Visa and Mastercard shares fell on Friday, wiping out over $60 billion in combined market value, as investors responded to news that major merchants, including Walmart, are looking towards the use of stablecoins to “bypass traditional payment networks.”
Visa stock closed the business week down 4.98% at $352.85, while Mastercard dropped 4.62% to end at $562.03. The declines made both companies among the worst performers on the Dow Jones Industrial Average for the day.
The selloff followed a report by The Wall Street Journal that merchants are assessing if stablecoins, digital currencies pegged to fiat assets such as the US dollar, could help them reduce the costs tied to processing payments through legacy networks.
Merchants mull stablecoins as alternatives to card fees
Visa and Mastercard do not collect interchange fees directly, merchants pay those to banks issuing the cards, but they do profit from the economics of card transactions. Any movement away from card rails threatens their position in the payments ecosystem.
“We believe in the potential of stablecoins to streamline payments and commerce across the value chain,” said Mastercard’s Chief Product Officer Jorn Lambert in an earlier April statement. “Unlocking this will give people and businesses the freedom they want by providing the choices they deserve.”
Still, while stablecoins may appeal to merchants, not everyone is convinced consumers will actually push debit and credit cards away to use stablecoins.
Baird analyst David Koning said the market may be overreacting to the threat. “Shoppers like credit,” he stated. “From a logistical perspective, I’m also not sure people want to take time to move cash to stablecoins.”
Koning added that stores already have payment methods closer to stablecoins, including account-to-account payments, but have failed to see mass adoption, and he believes the digital currencies “will not fare any differently.”
Bernstein’s Harshita Rawat supports Koning’s sentiment, asserting in a recent client note that “traction will likely take years and may be limited to certain cross-border use cases or some emerging countries,” citing PayPal as an example.
According to Bloomberg Intelligence’s Diksha Gera, fears that stablecoins could erode volume share and margin are “a premature worry.”
“Lingering trust and regulatory hurdles, along with a prolonged adoption curve by consumers, might impede widespread adoption,” she explained.
Buying opportunity for falling stock price
After the financial firms’ stock price fell, some economists have been encouraging clients to “buy the dip.”
“We encourage investors to accumulate shares of Visa and Mastercard on weakness,” wrote Andrew Jeffrey of William Blair, predicting the equities will outperform other firms.
“We do not believe stablecoins are well suited for business-to-consumer commerce. Consumers are accustomed to using credit and debit cards, habits that won’t soon change,” Jeffrey surmised.
He added that the networks are “building stablecoin infrastructure” to ensure they can support commerce even if merchants shift rails.
TD Cowen analyst Jaret Seiberg questioned whether regulators will ever allow private companies to issue widely used stablecoins. He said, “We question if the government ultimately will permit commercial firms to issue broadly used stablecoins, though we continue to believe the push to instant payments is inevitable and represents a risk to Visa and Mastercard,” Seiberg wrote in a client note.
Yet, on Wednesday, the US Senate voted to advance the Guiding and Establishing National Innovation for US Stablecoins Act, known as the GENIUS Act. According to Fox News reporter Eleanor Terret, there will be a final floor vote next Tuesday for the bill.
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