This year’s Money2020 Europe featured a range of companies offering cross-border remittance solutions based on stablecoins. Global banks are also developing their own super-fast cross-border solutions, claiming to deliver payments direct to app within seconds, anywhere in the world.
While such instant, low-cost cross-border payments sound like the payments Holy Grail, I wondered what challenges they might face. So I asked industry expert Kirsty Garrett about the possible roadblocks stablecoin-based remittance solutions might face.
Eris: When we met at Money2020 Amsterdam I was interested by your take on this issue, as you provided a calm voice in contrast to the considerable hype seen elsewhere.
Kirsty Garrett (KG): There’s no doubt that stablecoin-based remittances have a lot of potential. But there are questions to be resolved, chiefly around the regulator’s appetite for this kind of transaction in certain markets, how AML, PEP and fraud responsibilities are managed, and the impact of these solutions on currencies and liquidity.
Eris: Dealing first with the regulatory appetite, we spoke about some markets potentially being reticent to permit instant stablecoin-based remittances?
KG: For some time, certain markets have been reluctant to engage with any crypto solution because they want to maintain control over their currency and monetary policy. For instance, Nigeria prohibited digital currencies of all kinds and created a local digital currency to help it control monetary policy. For these cross-border stablecoin transfers to appeal to regulators, they may have to offer a mandatory off-ramp into local currency. While that’s a feature of many of these solutions, it’s not clear that it is – at present—mandatory.
Eris: In terms of AML and fraud requirements, it’s my understanding that established domestic and regional real-time payment (RTP) schemes are experiencing challenges in meeting obligations for sanctions screening, politically exposed persons (PEP), AML and fraud in less than ten seconds. I imagine this is even more challenging in a super-fast, cross-border context?
KG: Potentially, that’s true. However, tools are being built that will help to make screening easier in a real-time world, whether that’s whitelisting senders and/or recipients, pre-clearing tools such as Verification of Payee (VoP) in Europe, or Routing and Verification Management (RVM). Another issue that isn’t frequently discussed is the management of false positives. At present, a lot of banks do this manually – as volumes ramp up, we’re going to see a requirement to automate a lot of this work.
Eris: Finally, you’ve highlighted the issue of managing liquidity in some currencies as stablecoin-based solutions develop. Even in the slower-moving world we have today, liquidity can be an issue. What’s the outlook here?
KG: As cross-border instant payment volumes grow, there’s going to be a requirement for greater liquidity in the destination country – especially if governments seek to retain control over monetary policy and their economy by mandating transfer to their local currency. As you say, this can already be an issue in certain markets. However, there are paths to sustainable solutions already in evidence.
For instance, Bolivia has experienced shortages of US dollars but nonetheless has permitted US-dollar based savings accounts as part of a closed ecosystem that includes currency controls to manage how much enters and leaves the country. By mandating that funds can be saved as US dollars but must be spent as Bolivars inside the country, the Bolivian government has managed to give citizens the stability against local inflation they are looking for – coupled with ongoing control of monetary policy and the currency. It’s this kind of creative thinking that we’re going to be looking for in stablecoin-based remittances as they develop.
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