Korean domestic card companies will hold their first task force (TF) meeting on the 30th to jointly respond to stablecoin payments. This is to prepare for the card payment ecosystem that stablecoins can potentially change. Some predict that stablecoin payments could pose a threat to card companies, which are finding profitability decreasing.
In contrast, global payment network corporations such as Visa and Mastercard believe that stablecoin payments will not reach a level that could replace their card networks. The two companies have been conducting research on virtual assets and stablecoins for several years and have recently attempted to support virtual asset card payments or to launch credit cards backed by virtual assets. Nevertheless, Visa's global head of virtual assets, Kai Sheffield, emphasized in a recent interview that "stablecoins face challenges in replacing the existing payment market."
◇ Insufficient infrastructure for convenient card payments
The biggest reason stablecoin payments cannot replace card networks is the overwhelming efficiency and trust of existing payment systems. Card companies have built a robust network of millions of merchants and point-of-sale (POS) terminals worldwide over several decades, creating a convenient system that allows card or mobile payment users to complete payments within a second. Unless there is an immediate need or coercion, it is difficult to overturn such a convenient system.
For example, in order to pay with stablecoins at retail stores, it is necessary for stablecoins to be recognized as equivalent to currency. Additionally, both consumers and merchants must understand their digital wallets and be able to manage the infrastructure. If the transaction address is incorrect or one loses the private key of their wallet, not only will payment be complicated, but also the refund process, and there is a risk of losing all digital assets in the wallet due to hacking.
In the case of card payments, there is a customer protection system in place for dispute resolution such as refunds after payment, managed in accordance with global security standards like Anti-Money Laundering (AML) and Know Your Customer (KYC). In contrast, financial consumers who make payments through stablecoins do not have a system in place to apply for solutions or remedies when issues arise after payment. Ultimately, from the consumer's perspective, there is no significant utility compared to current card payments, with only complicated procedures added.
Additionally, in cases like RedotPay, the current payment providers use a method where stablecoins are preloaded as prepaid currency for payment. This is similar to a debit card that makes immediate payments without a credit offering feature. On the other hand, the revenue for card companies primarily comes from fees associated with credit cards, card loans, and cash advance products. This is why concerns have been raised that the immediate impact on card industry profitability is limited.
◇ 'Pay companies' pose a threat to domestic card firms
In reality, the primary use of stablecoins currently in use is not for payments. According to Visa's internal data, stablecoins are mostly used for high-value remittances and are not actively used for small consumer or everyday transactions. According to a stablecoin research report released by global consulting firm McKinsey on the 21st, the supply of dollar-based stablecoins has doubled in the past 18 months, yet only about $30 billion (approximately 41 trillion won) in transactions has been processed. This accounts for less than 1% of the global flow of funds.
Based on this, McKinsey emphasized that stablecoins are primarily used as an intermediary for exchanges rather than for payment, underscoring the necessity for existing fiat currency exchange channels (off-ramps) when using stablecoins. Global investment firm William Blair also noted in an investment memo last month that, "Even if merchants expect stablecoins to be a means of reducing card fees, they may not be suitable for actual business transactions."
However, this does not mean that card companies do not need to prepare for the era of stablecoin utilization. Stablecoins facilitate high-value overseas remittances and fund transfers. Moreover, stablecoins can be a means of expanding financial inclusion in emerging markets like Latin America, Africa, and Southeast Asia that lack payment infrastructure. For this reason, Mastercard recently decided to offer the dollar-based stablecoin FIUSD from Fiserve as a payment option at its 150 million merchants.
If won-based stablecoins begin to be activated in Korea, payment companies such as Kakao Pay and Naver Pay will pose a more substantial threat to card companies than the stablecoins themselves. This is because stablecoins are issued at a 1:1 ratio based on collateral assets, so the larger the collateral asset, the greater the issuance capacity.
Professor Hyun Jeong-hwan of Dongguk University's Department of Trade noted, "As the prepaid funds of domestic payment companies are nearing 4 trillion won, if stablecoin issuance becomes possible, they are likely to convert these prepaid funds into stablecoins," adding, "To counter this, domestic card companies need to advocate for the establishment of payment-specialized accounts, which have been long sought after by the industry."