GFT: Guiding US banks’ stablecoin ambitions while maintaining compliance

GFT is rolling out a dedicated programme to support US banks’ stablecoin ambitions now that the GENIUS Act has passed the US senate.

This work will consider upcoming US regulatory considerations for payments stablecoins, ensuring compliance for organisations that choose to launch their own.

And here, GFT has form that highlights its credentials. Specifically, it can flag up its success in launching decentralised finance projects across Latin America, Europe and Asia.

Examples include GFT’s work with Standard Chartered Bank via its innovation, fintech and ventures arm SC Ventures and Deutsche Bank to complete the first proof-of-concept digital currency transfer on the Universal Digital Payments Network (UDPN).

That track record has informed the launch of its new US-based offering.

According to Christopher Ortiz, Region Manager North America, APAC and UK at GFT, there is a growing promise for a framework that will reduce the risk of launching stablecoins.

Stablecoins have experienced substantial growth across the globe over the past year, reaching an adjusted transaction volume of $6trn, a 63% year-over-year increase. While banks like JP Morgan are venturing into decentralised payments technology to enhance transaction efficiency, for most banks, building stablecoins within the context of existing technology is tricky due to the vast array of technologies to choose from - even with the promise of federal regulation that will reduce risk.

GFT works in tandem with the bank’s existing core banking and payments ecosystems, such as Thought Machine, to launch compliant stablecoin products that not only meet their current needs but also scale for the future.

Ortiz tells EPI that GFT will now enable US banks to:

• Select the right decentralised financial technology to meet their needs before launching, within their current ecosystem;
• Implement the technology in a way that meets current GENIUS Act policy expectations and evolve it as future changes emerge, and
• Build their stablecoin products with scalability to meet future transaction volume increases.

EPI: What is the significance of the GENIUS Act?

Christopher Ortiz, Region Manager North America, APAC and UK, GFT (Ortiz)

The GENIUS Act recently passed the US Senate, indicating that a regulatory framework for stablecoins is likely on the horizon to define and govern them for payments. The regulation has several key components. It stipulates that stablecoins must be backed by a reserve that is equal in value to the stablecoin, ensuring a level of stability for stablecoins, as the name suggests. The regulation also stipulates what type of organisations can launch a stablecoin and what governing bodies regulate stablecoins. Among other aspects of the regulation, it creates a framework which reduces the risk of launching stablecoins.

Story ContinuesWhile stablecoin regulation has passed in certain states, this is the first time the US federal government has made substantial progress on the matter. Even though the regulation has not become law yet, it indicates a move towards regulated stablecoins.

Stablecoins such as the PayPal USD (PYUSD) have existed for some time, but they were not clearly protected by law or widely used. Now, with a clear legal definition at the federal level about what a stablecoin is, who can issue a stablecoin, what they can be used for and more, there is an indication that issuing and using stablecoins will involve less risk.

EPI: How is GFT supporting banks’ stablecoin roll out?

Ortiz:

Even though stablecoins are still in their infancy in the US, other countries have more mature stablecoin ecosystems and we have been working with companies in those regions to support their roll out. For example, in Europe, we are working with a consortium of banks who are coming together to launch a stablecoin. Additionally, we’ve launched the Universal Digital Payments Network (UDPN) Digital Currency Sandbox and worked with organisations including Standard Chartered Bank via its innovation, fintech and ventures arm SC Ventures and Deutsche Bank to complete a digital currency transfer on the system.

These are just two examples. Over the past several years GFT has been working alongside organisations to help them launch, manage and transact stablecoins. Now, GFT is leveraging all of this experience and bringing a new offering to the US market.

Specifically, banks in the US want to launch stablecoin products and offerings compliant with upcoming regulations. The problem is that many of the bank’s internal legacy systems are configured to transact fiat currency on standard payment rails such as ACH.

This is where we come in, with our new US based offering. We are helping banks undergo the digital transformation necessary to launch stablecoin products that drive value for businesses. This includes helping the bank identify what technology solutions are best to achieve their goals and integrate new products with their legacy systems. As implementation partners, we can then work with the bank to ensure compliance with upcoming regulations and scale to meet future transaction and volume needs.

EPI: What is the business benefit of launching a stablecoin?

Ortiz:

Some banks like JP Morgan are already using digital currencies similar to stablecoins internally to move money 24/7 globally for their clients. The biggest benefit of stablecoins, compared to traditional rails, is that they are faster and, in some cases, more cost-effective.

Additionally, stablecoins are stable by design because stablecoins are pegged to reserve assets and can be redeemed at a 1:1 ratio. Using stablecoins for internal money movement and treasury management is one of the more immediate business benefits.

On the B2B side, there is also the potential to use stablecoins to pay suppliers, anywhere in the world, faster and cheaper than with traditional payment rails that can take days to settle into an account. This use can also be extended to peer-to-peer transactions. These external use cases are still a few years away – but most banks are already thinking that far down the line.

EPI: What are the risks and drawbacks of not participating in the stablecoin ecosystem?

Ortiz:

Banks that choose not to participate in stablecoins risk falling behind their peers. As with the adoption of any new technology and business model, there will be a learning curve that is unique to each bank. This means that starting now will give banks the opportunity to test stablecoin use cases within their environment and slowly roll them out. Delaying ideation and testing will ultimately leave banks behind their peers who will build new business models shrinking margins for late entrants.

When banks start rolling out stablecoin use cases to their customers, customers will ultimately choose the bank that provides the best service at the lowest cost. This may lead to losing customers to more innovative competitors.

"GFT: Guiding US banks’ stablecoin ambitions while maintaining compliance" was originally created and published by Electronic Payments International, a GlobalData owned brand.

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