Stablecoin, AI, and the future of payments

The Payments Podcast by Bottomline

Episode Transcript

Owen (host): Welcome to The Payments Podcast. I'm your host, Bottomline managing editor, Owen McDonald. It's fitting that at a time of high global risk, the B2B payments sector is obsessing over something whose very name includes the word stable. It's kind of a Rorschach test revealing how finance leaders are thinking and feeling about new business payment types.

Stability in an unsafe world is the core concept, and Stablecoin offers CFOs an attractive option. The U.S. Faster Payments Council recently estimated that B2B made up about 14% of the $10,000,000,000,000 in non-crypto stablecoins in circulation last year. Some estimates go higher. Yet despite its marquee qualities, many question the need for stablecoin. To separate the business from the buzz, we've asked two of the smartest people we know to stop by.

I'm delighted to be joined in the U.S. by Bottomline banking expert Jessica Cheney, and in the U.K. by Bottomline's Colin Swain with the outlook for corporates. Jessica Cheney, Colin Swain, you are most welcome back to The Payments Podcast.

Colin: Thank you. Great to be here.

Jessica: Thank you, Owen.

Owen: So glad you're here. There's a lot to cover, so let's dive right in. Jessica, you've described banks as almost schizophrenic in their approach to stablecoin and tokenized deposits. Some are all in. Others see stablecoin as a solution looking for a problem.

Please unpack just a little bit for us, how banks are viewing this, really.

Jessica: Thanks, Owen. I think what's happening right now is that the future of money movement has gone to a place where people are a bit uncomfortable, and it's really becoming more and more about deposit ownership. So stablecoins, tokenized deposits, and, when you throw in the impact on instant payment rails and open banking, all of those concepts coming together are challenging banks in a way they've not been challenged before. So, when I say schizophrenic, I'm not really saying that one individual bank is schizophrenic. I think the industry is a bit schizophrenic.

You've got two groups that have emerged. You do have a group that is definitely skeptical of the emergence and the need for a tokenized deposit. A little less skeptical on the need for stablecoins because they can understand the use case for cross-border payments and how a stablecoin might help there. But they're definitely questioning whether a tokenized deposit is a solution in search of a problem.

I think that the other part of the concern over tokenized deposits and the value, from those who are a bit skeptical, is around the programmability component of this. The skeptics are feeling that it's a bit overstated in terms of what commercial clients actually need today. That's where they feel that an instant rail is already, you know, instant and final. And they feel like ˜isn't that good enough?". But the other side of the argument is that today, it may be good enough for right now, but with the growth of AI in our world and in our ability to automate things, the programmability aspect of what a tokenized deposit on a distributed ledger can offer may not be a need right now, but it will very quickly become a need.

Owen: Okay.

Jessica: So, I think that's where you've got these two camps. I did kinda use the word "schizophrenic" because it doesn't seem to matter what size bank. The Cary network in the U.S. is a set of regional banks. It's not the very biggest. That's a group that is really working to bring a tokenized deposit distributed ledger network together. So, you're not looking at a movement that's the largest bank versus the regional banks just sitting back and waiting for something to happen.

I think it's a healthy, healthy debate, amongst the very strategic thinkers in the industry.

Owen: Agreed. From a corporate treasurer's perspective, Colin, let me ask you that same essential question. What real world problems does Stablecoin solve today?

Colin: Yeah, sure. Thanks, Owen. So, I think if you look at it now, the problems or the areas that treasurers really look at within the corporate world is how can we improve liquidity? How can we reduce our risk? How can we reduce our cost? 

And those key areas of accountability do not change when it comes to Stablecoin. And actually, there are opportunities there where Stablecoin offers something different to, I'd say, the traditional finance world and the payment schemes today. 

So, I think if you look at liquidity and you particularly think about corporates that may be global in nature, you could get many treasurers who feel that liquidity is trapped in payments, where payments are taking multiple days to go cross borders, cross currency, particularly for more exotic corridors. And so stablecoin and blockchain networks offer the opportunity to go cross-border instantly, to move funds and assets to different subsidiaries instantly, so that assets and currencies are not trapped in payment networks and with banks.

And that creates significant value for those large global corporates who are moving money across the world every day.

Owen: Sure.

Colin: I think on the risk side, in a similar vein actually, a lot of treasurers are managing FX risk every single day. They've got mechanisms to manage FX risk, and Stablecoin gives them the opportunity to put another lever in place to manage that FX risk. For example, if you're a corporate based in France but you do a lot of trade with the U.S., you can create, quite easily, a USD-centered stablecoin as an account locally and manage your FX risk in that way. 

And then lastly, cost in a competitive field. If you've got another vehicle to move money cross-border or domestically, another payment network that creates competition in the market, and competition inevitably creates lower costs for the corporates in payments. So, I think there's a variety of different use-case and benefits that a corporate treasurer could have.

And I think, as we all know, and Jessica's outlined as well, these may not be immediate. They're going to take time. But inevitably, they will come to fruition at some point.

Owen: Okay. And that's a some oh, I'm sorry Jessica, please add something.

Jessica: Yeah. I was just going to comment on the cost component. That cost component is definitely somewhat attractive to banks as well, in terms of using a distributed ledger as an alternative settlement option. They're not prolific enough, yet, for banks to understand what the per-unit economics is actually going to be, and if it is going to be cheaper, but it is something that's also very attractive.

The flip side to that, again, going back to both sides of that conversation, is that the cost of banks being prepared to participate in an always-on environment that has irrevocable payments can't be ignored either. But that's part of the debate as well. Is this going to be cheaper? And if it's going to be something I inevitably have to do anyway, then I'm going to have to invest in the operational components to be 24x7x365, including fraud controls, in that environment.

Owen: Well, it kind of segues nicely into my next question, which actually is to you, Jessica. Touching briefly on this talk of new rails, and we'll talk about that now. Most banks have said they want any new payment rail to be cheaper, faster, and more consistent than what they already have. Jessica, expand a little on what you were just saying about distributed ledger-based rails eventually replacing systems, possibly like Fedwire and TCH, or will they evolve to sit alongside them as specialized options? What's most likely to change in the near term?

Jessica: In my opinion, I think for at least the near term, they're going to sit alongside/with those traditional rails. Partly because the industry is finally finishing its migration to ISO 20022 in the traditional rails. That only took us two decades to do! I don't think we're going to switch immediately to fully replacing those rails with distributed ledgers (which is also something we've been talking about for 10 years) overnight. So, I think that you're going to see, because of that bit of inertia, that they'll sit alongside for a while, until such time as the things that we were just talking about - the economics - prove to be that much cheaper. Then there's going to be a lot of pressure for that to actually become a replacement. 

But I also think you're going to see the piece that's missing when we talk about a replacement is that there is, today, a central network operator (at least in the U.S.) for our rails. And they don't have, necessarily, a place in a distributed ledger-based rail. So, I think you're going to see regulation come into play here. Right?

Because that central operator does things more than just operate the network. Those rails are tied into central liquidity. They're a backbone in the U.S. economy today. So, it's going to take a lot for that to be absolutely replaced by an alternative rail.

Owen: As a follow-up to this, Colin, you've said corporates should see stablecoin as, quote, another asset alongside their U.S. dollars, British pounds, euros. How does one explain to finance teams that stablecoin is a complement to existing payment types, not necessarily a major retooling of how they execute business payments?

Colin: So, I think Jessica's covered this in part. The challenge, very much around the implementation of decentralized finance and stablecoin, lies with the platform providers, the banks, and the payment processors as well. And that's to the benefit of corporates. So, what I really mean by that is it's those entities role to connect into these different networks, and provide them as services to corporates. And, obviously, those corporates will expect stablecoin and payments through stablecoin to be governed and controlled in the same way as any other payment through any other currency today. So, what my message to corporates would be, far more of your existing providers, including Bottomline, are working to integrate stablecoin assets into their platforms, both to allow the visibility of those assets and the transfer of those assets to new wallets.

And what that all means is, for corporates, they can expect (through their cash management platform or online banking platform) that stable coin assets will sit alongside their sterling accounts, their U.S. dollar accounts, their euro accounts. So, it's just another asset, a liquid asset, owned by that corporate. And similarly, when they want to make a funds transfer by Stablecoin, it will just feel like another payment to them. And they will feel like a very quick payment, a very simple payment, but a payment nonetheless, will go through the same workflow, the same controls, the same platform that they use right now. So, I actually think the implementation challenge in a lot of ways sits with the banks and technology providers to corporates, as much as the corporates themselves.

Owen: Moving on. A somewhat more relaxed regulatory environment has opened the door to FTI [final transaction information], insured tokenized deposits, and a wave of charters for non-traditional banks of late. Jessica, how is that mix of opportunity and threat shaping the way traditional banks approach stablecoin and tokenized deposits for B2B?

Jessica: Yeah. I wish that I could say that the shift in the regulatory environment has provided clarity. I think it's actually provided a little bit of angst, given where we're at. The current political environment is very open to bank innovation and the introduction of alternatives, but we're mid-cycle in that administration. And because previous administrations have not been as open, banks are a little bit skittish in that they're concerned about putting a lot of investment in these alternatives when, in less than two years' time, the policy could shift. 

So, what I have been talking to our banks about is coming up with strategies that allow them to be prepared and insulated, regardless of what the political pivot is. You know, I think the strategy really needs to be preparing for 24x7 operations regardless if that ends up being on a traditional rail, which is acceptable under any regulatory or any political environment right now. But being ready to expand that to an alternative infrastructure. A couple of regulatory things that have come into play, the Genius Act passed last year, but the operational rules around it are still being defined in the U.S. So, there's a lot of opportunity for that to go in one direction or another. 

Open banking has become legal, if you will. There's a regulatory component about that. The section 1033 [of the Dodd-Frank act] phased implementation started in April of this year. So, there's a lot of openness in our regulatory environment right now that, if it continues, I think we'll see a lot of innovation to continue and probably innovation at a pace that we've not seen before.

But, I do caution that we are in the middle of a potential policy-shifting environment because of where we sit in our election cycle. However, I think that there's also something that I think is important as a signal, a regulatory signal. Just last week, the OCC granted Augustus a conditional charter. And Augustus Bank, (I'm going to read to you a little bit of their press release), is a perfect example of what we're talking about right now. And this is a quote.

Augustus Bank NA will be the world's first clearing bank for the AI era, built on stablecoin and an AI native core. A bank that's always open, made for machines at the speed of compute. Legacy banks are made of paper. Augustus is made of code.

So that's really kind of cool in a press release, but it's not really a business model. The charter is conditional. They've only raised about $40,000,000 in capital. It's real capital, but a really modest amount for what they're saying this bank is going to be all about. But I think that issue is really not the hype in their press release, and it's not really about Augustus. It's the fact that the OCC gave them a bank charter, and for a stablecoin-native, AI-native bank, that's really interesting that the agency responsible for chartering national banks has decided that an institution built on stablecoins is something that the U.S. banking system should accommodate. We've never had that type of regulatory acknowledgement and support, that quickly, of something that isn't mainstream yet in the banking system. So, I think that's a really interesting signal to pay attention to. If something in that type of environment is being, you know, granted a charter in the banking system, the banking system is in for an interesting ride.

Owen: I couldn't agree more! This kind of flows into our last question. Some market watchers are wondering if AI will catalyze stablecoin adoption. Colin, how do you see AI-enabled finance and automation intersecting with stablecoin and DeFi in ways that accelerate corporate use?

Colin: Yeah. So, I think Augustus Bank has certainly stolen my thunder slightly when it comes to how AI and stablecoin are going to come together. And it is, I think, much more of a forward-looking view of this. But, actually, if we think about it in terms of the DeFi market and stablecoin, a big part of this (and Jessica said this) opportunity is around the programmability of stablecoin. And stablecoin, the core of it, is that the currency or asset is code, and [you have] the ability to adapt how that asset is used through smart contracts. Now that's a huge innovation and huge transformation potential. 

At the other side of the payment innovation is AI. Now, what does AI do? AI is building out agentic platforms where agents are able to, essentially, run autonomous workflows and code themselves.

So, you bring those two things together: stablecoin, where currency is code, and AI, where you're generating agentic platforms and autonomous workflow, where agents can actually write and develop code. You're in a situation where, actually, that autonomous workflow that agentic platforms are creating can move into the world of moving funds and moving assets as well. Now with that, there's a huge, huge amount of questions around compliance, governance, control, and auditing. However, I think those two worlds, stablecoin and AI, will come together, and the use cases around that will fundamentally change payments and finances.

Owen: Big statement there. Jessica, any closing thoughts on AI as a stablecoin catalyst?

Jessica: So, I actually think the comment is a little bit broader. I think AI is going to be a catalyst not just for stablecoins, but for tokenized deposits. The skeptics will say that programmability is something that is not necessarily needed, and we can do a lot of these things today. I'm not necessarily in that camp. I do think that the combination of a distributed ledger and a tokenized payment facility, driven by AI, is really the future of where all payments are going to be.

We often think about the conditionality of liquidity management. If this happens, then I want to do X, right? If you can take AI and couple that logical thought process (which will automate those conditions) so nobody has to actually think about it, with a vehicle that can actually complete the transactions that have been programmed, that's going to change the world.

I mean, it literally will change what cash managers have had to do in their careers for the last fifty years.

Owen: And there you have it. Stablecoin is at the awkward teenage phase, not yet mainstream, but full of potential. The smart move now is to run controlled pilots, learn fast, and be ready when this tech goes from experimental to expected. We don't know the exact moment, but it's not far off. 

Our gratitude to Bottomline's Jessica Cheney and Colin Swain, who never fail. To our audience, the smartest people in B2B payments, thanks for listening. 

Hit subscribe. Catch us again on your favorite podcast platforms, including Apple, Spotify, Blubrry, iHeartRadio, and YouTube. Bye for now. 

The Payments Podcast, from Bottomline.