During last twenty years, two issues have occupied the wide range of discussion, of which one is AI (Artificial Intelligence) and the other is Crypto (Cryptocurrency). The former is related to super advancement in technology while the latter is related to revolutionary change in financial industry. Both areas are, however, interrelated and integrated to each other, as AI is expected to substantially apply in Crypto, which in turn is the outcome of technology. Crypto, which is commonly known as digital currency, has tremendously grown during last one decade, has now well positioned with diversifying their products and stablecoins’ advancement to substitute banking services, has posed a threat and challenge to commercial banks.
Most people keep money in bank account for meeting living expenses which include payment of monthly bills mostly in dollars. However, the trend is now changing as many people have started switching to stablecoins, which is a kind of digital token designed to mimic the dollars or other internationally accepted currencies so as to maintain stability of token’s intrinsic value specially in highly volatile crypto market. Stablecoins, which have not yet come to rampant use like bank’s savings or checking account, are mostly used as means of crypto conversant to buy other digital tokens or transferring money. However, these digital tokens have started gaining popularity among the people, particularly crypto users as a means of keeping money and earning some yields, what is being considered as new development in the financial market throwing challenge to the banks enjoying absolute monopoly in keeping public money.
This development has created a big blow to the banks, which are in fear of losing deposits and thus trying to prevent the move prior to stablecoins’ capturing big market share. Stablecoins and other crypto companies have been struggling for the last few years to integrate with the mainstream financial market in the USA and as a part, they have been aiming to offer similar product and services what banks usually offer. After Donald Trump came to White House for second term, Crypto industry got momentum and started moving fast to integrate with U.S Financial market. Because President Trump himself is crypto friendly and even many Senators also favor crypto industry. Many regulations are in the process to streamline the Crypto industry. So, stablecoins’ offering yields on the token owners and allowing the tokens to substitute banking services in respect of paying bills and transferring money, is envisaged as big threat to the commercial banks. So, these tokens have now become the centre of a fight, because President Trump has been stressing the need for streamlining the Crypto’s role in the financial system.
From local media report it is learnt that there was move from banking industry in last January to limit stablecoins’ advancement towards offering banking type services but crypto exchange, Coinbase was able to derail the advancement of legislation to establish a legal framework for digital assets on the ground that they oppose any such move what would prohibit stablecoins rewards. On the other hand, banks’ reasoning was that allowing stablecoins to pay yield would turn the digital tokens into a quasi bank accounts without establishing same protection features. The competition and rivalry between crypto and banking are not new, rather have been continuing for long. Crypt industry has already surpassed trillion-dollar market size and given the industry size, crypto and banks have been trying to resolve their disputes. But situation has taken different dimension and complex shape as President Trump has expressed his frustration in his social media post blaming that banks are undercutting his efforts to make the U.S. the “Crypto Capital of the World”.
As reported in media, good number of crypto users have been using stablecoins for transactional services in lieu of bank accounts. Not only people from USA but also from other parts of the world including Canada have been using stablecoins for remitting money to their back home. Stablecoins are backed by treasury bonds or other reserve currencies, so this digital token is considered less risky and can maintain at par in its intrinsic value. Nevertheless, there is risk of fluctuation and no guarantee that value will not fall below par. Moreover, there is limitation in keeping money in stablecoins due to lack of federal insurance what guarantees up to certain amount of money if retained in bank accounts.
People prefer to maintain banks accounts and retain money therein for some specific advantages viz. earning on deposits, paying bills, remitting money and guarantee of money back. These special features have now disappeared in many cases. Firstly, money if retained in the bank account, does not grow at all, because bank pays no interest or insignificant interest on deposit maintained with the banks. Secondly, bank realizes monthly fees for conducting number of transactions required for bill payments and other expenses. Thirdly, remitting money through bank account is not only expensive but also cumbersome and time taking approach.
Besides, opening bank account and keeping the account operative, is complicated process involving multiple documentation process including KYC (Know Your Customer), customer onboarding requirement, TAP (Transaction Activity Profile), CAP (Customer Activity Profile) and so on, what frustrate the customers. In addition, Trump administration is going to introduce new requirement compelling the banks to collect detailed information about customers’ citizenship, what will keep many people away from the banks. As opposed to banks’ most complicated and troublesome transaction process, using crypto and holding stablecoins is much easer with earing yields on stablecoins. So, there is likely possibility that more and more people will switch their money from bank account to stablecoins in meeting their regular expenses and monthly bill payment. If this really happens attracting more bank account users, stablecoins will emerge as a suitable substitute to banking services.
Apprehending this reality, and fear of losing businesses, banks are also trying to explore the scope of their own stablecoins so that they remain competitive in payment. Nevertheless, they are still worried that sizable amount of banking industry’s $ 6.6 trillion dollar deposit may divert to crypto industry, specially in digital tokens. The banking industry has warned that if stablecoins’ offering of banking type service exponentially grow, there will be serious consequences in the economy as banks’ lending ability to the business and consumers will be substantially curtailed and people’s money will be moving to the sector what is not stringently regulated, and thus may pose a serious threat. Bottomline is that the way Crypto is advancing and stablecoins are offering many similar banking services, they are going to substitute banking services.
Writer: Nironjan Roy, CPA, CMA, CAMS
Certified Anti-money laundering Specialist and Banker
Toronto, Canada
Email: nironjankumar_roy@yahoo.com
