Wealthsimple is the first Canadian financial institution to partner with Visa on a pilot to settle payments using stablecoin.Giordano Ciampini/The Canadian Press
Wealthsimple Financial Corp. and Visa Canada V-N have experimented with using stablecoin to settle payments in Canada as Ottawa moves toward its own regulatory regime for the digital currency.
Unlike more volatile digital tokens, stablecoin is intended to maintain a stable value by pegging it to a fiat currency, such as the U.S. dollar. Through a pilot project with Visa, Wealthsimple recently tested stablecoin settlement capabilities, which could allow for near-instant, round-the-clock and lower fee transfers.
“We wanted to show that regulated financial institutions could transact using stablecoins while still honoring the controls and governance that uphold a secure financial system. There’s a lot of skepticism and hesitation in the space, and so here is Visa and Wealthsimple engaging in this pilot, and it was successful for us,” said Hanna Zaidi, Wealthsimple’s vice-president of payments strategy and chief compliance officer, in an interview.
“For us as a business, that kind of availability improves how quickly we can manage funding and liquidity across our platform,” she said.
Currently, the settlement of payments and transfers between financial institutions can take several days and are not processed after hours – on evenings, weekends or holidays. For example, when a client pays a credit card, the transfer is often not completed until days later. For a consumer or a business, this could mean waiting days to access cash to purchase goods and services or pay suppliers.
Canada’s development and implementation of a network that sends and receives payments instantly – known as a real-time rail system – has faced several delays.
Wealthsimple used the stablecoin pilot to test whether it could instantly settle credit card transactions with a small group of cardholders. Volunteer employees used virtual U.S. dollar credit cards to make purchases that were settled with U.S.-backed stablecoin between Visa and Wealthsimple instead of using conventional bank transfers.
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To run the pilot outside of traditional banking business hours, Wealthsimple had team working over the weekend to test the technology. If the technology were to be adopted in the future, the transactions would be automatic with minimal human intervention.
Wealthsimple conducted the test using the same compliance and risk management processes it applies to all its payment activities. All the transactions cleared instantly, with money changing hands faster and with fewer intermediaries in the process.
“It’s important for the industry to understand that there is a way to embrace this technology without completely overhauling your existing systems,” Ms. Zaidi said.
In March, Canada’s Stablecoin Act received royal assent. In the fall federal budget, Ottawa said it will introduce measures for the regulation and enforcement of stablecoin. The proposal followed moves by the U.S. Congress, which passed a bill dubbed the Genius Act in July to create a regulatory framework for stablecoins.
Some experts have warned that if Canada lags behind in offering a stablecoin backed by the Canadian dollar, consumers and businesses could increasingly use a form of money that is U.S.-dollar denominated. As geopolitical tensions escalate, the rising popularity of the U.S. stablecoin is fueling concerns over the sovereignty of digital financial infrastructure, weakened financial stability and deterioration of the Canadian dollar.
U.S. banks including Bank of America BAC-N and Citigroup C-N are developing their own stablecoins. Ottawa-based Shopify Inc. SHOP-T allows merchants to accept U.S. dollar-backed stablecoins through a partnership with Coinbase COIN-Q and Stripe.
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Wealthsimple is the first Canadian financial institution to partner with Visa on the pilot, which has already introduced the program in markets across Latin America and the Caribbean, Europe, Asia Pacific, Central Europe, the Middle East and Africa.
“Wealthsimple was ready. They had the right ingredients to do this,” said Chris Ferron, Visa Canada’s vice-president of fintechs, enablers and merchants, in an interview.
“They are technically very capable. They’ve got all the right risk controls. But probably more importantly, they have the right ambition to be able to deliver, first the pilot, and then to be able to see into the future of what it unlocks for them.”
Visa’s pilot recently surpassed a US$7-billion annualized run rate in settlement volume globally, up more than 50 per cent since the previous quarter. The company has more than 14,000 financial institutions in its network and upwards of 160 stablecoin card programs globally.
“We expect that other Canadian banks and fintechs will absolutely start to follow,” Mr. Ferron said. “This lays the framework and the foundation for them to do that.”