Stablecoin Sprint

Cross border use cases are the clearest near-term payments opportunity, particularly compared to correspondent banking.  

The need for this is particularly acute in payments to and from emerging markets where access to US dollars is limited.  

However, the advantages are less clear cut when it comes to using stablecoins in key trade corridors – where cross border payments are already fast and relatively inexpensive via SWIFT and existing correspondent banking networks. 

Firms acknowledged that domestic UK retail payments are already cheap and fast for consumers, but less so for merchants.  

Given that consumers see their current fiat payments as near free, programmable features of stablecoins may not be enough to drive consumer adoption in the near term. Merchants using stablecoin payments, however, can potentially cut costs compared to existing card schemes and have quicker settlement and increased liquidity.  

Some participants felt consumer adoption could come later or would be focused on certain use cases, such as:

• cross-border e-commerce
• agentic AI (AI systems that can act autonomously on a user's behalf to complete tasks)  
• micro-payments

Banks are seen as crucial for trust, scale and interoperability. However, they remain hesitant due to concerns around anti-money laundering, customer due diligence and unclear liabilities across payment chains.  

Participants debated whether stablecoin issuers should pay interest or share rewards with third parties and token holders. Views ranged from concerns around the impact on bank deposits and credit creation, to the potential for helping firms keep payment transactions free or low cost for consumers.

Broad adoption of stablecoins for payments depends on tax and accounting authorities treating them as money or a cash equivalent, even if FCA regulation does so. 

While the Payment Services Regulations are a good starting point, they need likely adaptation, potentially supported by new rules and guidance. This should cover issues such as redress and liability across payment chains to to make sure there is enough consumer protection and merchant certainty.  

Programmable payments may have the potential to reduce risks such as financial crime, but also introduce new ones (for example, security vulnerabilities in smart contracts (self-executing agreements written in code).  

There is consensus that regulators should focus on the activities that firms are performing, rather than on blockchains or specific technological features like smart contracts.  

Regulators should be mindful of not over-regulating programmability, which could stunt innovation and limit the potential to use technology to improve measures such as anti-fraud protections.