Can Digital Wallets, Stablecoins Solve Small Banks’ Cross-Border Cost Center?

Cross-border payments don’t have a small bank problem; small banks have a cross-border problem.

With layers of intermediaries, opaque fee structures and legacy infrastructure, the cost and complexity of sending money internationally remain disproportionately high for regional and community banks.

As large banks use economies of scale and bespoke infrastructure to streamline international transactions, small banks, credit unions and other local financial institutions can find themselves left grappling with high costs, longer processing times and limited transparency.

However, a new wave of FinTech innovation, particularly around digital wallets and stablecoins, is poised to potentially change that calculus, offering smaller players a new way in. Take, for example, the Thursday (June 5) news that Uber Technologies is reportedly considering using stablecoins to transfer money among different countries. Meanwhile, Qatar Islamic Bank said Wednesday (June 4) that it partnered with Visa to enhance cross-border B2B payments across 120 different countries.

These advances help to highlight that as global commerce becomes digital, and customer expectations shift toward instant and low-cost payments, small banks may find new lifelines in emerging technologies that were once perceived as the domain of startups and fringe FinTech enthusiasts.

Read also: With Bitcoin at Record High, Smaller Banks Face Urgent Crypto Decisions

The Pain Points of Cross-Border Payments

Traditional cross-border payment systems operate through a patchwork of correspondent banking relationships. When a customer at a small bank in Nebraska wants to send money to a relative in the Philippines, that transaction may involve multiple intermediaries with each adding fees and delays. Banks can also face currency conversion risks, regulatory hurdles and compliance costs, all of which can erode margins and deter small institutions from expanding international services.

PYMNTS Intelligence’s May Payments Optimization Tracker found that 99% of cross-border consumers want to pay using local payment methods.

For small banks, which often rely on larger correspondent banks to facilitate international transfers, challenges are magnified. They pay more per transaction, have less negotiating power on fees and must navigate complex compliance requirements without the benefit of large, specialized teams.

Add to these traditional frictions the emerging reality that ongoing tariffs have thrown the global trade order into a new era of fragmentation, and cross-border payments start to look like more of a pain than a pleasure for small lenders to offer their customers.

Still, the PYMNTS Intelligence report “Credit Union Innovation Readiness Index: The Smallest Credit Unions Step It Up” revealed that, when it comes to innovation, small lenders aren’t standing still.

Digital wallets, originally designed for consumer convenience, are now being reimagined as tools for international banking. Providers like PayPal, Revolut and Wise offer near-instantaneous transfers with clear fee structures and integrated currency exchange. While many of these are direct-to-consumer offerings, their back-end technology can be used by banks through partnerships and white-label solutions.

Some digital wallet platforms also offer APIs that can be embedded directly into a bank’s mobile or online banking experience, preserving brand identity while expanding functionality.

Tools Look to Level the Cross-Border Playing Field

Alongside digital wallets, stablecoins are emerging as an innovation in cross-border payments. Unlike volatile traditional cryptocurrencies, stablecoins are pegged to traditional currencies, such as the U.S. dollar or euro, offering price stability and predictability.

Many stablecoins operate on blockchain networks that are open and programmable, allowing small institutions to access a global payment rail without needing to build or maintain it themselves.

“Imagine sending money from here to Uruguay,” Conduit CEO Kirill Gertman told PYMNTS this month. “You open your Venmo, type in the amount, and your friend receives it via Pix in Brazil. You never leave your app. That’s where we’re going.”

“There are advantages in instant settlement,” Gertman added. “You don’t need as much working capital. You’re not exposed to FX gain/loss.”

Meanwhile, BVNK and LianLian Global partnered Wednesday to enable merchants to use major stablecoins to fund cross-border transactions.

Despite the promise, digital wallets and stablecoins also introduce new risks and regulatory considerations. Stablecoin providers must maintain reserves and operate under transparent, secure frameworks to avoid destabilizing events. Additionally, the global regulatory landscape is fragmented.

Small banks need to understand the legal, technical and operational implications of these technologies. For lenders willing to experiment and collaborate, the next generation of financial technology could transform a cost-center into a competitive advantage.

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