#58 - Borderless payments, 2.0
A 2024 update on the cross-border payments industry
Stanford Blockchain Review
Volume 6, Article No. 8
📚Author: Bridget Harris — Founders Fund
🌟 Technical Prerequisite: Low/Moderate
Last year, Gaby and I wrote a piece on borderless payments: partly lamenting the fact that they hadn’t been solved at scale yet, but mostly excited about the progress we’d been seeing in the market. So much has changed since then — largely for the better — that it warranted writing a part two.
Cross-border payments companies enabled by crypto have never been in a more favorable position than right now. Timing and (by extension) regulation are two of the most important judges of whether big ideas succeed or not; this dynamic applies to both crypto and noncrypto companies (read: Uber, Airbnb, PayPal).
“You could not have done it a year or two earlier [because the Internet hadn’t been created yet], and two years later, it probably would’ve been completely illegal [because of KYC/AML laws that resulted from 9/11].” —Peter Thiel on the creation of PayPal
In PayPal’s case, the year 1999 offered a golden opportunity to “change the nature of money,” to leverage the Internet to create a new payments network from scratch. I believe we’re at a similar point right now with cross-border payments enabled by stablecoins. History doesn’t repeat itself, but it often rhymes.
The borderless payments category still has no global winner — unless you count the banks, which control 92% of cross-border flows. Outside of them, no player has more than 1% market share globally. But we’re beginning to see a faster pace of progress on all fronts. The market itself is growing at an impressive rate: it has seen 7% growth in the past few years and is expected to reach $290 trillion by 2030 (up from $190 trillion last year). In addition, funding is speeding up to support newcomers who are increasingly looking to eat into the banks’ market share. Pitchbook data shows that in the first half of 2024 alone, cross-border payments companies (which admittedly don’t all use crypto, but still) raised $318 million.
And in developing countries, the use case for stablecoins has never been clearer — both to move money across borders and as an alternative savings mechanism. For instance, even though Milei is doing an incredible job, Argentina’s annualized 12-month inflation is still super high at 166%, forcing Argentines to look to the US dollar as an alternative. A similar story can be told (sans the Milei factor) in many developing regions:
Africa has considerable friction in its financial “system” — the value of the naira has dropped off a cliff and there’s little liquidity for intra-African currency pairs, so it can really disproportionately benefit from smooth, stablecoin-enabled cross-border payments.
Stablecoins compose ~70% of the share of flows from Brazil’s local exchanges to global exchanges to preserve value while moving money across borders (the value of the Brazilian real has plummeted relative to the dollar).
Cross-border micropayments via stablecoins to freelancers in the gig economy have been growing in traction. Fees generally make up a higher percentage of these smaller transactions, so stablecoins are the perfect fit here.
Given the instability in Ukraine — paired with how dysfunctional the banks are — the nation ranked sixth in global crypto adoption. Per the NYT: “Banks in Ukraine are so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork.”
More generally, crypto-based remittances grew 900% worldwide last year, with Latin America driving much of the growth (four of the top 20 countries by global adoption are in Latin America: Brazil, Mexico, Venezuela, and Argentina).
“Of course a technology centered around avoiding governance and banking failures will be centered in the countries with the most governance and banking failures,” —Scott Alexander, Why I’m Less Than Infinitely Hostile To Cryptocurrency [we too have had banking “failures” — not by their own doing — here in the US, but that will hopefully be remediated under Trump]
Market players, old and new (but mostly new)
We know that cross-border payments — for both consumers and businesses — will de facto run on stablecoins in the future, but it’s up to the companies to determine how this functionally works. As Bezos says, be flexible on the implementation details, but stubborn on the vision. This market is enormous, so it makes sense that both existing players as well as an influx of new ones are competing for these flows.
Last year, we noted some interesting companies working in and around borderless payments, but I wanted to refresh that list (along with some general notes) here:
It’s worth noting that 2024 brought an increase in crypto activity across all income brackets, whereas last year, lower-middle income countries drove much of the adoption and growth. Companies like DolarApp have capitalized on this trend by catering to all customer profiles (but particularly the wealthy) in Latin America. With their product, users can easily dollarize their savings as well as receive, send, and spend at the best FX rates given their stablecoin infrastructure. If customers had opted to use the likes of Western Union (and their insane fees) instead of DolarApp, it would’ve cost them an additional $11 million in aggregate (and counting).
P2P players like Sling, Code, and Bend allow users to send money in one click, powered by stablecoins — hugely simplifying the cross-border flow of funds.
Cross-border wallets like Belo focus on crypto-enabled solutions for remote workers located in Latin America, who need to collect money from abroad.
Existing B2B players like BVNK, Beam, Stripe (via Bridge), Sphere, Noah, and Rail, are experiencing newly accelerated growth as demand for moving between all types of money (both fiat and stables) increases.
Companies are getting creative with distribution to reduce friction for the end user: embedded solutions like Felix allow users to send money across borders directly within WhatsApp.
Cross-border payments company Juicyway, based in Africa, has already processed $1.3 billion, powered by stablecoins. More generally, Africa has seen an incredible uptick this year in crypto usage, with Nigeria placing second overall in global adoption. Companies like Yellowcard, Jambo, and Busha are meeting the demand here.
Conduit is opening up new corridors to facilitate B2B payments for fintechs specifically (via remote payroll, cross-border treasury transfers, and USD payments without needing a US bank account).
Platforms like Vance are enabling non-resident Indians (NRIs) to get around exorbitant remittance fees via Vance’s stablecoin infrastructure (India is the world’s largest receiver of remittances: $120 billion in 2023).
Connect is working on embedding stablecoins into existing C2C and B2C flows to enable global real time payments and drastically improve the money movement experience for the end user (this can also be applied to gig economy workers, international contractors, etc).
Distribution continues to be the biggest challenge for these companies: “what’s the value of a network if nobody’s in it?” Consumers and businesses tend to be extra cautious with adopting any new solutions that touch their money.
This dynamic, unfortunately, creates a paradox around trust: you can’t onboard users if they don’t have trust in your brand yet, but you can’t establish trust without having users in the first place to prove that you’re trustworthy. PayPal solved this problem by bootstrapping off of an existing network (with around 200 million users at the time): email. As Peter Thiel puts it, having a one-way network was enough: you only needed the sender onboard, and the receiver would be incentivized to join the network in order to get their money. A similar dynamic could play out in the cross-border payments space, where you only need log(N) adopters to reach N users.
“If a billion people are using [the new form of money], I can understand why the next 999 million are using it. But why would the first person use a new form of money? How do you initiate a new form of money?” —Peter Thiel on the creation of PayPal
Luckily, for many businesses and consumers that need to transact across borders, push has come to shove with the banks’ egregious processing fees and lengthy time-to-settle. Bootstrapping a new payments network is really hard, but not impossible — and lower fees combined with clearer regulation are greatly helping the cause.
Incumbents taking notice
Existing payment processors are paying much more attention to crypto for the sake of remaining competitive. One notable move this year was Stripe’s acquisition of Bridge, a stablecoin API provider, for $1.1 billion — a strategic play that allows them to potentially compete against larger banks on cross-border B2B payments flows. Using Bridge’s stablecoin infrastructure, Stripe could move large amounts of money in a much faster and cheaper way for businesses that need to transact across borders.
If cross-border B2B payments volume does shift away from the banks towards Stripe en masse, it would act as a major proof point for validating how much better stablecoins are for global money movement. This dynamic would also put the payments incumbents in a position of weakness unless they stay ahead on the crypto front, like Stripe has.
Banks aren’t the only ones competing in this growing market. Mastercard launched their new self-proclaimed “Industry-First Innovation” via Mastercard Move — a cross-border B2B payments product which they teamed up with Citi to launch. Similarly, Visa introduced Visa B2B Connect — an equally uninspiring product — in partnership with Standard Chartered. Neither use stablecoins. Both products actually seem strictly worse than transferring money via banks or Stripe, since they’re still reliant on the banks. What’s more, Visa/Mastercard charge their own fees for cross-border payments, which is then layered on top of variable bank fees.
New bills
Trump-era pro-crypto legislation in the United States could help cross-border payments companies operate and compete much more effectively.
A bipartisan stablecoin bill (spearheaded by Lummis) is in the works and will likely be passed in this administration — the triumvirate of Biden, Gensler, and Warren are no longer standing in the way. Clear stablecoin regulation will encourage more innovation and competition in the sector, as well as more consumer comfort around stablecoin adoption.
It’d also help to open up the market for a new stablecoin network to compete with Visa/Mastercard, if the Credit Card Competition Act (CCCA) passes. The CCCA would essentially force large banks to give merchants a choice of one additional payment processing network (besides Visa or Mastercard with their crazy 2-3% swipe fees), in order to break up the duopoly that merchants are locked into today.
Beyond the stablecoin legislation, US-based crypto money movement more generally will be well-positioned with the FIT21 bill, which provides an exemption for defi protocols from SEC (Sec 409) and CFTC (Sec 509) regulations, assuming the protocol is sufficiently “decentralized” (a bit of a nebulous term, but it’s progress regardless).
Further, FIT21 proposes a new committee composed jointly of the CFTC and SEC, which would serve as an advisory committee on digital assets. The formation of this new entity could be a win overall — essentially, it might allow the SEC to serve as an informal check on the CFTC and vice versa, especially because one chair is bound to be more pro-crypto than the other (the new SEC chair candidate, Paul Atkins, is favorable towards crypto and lighter-touch regulation in general).
An opening for smaller banks
The Wall Street banks love the trade deficit, because the bigger the deficit, the more money they make. Large banks currently have a monopoly on this multi-trillion-dollar volume of cross-border flows.
But this dynamic — paired with maturing stablecoin infrastructure and regulation — could actually create a golden opportunity for smaller banks. In order to compete on a global scale, smaller banks would be the first to adopt stablecoin networks. These stablecoin networks would have substantially lower fees, which could be a strong enough incentive for businesses and institutions that need to send money cross-border to switch. Currently, many of the smaller banks need to route through the likes of JP Morgan for their cross border flows, where JPM obviously takes a cut and slows down the process.
Final notes
We ended our last piece with “Of course, the future remains unknown. But that is the exciting part.” I’m not sure we could’ve anticipated all of the changes 2024 brought on all fronts — but at the same time, I wouldn’t expect anything less from crypto than to keep us on our toes. Good things take time, and it feels like cross-border payments are finally starting to have their moment.
When a new asset class is created from scratch and the status quo is threatened, there inevitably will be speed bumps along the way. But that makes the wins — small and large — worth highlighting, because they’re that much more rewarding for our industry as it grows.
Much of the work here is just waking the world up to a better way — which, fortunately, has already begun.
Huge thank you to Joey Krug and Abhi Desai for thoughts and conversations that informed my thinking on this piece.