COINBASE Global is ramping up its efforts in the digital-payments space, with ambitions to make additional acquisitions and generate more revenue from the business line.
The biggest US crypto exchange acquired payments startup Utopia Labs this month, and it may buy more payments-related businesses to expand its capabilities, according to Shan Aggarwal, Coinbase’s vice-president of corporate and business development for ventures. The company is also considering charging fees for some payment services in Coinbase Wallet, such as subscriptions for certain capabilities, Aggarwal said.
Coinbase has made a big push into payments in the past year or so, believing it can offer more capabilities than rivals such as Block’s Cash App and Strike, as well as old-fashioned money-transfer services, by relying on cheap and nearly instant global payments using stablecoins. Today, when most people send money from the US to Africa and many other destinations, traditional bank transfers still take days and can cost as much as 15 per cent of the payment amount, Aggarwal said. Payments using stablecoins, which are cryptocurrencies designed to track the US dollar or other traditional assets, can cost less than a cent and happen in under a second.
“I don’t think there’s a good consumer experience among legacy payment companies that operates on a global stage,” Aggarwal said. “We are going to be doubling down to create best-in-class user experiences that completely abstract all complexities associated with crypto. What we are really trying to do is update the financial system.”
To get there, Coinbase in August of 2023 launched its Base blockchain, which can be used for such cheap and fast payments. It’s also worked with major companies such as PayPal Holdings on trials of paying invoices through its Coinbase Prime offering.
For consumers, Coinbase has been working on an everything app, which lets users trade and hold crypto, as well as make payments. Payments are a huge part of the Coinbase Wallet app push. If successful, business and consumer payments could potentially add up to 10 per cent of Coinbase’s revenue within five years, according to Owen Lau, an analyst at Oppenheimer & Co Coinbase sees it as a potentially even bigger opportunity.
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“Payments is having a bit of a moment in crypto,” Coinbase chief executive officer Brian Armstrong said during the company’s last earnings call. “We really want to get that to be 20 per cent of global GDP running on crypto rails. We think that they are faster, they are cheaper, they are more global, they are more fair, they are more free. Payments are going to flow to the path of least resistance, kind of like water.”
Interest in stablecoins has been growing strongly in recent months. Under President-elect Donald Trump and the incoming Republican Congress, the US is expected to finally get regulatory clarity on stablecoins. Europe has already provided that regulatory clarity, fuelling usage of stablecoins. A slew of companies including Revolut and Robinhood Markets are considering issuing their own stablecoins, betting that stricter regulations in Europe and elsewhere will finally loosen Tether Holdings’s grip on the rapidly expanding sector that, according to CoinMarketCap, now totals US$193 billion in market capitalisation.
Coinbase is not planning to launch its own stablecoin for now, but “it’s always a possibility”, Aggarwal said.
Coinbase already makes money from payments in two ways: It earns so-called sequencer fees from transactions on Base. Base and payment-related consumer revenue are folded into “other transaction revenue”, which added up to US$34 million in the third quarter, according to the company’s shareholder letter. It also shares revenues with USDC issuer Circle Internet Financial on that company’s stablecoin known as USDC, booking US$246.9 million in stablecoin revenue in the third quarter, according to its shareholder letter.
Payments are part of an effort by Coinbase to diversify its business away from its heavy reliance on crypto trading fees and towards other services, particularly those with recurring, subscription-like profiles. Coinbase is one of the biggest beneficiaries of the current market boom, with Bitcoin hitting its new all-time high of more than US$98,300 on Thursday (Nov 21). The company’s revenues are expected to nearly double in 2024, year over year, according to data compiled by Bloomberg. BLOOMBERG
