What is Stablecoin Settlement? And Why Should Card Programs Care?

Picture this: you stroll into your favorite coffee shop and order a triple cream pumpkin turmeric spice latte. You tap your phone to pay with your Visa or Mastercard, and voilà—the world’s greatest drink is in your hand. Simple, right?

Not so fast. Behind the scenes, your payment triggers a complex process split into three distinct phases: authorization, clearing, and settlement. Let’s break it down.

The Payment Journey: Behind the Tap

Authorization

This happens almost instantly, before you even take a sip of your latte. The merchant (your coffee shop) works with its payment processor (the acquirer) to check with your card issuer (the bank that issued your card) via the Visa or Mastercard network. The issuer confirms you have sufficient funds, and once approved, the amount is “reserved” on your account. The merchant gets the green light to hand you your drink.

Clearing

After authorization, the acquirer groups approved transactions into batches and submits them to the card network. The network routes these transactions to the respective issuing banks, calculates interchange fees, and prepares for settlement.

Settlement

Finally, the issuing bank transfers the transaction amount (minus interchange fees) to the card network, which forwards the funds to the acquirer. The acquirer then credits the merchant’s account. Your coffee is officially paid for, and everyone’s happy—well, almost.

The Settlement Challenge: Why It’s a Problem

For card programs, the settlement phase is a headache. Here’s why:

Collateral Requirements:

Settlement for cross-border transactions, especially in USD, depends on the SWIFT network—a system that’s neither instantaneous nor operational on weekends or public holidays. This means payments initiated by issuing banks can take days to clear, creating uncertainty about when funds will settle. To bridge this gap, card schemes often require issuing banks to maintain collateral—sometimes equivalent to 4–5 days’ worth of settlement value. This locks up valuable working capital, placing a heavy financial strain on businesses already operating with slim profit margins. In addition, if they fall below the requirement, programs can face fines from the scheme.

Enter Stablecoins: A Game-Changer for Settlement

This is where stablecoins—specifically USDC—step into the spotlight. Issued by Circle and pegged 1:1 to the US dollar, USDC can be minted or redeemed 24/7/365. Why does this matter? Because card schemes are piloting stablecoin settlement using USDC.

This means card programs could bypass traditional settlement constraints like banking hours and SWIFT delays. With 24/7/365 settlement capabilities, programs might no longer need to hold as much collateral with card schemes, unlocking precious working capital.

The Catch: Access to USDC

For crypto exchanges, acquiring USDC is a breeze. But for fiat-based card programs, it’s a challenge. They need to navigate the bridge between traditional finance and crypto to make stablecoin settlement work.

Why Should Card Programs Care?

Stablecoin settlement has the potential to revolutionize the payments industry. It offers faster, more efficient fund transfers, reduced reliance on collateral, and a lifeline for card programs looking to optimize their capital usage. While barriers to entry still exist for traditional players, the opportunity is too significant to ignore.

The next time you sip on that latte, know that stablecoins might just be brewing a smoother future for payments behind the scenes.