As the GENIUS Act has spurred rampant speculation about banks issuing stablecoins, Citigroup and JPMorganChase are using the underlying technology to gain a digital asset foothold among corporate users.
Citi this week partnered with payments fintech Payoneer to support blockchain-enabled treasury transfers using Citi's Token Services, the bank's blockchain unit. This follows JPMorganChase's launch of its deposit token, an alternative to stablecoins that also uses distributed ledger technology to speed transaction processing.
The banks' moves position them to leverage their giant payment businesses to offer a range of digital asset services, including stablecoins, placing pressure on other banks to prepare for a range of new products.
"Banks, regardless of size, need a stablecoin strategy now," said James Wester, director of crypto for Javelin Strategy & Research. "That doesn't mean they need every technical answer, but they do need a clear vision of where they fit and how they will connect their customers, partners, and developers into the next generation of money movement."
Citi's Payoneer collaboration
Payoneer, a New York-based company that processes B2B and consumer-to-business transfers, will use Citi's blockchain to move money across Payoneer-owned accounts, reducing the need for traditional payment methods.
"Money movements in legacy systems have cut-off times," Derek Green, treasurer at Payoneer, told American Banker. "Addressing that is a powerful first step in the value of blockchain."
By using Citi Token Services, Payoneer avoids restricted bank hours and closures on weekends and holidays. Payoneer hopes the collaboration will ensure "instant liquidity" through 24/7 transfers between Payoneer users in the U.S., U.K. and Singapore. Using a blockchain reduces cash management and foreign exchange risk; and an application programming interface enables integration with a business's existing treasury and payment systems, avoiding infrastructure updates, according to Payoneer. The Citi deal helps Payoneer accelerate its ongoing geographic and product expansion. Payoneer's 2020 acquisition of German payment firm Optile allowed it to integrate payments orchestration with cloud-based technology to power international business payments while adding more countries to its network.
"Given our geographic reach [Citi] is a way to make transfers less complex," Green said.
While Payoneer's partnership with Citi uses tokenized deposits, the use of stablecoins for transactions is a possibility, according to Green.
"The blockchain is really the fundamental technology here," Green said. "The stablecoins would be the mechanism that would facilitate the outcome."
Like most banks and payment companies, Payoneer is still examining how stablecoins would best suit its business. Getting on board with blockchain-powered payment processing is a way to lay a foundation for greater uses in the future, according to Green. "Citi is a partner of ours and it makes sense to lean in and get this technology live," Green said.
Big bank plans
Citi referred questions to recent statements the bank has made on digital assets. In an early interview with American Banker, Debopama Sen, head of payments for Citi's Services business, said the bank has focused on supporting 24/7/365 clearing for Citi's clients. "Something we've learned over the last few years, we didn't sort of imagine or dream this up — is that co-creating with some of the largest category leaders has helped us create products that actually work for everyone as long as we simplify the access of the channel, depending on the client," Sen said.
Citi's Token Services uses a distributed ledger, database and embedded business logic to power services such as intraday lending, cross-border payments and funds transfers, designed for supply chain financing, trade settlement and other functions. Stablecoins are also part of the bank's strategy, with Citi CEO Jane Fraser saying the bank is planning a stablecoin and will support conversions from traditional currency to crypto. These services are value-adds for the bank's large payments business. Citi's payments business processes $5 trillion across more than 90 countries and jurisdictions on a daily basis, including 11 million daily instant transactions. Among other large banks, JPMorgan also plans to issue a stablecoin and in June said it plans to issue a USD deposit token, JPMD.
A deposit token is a digital asset that is a claim on a deposit at a licensed depository institution, such as a bank. Deposit tokens are issued on a distributed ledger. That makes deposit tokens easier to transfer between consumers or businesses, particularly in different countries.
JPMorgan's payments business manages $18 billion in yearly revenue, and is the world's largest merchant acquirer and the largest card issuer in the U.S. And it has more than 30,000 staffers. The size of JPMorgan and Citi will influence blockchain, digital asset and stablecoin strategies at other banks, according to Wester.
"The connections and partnerships are being established today, so the choice for banks is whether they view this as an opportunity to stake their position and actively shape the ecosystem or wait until the rules are written by others," Wester said. "For some banks, it may make sense to take a wait-and-see approach, but the decision should be intentional and not simply inaction dressed up as caution."
Scale becomes a challenge when banks expand the use of blockchain-powered transactions from intrabank to interbank. Two major models are emerging among banks to use distributed ledger technology to improve transaction processing for treasury management, Duane Block, managing director of digital assets at Accenture, told American Banker. Deposit tokens are a better fit for intrabank payments, or transactions between different accounts at the same bank; while stablecoins are more suited to interbank payments, Block said, due to the stablecoins' ability to act as a bridge between payment processing systems at different organizations.
"When banks move from tokenized deposits to stablecoins, distribution can be a challenge," Block said. "And partnerships are one way to accelerate that."
