Visa Leveraging Solana for Stablecoin Payments

Over the past year, Visa has become more and more active within the crypto ecosystem, particularly on Ethereum. Yet, the high costs of using that network are at odds with Visa’s focus on payment infrastructure; it’s simply not economically viable to transact directly on Ethereum, where transaction fees typically range between $3.00 - $5.00. To remedy this situation, Visa announced they’ve integrated with Solana, which had on average $0.0002 transaction fees during Q2 this year, and have been settling USDC payments on the chain.

While this is one of the largest positive signals of validation for Solana, the announcement has deep, robust implications for the long-awaited payment app use case to emerge for stablecoins.

A key piece of the payments system is the role of merchant acquirers, which in 2022 had a global market size of ~$20.3 billion. Every time a customer buys something from a retailer or merchant, the merchant acquirers ensure the funds make it to the business's bank account. In simple terms, when you buy a coffee with a card, the funds need to land in the coffee shop’s account, and in order to do that, the PoS terminal needs to connect both your card and the coffee shop bank — this is the role of merchant acquirers.

Visa works with the merchant acquirers and sends them the funds from the customer's bank (i.e., the issuer). Retailers generally have to wait days for the funds to finally hit their bank account, but by settling with USDC, the retailer can essentially receive the payment instantly. Additionally, retailers benefit from the 24/7 nature of blockchains relative to the traditional banking hours and holiday schedules.

Prior to Visa’s current work in this area, other attempts, such as Solana Pay, have been made at breaking into the payments sector. But, acquiring or integrating directly with merchants is difficult. It’s generally a capital-intensive business, involves boots-on-the-ground sales operations, and leads to high customer acquisition costs (CAC).

Alternatively, Visa has developed relationships with merchant acquirers themselves, which has created a hardened network effect. Visa is now able to leverage its unique market positioning to work directly with merchant acquirers, which, naturally, have downstream distribution to retailers. Worldpay and Nuvei, the initial partners with Visa, represent a healthy portion of the merchant acquirer industry, together pulling in ~$5.6 billion in revenue in 2022. Visa’s key differentiator relative to past approaches by others is its ability to integrate USDC payment functionality directly with merchant acquirers. This allows them to bypass the hardships faced in one-off integrations with retailers.

The work Visa has done on both the issuer and merchant acquirer side are huge advancements for the core infrastructure required for stablecoin payments. However, a key challenge still remains — consumers need a reason to hold and transact in USDC. A compelling consumer app that pays out users in stablecoins could start a flywheel where users interact with the app, acquire USDC, and make additional purchases with it. This would also create demand pressure on merchants to accept stablecoins as a means of payment. In any case, thanks to the core infrastructure upgrades pushed forward by Visa, this now shifts the pendulum back toward applications to bring the stablecoin payments use case to fruition.