Payment companies are ready to play with stablecoins

Visa recently announced that it will be partnering up with Solana to fuel its stablecoin ambitions. Due to the partnership, Visa will now be able to introduce USDC settlements over Solana’s network, which will increase the speed of cross-border settlement and introduce a new option for its clients that want to send or receive funds from Visa’s treasury system. 

The payments company has been testing stablecoins since 2021 in its treasury operations with an eye towards reducing the costs of currency conversions in cross-border payments. To explain its decision to work with Solana as its blockchain technology of choice, the company’s recent deep dive says that Solana “holds promise for payments due to its speed, scalability and low transaction costs, helping to make it a good candidate for efficient blockchain settlement rails using stablecoins like USDC.” 

Reasons why Visa went with Solana

Transaction Costs: Solana’s transaction fees are lower than $0.001, according to Visa. On top of the low fees, Visa also prefers the cost certainty that comes with using the Solana network. Transaction fees on the Solana network don't experience the same variability as Bitcoin and Ethereum, whose prices fluctuate depending on the demand for transactions to execute on the network. Unpredictable costs are difficult for Visa to factor into its products and can lead to “confusing customer experiences”. 

Solana achieves predictability by parallel processing its transactions. Visa cites network congestion to be the biggest reason for transaction fee hikes. Currently, Bitcoin is experiencing a congestion of over 460,000 transactions pending. 

Blockchain confirmation time: Solana’s time to confirm a payment transaction is also lower than competing blockchains, according to Visa. For example, Ethereum averages 14 transactions per second but because of gas limitations and smart contracts, during times of congestion, the waiting time can reach minutes. Solana, on the other hand, targets 400 milliseconds because it uses a two-thirds majority voting method to confirm blocks much faster. 

Blockchain’s payments proponents

Visa isn't the only payments company eyeing the potential of blockchain technology. In June, Mastercard partnered with a stablecoin digital wallet provider Stables to launch a virtual prepaid card in Australia that will allow users to pay with their stablecoin balance anywhere Mastercard is accepted. 

Similarly, PayPal announced that Venmo users will now be able to buy the company’s stablecoin PYUSD which is pegged to the US dollar and runs on the Ethereum network. According to PayPal, users will be able to send stablecoins to each other without any cost. 

But these moves by payments companies are drawing attention from regulators who say they are concerned about stablecoins like PYUSD operating without oversight or investor protection. The digital asset industry as a whole is waiting on US regulators and legislators for clarity, and proponents like Kristin Smith, CEO of the Blockchain Association, say that there are “50 obstacles in the way of a process” that she says is “90% there”.