Cross-Border Stablecoins

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What do cross-border payments do?

Yesterday Circle, the issuer of stablecoin USDC, announced a project called “Circle Payments Network”. With the involvement of Societe Generale, Deutsche Bank, Santander, and Standard Chartered, it’s clear the idea is to use USDC as the base for a global cross-border institutional payments network.

I thought I’d take the opportunity to argue why even though there are enormous efficiencies possible from stablecoins, the institutional network effects that SWIFT has mean that any meaningful shift away from the status quo is low probability for many years to come.

Cross‑border payments move spendable value from one country and currency to another. Whether the flow is a remittance, an invoice payment or a securities settlement, every transaction must convert the source currency into the destination currency, route funds across two domestic payment systems and deliver final, irrevocable settlement. In practice, the money travels through a chain of correspondent banks that hold nostro and vostro accounts with each other, and the instructions usually travel over networks such as SWIFT along with the data required for compliance checks.

Each participant in that chain must keep liquid balances in multiple currencies, reconcile its ledgers and screen every message for know‑your‑customer, anti‑money‑laundering and sanctions rules. Additional frictions appear because the parties operate in different time zones, follow different cut‑off times and holidays and rely on payment systems that are not open around the clock. These timing gaps raise settlement risk and can add at least one business day to a transfer.

The fee the customer sees bundles the cost of locked‑up liquidity, technology platforms, skilled staff and compliance programmes with the market risk. Fintech and blockchain entrants can streamline the user experience, yet they still need currency liquidity, licences and monitoring systems, so their prices cannot drop to true wholesale levels.

Why are institutions harder to move to stablecoins?

Stablecoins like USDC and USDT work well in the market because they offer instant transfers while using familiar currency values. When someone has USDC in a Base wallet, they can send money to another Base wallet in seconds, avoiding banking hours and cutoff times. If these wallets connect to crypto debit cards, recipients can spend this money right away in stores.

For people sending money to family abroad, this makes a big difference. Senders don't need to visit a money transfer office, and recipients don't have to wait in line to collect funds. While fees still exist for converting to and from crypto, they're much lower than what Western Union typically charges. People save both money and time. You can see this by comparing rates from fintech companies like Wise and Revolut - they charge less than banks but still more than crypto options would.

Large institutions look at stablecoins differently. Switching from traditional banking to stablecoins requires new custody setups, approval processes, accounting methods, treasury system updates, and revised compliance procedures for sanctions and anti-money laundering rules. All these changes must be addressed before any cost savings can be realized. This means lower fees are just one factor in a larger assessment of risks and governance that determines whether a company will use stablecoins for certain international payments.

Global financial institutions manage FX settlement risk through various mechanisms, with CLS Bank being a key example. CLS eliminates settlement risk in major currency pairs through its payment-versus-payment system, but it only covers about 18 currencies and specific transaction types. Beyond CLS, institutions navigate a complex web of bilateral spot FX arrangements, prime brokerage, correspondent banks, and both cleared and non-cleared derivatives to manage exposures.

Central counterparties (CCPs) like LCH ForexClear provide alternatives for certain FX products, particularly non-deliverable forwards. Meanwhile, FX swaps and forwards interact with other financial market infrastructures when used for funding or hedging securities transactions. This creates a multi-layered settlement ecosystem where custodians must coordinate across numerous platforms and counterparties. Stablecoin adoption would need to address this intricate landscape of settlement timing, credit exposures, and regulatory capital requirements that currently shape institutional FX management.

Why will SWIFT keep dominating cross-border flows?

SWIFT is the lingua franca of global payments. Banks, market infrastructures and large corporates either connect to it directly or rely on intermediaries that do, so almost every cross border payment, and many high value domestic payments, are formatted in SWIFT messages. To boost data quality and align with the G20 roadmap on faster, cheaper and more transparent cross border payments, SWIFT has begun replacing its legacy ISO 15022 MT messages with XML based ISO 20022 MX messages. March 2023 marked the first wave covering real time gross settlement systems worldwide; the final wave, covering cross border payments and cash management messages under the CBPR+ programme, is slated for November 2025.

There is also the SWIFT GPI service, however this sort of slow-speed-described-as-benefit marketing is a major challenge for fintech disrupters outside of financial services to take seriously, as 30 minutes is slower than essentially any blockchain in existence. This sort of thinking highlights the gap where challengers could indeed come up with some amazing disruption of institutional cross-border flows - but only if they can break the network effects of SWIFT first!

Financial institutions and their clients have already invested heavily in this migration, upgrading core banking systems, rebuilding message validation and repair tools, and revising end to end testing and reconciliation procedures. Despite the progress, large operational and data mapping challenges remain, so the industry will need several more years before the promised efficiencies and cost savings of ISO 20022 are fully realised.

Because the entire banking ecosystem is simultaneously modernising its existing rails, the chance of large payment volumes switching abruptly to public chain stablecoins is slim. SWIFT’s entrenched network effects, coupled with the risk management culture of regulated institutions, point to a gradual, use case specific adoption of tokenised alternatives.

Firms that embed stablecoins or permissioned token networks at the product level, such as JP Morgan’s Kinexys platform, may achieve cost and liquidity advantages in certain corridors ahead of more general purpose tokens like USDC, but any institutional shift is likely to unfold flow by flow and market by market rather than as a wholesale migration. One thing that challengers and disrupters often forget is that complex and expensive cross-border processes have sometimes evolved in that way to such an extent that only regulatory direction will lead them to change away from an incumbent network effect, such are the overall efficiencies from just leaving things the way they are.

Key Takeaways

• SWIFT dominance continues: SWIFT remains the backbone of global payments, with nearly all cross-border and high-value domestic payments using its messaging format.

• Gradual ISO 20022 transition: Banks are heavily invested in upgrading from legacy MT messages to new XML-based formats, with full implementation expected by late 2025, though benefits will take years to fully materialize.

• Stablecoins face adoption barriers: Despite potential advantages, network effects, regulatory requirements, and existing investments make wholesale migration to public or private blockchain solutions unlikely in the near term.

• Selective implementation approach: Financial institutions will adopt stablecoins gradually, focusing on specific payment corridors where the benefits clearly outweigh integration costs.

• Advantage to permissioned solutions: Bank-controlled platforms like JP Morgan's Kinexys will likely gain traction before general-purpose tokens like USDC, but only in carefully defined use cases.

What’s next?

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