Are Stablecoins the Future of Global Instant Payments?

Which is worse: getting paid by check, or receiving your payment late? For most people and scenarios, it amounts to the same thing.

Checks processed via mail take almost a week to be delivered and longer after that to be settled from the time they are issued. Not only are checks slow to process, but also vulnerable to mail theft and fraud, and have bank-imposed transaction charges.

For businesses, checks are not a reliable method of cash flow management. However, checks play a significant role in B2B payments, with many companies still relying on paper-based processes to clear bills. Currently, the dependency on paper-based clearance is taking a turn as companies adopt faster and more effective electronic payment methods, such as ACH. Though ACH payments are not as slow as checks, they are not real-time. They take about two days to reach the recipient. While two days is not too bad, it can emerge long for a business with negative cash flow.

The closest method to real-time payments today is the RTP Network, the prompt payment method from the Clearing House. Transactions done through the RTP Network give companies the capacity to receive cash almost instantly. But, another payment method is quickly gaining traction: stablecoin, which enables real-time payments.

The difference between bitcoin and stablecoin

Stablecoin differs a lot from the volatile digital currencies, such as bitcoin (BTC), ripple (XRP), and Ether (ETH). Although these digital currencies are attractive to ultra-aggressive traders, they are not a reliable method for the payment of bills since they are subject to market swings in value and high transaction costs. Not many individuals and companies are willing to be paid in a currency that could depreciate in the next 30 minutes.

Stablecoins are stable-value digital currencies meant to eliminate the issue of price volatility by pinning value to fiat currencies, like the US dollar or to exchange-traded assets, like gold and real estate property. Even if cryptocurrencies, like bitcoin, eventually crash and burn, I firmly believe stablecoins- and the underlying blockchain technology- are here to stay and will play a significant role in payment transactions.

Stablecoins will thrive as they fundamentally enhance the way financial transactions are carried out. Let us consider the example of global payments. Making cross-border payments today calls for a complicated network of legacy payment methods, like ACH, wire transfer, and Swift. These methods entail currency conversion, verification, plus some additional friction, resulting in higher transaction charges and prolonged settlement periods.

Stablecoins are the future of instant payments

By using stablecoins, you avoid the traditional barriers of transferring money and dealing with local currency conversions. You get instant payments, reasonable exchange rates and cost-effective transaction costs. That is why major financial institutions, such as JP Morgan and Wells Fargo have issued their stablecoins- to facilitate the process of cross-border transactions and to ease the foreign exchange burden for their customers. Even the government of China is in the final stages of piloting its own stablecoin, the digital yuan.

Besides, stablecoins are backed by real monetary assets, such as fiat money stored in a bank. Stablecoins are also audited; hence, their value is more practical than cryptocurrencies. Consider, for example, JP Morgan’s JPM Coin, a stablecoin pegged to the US dollar and backed by real-world assets. If you trust JP Morgan- a financial titan with a 2018 operating income of $764 billion- you can trust JPM Coin to settle payments promptly, transparently, and securely.

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