Fintechs help banks cut cross-border payment parties using stablecoins

Fintechs are partnering with banks to modernize cross-border payment infrastructure using stablecoins, aiming to cut the number of intermediaries in each transaction. By moving funds directly between sender and recipient digital wallets, stablecoin-based transfers avoid the traditional correspondent-bank chain that can route money through multiple local banks.

The traditional model requires banks to hold correspondent-bank relationships in the destination country, and if the recipient lacks an account there, the money may be bounced through several local banks, each charging a fee. Stablecoins, typically pegged to the U.S. dollar, settle on a blockchain that records each transaction on an immutable, up-to-the-minute public ledger. This approach not only lowers fees but also speeds settlement, giving senders clearer visibility of the costs they will pay.

“Improving the recipient experience is key,” Mark Majeske, senior vice president of faster payments at fintech Alacriti and chairman of the U.S. Faster Payments Council’s cross-border work group said.

“The blockchain centralizes money movement on a single ledger,” Aaron McPherson, principal of AFM Consulting LLC said.

For years, banks dominated cross-border payments through correspondent-bank relationships that often required money to hop between multiple local banks, each taking a fee. Fintechs have entered the space either as bank-technology partners or by building end-user apps that can be white-labeled or sold directly. These approaches aim to simplify the chain and cut costs.

What we know

• The Swift network is based in Belgium.

• Stablecoins are typically valued in U.S. dollars.

• Many small and mid-sized banks are turning to fintechs to enable cross-border payments using stablecoins.

• The U.S. Faster Payments Council’s cross-border work group released an August report on bridging interoperability issues.

• The blockchain centralizes money movement on a single ledger.