Banks and FinTechs See Stablecoins’ Cross-Border Payments Potential

The world’s biggest banks and FinTechs are scrambling to roll out their own stablecoins.

It’s a sort of “gold rush” driven by the anticipation that cryptocurrencies will transform the cross-border payments market, the Financial Times (FT) reported Monday (March 10).

For example, the report said, Bank of America recently said it would consider issuing its own coin, joining the likes of PayPal, Stripe and Revolut. It’s a trend being driven by rising acceptance of stablecoins — digital assets pegged to fiat currencies — among regulators around the world, the FT added.

“It’s about people selling shovels in the stablecoin gold rush,” said Simon Taylor, co-founder of FinTech consultancy 11: FS, who described the situation as financial institutions experiencing FOMO (“fear of missing out”).

“The other thing that’s driven it is there’s real volume,” he said. “Founders want to get a piece of it because they know they’re going to get stablecoin regulation and so it’s all of those things coming together.”

Stablecoins, the FT notes, have historically been used to transfer money between different cryptocurrencies, but are becoming a popular alternative to local banks for payments in emerging markets, especially in commodities, agriculture and shipping.

As PYMNTS wrote last month, stablecoins provide users with the benefits of cryptocurrency — such as fast transactions and borderless transferability — but without the volatility. 

“However, until now, regulatory uncertainty has hindered their adoption, particularly among institutional use cases,” that report said. “Risks for security-critical sectors like financial services remain despite marketplace advances.”

For example, data from Chainalysis shows that stablecoins are involved in 63% of illicit crypto transactions, supplanting bitcoin in recent years as the tool of choice for criminal activities, such as laundering stolen money and avoiding sanctions.

In a separate report last week, PYMNTS examined the use of stablecoins by FinTech companies. For example, Stripe recently described stablecoins as “room temperature superconductors for financial services” in a letter to shareholders.

Banks, meanwhile, are still mainly on the sidelines, PYMNTS wrote, because of a combination of regulatory issues, risk appetite and structural agility. 

“FinTechs, unburdened by the strictures of traditional banking charters, are leveraging their regulatory flexibility, customer demand and technological prowess to push forward,” that report said. “Meanwhile, banks, which must follow compliance requirements and conservative risk frameworks, are moving cautiously — if at all — into the crypto space.”

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