Stablecoins draw new tech; Monzo entices U.S. consumers

By John Adams, Joey Pizzolato, Bloomberg News

August 7, 2024 1:49 PM

More firms are developing stablecoins and related technology as regulations advance. And the Interledger Foundation is trying to expand the banks that can offer remittances between the U.S. and Mexico, while Lloyds and CIBC are on the hunt for AI talent. Here's what's happening in the world of payments.

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U.K. central bank, BIS measure stablecoins' fiscal health

The reserves that back stablecoins are often the subject of controversy over concerns that the assets are inadequate to cover losses or include risky investments such as commercial paper.

The Bank of England and the Bank for International Settlements have built a tool that can track stablecoins and their reserves. The system is part of Project Pyxtrial, a year-old initiative at BofE and the BIS Innovation Hub to monitor stablecoin balance sheets.

The tool includes a digital pipeline that accrues data and feeds that information into an analytics engine to measure the stablecoin's reserve assets. System components include application programming interfaces that enable government agencies such as regulators to access Pyxtrial's technology.

The system's data modeling and dashboard are modular and designed to be reusable to monitor different stablecoins or other non-stablecoin digital payment products that are backed with real-world assets. The project comes as regulators push for rules requiring stablecoins to be prepared to pay their holders in full in the event of a bankruptcy or other economic problem.

In Switzerland, the Financial Supervisory Authority recently issued guidance for stablecoin banks that work with bank issuers. The rules describe how consumers or investors can redeem their funds.

To protect investors from the volatility of cryptocurrency, stablecoins are backed by reserves of traditional currency such as U.S. dollars or euros (but often other assets), thus making stablecoins a potential fit for retail payments.

Stablecoin issuers usually make periodic disclosures of the makeup of their reserves and whether the stablecoin is a 1:1 ratio between its market capitalization and the value of its backing assets. The new regulations in Europe tighten those disclosure requirements. —John Adams

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Payment companies plot stablecoin as regulatory picture clears

The development of regulations and tools such as the BofE and the BIS monitor are spurring stablecoin development.

Dublin-based digital payments company Decta and French startup Next Generation are teaming to revive the dormant Euro Tether stablecoin. EURT was in the planning for years but shelved in 2017 because of a lack of regulatory clarity for stablecoins in the European Union. More recently, the EU's Market in Crypto-Assets Regulation has been introduced.

The law, which governs risk and consumer protections for cryptocurrencies, went into effect in June 2023, and a stablecoin-specific portion of the law went into effect earlier this year. The rules will boost EU-based stablecoins, which don't presently have a high profile, according to Next Generation, adding it anticipates a market capitalization of about $4 billion for EURT. EURT will use the Stellar blockchain and will contract with an international auditing company to monitor the assets that will back the stablecoin.

Next Generation and Decta plan to partner with financial institutions to build a market of users to invest in, store and use EURT for payments and other transactions. —John Adams

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Swiss startup Okoora leans into cross-border payments opportunity

Okoora this week rolled out an application for cross-border payments. The app comes as more fintechs put a larger focus on international transactions.

The app, which is available on Android and iOS devices, is designed to limit exposure to fluctuations in currency exchange markets and syncs with the startup's cloud-based Automated Business Currency Management desktop client. That enables Okoora customers to convert currency and initiate domestic and cross-border payments from a mobile device, according to an Okoora release. More than 100 currencies can be exchanged across over 150 countries.

"This move is designed to ensure that our users can manage their foreign currency needs efficiently and effectively, no matter where they are," CEO and founder Benjamin Avraham said in a release.

Other players moving into the space are Chinese technology company Ant and French investment bank BNP Paribas, which announced a collaboration to develop blockchain-powered payments and tokenized deposits, and the Bank for International Settlements, which in June said it was exploring ways to improve cross-border payments. —Joey Pizzolato

Monzo seeks consumers for its U.S. expansion

U.K. challenger bank Monzo has launched interest for its Savings Jar feature as it attempts to entice enrollment in the U.S. The Savings Jar enables consumers to sort their savings into categories. As a bonus, it is offering a 4.25% APR for customers that route qualifying direct deposits into their Monzo account.

Savings Jar includes a feature that customers use to set goals based on desired savings amount and time frame to build those savings. Monzo calculates how much consumers need to set aside from each direct deposit to meet that goal. The new bonus interest rate will be available to all consumers, but 9-year-old Monzo is launching it with the U.S. in mind.

A group of investors including Alphabet's venture unit recently invested $430 million in Monzo, boosting its valuation to $5 billion and providing capital to fuel its expansion in the U.S. Monzo's valuation had fallen to $2 billion by the end of 2022. In 2021 the bank halted an application for a U.S banking license., citing regulatory concerns.

Monzo is expected to work with a U.S.-regulated partner for its renewed U.S. push. —John Adams

Remittance portal emerges for Mexican community banks

The Interledger Foundation is developing a payments system that would enable transfers between the U.S. and Mexico.

The U.S.-Mexico corridor is one of the world's largest remittance pairings and also one of the most competitive as more banks and digital payment companies add options to execute payments between Mexican workers in the U.S. and their relatives in Mexico.

The Interledger product is attempting to enable community banks and credit unions in Mexico to compete through shared technology. Interledger is a nonprofit organization that encourages interoperable financial transactions as a way to improve inclusion. It is partnering with the People's Clearinghouse, an organization that partners with small financial institutions in Mexico to build scale.

The Interledger/People's Clearinghouse remittance corridor is expected to have a network of about 140 financial institutions. These institutions are often shut out of the cross-border payments industry due to their lack of scale and technology, according to the Interledger Foundation, which also argues that consumers face higher fees as a result. —John Adams

Canadian fintech to acquire licensed payment company in Brazil

Montreal-based Nuvei has agreed to buy Brazilian payments company Pay2All Instituicao de Pagamento for an undisclosed amount as the Canadian fintech looks to boost its payments business in Latin America.

The acquisition, which was agreed to on Aug. 5, will enable Nuvei to accept payments and manage e-wallets and sports betting accounts in the country. A license is required to provide transactional services in the sports betting and online gaming industry in Brazil, according to a Nuvei release.

"Securing a Payment Institution license in Brazil has been a top priority, and will mark another significant milestone in our global expansion strategy," Nuvei Chair and CEO Philip Fayer said in the release. "The proposed transaction not only strengthens our presence in LATAM but also demonstrates our commitment to providing fully localized and modern payment solutions to businesses in Brazil."

Brazil has been a hot spot for payments as its e-commerce market continues to grow. The country's central bank in January inked a deal with a Munich-based payments firm to develop an offline approach to a central bank digital currency feature. —Joey Pizzolato

Wirecard scandal spawns new arrests

German authorities have charged two former Wirecard executives with embezzlement in connection with fraudulent accounting in the late 2010s at the disgraced German payment processor.

Alexander von Knoop, who was Wirecard's finance chief, was charged with aiding and abetting embezzlement. Susanne Steidl, a former Wirecard board member, was also charged.

Both executives allowed suspect loans and payments to proceed despite red flags, according to prosecutors. These transactions resulted in hundreds of millions of dollars in losses.

Wirecard shut down in 2020 following a period in which the company falsely boosted profits and sales records. Other executives have also been charged for their alleged roles in the scandal, and parts of Wirecard's business that were compliant with banking regulations have since been sold to other payment companies. —John Adams

Lloyds beefs up talent for AI push

Lloyds has hired former Amazon Web Services executive Rohit Dhawan to head the bank's Artificial Intelligence Centre of Excellence, which includes staff with expertise in data and behavior analytics; AI ethics and risk; and development of generative AI-related payment and financial services.

Rohit was head of data and AI strategy for the Asia-Pacific region for AWS, where he developed AI products for AWS-powered retail products for Amazon and sold AI services for third parties.

At Lloyds, he will oversee more than 50 AI pilot tests for internal and external functions, including customer service, chatbot tools and fraud detection. The bank has hired more than 1,500 technology and data specialists in 2024, with a total of more than 4,000 over the past three years as part of its AI strategy.

Lloyds is competing with hundreds of banks globally to spot new uses for generative AI and other new forms of machine learning, creating demand for data specialists and technology engineers at a time when many technology startups have cut staff. —John Adams

CIBC plans hiring spree in AI, data jobs

As Lloyds ramps up hiring, Canadian Imperial Bank of Commerce also plans to hire more than 200 employees in data and artificial intelligence over the next year as it expands its use of generative AI.

The country's fifth-largest bank has carried out a number of pilot programs using generative AI and is adding staff to boost those efforts, said Christina Kramer, the bank's head of technology and innovation, in a statement seen by Bloomberg News.

"Now is the right time to add to our talent base through hiring and upskilling in data and AI focused roles," Kramer said. The bank has been using AI for years to manage risk, fraud and information security.

The move comes as competitors have also started to ramp up their adoption of artificial intelligence.

Toronto-Dominion Bank is using technology from Canadian AI unicorn Cohere Inc. for tasks like interpreting financial documents. Royal Bank of Canada said in 2022 that it would grow its Calgary hub for technology research to 300 employees, in addition to two existing tech centers in Montreal and Halifax, Nova Scotia. —Aimee Look, Bloomberg News