The Impact of the GENIUS Act on Businesses and Banks

The GENIUS Act, which was signed into law in July, aims to modernize financial systems with programmable, blockchain-based stablecoins. Supporters of the bill aim to preserve the strength of U.S. currency in the digital economy through regulated stablecoins that must be backed one to one by U.S. dollar. The Act is expected to transform broader financial infrastructure through empowering large companies to become pseudo-banks and pushing traditional banks to evolve their offerings to support small to medium-sized companies. There is opportunity to modernize payment systems and incentivize businesses and banks to improve competitive position on the blockchain. 

If the user experience is built effectively, consumers will hardly notice that they are transacting with blockchain-based-payments rather than traditional means. In addition to maintaining seamless interaction for end users, stablecoins may also support businesses and banks with reducing costs and increasing efficiency. For example, blockchain technology offers an alternative to traditional payment processors, so instead of a third party charging fees to process payments, business-to-business or customer-to-business direct transfers with immediate settlement will be possible via stablecoins. Reductions in cost and settlement time can also be extended to cross-border transfers. Because stablecoins are essentially programmable money, they can be used to trigger smart contracts (code on the blockchain that runs when certain conditions are met), enabling faster, reliable settlement. 

Consider a large multinational company with millions of transactions occurring between vendors and customers. If that organization was a permitted payment stablecoin issuer, instead of needing to pay a fee to a payment processor on each of those transactions, it could use blockchain technology stablecoins to support its own payments system. In a fully integrated program, the company could hold customer assets as stablecoins and reap the benefit of avoiding transaction fees from payment processors.

The GENIUS Act stands to potentially enable such scenarios by establishing regulatory clarity around stablecoins, making it possible for companies to offer their own stablecoins in a compliant manner. Under the law, as long as organizations keep equivalent dollars in reserves and become a federally licensed, permitted payment stablecoin issuer — which may include requirements to submit to federal oversight and audits and comply with anti-money laundering and consumer protection laws — they will have the opportunity to build these types of systems. 

For banks, the GENIUS Act has the potential to support the reduction of time and costs associated with interbank settlement and to innovate across their traditional offerings. There is also a significant opportunity for banks to offer stablecoin services to small and medium sized companies that do not have the means to become a permitted payment stablecoin issuer or set up the infrastructure of a blockchain-based payment system. 

Through rewards and reduced fees, banks could onboard small to mid-sized companies and facilitate payments between those companies and their customers. This kind of structure will hinge on building a simple and user-friendly user interface that can integrate with small to medium-sized companies’ websites. The potential benefit to banks is to keep U.S. dollars within the banks and enable direct, near-instantaneous transactions that do not require third party payment processors, further allowing for potential cost reduction and incentives for customers. 

Under the GENIUS Act, banks and businesses will need to be thoughtful about their implementation of blockchain technology to ensure regulatory, technical and operational resilience. For example, there are numerous types of blockchains, and private blockchains are likely to be preferred by large companies and financial institutions. In a private blockchain, the transactions that occur will not be visible to everyone. While this may seem counter to the ethos of transparency in cryptocurrency, it will likely be the way in which companies and banks choose to build their blockchains for the sake of customer privacy and control. These decisions will be key in shaping the future of finance and privacy. 

Moreover, the benefits of moving to blockchain-based payment systems will require buy-in from vendors and customers alike. Successful implementation of a blockchain payment system, whether it is for a large company or a bank, is going to depend on user experience. The experience will need to be uncomplicated and reflect traditional systems that are understood by the end-users: no display with hashes or blocks, just wallets with purchased stablecoins, and the ability to spend, receive or convert the stablecoins back to U.S. dollars with ease. 

Just as businesses and banks need to be thoughtful about the type of blockchain they use, they will also need to be thoughtful about security risks and enhanced security and risk management controls unique to blockchain technology. This will require protecting private keys, securing digital wallet infrastructure and maintaining robust cybersecurity practices. Companies will need to work with expert advisors and make necessary technology investments to manage their systems responsibly. Additionally, the threat of cyberattacks could be a reason to keep a stablecoin system within in a closed environment. This could give a business or bank more control, and deter bad actors from attempting to steal stablecoins that are unconvertable outside of the centralized ecosystem. These considerations will be crucial for secure implementation.

As blockchain and digital assets regulations continue to evolve, businesses and banks will need to stay attuned to changes in compliance requirements across jurisdictions. As more regulation is surely on the horizon, it will be important for businesses and banks to remain agile and ready to modify their programs according to shifting compliance requirements. Being ready to stand-up effective anti-money laundering and know-your-customer programs with minimal roadblocks to users will require careful planning. 

If successful, the implementation of blockchain technology through stablecoins could decrease settlement time, cut costs by bypassing traditional payment processors and enable automation through smart contracts, thereby improving efficiency in transactions. Strategic planning at this early stage will be crucial to positioning for success in moving customers onto the blockchain. There are clear potential benefits for companies and banks, with potential for increases in profit and efficiency. The decisions made today will shape the future of finance and long-term success of these blockchain programs will largely hinge on each organization’s ability to establish compliance readiness and enable seamless user experience. 

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The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.