I don't understand why you bring up debit card when he talked about payment processor where you can pay directly using Bitcoin and merchant can choose either keep the coin or convert the coin to fiat.
when you use the coinbase card, you're using fiat to buy something not crypto. they even say it right here on their website:
https://www.coinbase.com/cardWhere is Coinbase Card accepted?
Coinbase Card is accepted anywhere Visa® debit cards are accepted, at over 40M+ merchants worldwide. If you choose to spend crypto, Coinbase will automatically convert all cryptocurrency to US Dollars for use in purchases and ATM withdrawals.
and guess why they have to do that conversion? that's right because NO ONE TAKES BTC. most merchants only take fiat. we all know that...but anyhow it's off topic to the thread i know.
By payment processor, i think he refer to Coinbase Commerce[1] instead. Their help page state customer make payment with Bitcoin or other coin[2], while their FAQ state merchant can choose either self-managed (only merchant have control over received coin) or coinbase-managed (custodial service)[3]. If merchant decide to choose coinbase-managed, they can use auto conversation (cryptocurrency to USD) feature [3].
[1]
https://www.coinbase.com/commerce[2]
https://help.coinbase.com/en/how-to-make-a-payment[3]
https://www.coinbase.com/commerce/faq