This year marks the year of the stablecoin, especially in the US. From the start of the year, we have watched as stablecoins evolved from a concept in trials overseas to a market force attracting billions in daily transaction volume, partnerships with major payment networks, active pilots among US banks, and a central focus of US financial regulation in the form of the GENIUS Act.

After the passage of the GENIUS Act in July, Ernst & Young’s (EY) strategy consulting services group EY-Parthenon surveyed more than 350 executives from financial and nonfinancial sectors about their views on stablecoins. Based on its findings, the firm generated a 31-page report that highlights adoption, usage, benefits, challenges, regulatory implications, and more. We’ve highlighted the report’s five major takeaways below.

Stablecoins are no longer fringe

All of the 350 executives surveyed are aware of stablecoins. Of those, 13% have already used stablecoins and 65% expect interest in stablecoins to rise in the next 6 to 12 months.

The fact that 100% of executives surveyed are aware of stablecoins demonstrates how quickly stablecoins have moved into the mainstream. For banks and corporates, the conversation around stablecoins is no longer a question of “if,” but rather “how fast” adoption spreads and what role the organization should play. This shift from niche to norm shows that institutions that wait to make a move may miss out on shaping standards and capturing early market share.

Charts from EY-Parthenon

Stablecoin usage

More than half, 54%, of financial institutions and corporates that are not using stablecoins expect to begin using them in the next 6 to 12 months. For 81% of participants surveyed, clear and supportive legislation increases their interest in stablecoins, either significantly or slightly.

With more than half of firms signaling plans to adopt stablecoins within a year, the market will likely see an acceleration in usage. For policymakers, this highlights the importance of regulatory clarity, given that it would directly boost adoption. For banks, it shows an opportunity to deepen their relevance by offering compliant, stablecoin-enabled services before competitors get there first.

Charts from EY-Parthenon

Cross-border fund transfers are the top use case

The survey asked about 10 different use cases. Of those ten, the top three use cases centered around cross-border payments.

This shows that stablecoins are tackling real, persistent pain points, especially in cross-border payments. Despite previous disruption by alternative players such as Wise, Remitly, and Revolut, international transfers remain slow and expensive. Stablecoins are a credible alternative that resonates with businesses and consumers. This focus could disrupt entrenched correspondent banking networks and give stablecoin adopters an edge in the lucrative field of cross-border payments.

Charts from EY-Parthenon

Firms most interested in reducing cost and increasing payment speed

The most interesting use case is cross-border payments (77%), with interest largely driven by reduction in transaction costs and faster payments.

The overwhelming interest in cost savings and speed is a reminder that stablecoins will succeed or fail based on tangible value, not hype. For businesses, even modest reductions in cross-border fees can translate into significant savings at scale. Banks face the challenge of turning this efficiency into a competitive advantage, offering better pricing and faster settlement while managing risks.

Charts from EY-Parthenon

Practical implementation

The survey found that organizations are looking to their traditional banking partners for access to stablecoins, and that most financial institutions, 79%, plan to leverage a third party for stablecoin infrastructure.

The finding that most organizations plan to access stablecoins through existing banking partners is significant. It suggests that businesses want access to stablecoins without having to deal with the complexity that comes with the new payment rail. Instead of investing in-house to leverage the new technology, they’re looking to trusted intermediaries like banks to handle the heavy lifting of facilitating the infrastructure. For banks, this is both an opportunity and a warning. Institutions that move quickly to build reliable, third-party-powered stablecoin services can strengthen client relationships, while laggards risk being bypassed entirely.

Charts from EY-Parthenon

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Global payments have been gaining popularity in fintech over the past few months. There is increasing demand for faster, safer, and cheaper payment opportunities as cross-border trade activity escalates.

As McKinsey points out, however, payments are becoming disconnected from users’ accounts as platform-as-a-service (PaaS) and embedded payments models rise in popularity. These models, which often provide a more seamless and tailored customer experience, may pose a challenge for banks. That’s because, in many cases, banks may need to build new businesses to keep their existing customers.

In its latest report, McKinsey offers data highlighting the growth of global payments revenues and details six trends that will define the next five years in the global payments landscape. While the report is full of valuable stats. Here are the points that I found most notable.

Historical unicorns prove promising

Over the past 10 years, the number of payments unicorns grew from 39 to 384, a group that boasts a combined valuation of $1 trillion. Though decreased funding and downrounds have slowed the growth of new payments unicorns, their track record has proven that, when the fintech sector begins to boom again, we will likely see a boost in high-value payments fintechs.

Growth of global payments revenue

Last year, the global payments industry processed 3.4 trillion transactions worth $1.8 quadrillion that generated $2.4 trillion in revenue. While this revenue figure has grown 7% each year since 2018, McKinsey estimates the growth will slow to 5% per year for the next five years.

Cash usage tanks

Since 2019, cash usage across the globe has dropped by 20%. The report notes that global cash usage continues to decline at 4% a year, but developing economies are experiencing a faster rate of decline than that of the U.S., where card usage has long been popular. While this report doesn’t mention it, countries with government-led payment schemes such as India (with UPI) and Brazil (with PIX) are also seeing a major decline in cash payments. In India, while cash payments still account for 60% of consumer expenditure, digital payments have doubled in the past three years.

CBDCs are more relevant than ever

According to the report, “More than 90% of central banks are pursuing or considering central bank digital currency (CBDC) projects, and more than 30 have rolled out pilots.” This figure was quite surprising, as I haven’t looked into CBDC projects since 2021, when only 43 countries were exploring the use of a CBDC. Despite U.S. hesitation to pilot a CBDC, I think we’ll see more discussion on the topic in 2025 as crypto grows and the environment becomes more crypto-friendly.

We know fraud is up, but by how much?

McKinsey’s report estimates that losses from global payment card fraud will reach $400 billion over the next ten years. Regulators have stepped up their efforts by increasing pressure on banks to comply, and as a result AML fines reached an all-time high, soaring past $6 billion last year.

Check out the entire McKinsey report for a better picture of today’s global payments landscape. With trends like embedded payments, declining cash usage, the increasing relevance of CBDCs, and the ever-present threat of fraud, players in the payments industry will need to not only innovate, but also to collaborate to remain competitive.

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AI may be one of the most misunderstood concepts in financial services at the moment. Not only is the technology complex, it also suffers from hype, bias, lack of transparency, lack of standardization, regulatory ambiguity, and it is constantly evolving. Accenture’s AI report helps demystify a bit of the AI enigma.

The firm spent multiple years surveying executives in a range of industries to compile a report detailing how to harness the power of AI. The firm surveyed more than 3,000 executives across 19 industries and 10 countries from November 2022 to November 2023 to compare how organizations leveraged AI.

Reinventing the enterprise

The main emphasis of Accenture’s AI report centered around reinvention. Accenture highlighted that reinvention is the key to unlocking the potential of AI for firms. Companies need to embrace reinvention as a deliberate strategy to fully leverage the powers of both AI and generative AI.

What it means to reinvent

Reinvention is more than just a buzz word. It involves firms transforming their entire organization by involving the whole C-suite in a collective decision-making process. Instead of simply adopting new technologies that fit into a bank’s existing approach, the entire firm must adopt a holistic approach that takes on four main attributes:

• Encompass talent strategy
  Organizations must invest in training their entire workforce to understand and effectively use AI technologies. They must also attract new AI-skilled talent into their workforce by creating an attractive working environment and offering opportunities for growth and development. Additionally, firms must develop their leaders to understand AI’s potential and how to strategically implement it.
• Break down organizational silos
  Because AI initiatives often require collaboration among different departments, breaking down silos ensures that all teams work together effectively. This also means that each silo needs to offer transparent access to its data (in a secure way, of course). By making data accessible across the entire organization, AI systems can leverage more comprehensive datasets for more accurate and helpful outputs. And, perhaps most importantly, aligning AI projects with broader business objectives helps ensure that the entire organization is working towards that same goal.
• Embrace new ways of working
  To reinvent their current way of working, organizations need to embrace new ways of working and be open to change. Specifically, firms must adopt agile practices that allow them to iterate quickly, respond to changing markets, and continuously improve their AI systems. They also must create a culture of innovation that encourages experimentation, and offer flexible working arrangements that can improve employees’ productivity as well as their job satisfaction.
• Continuously seek reinvention
  The final piece of the puzzle is that organizations must not stand still. Even after taking initial steps, firms must regularly evaluate and refine their AI strategy to keep pace with advancements in technology as well as changing business needs and shifting consumer demand. Additionally, organizations must continuously invest in research and development to explore not only new AI technologies, but also new applications of existing technology.

Benefits of reinventing

Those willing to reinvent their enterprise stand to reap multiple benefits. In addition to driving growth, productivity, and outperforming their competitors, firms that reinvent their enterprise to unlock the key to leveraging AI will enhance the user experience for their end customers, tap into data-driven decision making, accelerate innovation, manage risk, scale their business, empower their employees, and optimize resources.

By integrating these benefits into their reinvention strategy, firms can fully exploit the transformative potential of AI and generative AI, ensuring long-term success and resilience.

To learn more about what it means to reinvent your enterprise, including the seven components of the digital core outlined in Accenture’s AI findings, check out the free report.

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If there is one area where AI is making a massive impact in financial services, that area is cybersecurity.

A recent report from the U.S. Treasury Department underscores the opportunities and challenges that AI represents to the financial services industry. The product of a presidential order and led by the Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP), the report highlights in particular the growing gap between the ability of larger and smaller institutions to leverage advanced AI technology to defend themselves against emerging AI-based fraud threats.

In addition to what it calls “the growing capability gap,” the report – Managing Artificial Intelligence-Specific Cybersecurity Risks in the Financial Services Sector – also points to another difference between larger and smaller financial institutions: the fraud data divide. This issue is similar to the capability gap; larger institutions simply have more historical data than their smaller rivals. When it comes to building in-house, anti-fraud AI models, larger FIs are able to leverage their data in ways that smaller firms cannot.

These observations are among ten takeaways from the report shared last week. Other concerns include:

• Regulatory coordination
• Expanding the NIST AI Risk Management Framework
• Best practices for data supply chain mapping and “nutrition labels”
• Explainability for black box AI solutions
• Gaps in human capital
• A need for a common AI lexicon
• Untangling digital identity solutions
• International coordination

More than 40 companies from fintech and the financial services industry participated in the report. The Treasury research team interviewed companies of all sizes, from “systemically important” international financial firms to regional banks and credit unions. In addition to financial services companies, the team also interviewed technology companies and data providers, cybersecurity specialists and regulatory agencies.

The report touches on a wide range of issues relating to the integration of AI technology and financial services, among them the increasingly prominent role of data. “To an extent not seen with many other technology developments, technological advancements with AI are dependent on data,” the report’s Executive Summary notes. “In most cases, the quality and quantity of data used for training, testing, and refining an AI model, including those used for cybersecurity and fraud detection, directly impact its eventual precision and efficiency.”

One of the more refreshing takeaways from the Treasury report relates to the “arms race” nature of fraud prevention. That is, how to deal with the fact that fraudsters tend to have access to many of the same technological tools as those charged with stopping them. To this point, the report even acknowledges that, in many instances, cybercriminals will “at least initially” have the upper hand. That said, the report concludes that “at the same time, many industry experts believe that most cyber risks exposed by AI tools or cyber threats related to AI tools can be managed like other IT systems.”

At a time when enthusiasm for AI technology is increasingly challenged by anxiety over AI capabilities, this report from the U.S. Treasury is a sober and constructive guide toward a path forward.

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Photo by Jorge Jesus

CB Insights shared its State of Fintech Q2 2023 report last month. The top takeaways? Fintech funding continues to take a hit, with the report noting that both funding and deals globally have retreated to “levels not seen since 2017.”

But wait, there’s more. Mega-round funding, deals valued at $100 million or more, fell to a six-year low. And payments – which were memorably referred to by the VCs on our Smart Money Power Panel at FinovateFall last year as “the gift that keeps on giving” – stopped giving. CB Insights reports that funding for payments-related companies fell 75% quarter over quarter. It was the largest decrease for any fintech sector.

What about upsides? The report noted increases in fintech funding in Latin America and the Caribbean, the only region to see significant gains. CB Insights also highlighted the fact that the five exits in the quarter all came from fintechs based outside of the U.S.

Read the whole report. There are a number of interesting observations, some of which give some reason for optimism in the second half of the year. For one, early-stage companies dominated deal volume in Q2 2023. The strength of fintech funding in Latin America, mentioned above, was also a promising sign. Some of this deal-making involved cryptocurrency and DeFi related firms – and geographies like the Cayman Islands that are outside traditional Latin American fintech powerhouses Mexico and Brazil. But much of the investment in Latin America was driven by strong trends like digitization and financial inclusion. Investors have also been encouraged by the success of fintechs like Brazil’s Nubank. The report also saw positives in the market for companies going public in Asia last quarter.

For more on CB Insights’ examination of fintech funding so far in 2023, also check out the firm’s Fintech Midyear Review: The Data Behind the 6 Year Low webinar released last week. Lead Fintech Analyst Anisha Kothapa puts the current fintech landscape into context, and highlights where investors see opportunity around the world – and why.

“I think some of the biggest drivers of capital being invested in (Latin America) is due to, one, financial inclusion,” Kothapa explained. “There are many unbanked and underbanked people in Latin America that need innovative financial solutions. The second is that the region has seen rapid digital adoption, especially with the use of smart phones, and growing internet connectivity. The third thing is around a more favorable regulatory environment.”

By the way, Finovate’s weekly Finovate Global column is a great source of news on fintech developments around the world. With regard to Latin America in particular, recent columns have focused on fintech innovation in Brazil and Colombia.

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