People often talk about how stablecoins are great for cross-border payments, but to understand why, you need to understand how international payments work today.
Let's start with the basics.
Customers are more likely to convert if:
- Prices are shown in local currency
- Customers can pay with their preferred payment method (often a local method)
This is logical and glaringly obvious, but implementing this is non-trivial and comes with trade-offs.
Pricing in local currency means FX risk
You take on FX risk, and can lose big.
Pricing something at 8 euros might be $10 today, but only $9.50 next month. In markets with fluctuating currency rates (e.g., South Africa), this risk increases -- R175 might be $10 today, but only $7 tomorrow.
You can try to mitigate risk by converting quickly, but that often means higher fees and longer settlement times.
Accepting local payment methods means operational complexity
- Needing to set up local accounts, which can be costly and time-consuming.
- Changing your business model, as not all billing types are supported by every payment method.
If you're using a processor like Stripe for Pix, they only support accepting one-time payments, not subscriptions. To spell this out, if you want to sell into Brazil with the most widely used payment method, you can't do subscriptions with autopay.
Businesses run into real costs when trying to price in the local currency and accept local payment methods.
How stablecoins address these challenges
The excitement around stablecoins is that they can address and often eliminate these costs.
Pricing
Consumers prefer local currency because it's the denomination of their wealth. With US-backed stablecoins commanding over 99% of market share, most consumers paying with stables are comfortable with US-denominated pricing.
Merchants are able to price in dollars while the customer is able to pay in their "local currency."
- For US merchants, FX risk is removed.
- For non-US merchants, FX risk shifts to dollars, a much lower risk since dollars are highly liquid and can be more cheaply and easily converted to local currency.
Companies like Loop Crypto help merchants settle in their local currency cheaply and quickly, with settlement times typically T+0 or T+1.
Payment method adoption
At Loop, we're seeing 1 in 5 customers pick stablecoins even when fiat is offered -- a staggering number for a relatively new payment method.
And this is happening in countries that even have many local payment method options. We're seeing the most transactions from countries like Germany, the Netherlands, Hong Kong, Canada, and Japan.
This is a strong indication that stablecoins are becoming a preferred payment method.
Loop makes it fast and easy to add stablecoins alongside other payment methods. For merchants looking to accept global payments for the first time or those looking to save on cross-border payments, it's a no-brainer to add stablecoins.