Learn how stablecoins are transforming cross-border payments by reducing costs, speeding up transactions, and unlocking new markets for global businesses.
Global businesses transact over $23.5 trillion across borders annually while also incurring significant financial costs. J.P. Morgan reports that businesses spend more than $120 billion total annually on transaction costs, not including additional expenses like slow settlements and trapped liquidity. Typically, businesses have to wait an average of 2-3 working days for a cross-border transaction to complete, impacting operational efficiency and resulting in the loss of valuable time and money. As the demand for faster cross-border payments is increasing, it’s becoming more important for businesses to streamline their global payments processes.
Stablecoins are rising as a new compelling alternative to the cross-border payment landscape by leveraging blockchain technology to enhance transaction speed and reduce costs for businesses. In March 2024, stablecoins reached a market capitalization of $150 billion, with daily trading volumes reaching $122 billion, according to CoinGecko.
(Legend: USDT - green; USDC - blue; BUSD - yellow; DAI - purple)
So let’s explore how stablecoins are changing global payment systems and why businesses are turning to this blockchain-driven solution for more efficient and cost-effective cross-border payments.
TABLE OF CONTENTS:
- Fiat currencies vs Stablecoins
- Current challenges in cross-border payments
- Benefits of using stablecoins for global payments
- Latest trends in stablecoin adoption
- Impact of stablecoins in emerging markets
- The potential of stablecoins for your business
- Final thoughts
Fiat currencies vs Stablecoins
Traditional fiat currencies, such as the US Dollar or Euro, are government-backed and have long been the primary mediums of exchange in the global economy. However, fiat currencies can be susceptible to inflation, slow transaction speeds, and high fees, especially in cross-border payments.
Stablecoins like Tether (USDT) and USD Coin (USDC), are digital assets designed to minimize price volatility by being pegged to stable assets, like the US dollar or even gold. They offer the added benefits of blockchain technology - including faster transfer speeds, lower transaction fees, and 24/7 accessibility, making them an attractive alternative for settling global payments.
Among stablecoins, USDT holds a dominant market position with approximately 70% of market share, followed by USDC at 21% (CoinGecko). While stablecoins mitigate the volatility typical of cryptocurrencies like Bitcoin and Ethereum, they too face challenges, such as potential regulatory changes and depegging.
Current Challenges in Cross-Border Payments
Traditional financial systems often struggle with outdated infrastructures that can cause settlement delays, higher fees, and exclude a portion of the population who do not have access to global banking, especially in the emerging markets. Blockchain technology, which is the foundation for stablecoins, introduces a new approach with its decentralized nature that enhances transparency, security, and speed. These features significantly improve the efficiency of cross-border payments, making blockchain-powered payment solutions an attractive alternative for businesses seeking to modernize their financial operations and reduce costs.
For comparison, a traditional fiat payment through the SWIFT network can take 3-5 business days to reach the recipient’s bank. The time varies based on destination, amount, bank holidays, and different banking procedures, but that’s the average for an international wire transfer. In contrast, transactions using blockchain technology and stablecoins, combined with fiat, can be completed in just minutes, which make them appealing for cross-border payments and remittances.
Benefits of Using Stablecoins for Cross-Border Payments
Stablecoins are transforming global payments by addressing some of the inefficiencies associated with traditional banking. Here are key benefits stablecoins offer for cross-border transactions:
- Low fees: Traditional cross-border payments often involve higher costs, especially cross-borders. Stablecoins enable direct transactions on the blockchain and can reduce these costs for businesses. It is estimated that on-chain FX could reduce remittance costs as much as 80% in some cases (Uniswap and Circle).
- Speed: Traditional international transfers can take several days to clear, while stablecoin transactions are processed almost instantly, irrespective of geographical boundaries, improving speed and efficiency.
- Transparency: The blockchain technology provides a transparent and unchangeable public ledger that is visible to all participants, fostering transparency and trust. Additionally, cryptographic algorithms in blockchain ensure data security. These foundations reduce potential fraud and errors in payment processes.
- Stability: Stablecoins are pegged to stable assets like fiat currencies, mitigating the volatility associated with traditional cryptocurrencies like Bitcoin or Ethereum, and providing a reliable medium for international transactions.
- Accessibility: Unlike conventional banks, stablecoins are accessible 24 hours a day, all year round, allowing for financial transactions to be processed on weekends and holidays, thus enhancing accessibility for global business operations.
- Global reach: Stablecoins provide an effective means of payment option in regions with limited banking infrastructure. For instance, studies estimate that by using stablecoins, global businesses can reduce costs up to 10 times when making transactions to and from certain regions, like Africa or Southeast Asia.
Latest Trends in Stablecoin Adoption
In the last 2 years, stablecoins have gained significant momentum, with major corporations like SAP, PayPal, and Visa integrating them for cross-border payments and settlements. Bernstein analysts, Chhugani and Sapra, noted in their latest report that just Q1 2024 value transferred stands at $6.8 trillion, which is equal to the 2022 high of $7 trillion (Bernstein).
In addition, from a survey of 250 cross-border businesses, PYMNTS report found that 58% use at least one cryptocurrency, 56% use blockchain technology in their operations. Meanwhile 84% of respondent businesses operating in over 10 countries now use blockchain technologies including stablecoins, with 70% of those in six to ten countries also adopting them. This widespread use highlights stablecoins' effectiveness for cross-border transactions for corporations.
Beyond transactions, stablecoins are increasingly held as treasury assets by businesses, offering an alternative for liquidity management. Despite early reputational concerns and perceived instability, the corporate world's acceptance of stablecoins continues to grow as the understanding and trust in crypto-related technologies evolve. These digital assets are proving particularly useful in sectors like fintech companies and consumer platforms, where they simplify payments, reduce settlement times, and streamline financial operations across borders.
Impact of Stablecoins in Emerging Markets
In emerging markets, where traditional banking services are often limited or inaccessible to segments of population, stablecoins pegged to fiat currencies like the U.S. dollar are proving to be a game changer. This can explain why low- and middle-income countries showed the biggest growth in crypto adoption in 2023, according to Chainanalysis report.
As seen from the report, 7 out of the 10 countries with the highest crypto adoption index in 2023 are low- to middle-income (LMI) countries.
For users in these regions, stablecoins offer a strong alternative amidst local currency volatility, providing a hedge against inflation and a means of storing value. For both consumers seeking financial independence and merchants facing currency fluctuations, stablecoins streamline cross-border transactions, reducing costs and increasing settlement times. This makes stablecoins particularly attractive for businesses looking to expand into these markets, to access new customer bases or partnerships, and improve their cross-border payment processes.
While there still are regulatory frameworks being developed and improved worldwide regarding digital assets, stablecoins currently represent a practical use-case for payments to and from emerging markets.
The Potential of Stablecoins for Your Business
At Orbital, we understand that efficiency and security are important in your financial operations. Our platform leverages the power of stablecoins to provide a user-friendly, all-in-one payment solution designed for global businesses. With features like multi-currency vIBANs, custodial crypto wallets, 30+ fiat and crypto currencies supported, instant settlements, market leading exchange rates, 24/7 customer support, and top level security protocols backed by our ISO27001 certification, Orbital is designed to transform the cross-border payments experience for your business.
Consider this scenario.. Imagine your company wants to accept payments from customers or business partners in Asia, Latin America, or Africa. Here’s how it works with Orbital: your customers pay in USDT, the funds are received and converted to USD in your designated Orbital named vIBAN account, and from there you can easily send it out to any traditional bank in USD, EUR, or GBP.
For a closer look at how Orbital can streamline your business payments and to book a demo, book a demo with our team here.
Final Thoughts
As the global business landscape evolves, the demand for more efficient, secure, and faster payment systems rises. Stablecoins are emerging as a compelling solution in this space, and Orbital is here to equip businesses with the necessary tools and expertise to navigate these advancements. Incorporating stablecoins not only modernizes payment processes, but also broadens global reach, allowing cost-effective and rapid cross-border transactions that could positively impact international commerce.
This article is intended for educational purposes only. To stay updated with the latest trends and in-depth analyses in the industry, follow Orbital on LinkedIn for more insights.
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