FinTechs Tout Stablecoin As Faster, Fee-Free Business Payment Alternative

A few weeks ago, 72 employees of Figure went into an exchange and offered their stock up for sale. Two institutional buyers then came into the exchange and bid on the stock. When those bids and orders crossed, those orders were settled in real time.

“It was an important transaction on two fronts,” said Figure CEO and Co-founder Mike Cagney in a PYMNTS interview. “One, it was the first time anyone’s done a marketplace transaction for blockchain securities.”

This was done through the company’s broker-dealer via the alternative trading system (ATS) exemption Figure has by way of the Financial Industry Regulatory Authority (FINRA), he said.

“But the more interesting part of that transaction was that the institutional buyers, the stablecoin that they used was a coin called USDF [USDForward], and USDF was minted by New York Community Bank [NYCB], so it became the first time a bank actually did a deposit-backed stablecoin onto a public chain,” Cagney said.

The Beginning of Something Really Big

Because of the way it’s built, USDF addresses regulatory compliance and know your customer (KYC) issues, he said. In addition, NYCB is part of a five-bank consortium that is coming to market and opening this up to any bank that wants to join the framework.

“This should do three really important things,” Cagney said.

First, it should provide unlimited amounts of fiat currency on Provenance Blockchain. Second, USDF is really just a payment rail, so it allows any bank to move cash — via USDF — in real time, at any time to any other bank or bank customers within that network. Third, it allows for the development of applications using that programmable money.

“We think that this is the beginning of something really big in the payments ecosystem,” Cagney said.

Avoiding the Interchange System Entirely

As an example of how this can be used, he pointed to the Figure Pay application his company built on the USDF rail. Pay is a mobile banking solution that includes a Visa debit card, as well as embedded buy now, pay later (BNPL) and payday advance features. It also enables Pay members to make B2B, B2C and C2C transactions while avoiding the interchange system entirely.

“So, for example, one of the banks that’s using Pay banks heavily into the landlord-tenant space,” Cagney said. “Those landlords all get paid in credit card, so they’re paying $300, $400, $500 a year in interchange expense, and so they’re actually [incentivized] to pay the renters a couple hundred dollars a year to use this as a payment solution.”

This will have disruptive applications around B2B payments settlement, too, including in payment-receivable, supply chain finance and cross-border remittances.

To get things going, merchants need to drive consumer adoption of USDF, which will in turn lead to additional adoption by other merchants and consumers.

“So, what we’ve done is build applications like Pay where we effectively give the technology away,” Cagney said. “It’s an open [application programming interface (API)] that allows a bank to integrate a mobile solution either into their existing mobile application or as a standalone, new mobile application.”

A Real-Time, Same-As-Cash, 24/7/365 Payment Rail

Figure is also using Pay itself. The company has 150,000 mortgage customers. Because most of them pay via automated clearinghouses, the company has to then figure out who the money came from. By driving the adoption of Pay, the company can greatly reduce the servicing costs. At the same time, it’s creating more users of USDF.

“Getting a real-time, same-as-cash, 24/7/365 payment rail is a big deal,” Cagney said. “It saves a lot of money.”

For those reasons, he said he thinks we’re close to developing a viable alternative to interchange.

“The USDF transaction was something a lot of people were very skeptical could ever occur, because generally when you say the term ‘stablecoin’ in a room full of bankers, they all run for the doors because it’s a regulatory hot button — but this, I think, is a big deal,” Cagney said. “I think it’s going to bring in some seismic change in the payment space.”