A turf war is erupting in the vast landscape of digital payments, with incumbents like Visa Inc. and Mastercard Inc. suddenly finding themselves on the defensive. Tech firms and crypto startups are rapidly encroaching on their long-held territory, powered by the rise of stablecoins. These digital tokens, typically pegged to the dollar, promise merchants lower fees, faster settlement, and the ability to bypass traditional banking and card networks altogether. This burgeoning $253 billion stablecoin market, projected to reach $2 trillion in the coming years, represents both a technological and financial threat that the payments giants are now racing to capture.

Stablecoins: A Direct Threat to Traditional Payments

Stablecoins pose a significant challenge to the traditional payments ecosystem. These digital tokens enable consumers to pay merchants directly from their crypto wallets, circumventing established banks and card networks like Visa and Mastercard. Last year alone, US businesses paid an estimated $187 billion in swipe fees, with the majority processed through Visa and Mastercard’s systems. Stablecoins promise to drastically reduce or even eliminate these costs, presenting a compelling alternative for merchants.

Incumbents Adapt: Co-opting the Crypto Revolution

Faced with this growing threat, Visa and Mastercard are actively working to rebrand themselves, not as old-school toll collectors, but as the essential backbone for all types of digital transactions, including those originally designed to bypass them. With President Donald Trump poised to sign legislation creating formal federal oversight of stablecoin issuers, both companies are touting enhancements to their long-standing efforts in stablecoin settlement and crypto-linked cards. They are also emphasizing initiatives in cross-border payments, a popular use case for stablecoins.

The Power of Co-Option: Preserving Influence

Visa and Mastercard have a history of neutralizing competitive threats by integrating them into their vast networks, often in ways that preserve their pricing power. Their current strategy involves pulling stablecoins closer, a move that could prove to be the latest feat of co-option by these financial behemoths. This approach aims to maintain their central role in the payments ecosystem, even as the stablecoin market continues its rapid expansion, projected to reach $2 trillion in the next few years, according to Treasury Secretary Scott Bessent.

Stablecoins Reshape Corporate Behavior

The momentum behind stablecoins is beginning to reshape corporate behavior across various sectors. Mega retailers like Walmart Inc. are reportedly considering stablecoin pilot programs, signaling a potential shift in how large enterprises handle payments. Furthermore, bank technology providers such as Fiserv Inc. have introduced their own fiat-backed tokens, designed to help smaller financial institutions keep pace with payment innovation, indicating a broader industry-wide adaptation to digital currencies.

Challenges for Stablecoin Disruption

Despite their promise, stablecoins face significant hurdles in displacing established card networks, especially in the US. Consumers are accustomed to perks like rewards, robust fraud protection, and easy access to credit—benefits not easily replicated by current stablecoin offerings. For many, crypto remains unfamiliar or suspect, and stablecoin balances are not expected to carry FDIC insurance, leading to potentially different consumer protections. Merchants, too, face new compliance, tax, and operational risks with new digital payment technologies.

Digital Proponents Push Forward

Despite the challenges, digital proponents are pressing ahead with innovative solutions. Shopify Inc. has partnered with Stripe Inc. and Coinbase Global Inc. to enable merchants to accept USDC, a dollar-backed stablecoin. This allows payments to be processed entirely on a blockchain protocol, bypassing traditional card networks. Merchants can accept USDC directly into their crypto wallets or instantly convert it into local currency. Coinbase has also launched its own payments platform to expand stablecoin acceptance across more e-commerce providers, with Shopify offering 1% cash-back in USDC to customers.

Visa and Mastercard’s Defensive Strategy

Facing pressure, Visa and Mastercard, which collectively dominate over 85% of total US card spending, are actively promoting their global merchant reach, advanced fraud protection, consumer privacy, and brand trust. Their tokenization technology, for instance, safeguards sensitive account information during online purchases. Jack Forestell, Visa’s chief product and strategy officer, emphasized that while their tokens currently underlie bank accounts or credit lines, there’s “absolutely no reason that can’t be a stablecoin or another cryptocurrency.”

Integrating Stablecoins into Existing Ecosystems

Both Visa and Mastercard have been exploring stablecoin integration into their ecosystems since at least 2021. Renewed energy around the technology is now pushing these efforts into the spotlight, spurring greater investments. Visa Ventures, for example, invested in stablecoin infrastructure provider BVNK this year. Mastercard recently joined the Paxos Global Dollar Network, enabling institutions to mint and redeem USDG, and supporting other stablecoins like Fiserv’s FIUSD, PayPal’s PYUSD, and Circle’s USDC.

New Use Cases vs. Replacement

Jorn Lambert, Mastercard’s chief product officer, suggests that stablecoins are “much more about new use cases and new opportunities than about replacing the existing system,” particularly in areas like remittances, disbursements, and business-to-business payments. Visa’s Forestell notes that prior disruptions, from mobile wallets to buy-now-pay-later, ultimately led to corporate adaptation. He believes that while crypto natives can send money directly, “hyperscale connectivity” provided by networks is essential for broad everyday use, positioning them as key “on-ramps” to the wider digital economy.