Waning Credit Card Market Power?

 

Historically, Visa and Mastercard earned substantial interchange fees because merchants had few practical alternatives. But FedNow, RTP, “pay-by-bank” systems, and blockchain-based settlement reduce switching costs and create new competitive options for merchants and fintech firms. Recent reporting from American Banker noted that RTP and FedNow transaction volumes are growing rapidly while firms simultaneously experiment with stablecoin-based international transfers that bypass traditional correspondent banking systems. Meanwhile, regulators are increasingly scrutinizing the market power of incumbent payment firms, including a new UK competition probe involving Visa, Mastercard, and PayPal. Network effects can create durable market power, but interoperability, regulatory pressure, and technological innovation can gradually transform even seemingly entrenched monopolies into far more competitive markets.

For decades, Visa and Mastercard benefited from one of the strongest forms of market power: network effects. Consumers tend to apply for cards that are accepted by more retailers and retailers accept cards that are held by more consumers. The resulting feedback loop favored first-mover credit cards and made subsequent entry difficult. But now new payment “rails” are beginning to erode that dominance. Real-time payment systems like FedNow and RTP now allow money to move directly between bank accounts in seconds, bypassing traditional credit card networks entirely. At the same time, stablecoins and open-banking systems are creating alternative methods for transferring funds with lower fees and faster settlement. Reuters recently reported that Visa’s annualized stablecoin settlement volume has already reached roughly $7 billion, while Mastercard is spending up to $1.8 billion to acquire stablecoin infrastructure firm BVNK. These investments reveal that incumbents increasingly view new payment rails as potential substitutes for traditional card networks.