Smaller Banks Are Talking About Stablecoin Payments for Business. But For Now, It’s Just Talk
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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In spite of the fanfare around passage of the GENIUS Act last year, and the strong interest shown by some large institutions, smaller banks appear to be proceeding with cautious interest in the stablecoin and tokenized deposit space.
In conversations with a small sample of institutions, there is some interest, even some enthusiasm, for the potential for these new tools in business payments and treasury management. But there’s no land rush just yet.
Interviewed after a flurry of conference trips, Mac Thompson, founder and CEO of consulting firm White Clay, says smaller players are talking a good deal about stablecoins and tokenized deposits, but few are moving forward meaningfully at this time.
Key insight: Most institutions want to see what applications develop for the two mechanisms, both of which rely on blockchain technology to function.
Thus far, making cross-border payments is the main use case that’s generally talked about.
Hidden fears: Thompson notes that concerns about reputation risk also lurk in some institutions’ reticence to go too far just yet. A central element of the GENIUS Act — it stands for the Guiding and Establishing National Innovation for U.S. Stablecoins Act — was establishing a firm basis for issuing this form of cryptocurrency, with requirements regarding such matters as backing with cash, U.S. Treasury securities or equivalents.
This requirement came in the wake of stablecoins that, well, weren’t stable. That’s one reputational concern. Another is that stablecoins historically didn’t have the anti-money-laundering strictures built around them that bank deposits had, spooking bankers who traditionally rely on public trust and are subject to stringent compliance requirements.
Need to Know:
- A Cornerstone Advisors study, previously covered on The Financial Brand, indicated that 5% of banks planned to invest in or implement stablecoin activities in 2026.
- Regulations haven’t jelled. Federal banking regulators are still in the midst of devising final regulations on payment stablecoins. After a 90-day extension, comments don’t even close on FDIC’s version until mid-May.
- The Clarity Act, seen as a companion of sorts to the GENIUS Act, remains mired in the Senate. It is not only a point of contention between the banking industry and the crypto industry — particularly over the legality of payment of interest-like incentives on stablecoins — but also intra-industry controversy among crypto firms.
Mixed Viewpoints on a Potential New Payments Tool
The issue of payment of interest, effectively, on funds held in stablecoins for clients by Coinbase and others, has clouded some of the consideration of stablecoins as a payments mechanism. The controversy has drawn criticism of the rewards — which the banking industry thought had been barred by the GENIUS Act — from everyone from community bankers on up to JPMorgan Chase’s Jamie Dimon. He recently told CNBC that companies that want to act like banks ought to obtain bank charters.
Looking past that controversy, smaller players are examining the mechanism itself, with varying degrees of enthusiasm.
Case Study No.1 Take Greg Lewis, chief deposit office at Encore Bank, a business bank with $3.6 billion in assets, based in Arkansas with commercial branches in multiple states. It’s early days, but he sees some potential in stablecoins to better serve customers.
Easier, instant cross-border payments is the chief attraction.
“It’s solving something that banks need to solve and it’s what clients need,” says Lewis. “They need payments. They need more flexibility. Those are things banking’s not offering through cross-border methods today.”
Lewis adds that he doesn’t see stablecoin payments as a final answer.
“It’s just another rail that will be attached into the ecosystem and how banks operate,” he explains. Initially, the most promise would be among wholesalers and distributors the bank serves, firms that transact many international payments. Cross-border real estate transactions are another possibility.
Key challenge: The wiring. An essential piece that has to be figured out is how to integrate stablecoins into clients’ enterprise resource planning systems, the software they rely on to get business done. The more that the tool can be embedded into those processes, the stickier it will make the relationship for the bank offering the service, Lewis believes. Ultimately he sees the potential for programmable, self-executing “smart payments” as another strong draw for customers.
Case Study No.2 INB, N.A., is running quiet experiments with stablecoins in applications that don’t touch customers at all, says Mark Donovan, chief operating officer at the $2.5 billion-asset business bank.
“This is moving at a speed where we don’t have the luxury of just watching it and trying to passively stay educated on it,” says Donovan. “We need to figure out how to play with it in a sandbox environment.”
Adds Donovan: “We’re not commercializing anything yet, because there are so many dynamics and risk vectors.” Much still has to be figured out at a practical level, he says.
Read more: Does Your Bank Belong in Stablecoins, Tokenized Deposits … or Both?
What Are Customers Saying to Bankers about Stablecoins?
Stablecoins are still new enough that bankers say they don’t hear any clamoring for them from clients. Right now, there are only some queries from a few regarding the banks’ plans in this area.
“We have a handful of customers who are interested at a cursory level. It’s mostly more sophisticated clients who are following the topic,” says Donovan.
Donovan says he sees the initial appeal to business customers who find the usual process of sending wires slow and expensive, and at times cumbersome. They compare that with the promise of speed and finality that can be achieved on the blockchain.
The appeal of tokenized deposits is somewhat stronger for banks, Donovan adds. “Banks are excited about the prospect of tokenizing deposits,” he says, “but that requires protocols and networks, a build out that we haven’t seen yet, at least not down at the community bank level.”
Having studied the matter, he thinks some common approaches need to be developed before this option can take off. Much the same must happen, he thinks, before stablecoins will be a viable option for banks serving commercial customers with payments and treasury management services.
Read more: Why the Future of Banking Lies at the Intersection of AI and the Blockchain
It’s Not Just about Using the Stablecoin Rails
Along those lines, there is some skepticism about the immediate impact of the GENIUS Act on business banking.
Case Study No. 3 Jesse Honigberg, EVP of products and platforms at Customers Bank, says the Act establishes a baseline for the industry getting into payment stablecoins. This includes key issues like how they will be backed, going forward.
Customers is a $24.9 billion bank, based in Pennsylvania, that provides a private instant payments service called CUBIX. To date the service has chiefly been used for very large transactions among digital assets companies, and some work with title companies, though Honigberg says the bank is exploring additional use cases and client industries. Up until now, CUBIX has chiefly been used to settle trades in fiat currency.
Key challenge: Honigberg maintains that the harder part of this business won’t be accomplishing the transfer of funds via stablecoins, but everything around it.
“It’s onboarding the clients. It’s monitoring the transactions. It’s dealing with everything that comes from all the ecosystems. All of those things are where banks add value,” says Honigberg.
Honigberg stresses that ultimately what the customer will want isn’t stablecoins, but fiat currency — they want the real-world money that will be traveling via stablecoins.
“There’s a long way from discussing a potential use case to turning it into something real that can scale,” Honigberg warns.
Banks are a Payments Swiss Army Knife
An important point made by multiple interviewees is that payments aren’t one thing. Donovan reflects that in banking hardly any payment mechanism drops by the wayside — new methods simply get added to banking’s menu.
He points out that even as it monitors and experiments with stablecoins, INB is still working to build out FedNow acceptance and adoption among its business customers. That rail has been available for some time now.
Consultant Mac Thompson thinks that after the buzz settles down, banks and companies will look at what is simplest for a given transaction. For some purposes, stablecoins or tokenized deposits may be the solution. But for others, there’s a full menu of existing services to draw on — why get complicated, he says.
Will it make money? Encore Bank’s Greg Lewis says ultimately stablecoins won’t likely be a standalone product for smaller banks, not a profit center unto themselves.
“You have to think about relationship value,” says Lewis. “Your ultimate goal is to have a profitable customer, not a profitable product. So stablecoins are a piece of the puzzle, not necessarily where you’re going to bet to make a lot of your return.”
Read next: How BNY is Banking on Innovation in AI and Digital Assets
