“We see stablecoin not as a token at rest. We see it as a token on the move. So our entire commercial model is about facilitating use cases where stablecoins are an exchange of value, not a store of value.”
In the weeks leading up to the passage of the GENIUS Act, which explicitly legalizes stablecoins and may spur a larger wave of crypto adoption, including among financial institutions, Fiserv came out with a blockchain-centered announcement: In partnership with Circle, Paxos, PayPal, and others, it would launch a pilot program to provide a white-labeled stablecoin, FIUSD, to its clients.
The terms of the pilot invited questions.. How were competing stablecoin issuers working in the same sandbox? Where would bank deposits converted into FIUSD be custodied? And what was the literal use of these stablecoins, if any?
Appreciating the FIUSD program requires changing how FIs understand stablecoins, says Sunil Sachdev, a senior vice-president at Fiserv leading its FIUSD initiative. He says stablecoins are most useful as “money in movement,” not as stores of value, helping minimize deposit outflows, while offering an additional speedy rail for payments and settlements. Sachdev says Fiserv is also looking into tokenized deposits, which he says possess many of the same technological features as stablecoins, but are not beholden to the GENIUS Act’s reserve requirements.
“As people say: The toothpaste is out of the tube,” Sachdev says. “I think it’s exciting times.”
The following has been edited for length and clarity.
What compelled Fiserv to launch a stablecoin-focused initiative?
I think the narrative for us was pretty straightforward in terms of why we entered the space. We’ve been following it for the last couple of years, and over that time period, we’ve seen every geographic region solidify a playbook. We obviously followed the GENIUS Act with great enthusiasm as it went through the Senate and then ultimately to the House. We’re one of the largest payment service providers in the world, so one of the questions that we asked internally was, What happens when one of our customers, whether it’s a large merchant or a financial institution, says, “Hey, instead of getting fiat, I’d love to be able to get a digital asset” — how are we going to facilitate that?
We could have jumped in last year or the year before, but we didn’t, because we didn’t know what the rules of the game were. Ultimately, we’re as regulated as our financial institutions in many of our markets. So from that perspective, we knew we had a differentiator going in, especially with the clients we already serve today. We touch close to 10,000 financial institutions, 6 million merchants; we move billions of dollars a day, trillions a year. So I think for us, we felt like, let’s wait till the rules of the road are set, and then we can figure out how we’re going to play.
Once the GENIUS Act was passed, we thought about what we can do on top of our infrastructure. We know that there is going to be new infrastructure required to issue stablecoins and manage its performance. And we talked to a number of third parties, including Circle, Paxos. MasterCard, and PayPal. We basically said, How do we build this bridge between traditional finance and the digital asset economy that is emerging based on the regulations that pull together? That’s how we got to the point of creating FIUSD. We don’t necessarily want to bring a native coin into our closed loop or experience, just because we’re a regulated software provider, and we cannot vouch for third-party coins the way that we can vouch for software that we introduce ourselves. So we created what’s called a white-labeled coin. The white-labeled coin allows us to brand an underlying coin, whether it’s USDC, USDG, or PYUSD. It allows us to brand it in our FIUSD token moniker, and it allows us to control data, payload, regulatory transparency, and commercial utility. And we felt like those three things are really important when we introduce this type of capability into our existing client segment through our infrastructure that they leverage today.
What precedent have you looked to for charting out a strategy?
As a large payment provider that moves billions a day and trillions a year, we had to have a stablecoin answer, especially when regulations made it viable to do so, because customers would be asking for it. On cue, financial institutions and merchants raised their hand after the Act was passed to say, Fiserv, how should we think about this? I think the proof has been what JPMC and others have done within their own ecosystems: They’ve leveraged stablecoins to create more efficient money flows for themselves, as opposed to the broader industry. So I think, after the regulation was passed, everybody’s kind of like, How do we replicate some of these use cases within our ecosystem and within the larger Fiserv ecosystem? and How do these systems reciprocate and allow each other to be connected to create a global network effect? That’s what we saw.
We looked through history to a certain extent—how Visa and MasterCard came into being, looking at how Travelers Cheques started—and realized that the industry is probably going to coalesce on certain standards and protocols that they can leverage in a wide-area network that creates efficiency and delivers the economic cost per unit that is required to make anything successful. So we thought, Within our extended set of customers, if we’re able to come out with FIUSD as a protocol standard that allows them to exchange value in a regulated way, in a compliant way, in a secure way, we could probably influence that standard to a certain extent. But at a minimum, we were hoping to just provide access to our customers so they could keep their customers, because we felt like non-banks would be coming out with different options to help move money, and we wanted this to be a bank-friendly coin from the get-go.
We see stablecoin not as a token at rest. We see it as a token on the move. So our entire commercial model is about facilitating use cases where stablecoins are an exchange of value, not a store of value. So we’re excited about that, but there are lots of things that we’re going to learn over the next months and years: The regulations are going to probably constantly be tweaked and calibrated going forward, but we see this as an exciting time to modernize banking and payment services.
Is there a limit to the amount of stablecoin that can be in circulation, given reserve requirements outlined in the GENIUS Act?
We always saw stablecoins as fiat-backed. We definitely hear the calls for caution, because, through that definition, as banks issue more stablecoins, more money leaves their balance sheet. That’s why it was important for me to tell you that we don’t see this as a token at rest: We see a token on the move. So from that perspective, we don’t anticipate financial institutions to tell their customers to move half of their checking balance into a stablecoin balance, because, first, from the GENIUS Act’s perspective, there’s going to be limited upside, if any, for the consumer to move balances from a checking account to a FIUSD account, regardless of how meager the yield is on a checking account. And second, we felt like, because it’s a token on the move, whenever [clients] want to initiate a payment transaction, like they do today with RTP, Zelle, FedNow, or wires, or ACH, they’re going to have to have another rail called blockchain or stablecoin, because it’s much more efficient, allowing them to keep money in their bank accounts a little bit more, or their money market, or their high-yield savings account, allowing them to earn a little bit more float.
There are lots of efficiency gains associated with that, and that’s what we’re doing right now. There may be people carrying a balance in FIUSD, just because it’s a settlement mechanism for the money that they’re moving out and moving back into their account. But our goal is to make sure that it’s extremely fungible between the fiat version and the FIUSD version, so people don’t really have any penalty or don’t require it to stay in that state unless they really want it to.
What is the unit economics of this? ACH is pretty darn cheap. Has the technology you’ve been working on matched those benchmarks?
That’s what we’re working through. We’ve got a number of POCs that we’re kicking off this month. We hope to share more about the results from those POCs by our big customer forum in September, if not later in the year. We know, academically, that this is a 24/7, 365 rail, and that transactions, whether it’s on Solana or another competitive chain for payments, is less than a penny. We know the throughput is pretty analogous to what we’re able to provide in a [traditional financial] setting. So with all of those pieces in place, I think the goal is now to determine what funds flows will migrate over. And then the question is, what is the value of that? I just got off the phone with a couple of banks this morning, and they were thinking about what happens to their commercial wire business, their ACH, their interchange. And the answer, from me to them, is that it’s going to change. The mix is going to change. I can’t predict how much it’s going to change. All I know is we have now introduced a regulated piece of technology that is going to compete with existing tech that you have for funds flows. And the one thing I’m sure about is that use cases will exist for this rail that will justify its inclusion with the rest.
We’re in a very privileged position as a company, because we work with financial institutions and merchants, so we can see those fund flows today across the existing rails. It gives us a little bit of an advantage compared to others, because others are designing flows where they’re going to either disintermediate, or they’re going to hope that whatever they design is a better kind of mouse trap. I think for us, we don’t have to do either. We see the flows every day, so we can design flows, test them against the existing logic, and say, Which one is better? If we find something that’s better, then we’re going to be very open with all of our customers to say, Here’s how you can do an FX flow on a stablecoin, and here are the variables that need to be true for it to make sense for your customer. That’s what we’re excited about, and that’s where I think we can actually differentiate ourselves.
There’s the custodying component of all this. If I understand correctly, in the FIUSD pilot, large banks are custodying deposits for the small banks. How are your clients reacting to that? It maybe appears, to some degree, like a leakage for them.
It comes back to whether you see this as money at rest, or money on the move. If it’s money on the move, it was going to be money on the move no matter what: It was going to go through a different rail. So from that perspective, I don’t necessarily see it as leakage. I see it as, What is the commercial proposition when this triggering event happens? If it was about money that’s at rest, sitting in a wallet that no longer is on the balance sheet of a small community bank, then, yeah, that would be concerning. But again, we don’t see that playing out that way, and we’re trying to design a system that encourages the conversion to a stablecoin for a specific use case where the money is on the move. We’re not looking to encourage banks to open up FIUSD accounts for customers and just drop money. Some clients may want to do that, because it could be a settlement account for other blockchain activities. They may want to convert stablecoins into different forms of crypto coins. They may want to take advantage of brokerage opportunities to buy, hold, or sell different crypto. I think from that perspective, that’ll probably be the minority. I think the majority of them, at least from our perspective, are going to convert just in time to take advantage of the properties on the blockchain.
What’s been the spread of reactions from the banks you work with?
Here’s what I will tell you: It’s probably the most popular topic in boardrooms at banks today. It comes up in every which way. Some financial institutions may have clients already asking, so they need to be able to formulate an opinion or formulate a solution before their competitor does. We see the larger regional banks and the larger community banks actively trying to figure out what their POV is going to be in response to client questions. When you look at some of the specialized financial institutions that are in specific industries, I think they’re probably going to be more apt to explore a bit more, just because, within certain industries, it probably makes it a more viable use case than others.
Down the middle, community financial institutions are just trying to anticipate mix change and see what that means for their economics. So they’re all running some sort of model to say, If this takes off, what’s the worst-case scenario, the best-case scenario, and what’s in between? For many of our financial institutions, I think it’s just more of a conversation and understanding financial ramifications.
We have our biggest customer conference coming up later this year: It’s definitely going to be a topic on the agenda.
What’s the greatest risk that you’ve identified over the course of building this out, and how are you trying to mitigate it?
I think the regulatory environment is still something that needs to be further calibrated. I think the GENIUS Act lays a good foundation. The CLARITY Act is also out there. We’re looking to see how the first couple of use cases and commercial models then dictate the rest that’s behind it. We’re also excited beyond stablecoin to get into tokenized deposits and on-chain financial services, and there’s been less regulatory clarity on those pieces. And I think tokenized deposits are an important play here, because they serve as a balancing act to the stablecoin, because you’re able to leverage the blockchain at the best of it, but still keep the money on your balance sheet. So we feel like both have a role to play, and we’re hopeful that, from a tokenized deposit perspective, and other on-chain financial services, that regulatory environment will also get clarified soon.
Any final variables Fiserv is evaluating?
We’re also watching what the global nature of this is. I think there have been certain outlines within GENIUS with regards to reciprocity in terms of acknowledging rules in other jurisdictions, but we haven’t seen that rule tested yet. The second piece is just the nature of becoming an issuer now. What does that competitive landscape look like based on what the GENIUS Act has come out with? Who’s going to be an issuer? What type of products are going to come out first? How well is that going to be managed in this administration, and then what happens in the next administration? People are thinking through investments one administration at a time to see if anything else changes. So while exciting, while the blockchain definitely has a lot of promise, there’s still a lot to work through from a go-to-market perspective. But, you know, as people say: The toothpaste is out of the tube. I think it’s exciting times.
