The passage of landmark stablecoin legislation this summer could have far-reaching implications beyond just the financial sector. The Genius Act opens the door for nonbanks to issue stablecoins of their own, and that could greatly expand the number of retailers that offer stablecoins to their customers.
In June, the Wall Street Journal reported that both Amazon (AMZN -0.33%) and Walmart (WMT 0.93%) were secretly planning stablecoins of their own. Presumably, all they needed was the ink to dry on the new stablecoin legislation, and they could get started. Here's why stablecoins could change everything for them.
Profitability and cost savings
As they say, always follow the money. And the money in this case is the potential cost savings from using stablecoins rather than credit cards for payments. Typically, credit card processing fees are as high as 2%-3% per transaction. So the ability to cut costs by moving everything to blockchain payment technology is certainly alluring.
But here's the thing: You need to have enough scale to make any stablecoin project worth it. That's why Amazon and Walmart are two of the most prominent names involved in the stablecoin discussion right now. Quite simply, they are retail behemoths. When you're making billions of dollars in sales, savings of 2%-3% can really rack up.
Image source: Getty Images.
Moreover, there has been discussion that stablecoins could be used to pay employees, logistics partners, and other members of the retail supply chain, especially those located overseas. Imagine tiny cost savings suddenly popping up all over your business by going all-in on blockchain technology.
As a result of all these potential cost savings and operational efficiencies, even Visa (V 0.90%) is exploring new projects that leverage stablecoins, including stablecoin-linked cards.
In many ways, the writing is on the wall: Stablecoins are coming to retail, in one form or another.
A better customer experience
Let's assume that the big retail giants are more than just penny-pinching corporations attempting to boost the bottom line. Many of them really do want to create a better customer experience, and stablecoins could play a role here, too.
First, they could choose to reinvent their customer loyalty programs to feature stablecoins. Instead of "cash back" at the end of the year, they might be able to offer other incentives that reward customers for using stablecoins at the point of sale.
And stablecoins might improve the overall shopping experience. That's because blockchain technology speeds up transaction settlement times, from days to just seconds.
This could, for example, vastly improve the speed that you get refunds for purchases. How many times have you requested a refund, and been told, "Oh, it should show up in your account in a few days"? Imagine having access to that money nearly instantaneously.
Of course, getting customers to embrace stablecoins might be a tough sell. According to top retail industry analysts, one way to get over the adoption hurdle is by pitching stablecoins as a sort of gift card or branded loyalty card that you would present at the point of sale. You wouldn't need to know anything about blockchain technology, crypto, or how stablecoins actually work. Everything would be seamless, and happen behind the scenes.
Implications for investors
Undeniably, stablecoins represent a huge step for retailers. They will need a tremendous amount of tech savvy in order to get all the blockchain payment technology working as planned. So why not leave all the heavy lifting to Silicon Valley tech firms, some of whom are also planning to launch new stablecoins?
Moreover, as the latest Motley Fool research on stablecoins points out, the largest banks still dwarf even the biggest stablecoin issuers. So why not leave the job of stablecoins to banks and other financial institutions, some of whom have said they plan to launch their own stablecoins soon?
All of which leads me to think: Maybe investing directly in retailers is not the best way to play the stablecoin trend. Maybe it's better to invest in tech-savvy companies that have strong retail platforms.
You could, for example, invest in PayPal (PYPL 0.26%), which launched a stablecoin of its own in August 2023. Or, you could invest in Shopify (SHOP 2.02%), which is now offering stablecoin payment options at the point of sale for e-commerce websites.
As for me, I'm still focused on stablecoin issuers such as Circle Internet Group (CRCL -0.11%), which went public in June via a splashy initial public offering. Circle is the issuer of USDC (USDC -0.00%), which is the second-most popular stablecoin in the world right now, with a market cap of about $65 billion. It's also the stablecoin of choice for Shopify.
At the end of the day, stablecoins could turn out to be a classic "make or buy" decision faced by top retailers. Is it better to make your own stablecoin, or simply buy one that already exists from someone else? My guess is that most retailers will opt for the latter.
