Visa’s announcement that it will support bitcoin trading is welcome, but it’s too “volatile” to be used for payments, Gartner’s VP analyst Avivah Litan has said.

Litan claimed that stablecoin is the better option for credit card providers.

She said that Gartner does not see much potential adoption of bitcoin unless the volatility issues are resolved.

However, she explained that there is a need for stablecoin payments on blockchains, especially in the B2B space, with connections to “many thousands/millions of payors and payees.”

“This is a value proposition the card brands and their alternatives (e.g. PayPal, Square) can offer, along with value added risk management, KYC/onboarding, and cash management services that are consolidated with existing fiat currency services,” said the Gartner analyst. “Of course, this scenario would preclude the card brands and payment companies from earning transaction/interchange/merchant fees as is done today, but that is what blockchain payments are all about- i.e. removing the need for central clearing, and moving to a peer to peer structure.

Visa recently said that it would support bitcoin trades via custodian banks.

PayPal and Square’s Cash App also offer bitcoin trading.

Alongside MasterCard, these companies also have bank cards that allow users to spend crypto balances.

“These card and payment company offerings certainly increase the technical rails between consumers, businesses and blockchains, and help prepare the transition to future payment infrastructure,” said Litan. “But the offerings come from centralised financial companies who earn revenues today by charging transaction fees for centralized clearing, settlement, and payment services.

She added: “Companies we speak to are justifiably sceptical of these services. After all, the revolution of blockchain payments is that they execute peer-to-peer and eliminate central intermediaries and associated bank fees.”

Litan explained that potential users are left to wonder if in the future they will need to pay these centralised services additional transaction fees for moving cryptocurrency across peer-to-peer blockchain networks, “defeating the promise of blockchain.”

She said that users are looking for an offering not yet available in the market, consisting of:

1. Low cost on-chain payments using stablecoins pegged to fiat currency
2. Easily accessible applications for executing stablecoin payments
3. Lower payment acceptance fees than exist today in the card networks
4. Transparent real time stablecoin payments (and settlements) on blockchain, tied to underlying information supporting the payment
5. Card brand and bank protections for stablecoin funds sitting off chain in partner bank accounts.

In this scenario, she said, the card brand or alternative payment company would issue such a stablecoin customers could use for transacting on blockchains.

Stablecoin payments would be tied to the underlying records, e.g. what was purchased, and would be transparent and real time on the blockchain.

“The card brands would provide the on and off ramps for payors and payees, adding functionality to the ramps already in place have today, but would not be involved in the actual payment that would occur on the blockchain,” she added. “Both the issuing and acquiring side would take advantage of current card brand services e.g. risk management, on boarding, protections for balances in the card brand/partner issuing and processing banks. But the payees/merchants would not incur the transaction fees associated with actual card payment transactions as they do today.

She concluded: “The card brands could still earn revenues from on and off ramp value-added services, and from interest on the reserves underlying the stablecoins.”

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