A Multi-Front Squeeze on the Duopoly

Dalton: I hope this pushes Visa and MasterCard to get their stuff together. ⁸²A good example would be Tesla with EVs. ⁸³A lot of the legacy automakers were against EVs, and then Tesla came around and the market started taking it very seriously. ^84848484Now Tesla is a far leading EV maker, leaving everyone in the dust. ⁸⁵

Dalton: "So I hope that this pushes Visa and MassCard to innovate, similar to how this whole AI thing is going, where each company is just pushing, pushing and pushing and everyone's pushing to the limit to be first." ⁸⁶

Dalton: One thing I didn't talk about was a similar acquisition: Capital One's acquisition of Discover for around $30 billion. ⁸⁷Most of the pre-tax synergies are allocated towards the estimated cost savings of payment networks. ⁸⁸The payments sent to Visa and MasterCard throughout the year are over a billion for Capital One. ⁸⁹With the acquisition, they would own the Discover payment network. ⁹⁰That would make Capital One and Discover the third largest payment processor behind MasterCard and Visa. ⁹¹So Visa and MasterCard are getting squeezed by Stripe and Capital One. ⁹²

The Future of Payments: AI, Crypto, and Global Adoption

Dalton: I hope for a wide adoption of stablecoins. ⁹³I also think that for AI to function on its own and do things autonomously, they're going to have to transact via stablecoin or some kind of crypto transaction. ⁹⁴You're not going to connect that to your bank account; you would put it in a wallet, and that wallet would hopefully be crypto. ⁹⁵

Dalton: "Stripe is trying to cut Visa and MasterCard out of, you know, a trillion dollars worth of transactions and they're supposed to be best buddies." ⁹⁶

Dalton: The end goal that I want would be worldwide stablecoin adoption for transactions. ⁹⁷That'd be great because then you're doing customer-to-business, and before you know it, big businesses are forced to accept stablecoins. ^98989898It's not something that's going to happen overnight, but I do feel unless Visa and MasterCard really figure out how they are going to combat these potential issues long-term, they're going to be in a bad spot. ^99999999

RESOURCES MENTIONED

• Companies: Stripe, Visa, MasterCard, Bridge, PayPal, Triangle Platform, Chase, Capital One, Discover, Tesla
• Services & Products: Zelle, Venture X Card
• Cryptocurrencies & Concepts: Bitcoin, Ethereum, Stablecoins
• Organizations: BRICS

INDEX OF CONCEPTS

AI, Algorithmic Stablecoins, Apple Podcasts, Bitcoin, Blockchain, Bridge, BRICS, Capital One, Chase, Crypto Collateralized Stablecoins, Cryptocurrency, Discover, Ethereum, EVs, Fiat Collateralized Stablecoins, Fiat Currency, PayPal, Payment Networks, Payment Processors, Spotify, Stablecoins, Stripe, Tesla, Triangle Platform, Venture X Card, Visa, Visa Signature, YouTube, Zelle