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Banks Eye Stablecoins to Accelerate Cross-Border Innovation
December 10, 2024
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Few bottlenecks across the payments landscape have been more intractable than that of cross-border payments.

But with the news Thursday (Dec. 5) that the U.S. licensed FV Bank is now supporting direct USDT stablecoin deposits to simplify cross-border transactions by reducing reliance on traditional wire transfers and fees, cross-border payments optimization could be arriving — for both financial institutions (FIs) and their end-users — faster than anyone could have anticipated.

“This innovation positions us at the forefront of regulated financial institutions offering comprehensive stablecoin on-ramp and off-ramp services. We have also seamlessly integrated our blockchain analytics tools to pre-screen and detect transactions which may be linked to sanctions or AML activity ensuring our compliance with regulations,” Miles Paschini, CEO of FV Bank, said in a release.

Paschini also noted that by eliminating the dependency on traditional bank wires and exchange fees, FV Bank’s USDT direct deposit feature offers a streamlined option for high-volume and smaller-scale international transfers alike.

Traditional cross-border payments are notorious for high fees, slow processing times and opaque intermediaries. Stablecoins offer a compelling alternative by allowing near-instantaneous transfers, significantly lower costs and enhanced transparency through blockchain technology. However, their utility has been somewhat limited by the difficulty of moving funds between stablecoins and fiat currencies — a gap that on-ramp and off-ramp services aim to fill.

For banks, this functionality highlights the emergence of a potentially stark choice: adapt to a changing payments landscape or risk disintermediation.

How Blockchain Can Revolutionize Payments

The integration of on-ramp and off-ramp services into the mainstream financial ecosystem is both a threat and an opportunity for banks. On one hand, these services encroach on a core banking function — facilitating the transfer and conversion of money. If consumers and businesses find stablecoins easier and cheaper to use for international payments, they may bypass traditional banking systems altogether, reducing banks’ revenue from foreign exchange and remittance fees.

“Blockchain solutions and stablecoins — I don’t like to use the term crypto because this is more about FinTech — they’ve found product-market fit in cross-border payments,” Sheraz Shere, general manager of payments and commerce at Solana Foundation, told PYMNTS earlier this year. “You get the disintermediation, you get the speed, you get the transparency, you get extremely low cost.”

On the other hand, banks have a unique opportunity to integrate these services into their own operations. By partnering with stablecoin issuers or developing proprietary on-ramp solutions, banks can position themselves as the trusted gateway to the digital economy. Such integrations could also help banks tap into new revenue streams, such as fees for stablecoin transactions or value-added services like digital asset custody and compliance solutions.

For example, small- t0 medium-sized businesses (SMBs) stand to potentially benefit immensely. These businesses, often priced out of traditional cross-border payment solutions, can leverage stablecoins to reduce costs and improve cash flow. Similarly, remittances — a lifeline for millions of families worldwide — could become more affordable and accessible.

“When individuals log into their online banking accounts or mobile apps, the processes that we’re taken through to make a cross-border payment are not very transparent,” Andy Elliott, vice president of strategy at EvonSys, told PYMNTS.

 

“It takes too long. It’s relatively expensive and unnecessarily complex.” 

The Long and Winding Regulatory Road Ahead

PYMNTS Intelligence has found that using cryptocurrencies for cross-border payments could be the winning use case that the sector has been looking for. The research revealed that blockchain-based cross-border solutions, particularly stablecoins, are being increasingly embraced by firms looking to find a better way to transact and expand internationally.

Yet, the transition is not without challenges. Regulatory scrutiny remains a significant hurdle. Governments and central banks are keen to maintain control over monetary policy and prevent financial crimes like money laundering. For on-ramp and off-ramp providers, navigating these complexities is crucial to ensuring trust and adoption.

In its newly released 2024 annual report, the U.S. Financial Stability Oversight Council (FSOC) made special mention of the fact that stablecoins do not have adequate safeguards against risks and failures. 

“As the council has stated over the last several years, stablecoins continue to represent a potential risk to financial stability because they are acutely vulnerable to runs absent appropriate risk management standards… The Council recommends that Congress pass legislation creating a comprehensive federal prudential framework for stablecoin issuers to address run risk, payment system risks, market integrity, and investor and consumer protections, including for entities that perform services critical to the functioning of the stablecoin arrangement,” the annual report stated.

In the end, the success of stablecoin on-ramps likely hinges on striking a balance between innovation and trust, between efficiency and compliance. For banks, this may be a challenge worth rising to. For the payments industry, it could prove to be a sign of the future arriving faster than anyone might have anticipated.

 

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GENIUS Act lets State banks conduct some business nationwide. Regulators object

The Senate passed the GENIUS Act for stablecoins last week, but significant work remains before it becomes law. The House has a different bill, the STABLE Act, with notable differences that must be reconciled. State banking regulators have raised strong objections to a provision in the GENIUS Act that would allow state banks to operate nationwide without authorization from host states or a federal regulator.

The controversial clause permits a state bank with a regulated stablecoin subsidiary to provide money transmitter and custodial services in any other state. While host states can impose consumer protection laws, they cannot require the usual authorization and oversight typically needed for out-of-state banking operations.

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Evolution of nationwide authorization

Section 16 addresses several issues beyond stablecoins, including preventing a recurrence of the SEC’s SAB 121, which forced crypto assets held in custody onto balance sheets. However, the nationwide authorization subsection was added after the legislation cleared the Senate Banking Committee, with two significant modifications since then.

Originally, the provision applied only to special bank charters like Wyoming’s Special Purpose Depository Institutions or Connecticut’s Innovation Banks. Examples include crypto-focused Custodia Bank and crypto exchange Kraken in Wyoming, plus traditional finance player Fnality US in Connecticut. Recently the scope was expanded to cover most state chartered banks with stablecoin subsidiaries, possibly due to concerns about competitive advantages.

Simultaneously, the clause was substantially tightened. The initial version allowed state chartered banks to provide money transmission and custody services nationwide for any type of asset, which would include cryptocurrencies. Now these activities can only be conducted by the stablecoin subsidiary, and while Section 16(d) doesn’t explicitly limit services to stablecoins, the GENIUS Act currently restricts issuers to stablecoin related activities.

However, the House STABLE Act takes a more permissive approach, allowing regulators to decide which non-stablecoin activities are permitted. If the House version prevails in reconciliation, it could result in a significant expansion of allowed nationwide banking activities beyond stablecoins.

Is it that bad?

As originally drafted, the clause seemed overly permissive.

The amended clause makes sense for stablecoin issuers. They want to have a single regulator and be able to provide the stablecoin services throughout the United States. But it also leans into the perception outside of crypto that this is just another form of regulatory arbitrage.

The controversy over Section 16(d) reflects concerns about creating a regulatory gap that allows banks to operate interstate without the oversight typically required from either federal or state authorities. As the two Congressional chambers work toward reconciliation, lawmakers must decide whether stablecoin legislation should include provisions that effectively reduce traditional banking oversight requirements.

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