Fintechs Face Payments Competition from Emerging Stablecoins

Few areas within the cryptocurrency sector attract as much attention from regulators as stablecoins.

Although the cryptocurrency market is still in its infancy, fintech companies view stablecoins and potentially central bank digital currencies (CBDCs) as more “efficient” than bitcoin (BTC) for payment processes.

Earlier this year, PayPal expressed its intention to develop a regulatory-compliant stablecoin, possibly linked to the US dollar. Jose Fernandez da Ponte, Senior Vice President of Crypto and Digital Currencies at PayPal, stated,

“We are investigating a stablecoin; if and when we choose to proceed, we will collaborate closely with the appropriate regulators.”

Dan Schulman, the CEO of PayPal, recently reaffirmed his optimistic view of the cryptocurrency sector. He believes that the “intersection” of digital assets, CBDCs, stablecoins, and digital wallets will,

“transform much of the financial landscape moving forward.”

Provided they maintain a safe and stable value, these crypto-assets and the underlying technologies could yield significant advantages, including reduced transaction fees and faster cross-border transactions by facilitating direct payments between individuals, thus minimizing reliance on centralized intermediaries. If implemented under a carefully designed and balanced regulatory framework, this technology could foster greater competition in the global financial system, further decreasing costs for consumers.

Ever since Meta revealed plans to launch Diem, a Global Stablecoin aimed at enabling swift payments for Facebook’s 2.3 billion users, central bankers and financial entities have been focused on stablecoins.

• Visa’s Chief Financial Officer Vasant Prabhu reiterated his company’s enthusiasm for digital currencies and its objective of serving as a bridge between the crypto and traditional finance realms. Much like PayPal executives, he believes that Bitcoin presents “limitations” for payments due to its volatility and transaction speed.

• Deutsche Bank stated: Stablecoins are poised to compete with traditional payment options, “The future utilization of stablecoins will hinge on the progress of DeFi as well as the results of projects intended for retail payments or corporate applications. Regulations will likely encourage wider acceptance. Nonetheless, stablecoins will compete with traditional payment systems and, regarding DLT-based enterprises, with other forthcoming solutions such as tokenized deposits and central bank-issued digital currencies.”

• Nellie Liang, Treasury undersecretary for domestic finance, informed the House Financial Services Committee during a stablecoin hearing in February. “I believe stablecoins that maintain stability and can deliver a reliable value tied to the dollar would enhance the U.S. dollar,”

Custodial stablecoins, such as the suite of European Stablecoins from e-Money.com and Circle’s Global US Dollar Stablecoin, are backed by fiat and regulated by the stablecoin issuer. For instance, if a coinholder deposits £100,000 with the stablecoin issuer, they would receive an equivalent amount in stablecoins in return. The stablecoin issuer’s capability to honor all redemptions at par value hinges on the backing’s value remaining in line with the stablecoins issued, along with ensuring their liquidity aligns with potential redemptions.

In a stablecoin-friendly regulatory framework, it would be considerably simpler for merchants to accept stablecoin transactions. Stablecoins have clearly shown that digital cash could shape the future of finance. Just as data flows freely across the Internet, stablecoins have emerged as the Internet’s native currency, integrated with the crypto ecosystem.

Therefore, one might argue that stablecoins already fulfill the role of CBDCs.

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