Visa and Mastercard Face Threat from Stablecoin Payments

Visa and Mastercard have dominated the card payment industry for years, delivering significant returns to investors since their initial public offerings. Visa went public in 2008 at $11 per share and now trades at nearly $370, while Mastercard, which debuted in 2006 at $3.90, has surged to over $560 per share.

The two companies' business model is asset-light, relying on partnerships with financial institutions to issue co-branded cards that are tied to their networks. These partners handle accounts and debt, while Visa and Mastercard collect a swipe fee (usually 1-3%) for every transaction processed through their systems. The majority of these fees are returned to the card-issuing banks, with Visa and Mastercard retaining a single-digit cut.

The stable growth and wide moat that Visa and Mastercard enjoy have made them attractive long-term investments. From fiscal 2015 to fiscal 2025, Visa's earnings per share (adjusted for stock splits) grew at a 15% compound annual growth rate, while Mastercard's EPS rose by 16%. However, the rise of stablecoins could potentially disrupt their business models.

Stablecoins are cryptocurrencies pegged to major fiat currencies like the US dollar or euro that can be bought, held, and spent without a bank account. Their issuers typically back these coins with cash reserves, Treasuries, and short-term investments.