From Bank Cards to Stablecoins: Let's Learn from History, not Repeat It

Thomas P. Brown is Senior Counsel at a national law firm and serves on several boards. He previously worked at Visa during its corporate restructuring and IPO process. His views are his own. They do not represent the view of any clients of the firm or any company with which he is associated.

Stablecoins are having a moment. Stablecoin transaction volumes lapped Visa and MasterCard combined in 2024. The watershed was Stripe’s $1B acquisition of the stablecoin processing business, Bridge, last October. Since that point Google searches for the term have surpassed FedNow, a competing real time payment technology. In June, Circle, the stablecoin pioneer and sponsor of USDC, went public and then saw its stock price skyrocket, eliminating at least one source of doubt about the technology. Stablecoins also motivated something truly rare at this moment in US history—bi-partisanship in Washington, D.C. Following the Circle IPO, a bi-partisan group of Senators passed by a 68-30 margin a bill that would clarify the regulatory framework for the technology. 

All of this attention has left large banks with a very bad case of FOMO. The fear may be justified. Stablecoins are not an overnight success story. For a decade, industry observers have noted that distributed ledgers could enable firms and households to bypass bank controlled payment systems. Given how much money banks generate from serving as toll keepers on existing payment infrastructure, they should have been alert to the risk. McKinsey estimates that banks in North America generated $600B from processing payments in 2023 and projects that payment processing revenue will grow to $800B by 2027.

In order to make up for lost time, banks are exploring whether they should join together to offer an alternative to existing stablecoins. Having spent years defending Visa’s consortium model and then catalyzing its evolution, I have some thoughts. Visa and MasterCard were spectacular successes as bank owned and controlled companies. It is natural to look back at something that worked and think it might work again. In my view, the instinct to combine to compete overlooks important differences between the period when the consortium model emerged in the then nascent payment card industry and the reality of the stablecoin industry today.

The Original Problem: When Cooperation Was the Only Path Forward

In the late 1960s, Bank of America faced a dilemma with the BankAmericard system, the forerunner to Visa. The bank had successfully launched the first bank supported general-purpose credit card with the famous Fresno airdrop, but it needed other banks to participate to achieve national scale .

The problem was structural. Beginning with Glass-Steagall and continuing through a series of laws enacted in the late 1950s, it was very, very difficult for banks to operate across a significant geography. State laws largely prohibited intra-state branching. And regulatory requirements imposed on bank holding companies that owned multiple institutions within a single state or across multiple states were onerous. As of 1967, bank holding companies operating in the United States accounted for only 3.2 of the nation’s total commercial deposits and 11.1 percent of total deposits. 

Although a group of rivals had formed a cooperative to compete with the BankAmericard program, Bank of America initially tried a different approach. Rather than invite other banks to own and jointly govern the BankAmericard system, it tried to franchise its system. It licensed its mark to other banks on a state-by-state basis, while it operated the network. The franchise model did not work. The other participants chafed at supporting a competitor’s brand. As volumes climbed, they also worried about whether Bank of America was going to invest enough to support the system. Regulators worried that Bank of America was the ultimate backstop for the promise to pay merchants that accepted the BankAmericard even when other banks signed merchants to accept those cards.

Those issues came to a head in 1970. Dee Hock, then responsible for the card program at National Bank of Commerce in Seattle, Washington, persuaded the other bank participants in the BankAmericard system to support a switch from the franchise model to a consortium. Bank of America went along. Hock became CEO, and the consortium model prevailed until 2006 when MasterCard announced that it was going to go public. Visa soon followed.

More than fifty years has passed since the true birth of Visa, but the period has lessons for today. The consortium model emerged as the solution for banks that wanted to get in on the payment card game for very specific reasons:

• Regulatory Barriers: Interstate banking restrictions prevented direct expansion. Banks could not simply acquire competitors or open branches across state lines to build national networks.

• Risk Concentration Concerns: Bank regulators were uncomfortable with one institution controlling national payment infrastructure and bearing losses from other banks' activities.

• Indirect Network Effects: Payment systems benefit from indirect network effects. Merchants accept the payment types that consumers carry and want to use; consumers carry and use the systems that merchants accept. In the late 1960s and early 1970s, that network was physical–plastic cards, devices to take imprints of the cards, landline phones, and paper. 

The consortium structure solved these problems. It enabled the system to grow across state lines. It enabled BankofAmerica to socialize the risk arising from guaranteeing payment. And it put a bank in physical proximity to every merchant and consumer. The consortium model propelled the payment card industry in the United States and globally for thirty years. 

Stablecoins: Different Times and Technologies Mean Different Challenges

Fast-forwarding to today, the structural constraints that justified payment card consortiums simply do not exist with stablecoins.

Not Account-to-Account: Stablecoins are not an account-to-account service. Visa, MasterCard, and the more recent payment consortiums pursued by banks in the US, Zelle and RTP, operate on an account-to-account basis. Although such systems do not have to be operated on a consortium model (indeed, a consortium may be a constraint), some amount of cooperation among participants is essential.

No Regulatory Barriers to Nationwide Expansion: Federal and state chartered banks face few constraints on the ability to offer services nationwide. There may be some uncertainty about exactly how individual banks can support stablecoins—e.g., hold deposits from existing issuers, issue through such providers, or issue their own cousin. But banks are free to collaborate on those issues without jointly owning and operating any particular project

Technology Enables Different Scaling Models: Stablecoins are a native digital substitute for negotiable instruments. They can be accessed wherever the internet exists (and, under certain implementations, even where it does not). In the 1960s, banks needed to meet merchants in person to sign them to accept cards, and the underlying transaction records were entirely paper based. Blockchain infrastructure does not require the same physical network coordination.

Leveraging Existing Technology: Unlike the 1960s, when no national payment infrastructure existed, banks today can leverage existing stablecoin protocols and platforms without building from scratch.

Different Network Effects: Although stablecoins benefit from network effects, these operate differently than card networks. Token interoperability and protocol adoption do not require the same coordinated governance structures. Today’s existing stablecoin issuers—e.g., Circle, Tether, Paxos—do not need to coordinate with one another to offer stablecoins.

What Banks Actually Need in Stablecoins

Banks individually and collectively face real obstacles to catching up with incumbent service providers. Regulatory clarity likely remains the chief barrier. But as noted above, bank are free to cooperate in the search for such clarity, and such cooperation does not require coordination on the market facing dimensions of the service. The other major barriers—technical integration, internal risk management, and distribution—are all things that banks can confront and overcome on a bank-by-bank basis.

Moreover, there are alternatives to cooperative ownership and governance that would seem to achieve many of the efficiencies that banks might hope to capture through a consortium:

Direct Investment and Partnership: Individual banks can take equity stakes in existing stablecoin issuers or form strategic partnerships with them.

Service Provider Models: Firms can compete to provide stablecoin infrastructure services to banks. As with credit bureaus, payment processors, and other technology providers to the financial services industry, the market is likely to converge on a handful of providers

In general, antitrust law frowns on coordination among competitors. Coordination on competitively sensitive issues like pricing, product development, and output are only permitted when the consortium brings to market something that could not otherwise exist. The test is not whether competitors could band together to do something, but whether such cooperation is necessary to bring something to market.

For stablecoins, that case appears very difficult to make given the alternatives. Banks can achieve their goals—regulatory compliance, technical capability, economic participation—through direct investment, partnerships, and service relationships. The coordination benefits that consortiums might provide do not require shared ownership and governance of a stablecoin system.

Learning from Evolution, Not Just Success

The lesson to be learned from the full arc of Visa’s story is not that consortiums work. They can, of course, but they do not always. And at least in the case of the card networks, there came a point when they no longer did. The networks have thrived in the fifteen plus years since they abandoned their cooperative models.

Banks should not seek to copy the 1960s payment card playbook. Rather, they should understand that the consortium model solved problems specific to the time and the technology. The stablecoin industry of today is not the payment card industry of the 1960s. Banks entering the stablecoin market should focus on the underlying problems they are trying to solve.

The most successful stablecoin strategies will likely combine the coordination benefits that consortiums historically provided with the flexibility and efficiency that modern markets demand. That points toward partnership and investment models rather than shared ownership structures—evolution, not repetition, of the consortium innovation.

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

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