In a session at the Singapore Fintech Festival on building the future of financial systems, Jeremy Allaire, co-founder, chairman and CEO of Circle, a US-based stablecoin, and Bill Winters, group chief executive of Standard Chartered provided their expertise on cross-border digital payments.
Allaire pointed to the expanding remit of digital currencies — moving from digital cash and assets to play a role in cross border transactions, remittance and humanitarian aid. He said, “Because of programmability of these instruments, we will see use cases that haven't been possible so far.”
The regulations guiding these instruments and ensuring that stablecoins were in fact ‘stable’ are also being put in place. Allaire (pictured far right) said: “Prudential regulators in the US like the New York Department of Financial Services set the standards for stablecoin reserves. It’s essentially cash, 90-day US government treasury bonds, or less than seven-day treasury collateralised repo with major banks. Accountants, corporate treasurers, and financial institutions understand cash equivalency and that’s the first stage.”
While there have been improvements in transaction speed and a lowering of costs in cross-border payments, Allaire believed that in the future, geographic boundaries would cease to matter.
He said: “There is no concept of cross border email, messages, or websites. With stablecoins, you have that experience — directly transacting with a counterparty with the equivalent of an email address — and a digital wallet. With the third generation of blockchain, you can settle transactions peer-to-peer in about 400 milliseconds, at a tiny fraction of a cent in terms of transaction costs. In five years, the idea of cross-border payment will be absurd. Users including households and firms, and banks and financial institutions will never want to go back.”
The market for stablecoins was expected to be very fragmented featuring central bank digital currencies (CBDCs), entirely independent stablecoins, and even currencies launched by private banks in the fray.
Winters (pictured middle) said, “There are a lot of possible applications for CBDCs, but will they necessarily be the medium of exchange? It could gain popularity if there are people buying and selling and want to do this over a different set of rails."
He added: "But it does not need to be a CBDC — there will be other products that offer the same safe medium of exchange functionality. Banks themselves may issue one version or another of stablecoins. It will then be a question of convenience in accessing the medium and having an ecosystem where the instrument is acceptable to both the buyer and the seller.”
The next big move for banks
The session also focused on the future of banking at a time of great disruption.
Fielding a question on the impact fintech firms had on traditional banking, Winters said, “Fintechs are our best friends. We partner with them, buy their services, and occasionally buy or invest in them.”
Singapore-based digital bank Trust Bank was created via a collaboration between Standard Chartered and NTUC. Its customers currently account for 4% of the bankable population in Singapore.
Winters said, “It is the fastest growing digital bank in the world on a per capita basis and that’s because it's a good product, and we have good partners.”
In addition, Winters sees banks playing a significant role in the tokenisation of both existing and newly issued securities.
He said, “Some of the risks and the costs are dramatically lower, and there’s a greater ease of execution. It’s an opportunity to take very conventional real-world assets and make them more accessible and easier once we build the ecosystem.” Acknowledging that the market was still some way from maturity, he added, “We are involved in this (process) both inside the bank as well as in external ventures that cater to different market and segments.”
