Tag: lending

Stablecoins: The Trojan horse sneaking into traditional finance?

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Bitcoin’s been flexing, the government’s nodding, and stablecoins are making new friends.

Pegged to the US dollar or other assets, stablecoins have evolved from a niche crypto experiment into a $221 billion plus market capitalization (of the top 10 stablecoins) and financial firms are definitely paying attention.

Fintechs and financial institutions are moving to position themselves in this growing market. The question is: How can stablecoins impact the future of money, and what challenges lie ahead?

Financial firms’ growing bet on stablecoins

Stablecoins now represent a fundamental shift in how money moves. Their real-world use cases range from international remittances to corporate treasury management, enabling faster and cheaper transactions than traditional banking systems. Stripe has recently called them the “room-temperature superconductors for financial services,” a fancy way of saying they make payments shockingly efficient without melting down the system.

The rise: Stablecoin use cases have been fueled by inefficiencies in the traditional banking sector and sticky inflation. Cross-border payments, for instance, remain slow and expensive due to intermediaries and outdated infrastructure. Stablecoins are also increasingly being used as a hedge against currency instability in emerging markets.

The gray area: Despite their potential, stablecoins exist in a regulatory gray area — a place where innovation can either thrive or be buried under paperwork.

Stablecoin regulation remains a patchwork of evolving policies. US lawmakers are now focusing on creating clearer, more comprehensive legislation. Proposals like the GENIUS Act and the Clarity for Payment Stablecoins Act are looking to define a legal structure for issuing and using stablecoins.

Meanwhile, financial institutions that have already introduced their own stablecoins — or fintechs facilitating stablecoin transactions — operate within specific legal frameworks:

• JPM Coin, launched in 2019, operates within J.P. Morgan’s private, permissioned blockchain network. It is used only for institutional clients, keeping it within regulatory boundaries.
• PayPal’s PYUSD, launched in 2023, was issued through Paxos, a regulated entity with approvals from the New York Department of Financial Services (NYDFS). This allowed PayPal to offer PYUSD while complying with state-level regulations. By year-end, PayPal plans to make PYUSD available as a payment option for its 20 million+ SMB merchants, enabling them to pay vendors through its upcoming bill-pay service.
• Stripe doesn’t issue its own stablecoin but facilitates payments and integrations using existing ones, such as USDC, avoiding direct issuance risks. Meanwhile, Revolut reportedly entered stablecoin development last year, while Visa rolled out a platform to help FIs issue stablecoins.

More FIs are making moves: Bank of America CEO Brian Moynihan shared this month that his bank is prepared to enter the stablecoin business — once US lawmakers permit regulatory approval. 

This cautious approach reflects broader concerns within traditional finance about compliance, risk management, and integration into existing financial systems. Banks face strict capital requirements and regulatory scrutiny, making their entry into the stablecoin market more complex. So, banks want in, but only when they won’t get a legal migraine for it.

If banks receive a green light, stablecoins could compete with money market funds, transforming payments and liquidity management. But if regulations become too tight, the momentum could shift to friendlier jurisdictions, leaving US banks looking on like someone who showed up after the game started.

How FIs and fintechs differ in their approach to stablecoins

Graphic credit: Tearsheet

Fintechs — and now banks — are moving more deeply into stablecoins, but their playbooks differ based on their respective strengths and constraints.

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Old Guard, New Rules: Who’s keeping up?

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Big banks are playing offense. Fintech competition, tech leaps, and workforce expectations are evolving — so should banks.

Traditional banks are already trying on a modern fit — experimenting with tech, balancing brick-and-click, rethinking talent, and making new power couple moves in partnerships.

Two prime examples stood out last week: BNY takes the artificial intelligence route to improve its operations, and Citi continues to use workplace flexibility to navigate talent challenges. While these paths differ, they reflect a shared realization — adapt or risk becoming a museum exhibit.

BNY: Merging centuries of banking with AI innovation

Established in 1784, BNY is America’s oldest bank, which has thrived for over two centuries. Yet, instead of clinging to its storied past, the institution is looking forward, betting big on AI as the key to its future.

In a landmark deal, BNY has entered into a multiyear relationship with OpenAI, a decision that signals more than just technological adoption — it’s an illustration that even the most traditional players should innovate or risk being upstaged by a 25-year-old coder in a hoodie.

The cornerstone of this AI-driven transformation is Eliza, BNY’s proprietary AI platform, launched in 2024. Initially conceived as an internal chatbot trained on the bank’s vast institutional knowledge, Eliza has evolved into a multifaceted AI tool that empowers employees to build AI-powered applications. More than 50% of the bank’s 52,000 employees actively engage with Eliza, using it for tasks ranging from lead generation to workflow optimization. By integrating OpenAI’s most advanced models launched this year, BNY is supercharging Eliza with next-gen capabilities. These include Deep Research, which can analyze vast amounts of online information to complete multistep research tasks, and Operator, an AI agent capable of browsing the web like a human.

But why is BNY Mellon making this move now? Necessity. Competition. Strategic vision.

• Necessity: AI adoption in banking is no longer optional. From compliance to risk management, the financial sector deals with high complexity. AI offers solutions to streamline operations, reduce inefficiencies, and facilitate decision-making. 
• Competition: Fintech startups and tech giants like Google and Apple are poised to take over market share if they fall too far behind. To hold its ground, BNY likely needs a tech upgrade to offer more AI-driven services.
• Strategic positioning: With banks emerging as some of the most active adopters of AI, BNY doesn’t want to be a bystander. Partnering with OpenAI gives it access to the latest underlying tech, positioning it as a strong player in the industry.

However, this transformation is not without its challenges. Integrating advanced AI framework into a 240-year-old institution is like teaching your grandparents to use TikTok. Ensuring compliance with strict regulatory standards, managing the ethical implications of AI-driven decision-making, and upskilling employees to work effectively alongside AI are all significant hurdles. Moreover, cybersecurity remains a major concern — handling sensitive financial data requires strong protective measures to prevent breaches.

Despite these challenges, BNY is forging ahead, not just out of necessity but out of the foresightedness that AI may likely be a big part of the future of banking. This puts other well-equipped banks on the spot — if the oldest bank in America can adapt, what excuse do the rest have?

Citigroup’s Hybrid Bet: Why sticking to flexibility might just be its smartest move yet

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Can fintech’s brightest stars shine on Wall Street?

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Klarna and Chime are finally ready to test the public markets, likely this year. The Swedish buy now, pay later (BNPL) firm and the US neobank have reportedly confidentially filed in late 2024 for IPOs, marking two of the most anticipated fintech public debuts in recent years.

But with shifting market conditions, a new administration in the White House, and a mix of investor excitement and skepticism, these IPOs could either be fintech’s grand return to Wall Street — or another cautionary tale.

The possibility of an IPO for Revolut and Stripe has also been brewing since 2023, but neither company is ready to seal the deal just yet.

The case for going public

For Klarna and Chime, the timing makes sense — at least on paper. Markets have started 2025 with a bullish streak, fueled by cooling inflation, a rebounding IPO pipeline, and a government that appears friendlier to fintech innovation. However, alongside that enthusiasm come fiercer competition and sharper investor scrutiny.

After a turbulent couple of years, Klarna has been eyeing a public listing. Its valuation plummeted from a $46 billion peak in 2021 to around $6.7 billion in 2022 before rebounding to an estimated $15 billion. Going public could help Klarna raise fresh capital, expand further into the US, and compete more strongly with rivals like Affirm and Apple’s Pay Later service.

As for Chime, with over 20 million customers, it is one of the biggest digital banking players in the US. However, it hasn’t raised funds since 2021, when it was valued at around $25 billion. A public listing could provide it with capital to fuel growth and potentially diversify beyond its core product offerings, which include a fee-free digital banking experience. 

The aspirations and tactical execution

The post-pandemic era has turned IPOs into a proving ground rather than a victory lap. Companies can no longer bank on hype alone — they need solid profitability, sustainable growth, and a narrative that withstands intense scrutiny. The Federal Reserve’s tighter monetary policies, global market volatility, and the shift from a liquidity-driven to a fundamentals-driven investment climate are creating higher entry barriers.

Both Klarna and Chime will be entering a relatively less forgiving market and heightened investor concern than in 2021, a year that saw 61 fintech IPOs — far more than the 16 that have launched in the past three years combined.

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A Valentine’s Month take on banks and fintechs

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Last week, I teased a mystery topic, letting you stew in curiosity about what was coming. Well, the wait is over! Given that Valentine’s Day was just last Friday, I’m leaning toward a theme that fits the season: unions & collaborations.

We often dive into stories of partnerships that start with fireworks and flawless roadmaps — only to crash and burn for one reason or another. But today, let’s moonwalk through this. Let’s talk about rivals who went from side-eyeing each other to shaking hands (at least in the business world).

Take banks and fintechs, for example. Their early days were more ‘battle for dominance’ than ‘let’s work together’ — fintechs painted themselves as challengers, while banks saw them as pesky invaders. But time and market realities have a way of reshaping narratives.

Now, banks and fintechs are increasingly recognizing their strengths. It’s a classic ‘you complete me’ scenario — if corporate romance were a thing.

Let’s dig in.

Block vs. J.P. Morgan Chase: From competition to cooperation

J.P. Morgan Chase initially saw Square (now Block) as a major small-business payment competitor. In 2014, CEO Jamie Dimon famously warned that Silicon Valley was “coming to eat our lunch.” Square’s success with small business payments and its Cash App product placed it in direct competition with Chase’s merchant services.

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