Cryptocurrency exchange Coinbase is significantly increasing its investment in the digital payments sector. The company aims to pursue additional acquisitions and generate more revenue from this business line.
According to Shan Aggarwal, Vice President of Corporate and Business Development at Coinbase, the company recently acquired the team behind payment startup Utopia Labs. More acquisitions related to payment technologies are under consideration to expand the platform’s capabilities. Aggarwal also mentioned that Coinbase is evaluating the introduction of fees for certain payment services within Coinbase Wallet, such as feature-specific subscriptions.
Over the past year, Coinbase has been actively expanding into payments. The company believes that by leveraging stablecoins for low-cost, near-instant global transactions, it can offer superior functionality compared to competitors like Block’s Cash App and Strike, as well as traditional money transfer services.
Aggarwal highlighted inefficiencies in conventional cross-border payments: transferring funds from the U.S. to Africa and other regions can still take days, with fees sometimes reaching up to 15% of the transaction amount. In contrast, stablecoin-based payments—cryptocurrencies designed to mirror traditional assets like the U.S. dollar—cost less than a cent and settle in under a second.
“The consumer experience with traditional payment companies operating globally is not ideal,” Aggarwal stated. “We are doubling down on creating a top-tier user experience. Our goal is to upgrade the financial system.”
To support this vision, Coinbase launched Base, a blockchain network, in August 2023. Base is designed to facilitate fast and affordable payments. The company has also partnered with established firms like PayPal to enable invoice payments through its Coinbase Prime service.
For consumers, Coinbase is developing an all-in-one application that allows users to trade, hold cryptocurrencies, and execute payments. Enhancing payment functionality is a central part of the company’s strategy for its Wallet app. Oppenheimer analyst Owen Lau suggested that if successful, business and consumer payments could account for up to 10% of Coinbase’s revenue within five years. However, Coinbase sees even greater potential in this market.
Coinbase CEO Brian Armstrong emphasized the strategic importance of payments during the company’s recent earnings call: “Payments are at an inflection point within the crypto space. We want to power 20% of the global GDP with crypto. We believe it is faster, cheaper, more global, equitable, and free. Payments, like water, flow along the path of least resistance.”
Growing Interest in Stablecoins and Regulatory Developments
Market interest in stablecoins has surged in recent months. With potential regulatory clarity under a Republican administration and Congress, the U.S. may soon establish clearer rules for stablecoins. Europe has already provided such clarity, which has encouraged adoption.
Several companies, including Revolut and Robinhood Markets, are exploring the issuance of their own stablecoins. These firms anticipate that stricter regulations in Europe and other regions could reduce Tether Holdings’ dominance in the rapidly expanding stablecoin market, which currently has a market capitalization of $193 billion according to CoinMarketCap.
Although Coinbase has no immediate plans to launch its own stablecoin, Aggarwal acknowledged that it “remains a possibility.”
How Coinbase Monetizes Its Payment Services
Coinbase currently profits from payments in two primary ways:
- It earns sequencing fees from transactions processed on the Base blockchain.
- It shares revenue with Circle Internet Financial Ltd., the issuer of the USDC stablecoin.
In the third quarter, revenue from Base and consumer payment services was categorized under “other transaction revenue” and totaled $34 million. Revenue from stablecoins, specifically USDC, reached $246.9 million during the same period.
Diversification Beyond Crypto Trading
The expansion into payments is part of Coinbase’s broader effort to diversify its business and reduce reliance on cryptocurrency trading fees. The company is increasingly focused on building services with recurring revenue models, such as subscriptions.
Coinbase has been a major beneficiary of the recent crypto market rally. Bitcoin reached a new all-time high above $98,300, and the company’s revenue is projected to nearly double by the end of 2024.
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Frequently Asked Questions
What is Coinbase’s strategy in the payment sector?
Coinbase aims to expand its digital payment services through strategic acquisitions and enhanced platform capabilities. By leveraging blockchain technology and stablecoins, the company intends to offer faster, cheaper, and more efficient cross-border payment solutions compared to traditional services.
How does Coinbase make money from payments?
The company earns sequencing fees from transactions on its Base blockchain and shares revenue with USDC stablecoin issuer Circle Internet Financial. These streams are part of Coinbase’s broader strategy to diversify beyond trading fees.
What are stablecoins and why are they important for payments?
Stablecoins are cryptocurrencies pegged to stable assets like the U.S. dollar. They enable fast, low-cost, and borderless transactions, making them ideal for remittances and global payments.
Is Coinbase planning to launch its own stablecoin?
While there are no immediate plans, Coinbase hasn’t ruled out the possibility. The company continues to monitor market trends and regulatory developments.
How does Base blockchain improve payments?
Base is designed for high-speed, low-cost transactions. It serves as the infrastructure for Coinbase’s payment services, enabling near-instant settlements at a fraction of traditional costs.
Will users have to pay for payment features on Coinbase?
Coinbase is considering introducing fees for certain premium payment services, such as specialized subscriptions within Coinbase Wallet. Basic transaction features may remain free or low-cost.