How stablecoins are revolutionising cross-border payments

The need for more efficient and cost-effective cross-border payments has never been greater. Stablecoins, a type of digital asset pegged to traditional currencies like the pound sterling or the US dollar, are emerging as a powerful solution for institutions. By allowing for faster, cheaper and more transparent transactions, stablecoins are set to transform the way businesses engage in foreign exchange (FX) and cross border payments. Nick Philpott, Co-Founder and Head of Partnerships for Zodia Markets, offers insights into why stablecoins are increasingly being adopted by institutions and how they are poised to revolutionise cross-border payments.

How do stablecoins simplify cross-border payments?

One of the key benefits of stablecoins is their ability to simplify and speed up cross-border payments. Traditional methods rely on cumbersome networks, such as SWIFT and correspondent banking, which are not internet based and involve multiple institutions and delays. Sending money internationally, particularly in emerging markets, often requires routing through several banks, leading to increased time and costs. “If you have a bank in the UK and you want to send funds overseas, let’s say to Singapore, you have to walk through the U.S. dollar. That means you’re using your UK account, plus one or two U.S. banks before you go through to a Singaporean bank. So potentially four banks and three different payment systems for sterling, U.S. dollar and Singapore dollars are involved in a single transaction. None of those payment systems speak to each other and they also have different operating hours and holiday calendars.”

In contrast, stablecoins operate on the open internet, enabling near-instantaneous transfers across borders. Philpott adds, “Stablecoins sit on open internet rails, similar to email or instant messaging, allowing institutions to make payments very quickly, any day of the week, without the restrictions imposed by traditional banking systems, like weekends, public holidays or cut off times.”

How can stablecoins reduce transaction costs for institutions?

Cost efficiency is another compelling reason for institutions to adopt stablecoins. Cross-border payments via traditional banking networks often come with hefty fees, especially when large sums are involved. As Philpott describes, “Many people in the UK will be familiar with the £30 charge that you get stumped with when you’re buying a house. The CHAPS fee. That same charge is applied to almost every large cross-border correspondent banking transfer.”

Additionally, for an unusual payment such as GBP/ZAR, the sending bank in the UK may not know at the outset how many banks may be involved, what their charges or FX rates might be. As a result, they need to charge significant FX spreads to make sure they do not lose money on the transaction.  

With stablecoins, these costs can be significantly reduced. Transactions on blockchain networks are far cheaper compared to traditional banking fees. Philpott explains, “Using stablecoins on the open internet… you can do it for a fraction of that cost.” By reducing the number of banks to two – one in the sending country and one in the receiving country – the explicit FX costs can be significantly reduced. This cost reduction not only benefits large transactions but also makes smaller, more frequent payments – such as paying international contractors or small suppliers – far more economical.

How can institutions use stablecoins for real-world transactions?

Stablecoins aren’t just a theoretical solution; they can be applied in real-world scenarios to simplify international trade. Philpott explains, “Imagine a UK company importing sugar from a Singapore-based commodities trader. Under traditional systems, the payment would pass through several banks in the UK, the U.S. and Singapore, before reaching the seller, a process that could take several days and incur significant costs.

Using stablecoins changes this significantly. You’d come to Zodia Markets to exchange sterling for stablecoin (on-ramp) in a single transaction. You could then transfer those stablecoins to the wallet of the sugar commodities trader, which would take seconds or minutes and is available 24-7.  This would allow the trader to immediately convert (off-ramp) the stablecoins into Singapore dollars with Zodia Markets and avoid the lengthy process of multiple currency conversions and correspondent banks.” Instead of going west, via the United States, that transfer goes direct to the east.”

By removing intermediaries, stablecoins make transactions faster, more direct, and less costly, providing significant advantages for businesses engaged in international trade.

What should corporates know before adopting stablecoins?

While the benefits of stablecoins are clear, businesses looking to adopt them need to make certain preparations.  

1. Accounting systems may need to be updated to accommodate real-time transactions. Unlike traditional systems, where transactions often settle over days, stablecoins allow near-instant settlements. Philpott explains, “We’re moving to a world where transactions are going to settle on what we call a T+0 basis (today plus zero days) so, your transaction is going to settle on the day that you executed it.” Zodia Markets has partners that can help solve this for treasurers looking to start using stablecoins.  
2. Corporates also need to become familiar with digital asset custody – how to store, secure, and transfer stablecoins safely. Philpott highlights, “They’re also going to have to become conversant with a few new capabilities, such as digital asset custody. How to look after, secure and transfer digital assets quickly, efficiently and most importantly safely?” Zodia Markets has several partners who have designed their custody services to meet the needs of treasurers looking to use stablecoins for cross border payments.  
3. Finally, companies need to choose trustworthy partners and stablecoin issuers. It’s essential that the stablecoins they use are backed by credible institutions. Working with providers like Zodia Markets helps ensure that transactions remain secure and compliant with legal and regulatory standards.

If you have any questions or would like more information about how stablecoins could transform your business, get in touch with Nick Philpott or Adam Parnell.

Source - ZodiaMarkets