The Mystery of Stablecoins, Visa, & Fiserv’s Collapse with Ken Suchoski | The Real Eisman Playbook

Episode Overview

• This episode provides a deep dive into the plumbing of the global financial system, contrasting emerging stablecoin technologies with legacy networks like Visa and Mastercard.
• It analyzes the specific business models of fintech giants (PayPal, Block, Circle) and explains why "disrupting" credit cards is economically unappealing compared to fixing B2B payments.
• The discussion highlights critical investment risks, including the "contagion" danger posed by unregulated stablecoins like Tether and the commoditization of online checkout.
• Listeners will learn how money actually moves across borders, who takes a cut of every credit card swipe, and why interest rates dictate the profitability of the entire payment sector.

Key Concepts

• Stablecoins as Digital Cash: Stablecoins (like USDC) are digital assets pegged to the dollar, backed by liquid assets like US Treasuries. Their issuers function like asset-light banks, generating the majority of their revenue from interest earned on these cash reserves. This makes their profitability highly sensitive to Federal Reserve interest rate changes.
• The "Correspondent Banking" Friction: The current global system for cross-border money movement involves "hopping" funds through multiple intermediary banks, each taking a fee and adding delay. Stablecoins solve this by offering a 24/7, peer-to-peer ledger system that bypasses these intermediaries, making them ideal for B2B commercial payments rather than consumer retail.
• The "Merchant Discount Rate" (MDR) Breakdown: When a credit card is swiped, the fee (approx. 2.75%) is split three ways. The "Issuing Bank" (e.g., Chase) takes the vast majority to fund rewards and cover credit risk. The "Merchant Acquirer" takes a middle slice for processing. The "Network" (Visa/Mastercard) takes the smallest slice (approx. 0.10-0.25%), despite providing the essential infrastructure.
• The Network Model Moat: It is nearly impossible to displace Visa and Mastercard in consumer payments because stablecoin issuers cannot replicate the high interchange fees that fund consumer rewards (points/cash back). Furthermore, the card networks solved the "many-to-many" problem by connecting thousands of banks to millions of merchants, creating a defensive moat that is economically unattractive to attack.
• Commoditization of Checkout: Historically, PayPal dominated online payments because it offered superior fraud protection and higher conversion rates. This advantage has evaporated with the rise of Apple Pay and Shopify (Shop Pay), which offer seamless, biometric authentication. This shift has forced legacy fintechs into a "valuation trap" where they are priced like lending companies rather than high-growth tech firms.

Quotes

• At 3:08 - "You would give the issuer a dollar... they mint a stablecoin. They take that dollar and they invest it in something... hopefully it's high quality." - Explaining the fundamental mechanism of how a stablecoin is created and backed.
• At 7:08 - "That payment has to make multiple hops... Each bank is taking a fee. There's very little transparency. If something goes wrong, who do you call?" - Describes the friction and opacity of the current "correspondent banking" system for international transfers.
• At 10:33 - "My nightmare scenario is that the guy who's the bigger competitor than me has a history of maybe doing some shenanigans. And so if their currency ever blew up, it would really destroy the reputation of the whole stablecoin [sector]." - Steve Eisman articulates the systemic risk Circle faces due to its competitor Tether's perceived lack of transparency.
• At 11:06 - "Where are they going to get the cash [for rewards]? That's the beauty of the network model... there's interchange." - Explaining why stablecoins will likely fail to compete with credit cards for consumer purchases.
• At 26:12 - "It really comes down to being able to send 24/7. That is the main value add in a lot of cases because you don't have to worry about cutoff times... you don't have to worry about weekends." - Explaining why businesses would switch from banks to stablecoins for international transfers.
• At 34:57 - "The credit card company gets 200 [basis points]... Merchant acquirer gets 50... Visa and Mastercard get all the rest? [25 basis points]" - A concise breakdown of the fee structure on a standard credit card transaction, highlighting that the networks (Visa/MC) actually take the smallest piece.
• At 37:57 - "Visa and Mastercard solved the many-to-many problem. They're connecting the tens of thousands of banks with the millions of merchants... 150 million merchants to be specific." - Defining the massive network effect that protects the major card networks from disruption.
• At 42:25 - "Visa and Mastercard are clipping the smallest fee... If I'm going to try to disrupt payments, am I really going to start with disrupting the network? Is there a lot of economics to be had there?" - Explaining the economic reality of why "disrupting" Visa/Mastercard is unattractive for new entrants.
• At 55:17 - "Historically they [PayPal] had a competitive advantage... because... they were able to lower fraud... and... had really high conversion. So if you were a PayPal user... you would actually check out... whereas a lot of other offerings... you wouldn't convert." - Identifying the specific "moat" PayPal used to have, which has since been bridged by Apple and Shopify.

Takeaways

• Ignore Retail Crypto Payments; Focus on B2B: Do not bet on consumers using crypto to buy coffee; the rewards ecosystem of traditional credit cards is too strong to break. The real actionable value of stablecoins lies in B2B cross-border payments where 24/7 settlement solves major operational headaches.
• Monitor Tether for Systemic Risk: Be aware that the stablecoin sector is a duopoly. Even if you are interested in regulated players like Circle (USDC), a collapse or scandal involving the unregulated offshore leader, Tether, would likely cause a sector-wide liquidity crisis.
• Analyze Fintech Revenue Mix for Valuation: When evaluating fintech stocks (like Block/Square), scrutinize their revenue source. Companies shifting from pure transaction processing to lending products (e.g., Cash App Borrow) will suffer valuation compression, as lending carries higher risk and lower multiples than tech.
• Look for "Software Leading Payments": The most resilient payment companies are those that embed payments into essential operating software (like Toast for restaurants). Look for businesses that sell an "operating system" first, making the payment processing a sticky, hard-to-remove feature.
• Understand the "Economic Cut" Before Investing: Before betting on a company "disrupting" Visa or Mastercard, realize that the networks take the smallest slice of the transaction fee. There is very little economic fat to trim there, making them poor targets for disruption compared to the banks issuing the cards.