Breakingviews - Stablecoin buzz vexes Visa and Mastercard's repose

Reuters

4 days ago

NEW YORK, July 31 (Reuters Breakingviews) - Cryptocurrency hype is making the outlook for the U.S. credit card duopoly more unstable than it has been in years. Visa (V.N), opens new tab and Mastercard (MA.N), opens new tab executives, speaking on earnings calls this — the first since the passage of legislation that could speed stablecoin adoption — largely dismissed the threat from dollar-pegged digital coins, which could let retailers or banks bypass their ubiquitous payment networks. Steady profit and strong valuations throughout years of potential disruptions offer some reassurance. But the soaring share price of stablecoin operator Circle Internet Group (CRCL.N), opens new tab, now worth over $40 billion, poses a challenge: both sets of investors can't be right.
History suggests that the card companies will be resilient. Both beat analysts' expectations this quarter, according to LSEG data, with Visa's earnings up 8% to $5.3 billion and Mastercard's up 14% to $3.7 billion. Their networks' ubiquity and reliability, especially in the United States — where they process about 70% of all purchases, according to industry researcher Nilson Report — shielded them from past threats like Venmo-style payment apps. Meanwhile, political pressure to lower fees has waxed and waned, easing under the Trump administration. Visa and Mastercard shares are up 31% and 24% in the past year, trading at 28 times and 32 times expected earnings over the next 12 months, respectively.
It's a lucrative business across the board. The duo collected from merchants a total of about $95 billion in their most recent fiscal years in swipe fees, which they split with banks and partners. The problem is that their cut is shrinking. Visa gleaned 6.6 cents of processing fees per transaction last quarter, down from nearly 9 cents a decade ago. Mastercard's similar swipe fees rose this quarter, partly due to currency shifts, but averaged 7.3 cents over the past year, down from nearly 8 cents the year before.
Stablecoins aren't yet to blame. Both companies note that usage remains tiny compared to the roughly $15 trillion processed annually over Visa's network alone. They also argue that digital coins are most useful in countries with unstable fiat currencies. Still, the decline in per-transaction fees — driven by pricing pressure and business mix — exposes their vulnerability, while major merchants like Walmart (WMT.N), opens new tab are already eyeing adopting tokens.
So far, Visa and Mastercard have held steady, offsetting any lost revenue with consulting and other services. But Circle's valuation, up sharply since its June listing, implies wildly optimistic hopes for stablecoin adoption, while others are crowding into the space. If that happens, the credit card giants' once-impenetrable repose may finally be shaken.
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