The rise of crypto in B2B payments: What banks need to know (American Banker)

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Bitwave Co-Founder and CEO, Pat White, shares his thoughts with author Cheryl Winokur Munk on the key opportunities presented by on-chain B2B payments.

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As more businesses turn to digital assets for payments, banks should pay careful attention.

"I can't stress enough how much of a threat [that] crypto within B2B poses to banks' payments revenues," Joel Hugentobler, an analyst who focuses on digital assets and cryptocurrency for Javelin Strategy & Research, wrote in an email. "It's straightforward: most cryptocurrencies boast near instantaneous settlement with far lower fees."

Banks face various threats related to the growth of digital assets within B2B. They might lose out on credit card revenue and wire charges, for instance, as crypto gains prominence, says Tony DeSanctis, senior director in the payments practice at Cornerstone Advisors. There's also a risk for banks that participate in cross-border payments. While cross-border payments are not a huge revenue generator for many institutions, there could be some disruption, he said.

Also, assuming crypto becomes more adopted as a B2B option — and there's already some momentum in this direction — there will be less money to be made from ACH transactions and businesses may keep fewer deposits in bank accounts. In particular, if stablecoins — a type of cryptocurrency whose value is pegged to another asset, such as a fiat currency or gold, to maintain a stable price — take off, you'd see a drop in deposits in bank accounts.

"The more your entire lifecycle can be only crypto, the less that I ever have to touch my bank account," said Pat White, chief executive and co-founder of Bitwave, which offers B2B crypto payment management. It follows that if deposits go down, other parts of the bank relationship, including lending, are also at risk. "The relationship becomes more and more transactional," White added.

To be sure, digital assets aren't close to dethroning ACH as the top B2B payment method. ACH was expected to account for 47.9% of U.S. B2B payment transaction value in 2024, according to Insider Intelligence's eMarketer Forecast from August 2023. That was followed by checks and cash at 32.1%. Cards were predicted to make up 6.7% of the transaction value.

"ACH is still the number one debit option because it's minimal cost and you get cash right away," said Jeff Fortney, senior associate at TSG.

At this point, large businesses are primarily the ones exploring or adding the option for crypto for B2B transactions. Specifically, many businesses, including PayPal, Google Cloud and EY are looking at the use of stablecoins, which settle instantly, are borderless, and can offer rewards to holders, improving workflows for companies and their vendors, according to Coinbase.  

"An increasing number of Fortune 500 companies are approaching Coinbase to explore crypto payments," Steven Capozza, director of institutional sales at Coinbase, wrote in a blog post. "Many are quickly moving from proof-of-concept exploration to full adoption."

Javelin Strategy & Research predicted in 2022 that within three years 50% of global businesses would use crypto payments for B2B. The use of these global crypto payments in B2B has more than doubled since 2023, increasing to nearly 48% from 18% a year ago, Hugentobler said.

It may not be suitable for banks to hold extremely volatile assets such as bitcoin on their balance sheet, but stablecoins are a viable solution, according to Hugentobler.

"They're backed by U.S. treasuries of various durations providing a pegged value, which makes them a faster and cheaper alternative to the U.S. dollar or Euro. Stablecoins and tokenized deposits solve most banks' hesitancy towards crypto: lower fees, near-instantaneous settlement and stable value," he wrote.

Some banks are already exploring potential opportunities with digital assets and B2B. JPMorgan Chase, for example, has JPM Coin, a stablecoin introduced in February 2019 as an institution-to-institution service.

But payment habits can be hard to break. If companies see strong benefits to using new types of money for B2B and other purposes, they eventually will. But it doesn't happen overnight. Merchants need to better understand the value proposition for them. This is a slow process, especially considering that many merchants still pay by check or cash, said Christophe Uzureau, research vice president at Gartner.

If banks are serious about building adoption, they need to demonstrate how crypto supports merchants' and suppliers' ability to make and accept payments, Uzureau said. Simply saying it's a better or faster way to pay "is not going to be sufficient." Banks should also explain how it impacts cash management, offers better access to finances and other advantages. "It has to touch all those different aspects," Uzureau said.

Currently, the use cases for crypto in the U.S. are "somewhat limited," but that's poised to change and banks can't afford to ignore the momentum, DeSanctis said.

"It's not the mom-and-pop shops that are doing it yet," White said. Rather, usage is highest among large companies with the most to gain from instant settlements with low fees. But the potential is there, and that's where banks eventually stand to lose, White said. "That's the whole goal: to move it off of rails where the middleman is an intrinsic part of the ecosystem."