Stablecoin Debit Cards: A Flawed Solution for Merchant Fees

Cryptocurrency credit card spending reached $759 million in July across nearly 9 million transactions, more than double the amount from the same period last year. However, over 90% of these transactions were still made using Visa cards.

Almost all crypto debit card projects claim to bypass traditional card network fees by using stablecoin payment channels and returning the saved costs to merchants. But research suggests that this approach is flawed.

The largest share of merchant processing fees, around 70-80%, goes to the issuing bank as an interchange fee. This leaves only a small portion for Visa and Mastercard's assessment fees, which are roughly $0.13-$0.18 per transaction.

Removing Visa alone would only eliminate the smallest fee in the chain, and its low fees are rooted in underlying reasons: it does not extend credit to anyone, bear credit risk, or handle fund transfers. Instead, it merely transmits authorization information between merchants and issuing banks.

The real innovation brought by stablecoins may lie in replacing core components of the payment infrastructure, particularly in the settlement layer. Stablecoin settlement can compress the traditional T+2 cycle, approaching real-time settlement and freeing up working capital previously tied up by issuers.