A Brief Discussion on Visa Supporting Stablecoin Settlement

Author: 0xTodd; Source: X, @0xTodd

Let’s talk about Visa supporting stablecoin settlement.

First of all, many people might not fully understand how Visa (or Mastercard) actually operates.

Visa itself does not issue cards nor does it lend money to merchants; it is purely an intermediary, mainly responsible for information processing and rule setting.

Taking the US as an example, the Visa operation process mainly consists of three stages:

Stage 1: Authorization (Can I spend the money?)

When a cardholder swipes at a merchant, the merchant’s acquiring bank sends the transaction information to VisaNet. VisaNet recognizes the card number and routes the request to the issuing bank. The issuing bank checks the account balance or credit limit and responds with “approved” or “declined.” Visa then transmits the result back to the acquiring bank, and then to the merchant.

Stage 2: Clearing

Usually at the end of each day or transaction batch. The acquiring bank packages all the transaction data for that day and sends it to VisaNet. VisaNet performs netting calculations.

It calculates each bank’s net position. For example, if the issuer A’s customer spent a total of 100 million USD today, and the merchant (if it is also an acquirer) for issuer A is owed 20 million USD today, then issuer A’s net obligation is to pay 80 million USD.

Stage 3: Settlement (Transferring money)

Based on the net amount calculated during clearing, Visa instructs the settlement banks to transfer funds between the accounts of the issuing and acquiring banks. Previously, this was done via wire transfers or similar channels.

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And this time, Visa announced support for $USDC , not to say that retail users can now spend stablecoins via Visa, but that issuing banks and merchants can settle using stablecoins during the third stage.

To translate, it means: Previously, the banks owing money to Visa merchants could only settle through traditional bank transfers (USD fiat). But now, they can directly transfer USDC from their crypto wallets to Visa to settle the account.

Coincidentally, Mastercard also announced yesterday that it supports stablecoin settlement in the Middle East. And Visa is doing this in the US, which shows that, as I predicted earlier, after the US stablecoin legislation passes, the entire industry is accelerating rapidly.

However, one point to clarify is that Visa is talking about “Select partners.” Implicitly, this feature is not open to all US banks; it’s probably mainly targeted at crypto-related financial institutions or enterprises.

In summary, this is pretty impressive, meaning the idea that stablecoins = real money is being further cemented. The more people accept “stablecoins = real money,” the more stablecoins become truly equivalent to real money, and the peg becomes tighter.