The global payment networks, the high-tech companies, and the U.S. Government are competing in the race to digitize the U.S. dollar. With the U.S. Government in dead last, I would suggest the lead goes to the global payment networks because they have considerable advantages:

  1. Broad worldwide acceptance
  2. Account structures that enable the accumulation of value (not just private/public keys which are literally the value of any crypto and require different approaches to management within an account)
  3. Tokenized (digital) access to account balances in close to real time
  4. Support for a range of use cases as yet not possible with crypto (pay on shipment, card-on-file, subscriptions, dispute management, etc.)
  5. Availability of gateways that connect cryptocurrencies to the global payment infrastructure
  6. User friendly benefits that include zero liability, disputes, and rewards.

The global payment network tokens may reside in a mobile wallet developed by the high-tech companies, but considering all the ways payments are made, I don’t think high tech can claim a payments lead. Although high-tech companies have more users of mobile and digital in general, this lead is not payments specific. Payments by mobile phone remain a small component of consumer payments and are almost entirely absent from the huge B2B payments market.

Within high tech, PayPal is better positioned than others because it has invested in building out an acceptance network, however, PayPal’s acceptance network mostly rides over the global payment network rails.

The question of what currency will be underpinning the digitized U.S. dollar has yet to be answered. Today it’s the dollar and those few cryptocurrencies that can address regulatory constraints. Tomorrow it may be stablecoins from Silvergate that bought the assets from Diem.

The key remaining issue is the cost of making a payment. That, of course, can change on a dime. Witness what happened after Durbin, and now the interchange rate issue is being revisited for credit cards. Large merchants could implement acceptance for all types of cryptocurrencies, but doing this adds friction to the checkout process because crypto is not particularly consumer friendly and stablecoins and central bank digital currencies (CBDCs) are unlikely to change that equation in any significant way.

I am not suggesting that this race is over, or that it is even approaching the last lap. My point is that the global payment networks have worked with a range of merchants to address a wide number of use cases and consumer benefits. These relationships are very sticky and will be hard to replace.

Please feel free to reach out for additional discussion on these or other payments topics related to emerging technologies.

tsloane@mercatoradvisorygroup.com