Payment Networks Testing Stablecoin Settlement Layer Integration with Traditional Card Rails

Visa and Mastercard made public announcements about integrating stablecoins into their global networks this week.

Visa announced a partnership with Bridge to expand support for stablecoin-linked card programs in more than 100 countries through Visa’s platform.

Mastercard revealed a partnership with SoFi to allow for SoFiUSD (SoFi’s U.S. dollar-backed stablecoin) to be used to settle transactions through Mastercard’s network. Both announcements were focused on the mechanics of settling transactions — not speculating on cryptocurrencies.

From the perspective of card issuers, the question is structural. Will stablecoins become an alternative method of settling transactions inside the card ecosystem — or are they simply a new way to manage treasury operations?

How card issuers answer this question will impact cross-border costs associated with settling transactions and where issuers deploy liquidity.

Stablecoins do not replace the systems that authorize transactions, nor do they change the underwriting processes, reward structures, or revolving credit economics. Their applicability is behind the scenes with regard to how value is transferred once a transaction is cleared — especially in cross-border and institutional liquidity flows.

The process of operating a card network has three layers: authorization, clearing, and settlement.

Clearing and settlement in cross-border transactions traditionally involve correspondent banks and prefunded accounts located in multiple jurisdictions.

Blockchain based settlement methods can potentially reduce reliance on intermediary parties and the foreign exchange friction associated with settling transactions in cross-border corridors. Potential benefits include faster finality and reduced amounts of trapped capital across time zones.

Interchange fees remain tied to transaction pricing and merchant agreements. Stablecoins do not reduce the amount of merchant discount fees associated with cross-border transactions.

If the costs associated with settling cross-border transactions decrease, then card networks and larger issuers may experience greater efficiencies on their balance sheets related to managing treasury functions, versus experiencing pressure on the point of sale.

Stablecoins won’t change interchange, but they could quietly reshape how issuers manage liquidity across time zones.

Payouts to merchants and business-to-business flows may represent early applications of stablecoins versus consumer credit. Near real-time settlement options can help global merchants better manage their working capital.

Embedded finance platforms that span multiple jurisdictions may benefit from programmable transfer logic related to stablecoin options.

Debit and neo-banking models are likely to experience impacts from stablecoin options prior to traditional revolving portfolio models. Interest income and rewards economics continue to drive profitability for credit card issuers.

The effects of changing settlement options impact the efficiency of the balance sheet before they impact the experience of the cardholder.

Networks may also consider the inclusion of stablecoin options as a strategic defensive measure. By embedding digital asset rails into current infrastructure — while retaining control over authorization and clearing — networks may prevent disintermediation from blockchain native payment systems.

Stablecoin settlement creates some operational issues. Issuers must assess the quality of custody arrangements, the quality of the counterparty relationship to the stablecoin issuer(s), and the quality of reserve backing. Treasury teams must assess the liquidity treatment and intraday risk associated with stablecoin settlement.

If banks begin to settle directly in stablecoins, capital and reporting treatment may become important. Reserve proposals are emphasizing high-quality liquid assets, segregation standards, and transparency requirements designed to limit run risk and improve transparency.

Additionally, issuers may require new vendors for custodian services and/or blockchain infrastructure providers. Technology teams will need to develop technology to integrate digital asset settlement rails with legacy core systems — all while minimizing the increased exposure to fraud and cybersecurity threats.

Product teams will monitor B2B credit, cross-border commercial cards, and embedded lending models — and instant or near real-time settlement options may enable new working capital structures. Most consumer-facing prime credit products will be operationally unaffected by these developments in the short term.

The OCC has outlined proposed reserve and risk management standards for payment stablecoins.

While the proposal outlines expectations regarding the type and quantity of assets that back stablecoins, the liquidity of those assets, and the types of operational controls in place, it indicates that compliant stablecoin participation can occur within the banking system.

Established reserve standards will provide operational guidelines to banks regarding custody, reserve management, and risk disclosure. This framework may cause stablecoins to transition from experimental pilot programs to production, scalable infrastructure.

Large financial institutions are already taking action. Morgan Stanley has filed for a charter for a crypto trust subsidiary. Barclays has explored tokenized deposits in addition to stablecoin-related settlement initiatives tied to institutional use.

Compliant stablecoin participation can occur within the banking system.

These actions suggest that large financial institutions view digital settlement tools as an evolution of the underlying infrastructure — not as speculative retail crypto activity.

Competitive positioning plays a role as well. Alternatives for real time payments exist via RTP and FedNow, which are account-to-account payment alternatives. The use of stablecoin as an alternative for settlement does not replace either RTP or FedNow, but could be used as a complementary method for cross-border or multiple currency transactions.

The card processor and core provider will need to define how the digital asset settlement layer will interface with their current clearing process.

Stablecoin-linked cards may seem disruptive. Current events suggest otherwise. We may be witnessing measured evolutionary development of the card network infrastructure. Authorization, underwriting, rewards programs, and revolving credit economics — all remain unchanged.

The strategic implications are centered on reducing the costs associated with settling transactions. If stablecoins can reduce dependence on correspondent banking and improve liquidity velocity, networks and issuers may realize incremental balance sheet efficiencies.

Any benefits realized by networks and issuers would be primarily in treasury and cross-border operations, before ultimately being reflected in consumer pricing.

Adoption of a stablecoin will depend upon regulatory clarity, integration with existing operations, and demonstrable cost reductions. Stablecoins are currently viewed as another settlement option. The expansion of Visa, Mastercard, and other major financial institutions’ stablecoin initiatives suggests a large-scale move.

But it remains uncertain if it will evolve into widely accepted infrastructure. Perhaps the decision to do so will be based on economic viability, regulatory compliance, and the issuers’ willingness to adopt in future years.