Stablecoins and Other Payment Developments Pose Strategic and Risk Challenges

Standardized processes and advancing technologies made transfers of funds reliable and routine – perhaps even taken for granted. Today a proliferation of payment brands and products, high-performance rails for data and value transmission, and the prospect of immediate settlement on blockchain or other infrastructure are complicating banks’ strategic choices and risks as they confront new opportunities and competitors in what was historically their own domain.

“What was once a pursuit of universal efficiency has become a competition among various market systems, each with its own philosophies, capabilities and constraints,” said a McKinsey & Co. report last year. Among the trends and scenarios: “fragmentation and regionalization of the payments landscape”; “erosion of global standards”; and “accelerated adoption of stablecoins and tokenized money”.

Incumbents are not necessarily back on their heels. Take, for example, The Clearing House (TCH), once known as the New York Clearing House, where member banks brought loads of paper checks to net out what they owed each other each day.

TCH operates three major networks, all growing at a...