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It is not always easy to understand the appeal of stablecoins, particularly for European or British people.
Why would you want to try to pay with something that worked like a debit or credit card, but sometimes slower, with somewhat unpredictable fees, and which brought you into a confusing ecosystem in which consumer protection is poor and bad practice all too common? The only answer which really comes to mind is “because you’re doing something that you don’t want the regulated banking system to look at”.
In other words:
But for Americans, there’s a significantly more prosaic reason:
American payments fees are anomalously extortionate. As well as very high card fees, it has remittance costs that are closer to the developing world than to Europe:
Why is this? There’s no very obvious technological reason. The US retail payments network isn’t quite as modern and hi-spec as the European SEPA or the UK’s Faster Payments, but it’s not bad, and it’s a small part of the overall charges. The Mastercard and Visa networks are the same for everyone. The majority of US bank customers are with big institutions that can invest in the best systems.
But there’s a very obvious non-technological reason. As can be seen from the first chart, the biggest driver of card costs is “interchange fees” — the fee paid to the card issuer, which is meant to cover the costs of chargebacks, fraud detection, providing the physical card and so on.
In most of the world, these fees are capped by regulation at somewhere near their actual cost. In the US, credit card interchange fees are completely unregulated, while debit card interchange fees have a relatively generous cap which the Fed has been trying to negotiate down.
Some of the excess cost is rebated to customers through free checking accounts and extremely generous rewards programmes. But quite a lot of it stays with the banks; there’s a lot of customer inertia created by the fact that it’s comparatively inconvenient to switch card providers, and there’s not much incentive to cut prices in a relatively comfortable oligopoly.
Whatever their many other nasty properties for the wider financial system, stablecoins are a potentially cheaper no-frills option for payment services.
Find a way to “provide a worse service for less money” is the single best-proven fintech strategy of them all. It’s no surprise, then, that the biggest US banking groups are said to be exploring the idea of launching their own stablecoin solution. But even if they hang on to the market share, the dawn of price competition in US payments business is unlikely to be a pleasant experience for the incumbents.
