'Stablecoins’ quickest path to consumer wallets may be working with today’s players.

Stablecoins have a shot at being used in a lot of consumer payments. If they play their cards right.

Investors seem to be betting that stablecoins—digital tokens meant to represent a fixed amount of a fiat currency such as the U.S. dollar—could rapidly disrupt how we pay for things. Following the Senate’s passage of a stablecoin-regulation bill last week, shares of crypto companies such as Circle Global Internet and Coinbase Global surged. Shares of Visa and Mastercard, by contrast, are on track for their worst monthly performance in a couple of years.

But before the market runs away with this trade, it is important to understand what drives the consumer-payments business—and just how hard it is to dislodge cards. The key thing about consumer payments is that it isn’t just about technology. There are already many so-called rails, both public and private, on which money can move. Instead, what keeps cards at the center of payments are their unique economics, and their universality. In places such as the U.S., credit or debit cards are held by virtually every consumer and accepted by almost every merchant. They provide banks and consumers with financial incentives to keep using them. And they have mechanisms to handle security, as well as disputes between buyers and sellers. Of course, merchants are the ones who in a sense pay for all that, by paying fees to accept card payments. So merchants are usually among the first to rush to embrace other ways to pay. The Wall Street Journal has reported that some giant merchants are exploring issuing stablecoins.

Many payment forms have found specific lanes, or operate in the background. But especially in the U.S., cards have remained central to consumer commerce, whether in physical or digital form. Could this time be different for stablecoins? Stablecoins can use public blockchains to move over the internet, making them widely accessible to adopt in payments. They are especially appealing in countries where people want to operate in U.S. dollars, but can’t get U.S. dollar bank accounts. However, card networks are already adapting. Both Visa and Mastercard enable partners to offer cards whose payments can be funded by cryptocurrencies, including stablecoins. Merchants can then collect the payments the way they would with any card transaction. No new setup is required. These network operators are also offering ways for merchants and others to themselves be paid in stablecoins. That includes USDC, which is issued by Circle.

Then there is the incentive question of why a consumer would want to transact directly in stablecoins over cards. The latter often pay out generous rewards to holders. Stablecoins have a potential mechanism to do something similar. Each coin has a reserve fund that aims to ensure it can be redeemed for its fixed fiat currency value. Those funds generate interest revenue. That creates a kitty that can fund rewards to people who pay with those tokens, as with discounts or points. But that reserve income goes to the coin issuers, not merchants who accept the payments. Merchants would need to negotiate with those players, whether they are banks or others, to get a share of the economics. If merchants pursue their own coins, then they could in theory fully fund their own rewards programs. It would be similar to how some retailers today, such as Starbucks, hold customers’ preloaded dollars in accounts. They can also earn interest on that cash. But this pathway might only be available to the biggest merchants. And, to make customers more willing to hold money in those accounts, merchants might want to issue cards linked to their wallets. Then customers can use those funds to pay at other sellers.

All this only applies to people paying with existing funds. What about credit? That requires a lender, and typically a card network to facilitate the transaction. Coinbase, for example, has announced it is launching a rewards credit card via the American Express network.

Stablecoins will have many uses in payments, particularly outside the U.S., and in behind-the-scenes transactions. But the fastest way into most people’s wallets will still be through a card.'