Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) are allegedly exploring their own stablecoins to bypass traditional payment systems and potentially save billions in card processing fees.
Some of America’s largest retailers, including Amazon and Walmart, are reportedly exploring the creation of their stablecoins in a move that could fundamentally reshape the payments landscape.
These digital tokens, designed to maintain a one-to-one peg with the US dollar, represent a potential shift away from traditional banking systems that currently dominate payment processing.
The exploration comes as merchants seek to reduce the billions they pay annually in card processing fees to companies like Visa (NYSE:V) and Mastercard (NYSE:MA), while also speeding up transaction settlement times.
What Are Stablecoins and Why Do Retailers Want to Use Them?
Stablecoins are digital tokens designed to maintain a stable value by being backed one-to-one with traditional currencies like the US dollar or government securities such as Treasury bonds. Unlike volatile cryptocurrencies like Bitcoin, stablecoins aim to provide the benefits of digital transactions while maintaining price stability.
They are currently used primarily for storing cash digitally or purchasing other cryptocurrency tokens, but their potential applications in mainstream commerce are drawing significant attention from major corporations.
For retailers like Amazon and Walmart, stablecoins represent an opportunity to circumvent the traditional payment rails that cost them billions annually in processing fees.
Every time a customer uses a credit or debit card, merchants pay interchange fees to banks and card networks like Visa and Mastercard, which can range from 1.5% to 3% of the transaction value. With Amazon processing hundreds of billions in sales annually, even small percentage savings could translate to enormous cost reductions that could be reinvested in business operations or potentially passed on to consumers.
The appeal extends beyond cost savings to operational efficiency. Traditional card payments can take several days to settle, meaning merchants must wait to receive the actual proceeds from their sales.
Stablecoins offer the possibility of near-instantaneous settlement, improving cash flow for businesses. This could be particularly valuable for retailers with international suppliers, as stablecoins could facilitate faster cross-border payments without the delays and fees associated with traditional banking systems.
However, the retailers’ final decisions depend heavily on regulatory clarity, specifically the passage of legislation called the Genius Act. This bill would establish a comprehensive regulatory framework for stablecoins in the United States, providing the legal certainty that major corporations need before committing to such significant payment system changes.
Implications for Banks and the Financial System if Amazon Starts Using Its Own Stablecoin
The potential entry of retail giants into the stablecoin space would send significant shockwaves through the traditional banking sector. Banks currently earn substantial revenue from payment processing, and a shift toward merchant-issued stablecoins could divert billions of dollars in transaction volume away from traditional financial institutions.
This threat is particularly concerning for regional and community banks that rely heavily on payment processing fees as a revenue source, though megabanks would also feel the impact given their massive payment processing operations.
The broader implications extend to money creation and economic control. If retailers successfully draw substantial consumer and business funds into their stablecoin ecosystems, it could reduce the deposits that traditional banks use for lending activities.
Under the fractional reserve banking system, banks create money by lending out multiples of their deposits, so a reduction in the deposit base could theoretically contract the overall money supply and reduce banks’ ability to fuel economic growth through credit creation.
Recognizing this threat, major banks are not sitting idle.
JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) are reportedly in discussions about creating their own joint stablecoin to compete with potential retail offerings.
JPMorgan already operates its own internal stablecoin for wholesale transactions, and PayPal (NASDAQ:PYPL) has launched a consumer-facing token, demonstrating that financial institutions are actively exploring this space rather than ceding it entirely to retailers.
The competitive dynamics could ultimately benefit consumers through increased competition in payment processing, potentially leading to lower fees and faster transaction times.
However, the fragmentation of payment systems could also create new complexities, as consumers might need to manage multiple different stablecoins issued by various retailers, similar to the era when stores issued their own charge cards before the dominance of universal credit cards.
***
This article was written by Shane Neagle, editor in chief of The Tokenist. To get trade ideas and pre-market insights delivered to your inbox every morning premarket, (free), brought to you in partnership with The Tokenist.