The Rise of Stablecoins in Financial Institutions
The world is witnessing a significant shift in financial transactions with some of the largest financial institutions in the country now rolling out stablecoins. With a carefully crafted strategy, community and mid-tier banks can also benefit from this new payment rail. But before launching one, these banks need to understand the best use case for their stablecoin.
The Birth of the Roughrider Coin
The journey of the Bank of North Dakota’s stablecoin, the Roughrider Coin, began in a diner. Rick Geloff, the bank’s Chief Innovation Officer, and CEO Don Morgan were joined by Sunil Sachdev, the Head of Embedded Finance and Digital Assets at Fiserv. They were there to understand the developments in the world of stablecoins.
Bank of North Dakota, the only state-owned bank in the country, partnered with Fiserv to roll out its own stablecoin, the Roughrider Coin. The bank plans to use it for bank-to-bank wholesale payments when it fully launches later this year. Fiserv also has its own digital-asset platform, including a stablecoin, called FIUSD.
Benefits of Stablecoins for Community and Mid-tier Banks
For other community and mid-tier banks, the Roughrider Coin presents a case study on how smaller financial institutions can take advantage of stablecoins’ benefits, even when they lack the resources to develop their own.
Geloff explained that he expects institutions in North Dakota to adopt the Roughrider Coin for moving money between each other, as banks do a lot of such movements. Currently, banks either use ACH or a wire, or most of them still cut a cashier’s check for loan payoffs. If these transactions can be done with a stablecoin after banking hours, it would significantly enhance operational efficiency.
Deciding the Best Use Case
Before community banks dive into stablecoin development, it is crucial to decide what use cases are best fit for the technology. Bank of North Dakota settled on bank-to-bank payments for its stablecoin use case. Other community banks are considering use cases like cross-border payments, according to Sachdev.
Stablecoins can halve unit costs on cross-border transactions. Sachdev highlighted that a bank doing over 50,000 cross-border wire transactions can reduce its unit cost from $7-$10 per wire to $2-$3 using a stablecoin rail. This significant saving can be reinvested into customer relationships, campaigns, rewards, or incentives to keep customers engaged with the financial institution.
Thinking Beyond Exchange Mechanisms
Geloff encourages community banks to stop thinking about stablecoins as a mechanism of exchange and instead think of the technology as a payment rail. This change in perspective can help banks understand how an instantaneous payment rail system can benefit their customers. With this approach, banks can start to think about use cases differently and potentially achieve the same results as Venmo and PayPal.
With the right strategy in place, community and mid-tier banks can benefit from the potential of stablecoins. The launch of Bank of North Dakota’s Roughrider Coin later this year will provide a blueprint for other banks on how to effectively use stablecoins.
Source: Here
