Stablecoin – Cross Border Payment Driver?!

Overview

• People like real time (RTP: instant) payments.
• Economies where instant payments are used grow a minimum of 1 to 3% per annum.
• Instant payments in 2024 totalled $26 billion and expected to grow 5x by 2029.

Growth Initiative

Economic growth is down to the velocity of money. If someone has just been paid then they can then pay someone else immediately, creating the multiplier effort. EU mandated RTP recognises this, although implementation remains incomplete with a third of the banks yet to offer the service.

19^th Century Limitations

UK’s 19^th Century correspondent banking international payments practise involves four banks. To cover modern payments needs this has not helped. Global payments between 2018 and 2023 grew rapidly.  Despite the banks’ 40% increase, their share of the payment revenue was a consistent 35% per annum. This suggests a market inefficiency opposing innovation. 

Stablecoin Advantages

UK Stablecoins can reflect the sterling currency 1 to1. For example, GBP over the last 12 months fluctuated 10% against the US dollar. First gaining 4% before declining 6%. The graph above, available any time, shows Sterling vs. USD reflecting a much lower risk as compared to many other crypto based and fiat assets.

Additional benefits include:

• Instant Settlement unlike T+1 traditional systems
• Cost efficiencies by not passing through multiple intermediaries
• Transparency offered from the internet on exchange rates
• Programmability API tokens to facilitate currency conversions between coins

eWallets and Custodial services 

As crypto assets are not physical an electronic wallet is needed to transfer and store their value. The use of custodians needed to ensure are:

1. Providers met requirements of the money backing the stablecoin 1 to 1. For example, if £1billion is outstanding then £1billion needs to be in custody care.
2. Holders can either be their own custodian or use a custodian. Here the trade-off is good administration is a necessity. With poor procedures, missing data could result in losing money by being unable to identify transactions in the eWallet.

The dual custody model addresses:

• Provider custody ensuring 1:1 backing reserves
• Holder custody balances self-custody control against administration complexity

Customer Behaviour Dynamics

Corporations want to retain the 30-day policy of invoice to payment. This helps maintain a month of free cashflow from suppliers. They do want global payments to become easier, faster and less costly. UK Government does want Corporates to abide by the 30-day payment rule to their suppliers, currently they are taking 56-days.

Consumers enjoy the ability to make and receive instant payments. Instant cross border payments are welcome as internet continues open global opportunities.

Regulatory Landscape

Crypto assets are becoming more established and prompting regulated across the globe. US, EU and UK are working on crypto legislation with US close to approving regulation.

Strategic Implications

Financial Services involved with payments are facing a dilemma. Stablecoin and other similar crypto assets offers a route that bypass the existing legacy infrastructure. The new regulations being approved could lead to foresighted jurisdictions becoming stablecoin hubs.   

Custodians and Corporate Trust banking departments will become more vital as digital assets grow. They will become more involved should corporates be allowed to offer their own stablecoin in this new digital era.

The beauty of a stablecoin is it’s like cash: instant and final settlement with a public FX rate.