Are Stablecoins a Threat or an Opportunity for Banks?

Banks have always evolved to provide more effective systems to serve their customers. But while historically that evolution was relatively linear, as the financial world continues to digitize, banks are faced with a growing array of options to meet customer needs.

Stablecoins — cryptocurrencies pegged to fiat currencies such as the U.S. dollar — have moved from niche assets to instruments that could redefine how money moves, where it is stored and who controls it.

For traditional banks, stablecoins represent a dual-edged proposition: both a disruptive force and a potential avenue for innovation. With the news that Tether is considering offering a U.S.-only stablecoin, the central question is whether banks will be disintermediated, or whether they can co-opt the technology to evolve their roles in a changing financial landscape.

The U.S. Securities and Exchange Commission’s (SEC) Division of Corporate Finance also earlier determined that stablecoins are not securities and do not need to be registered, and the shifting domestic regulatory landscape has opened the door for financial service stakeholders to dip their toes into the crypto space with the Office of the Comptroller of the Currency (OCC) reclarifying certain crypto banking permissions last month.

The potential for banks to act as custodians, compliance partners or even validators in blockchain networks could open up avenues for growth that align with their core strengths. In today’s changing landscape, inertia is increasingly no longer an option.

Read more: OCC Says Banks Can Hold Crypto, but Should They?

At the heart of the issue is the role of bank deposits in the financial system. Banks rely on customer deposits to fund loans and support economic activity at the local level. Stablecoins, if adopted widely, could potentially threaten to siphon off those deposits. Users might prefer holding stablecoins in digital wallets over parking money in checking or savings accounts. This potential migration of capital could starve traditional banks of their primary funding source, challenging their ability to lend and compete.

However, this future, if realized, remains far away on the horizon.

“The use of stablecoins in U.S. domestic payments is roughly zero at the moment. They’re used in crypto, as a store of value for people who don’t have access to the U.S. banking system, and by people making international payments to avoid costs. We see a lot of interest — for example, instant settlement in the intrabank market — but that’s in the future,” Adam Shapiro, co-founder and partner at Klaros Group, told PYMNTS in an interview.

“The fact is that people generally don’t want to be responsible for looking after large amounts of their money in self-custodied wallets — they want banks to look after it. If stablecoins do become more commonly used in domestic transactions, banks will simply need to integrate with stablecoins the same way they integrated with platforms like Zelle,” Shapiro added.

Still, some banks are already choosing to engage rather than retreat. JPMorgan has launched JPM Coin, a blockchain-based stablecoin for institutional clients. Others, like BNY Mellon, are building custody solutions for digital assets, anticipating a future in which banks serve as trusted intermediaries for crypto and tokenized assets.

See also: Stablecoins Keep Racking Up Milestones, but Can They Crack B2B Payments?

Stablecoins face hurdles of their own: regulatory clarity, scalability and user trust. But payments are becoming faster, cheaper and more programmable. Consumers and businesses are beginning to ask why moving money should still be slow and expensive.

But banks are heavily regulated, risk-averse and operationally complex — a sharp contrast to the nimble, sometimes unregulated players dominating the stablecoin space. For collaboration to thrive, banks must overcome cultural and structural barriers.

The creation of a federal framework governing stablecoins is important for industry confidence, Chainalysis Co-founder and CEO Jonathan Levin said in an interview with PYMNTS CEO Karen Webster published Monday (April 7).

“Without a federal framework, it is incredibly difficult for financial services firms and international enterprises to really get comfortable in using stablecoins at scale,” Levin said.

The U.S. is currently working on such a federal framework. With it in place, forward-looking institutions could become vital nodes in a hybrid financial system, offering compliance, risk management and financial literacy in a digital age.

Banks might become stablecoin issuers themselves, leveraging their reputations and customer bases to offer branded digital dollars. Alternatively, they could serve as the back end for FinTech platforms, providing the regulatory and custodial scaffolding for digital asset ecosystems.

Ultimately, the question is not whether stablecoins are a threat or opportunity, but whether banks are prepared to reimagine themselves. That requires more than just digital transformation. It demands a willingness to cede control, adopt new business models and engage with communities far outside the traditional banking sphere.

The post Are Stablecoins a Threat or an Opportunity for Banks? appeared first on PYMNTS.com.