In an ever-evolving financial landscape, staying ahead of emerging trends is paramount. We recently attended several meetings about the stablecoin market and its potential implications for established payment networks, with a particular focus on two of our holdings, Mastercard and Adyen. Our takeaway offers a reassuring outlook for our investments in the traditional card networks.

The GENIUS Act and Stablecoins

The GENIUS Act, formally the “Guiding and Establishing National Innovation for U.S. Stablecoins” Act, is landmark U.S. legislation designed to regulate stablecoins, a type of cryptocurrency pegged to the value of the U.S. dollar. The GENIUS Act has been passed by the Senate and has cleared critical hurdles in the House but is still awaiting a final vote and enactment into law by the President. It has not officially become law but may be as you read this!

A stablecoin is a type of cryptocurrency designed to minimize price volatility by pegging its value to a more stable asset, such as a fiat currency (like the US dollar), a commodity (like gold), or a basket of assets. The goal is to provide the benefits of cryptocurrencies (like fast, low-cost transactions) without the wild price swings often seen in other digital currencies like Bitcoin.

Let’s dive into the opportunities and impacts to our payments holdings in the Global Equity Growth Fund (GEGF).

Mastercard (4.5% weight in GEGF): Limited direct threat. The focus of our analysis centered on Mastercard, a global powerhouse whose enduring resilience, we believe, remains largely intact against the backdrop of stablecoin development. Our meetings revealed a consensus among experts that Mastercard possesses a robust defense against significant disruption to its core business.

A key factor is its limited direct exposure to the areas where stablecoins are most likely to gain initial traction. While there could be some potential for stablecoins in niche cross-border e-commerce scenarios, particularly those involving complex currency conversions or high-friction international payments, any impact is anticipated to be minimal. While growing, cross-border e-commerce constitutes a modest 10-15% of Mastercard’s revenues. Similarly, international remittances and virtual cards, often cited as potential sweet spots for stablecoin adoption, account for a mere 2-3% of its net revenue. This relatively small slice of the pie suggests that even if stablecoins were to carve out a niche in these segments, the ripple effect on Mastercard’s overall financial health would be minimal.

Crucially, domestic consumer payments, the bedrock of Mastercard’s operations, are expected to remain largely unaffected by stablecoin adoption. The convenience, widespread acceptance, and trust established in traditional card networks for everyday transactions present a formidable barrier to the adoption of stablecoins for routine purchases. It’s highly unlikely that stablecoins will displace the seamless experience of swiping a card or tapping a phone for your morning coffee or weekly groceries.

In essence, Mastercard’s deeply entrenched and sophisticated infrastructure, global reach, unparalleled network effects, and robust regulatory compliance provide significant protective barriers. Our analysis indicates that if stablecoins were to have any effect, it would be restricted to small, peripheral pockets of Mastercard’s extensive businesses, posing only minimal threat to its fundamental business model.

Adyen (2% weight in GEGF): Navigating the Evolving Cross-Border Landscape

Adyen, a cutting-edge payment platform known for its payment method agnostic approach, presents a slightly different picture. For domestic payments, our analysis suggests stablecoins would have no direct impact on the company’s processing capabilities given its core philosophy of accommodating various payment methods.

However, the real consideration for Adyen lies in the potential evolution of cross-border payouts. Currently, Adyen efficiently settles most payouts domestically, leveraging its banking licenses in Europe and the U.S. If Adyen is unable to offer stablecoin-powered cross-border payout solutions, it could potentially limit its ability to attract and retain platforms that prioritize such flexibility for their international operations. This could subtly slow Adyen’s impressive momentum in acquiring new platform clients. While the immediate threat to Adyen is limited, this represents a potential future competitive pressure.

In our assessment, Adyen faces a , rather than disruptive, risk from stablecoins, primarily concentrated in the evolving landscape of cross-border payout capabilities. If stablecoins were to gain significant traction in cross-border payments, Adyen may need to proactively develop and integrate stablecoin payment capabilities into its offerings in the long term to remain at the forefront of payment innovation. This is a space we will continue to monitor closely.