This week, the stable law was approved by the US Senate. The bill, called an act of genius, requires you to go through the other side of Congress and go to the president’s desk, but it’s one step closer to bringing stupid things into the financial system. By regulating new currencies locked in US dollars, coin issuers must maintain sufficient reserves to repay customers and undergo regular audits.
Investors are betting that the law will encourage client recruitment. visa(NYSE: V). If Stablecoins are wholesale adopted by consumers, this could mean lower payments through Visa’s network. Low volume means low profit.
Does that mean it’s time to sell your visa stocks? not much. Here’s why Stablecoins are not a major threat to Visa’s business model today:
The law encourages businesses to investigate making their own stubcoins. According to reports, both Walmart and Amazon – The two largest retailers in the US are exploring the production of stub coins for shoppers. Retailers are encouraged to do this because they charge a large fee paid to their credit card network each year. This is 2% to 3% of all transactions. Visa collects only 0.1% or more for every dollar spent, but most people issue credit cards and go to a bank partner who will reward consumers with cashback.
By adopting Stablecoins, merchants see a way to avoid credit card charges, which is the enormous cost of their business. Wal-Mart and Amazon alone can save billions of dollars a year that is now reaching the financial system. For this to happen, we need to check for mass adoption of stubcoin. It’s easier than you would say, but there are many benefits to the line to try.
Image source: Getty Images.
It’s not easy to beat visa and credit card fees. If so, the company would simply suspend accepting visas entirely. However, they cannot because of the enormous scale in acceptance of sellers and consumer use.
Visa operates in 200 countries and territories, and is growing and accepted by 150 million merchants. There are also a total of 4.8 billion debit and credit cards in circulation. Visa processes total payments of more than $15 trillion each year. For Stablecoins to succeed, they must replicate not one but on either side of this network. Shoppers will not use stubcoins for daily use unless accepted anywhere. Merchants don’t mind accepting stubcoins if no one is using them.
Call me skeptical that they will soon reach the size of the visa. This is a typical example of Competitive advantages of network effectsstrengthens visa control in the industry.
Plus, we must not forget that consumers love about credit cards: cashback and reward points. Credit cards cost 2% to 3% charges that are charged to merchants, allowing them to offer a huge number of perks to their customers. Without them, it’s a worse customer value proposition and another hurdle for Stablecoin adoption.
No, you shouldn’t sell visa stocks just because IY is immersed in Stablecoin News. It is clear that the company has a strong competitive advantage and a large scale. The law has not been approved yet, so there is no reason to panic.
That doesn’t mean that the stock is a purchase at these prices. Earnings per share (EPS) rose 10% year-on-year from the previous quarter. This is right next to Visa’s long-term growth. Such large companies will already produce steady and durable growth over time rather than overgrowth in the form of revenue. Today, stocks are trading at 34 premium prices and return rates (P/E), even after this stock has fallen, making the stock price more expensive.
Don’t hurry and sell your visa stocks. But don’t think that a stock is a home run purchase just because it slips 10%.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of Motley Fool’s board of directors. Brett Schafer I have a position on Amazon. Motley Fool has posted and recommended positions on Amazon, Visa and Walmart. To Motley’s fool Disclosure Policy.
