Are Stablecoins Forcing Banks Into Cross-Border Payments?

If a consumer does not know that there is a card versus an account, in their mind it is the same thing, right?

Hey, GonzoBankers. Tony DeSanctis back with another hot take. Lots going on in payments. We’ve talked a lot about cards, but there’s a lot going on in the other payments areas, specifically around cross-border and some other topics.

So I’ve asked our treasury management payments expert, Jessica Pingston, to join me. Jess, thanks for joining me.

Thank you. Always love being here.

Excellent. So real-time payments, The Clearing House, faster payments. We’ll talk a lot about that. But one of the things they’ve suddenly gotten interested in as stablecoins picked up steam is cross-border.

Yes. So it’s The Clearing House and FedNow, right?

Both very suddenly interested in cross-border from a real-time payments perspective. It took a long time to see real-time payments in the U.S., and now all of a sudden we want to go international.

It’s surprising. I mean, if you think about it, the primary use case for stablecoins is cross-border. So you almost wonder if they’re trying to get into that market before stablecoins get in and maybe disrupt it. What do you think is driving it?

I think there are a few things. I was sort of pinging around thoughts as we were talking about this. I think you were one of my Saturday evening text messages when this first came across because that’s what payments geeks do.

Yes.

We stay together because there aren’t a lot of us.

It’s sort of like SWIFT is wanting to get into the P2P space, FedNow is wanting to get into cross-border, and The Clearing House is wanting to get into cross-border. Is it a response to stablecoins? Yes. I think the answer is yes. You have to say yes.

But then I started thinking, I think it’s also just the expansion of use cases in general, and we’re not going to see that slow down. We’re going to see expansion of payment rails relative to use cases, and we’re going to see the expansion of use cases relative to payment rails. It’s just going to continue on.

I also think that this is one of the first things that we’re seeing relative to ISO 20022. So it’s here, it’s universal now, and we’re really seeing the adoption and the expansion of payments as a result of that. We thought it was going to be rich data. I think what we’re really seeing is faster movement and new payment types.

Interesting. I do think the thing we always have to remember about these networks is it’s all about scale and volume.

So they’re all looking for as much volume as possible. Whether that’s cross-border or not doesn’t matter. They need volume, so they’re going to keep looking at that.

Speaking of use cases, some interesting things we’ve started to see in the real-time payment space, specifically around Send, right? A lot of our clients have had Receive set up and they’re doing that, but they’re starting to dip their toe in the water around Send.

Yep.

We have, and I think we can see that not only from the number of transactions, but also in the dollar volume that’s coming through. It’s coming through in both networks, both FedNow and The Clearing House. We’re seeing huge increases quarter over quarter from last year.

But also just in each quarter. What we’re seeing is the trend in the right direction. Checks continue to slowly go away. Knock on wood.

Still there.

Someday.

Someday. But checks continue to slowly go away, and electronic payments continue to pick up.

Yeah. And faster payments continue to pick up, especially in the B2B space. I think that’s where the use cases are really driven.

For a long time, we were so consumer-oriented in how we approached payments.

Mm-hmm.

And now businesses, and B2B specifically, are really entering the conversation.

Yeah. We’re seeing clients, we’ve talked about a couple of clients, they’re using it to fund some of their loan products, specifically around auto lending.

Right. So that their dealers can get the money faster.

We have seen some consumer use cases where they’re using it, in some cases, for A2A transactions where it makes sense, too.

So definitely starting to see more compelling use cases around it.

The other story, I don’t know if you saw this one. This one just popped up, but Zelle, and I’m going to bundle that into real-time payments because they’re running The Clearing House, right?

But they just announced the partnership with Truist around bill pay. So they’re going to start doing Request for Pay bill pay out of the real-time payment space. I thought that was kind of interesting.

Yeah, I think that’s interesting. I think it goes really well with their brand. For a long time, we would say the number one use case for Zelle was paying your rent.

Okay.

Number two use case is going to be paying your bill, your electricity bill, your medical bill, whoever doesn’t take a card. It fits in really well.

So maybe they’ve really found the space that they want to play in. It’s not going to be the P2P space. It’s going to be as a competitor to bill pay.

Yeah.

Interesting. But I think that they could really make a difference there.

Yeah. Especially if you think about it, the biggest benefit of card on file or any of those other things is that the merchant has the ability to initiate the transaction, which, let’s be honest, that’s what the consumer wants.

Yeah.

And so if you can do Request for Pay and draw it from the checking account the same way, I think that’s just as easy for the consumer.

And if they’re using a debit card, what’s the difference? Debit card versus Request for Pay. From a consumer perspective?

There’s zero difference from a consumer perspective. A consumer does not know that there is a card versus an account. In their mind, it is the same thing, right?

And for us, if the merchant is initiating it through Request for Pay, or more importantly, Pay by Bank, which is another topic we can talk about, that’s an interchange problem for our clients.

That’s the challenge that we’ve got to be thinking about because the Pay by Bank thing is starting to heat up as well, where a lot of the merchants are rolling it out.

Emily just sent us something. Uber was offering a 30% discount to change your payment type to Pay by Bank.

You can’t compete with that with a card, right? Especially if you’re using a debit card to pay for your Uber.

I would immediately default to Pay by Bank, which means all that interchange, from a bank or credit union perspective, just goes away.

Well, I think that merchants tried the punishment aspect for a long time. Like, “I’m going to charge you a convenience fee if you use your card.”

It doesn’t work.

It doesn’t work. Correct. And so now they’re trying the benefit way.

Yeah.

“I’m going to give you something extra, something of value.”

Even if it’s short-term and it’s one time.

Even if it’s short-term, right. Exactly. “But I’m going to give you value if you do Pay by Bank.”

So instead of the punishment, we’re getting the carrot.

It’s the carrot instead of the stick.

Yes, exactly.

Any other hot topics you’ve seen? Are payment hubs picking up steam, or are they still more...?

Look, everyone’s talking about a payment hub. Everybody wants a payment hub. Very few are biting the bullet on how to do a payment hub.

It’s the same story that we’ve been hearing. It is amazing technology. It is the right thing for a lot of people. There’s a lot to unwind from a legacy technology stack. There’s a lot to unwind from legacy processes.

We get it. Change is hard. It’s hard for everybody from a technology standpoint. It’s hard for everybody from a process standpoint.

But with everything we’re seeing from the new payment rails and the new payment use cases, it’s a really good time to look at what you can do with your technology and your customer experience, your external customer experience, but also your internal customer experience as well.

Are you modernizing that experience in addition to modernizing what you’re offering?

Yeah. And I think it’s going to reach a tipping point where there are just too many different systems, right? I mean, I feel like we’ve kind of gotten there already.

But as you start adding stablecoins as a payment type and you start adding these other things, I think you’re going to have to, to your point, bite the bullet and try to figure out, how do I manage this in a reasonable way?

BSA/AML overlays, risk profiles, even just managing exposures by payment type, right? Trying to do that across 10 different systems instead of a single system.

Absolutely. And I think what we’re also going to see is these legacy single-rail systems are only going to become more and more outdated. So there’s going to be a shift. It might be a gradual shift, but they’re not going to stay around forever.

Goes back to my favorite quote, which is, “New technology is adopted faster than anybody expects, and old technology dies slower than anybody expects.”

But maybe, just maybe, checks will go away before we’re retired.

You know, I’ve been saying that since I started my banking career. I would love to see it by the time I end my banking career, but I don’t know if I want to elongate it that much.

You’re making me nervous.

All right. Thanks, Jess. Let us know in the comments what you’re doing in the space, and if you have any questions, certainly reach out.