an article written by Raj Kamal, Founder & CEO, TransFi, an accomplished payments and fintech leader with more than two decades of experience operating, consulting, and investing in the sector.
Key insights
A new generation of crypto could replace the rigid and antiquated SWIFT system for international payments. Using stablecoins, businesses can move money around the world almost instantly, with greater certainty, and at lower cost.
Because the value of stablecoins is pegged to a national currency, often the US dollar, these digital assets do not fluctuate or invite speculation the way Bitcoin and many other cryptos do. The volume of cross-border payments made using stablecoins has grown tenfold since 2020, to $2.5 trillion annually.
To further cement the use of stablecoins and unlock their significant benefits, we need smart, sensible regulation in the US. Stablecoins need to preserve their stability and be protected against criminals, terrorists, and other bad actors who are looking for untraceable ways to move money.
Across the world, digital payments are already mainstream. In countries like India, Thailand, and Brazil, the vast majority of the population uses a centralized platform to send money instantly from their phones, even if they don’t have a bank account. Users in places like the US and China can pick from a variety of different payment apps. Businesses, too, have a plethora of options. In the US, a bustling fintech sector helps businesses move money cheaply and in real time.
But all these innovations apply only to payments made domestically. Try sending a payment across international borders and you may as well be back in the 1990s. Your payment will take days to arrive and involve multiple institutions — the sender’s bank, the recipient’s bank, and at least one intermediary bank. This flow of money will be dependent on banking hours in the originating and receiving countries, so if you happen to initiate a payment near a bank holiday on either end, the money could take up to five days to arrive — an eternity in the current era. Then there are unnecessarily high costs in the form of exchange rates fees and wire transfer fees.
It’s little wonder that the system that governs all this, the Society for Worldwide Interbank Financial Telecommunications, or SWIFT, was created in 1973. It is long overdue for a replacement.
A powerful, new crypto-based system has emerged to avoid these pitfalls and disintermediate SWIFT. Like all digital assets, stablecoins operate on globally disbursed, decentralized blockchain technology, which is not controlled by any government or financial entity. Thus, stablecoins can be used for nearly instantaneous cross-border payments at any hour of any day, at a significantly lower cost.
But what are stablecoins? Unlike first-generation crypto coins like Bitcoin and Ethereum, which have well-earned reputations for volatility, stablecoins are “stable” because they are pegged to a government-issued, or fiat, currency. Currently, most stablecoins are linked to the US dollar. A single Tether (USDT) or Circle coin (USDC) — the two biggest types — equals one dollar and is backed by a reserve. Issuers typically hold these dollars in a 1:1 reserve in the form of US Treasury notes or cash deposits. In contrast, Bitcoin is not tethered to any set value beyond what people think it’s worth on any given day, which is why it has experienced epic speculative booms and busts.
The predictable value of stablecoins makes them ideal for cross-border payments, especially for global businesses, which incur significant costs when using the SWIFT network. In addition to transfer and exchange rate fees, banks effectively hold a company’s capital hostage. As financial institutions in different countries spend days communicating with each other — exchanging currency, navigating different sets of regulations — money is trapped in-transit, where it isn’t available to fund growth or other opportunities. Recent research found that, at any given moment, nearly $12 billion in working capital is floating somewhere in limbo. While this money lingers, currencies can fluctuate, generating unpredictability and potential losses.
Payments with stablecoins, on the other hand, settle almost immediately. They work like this:
. A California-based company needs to make a $10,000 payment to its digital design team in India or make other purchases in India.
. The company purchases 10,000 USDC stablecoins.
. The stablecoins are transferred to the design company’s digital wallet in India, where they can be used to pay employees or purchase office equipment.
. The stablecoins could also be converted into the local currency (the Indian rupee).
Companies like TransFi facilitate such cross-border stablecoin transactions, cutting the transit time to a matter of minutes. Crucially, neither SWIFT nor any banks are involved in the transfer, and both companies and their payers/payees have the security of knowing when their money will arrive.
This isn’t just a hypothetical example. Transactions like these are already happening across the globe. Companies are using stablecoins to pay international suppliers and contractors, make loan payments, issue customer refunds, and pay employees in countries where the local currency is unstable or unreliable.
First introduced a decade ago, stablecoins have surged in use in the past several years. There are now $182 billion worth of stablecoins in circulation. In the 12 months prior to May 2024, these stablecoins have been used to make $2.5 trillion in cross-border payments, representing tenfold growth since June 2020. (This figure accounts only for payments, not high-frequency trading, high-volume institutional money movement, smart contract intermediaries, and the like.) To put that $2.5 trillion in context, Mastercard, which has been around since 1966, reported 2023 volumes of $9 trillion, and PayPal’s volumes have yet to come anywhere near $2.5 trillion annually.
Another recent indication of the momentum of stablecoins is Stripe’s acquisition of the stablecoin platform Bridge for $1.1 billion in October 2024. Representing Stripe’s largest acquisition, Bridge will allow Stripe’s customers to incorporate stablecoins into their payment platforms. In April 2024, ahead of announcing the Bridge deal, Stripe co-founder and President John Collison said, “We’re seeing crypto finally make sense as a means of exchange.”
The article in full here: Move Over, SWIFT. Stablecoins Will Rule Cross-Border Payments
Banking 4.0 – „how was the experience for you”
„So many people are coming here to Bucharest, people that I see and interact on linkedin and now I get the change to meet them in person. It was like being to the Football World Cup but this was the World Cup on linkedin in payments and open banking.”
Many more interesting quotes in the video below:
