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Digital currencies are proving to be a draw for cross-border payments as companies begin exploring stablecoins for faster, cheaper settlements relative to more traditional international payment providers such as Swift and MoneyGram.
PayPal Holdings' global payments service has begun using its PYUSD stablecoin to settle Xoom cross-border payments, escaping what PayPal has called "traditional banking hours." PayPal has also begun marketing digital currencies, including PYUSD, as a means for lower transaction costs at both Xoom and its new crypto payments tool.
Companies are beginning to understand that stablecoins can enable "cheaper remittances, lower transaction costs, less friction, more open access," said Mark Nichols, a principal at consulting firm Ernst & Young, who specializes in financial services and capital markets strategy.
Finance executives are also keen to learn more about how stablecoins can help manage their corporate treasury functions more efficiently, Nichols said in an interview Aug. 15. "There's certainly a play there -- cheaper, quicker, and we're seeing that [stablecoin] adoption happen."
Legacy global payment networks take as long as five business days to complete a transaction, owing to multiple intermediaries, different business time zones and periodic processing of batches, McKinsey & Co. said in a July report on stablecoins. Most payments also require manual or semi-automated regulatory checks for money laundering, sanctions screening and identity confirmation, the report noted.
Because of the increased volume of transactions that cross borders, "demand has grown in the past decade for more-responsive, real-time, low-cost, secure, and inclusive global payment solutions," according to the report.
Cross-border accounted for about $179 trillion in payments last year, McKinsey said in a separate payments report.
Stablecoins' appeal for cross-border transactions comes in three areas: real-time settlements 24/7, security and lower cost, said Bam Azizi, chief executive of cryptocurrency payments network Mesh Connect. "The killer app for stablecoin is going to be payment, whether it's cross-border payment, B2B [business-to-business payment] or [a] payout," he said in an Aug. 13 interview.
For leaders of companies that have "a presence in more than five or 10 countries, you have to embrace stablecoins because you're leaving money on the table, or you're losing money, if you don't," Azizi said, citing the yield benefits of holding the underlying reserves of a stablecoin, such as Treasury bills.