(Dec 19): Three years ago Mustafa Ismael launched Karcsham Co, a Kenya-based company that resells Starlink devices and manages subscriptions for thousands of customers across a dozen African and Latin American countries. At first he used his local bank card to pay the monthly bills. But the 5% foreign exchange fees soon began eating into his profits.
Then came Rizon, a Delaware-based neobank, that lets users pay through stablecoins, cryptocurrencies typically pegged to the US dollar. Now, with a few taps on his phone, Ismael settles his bills and transfers funds using Tether Holdings SA’s USDT and Circle Internet Group Inc’s USDC. He pays no forex fees and can make payments 24/7.
“It is very fast when I need to transfer from my own account to another, and when I need to pay, not like when I use a regular bank,” Ismael said. As an added bonus, he can park his funds in a dollar digital surrogate, instead of keeping them in Kenya’s shilling which is prone to inflationary bouts.
Ismael is part of an expanding group of users turning to a new breed of stablecoin-powered neobanks — startups that offer dollar-denominated digital banking services to customers based anywhere in the world. While the US has a vast banking industry, which includes fintechs like Chime Financial Inc and Mercury Technologies Inc, these companies are mostly vying for customers in countries where options are more limited and currencies are inflation prone. The model relies on stablecoins to serve as rails powering faster and cheaper services such as dollar accounts, payments and cross-border transfers.
Other than Rizon, providers in the space include Altitude, Fuse, Cleva, Plasma One and Kast — most of which were founded over the past few years and typically lean on providers like Stripe’s Bridge and Privy platforms for digital wallets, payments, compliance and even token issuance.
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“Stablecoins are one set of primitives on top of which you can build and then serve people in any region so it takes your audience from just being in one country to the whole world,” Zach Abrams, co-founder of Bridge, said in an interview.
These banking startups are growing as the stablecoin market booms, fueled by fresh US legislation and backing from President Donald Trump’s administration. The total market value of stablecoins has grown about 50% since the start of the year to reach US$309 billion, of which roughly 99% is dollar-denominated.
The political embrace for stablecoins stems in part from a belief by top officials that dollar-pegged tokens will safeguard the greenback’s role as a global reserve currency. In an February speech, Federal Reserve Board Governor Christopher Waller said “stablecoins have the potential to maintain and extend the role of the dollar internationally.”
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Companies in the space are looking to take it even a step forward.
“There was an opportunity that could go beyond just exporting a US dollar and that was the idea of exporting a US bank account itself and making that available globally,” Ryan Bozarth, co-founder and chief executive officer of Dakota, a stablecoin infrastructure provider, that also offers financial accounts, said of its founding story. “We came up with this idea of an Internet native financial account.”
Founded in 2022, Dakota started by offering dollar denominated business accounts and today has more than 700 clients, roughly 70% of which are based outside of the US, Bozarth, a former Coinbase Global Inc. executive said. It operates in more than 100 jurisdictions and clients are often crypto businesses that have historically struggled to access banking services, he added. Now, the company is bundling infrastructure it built for itself to offer services including orchestration and custody to other startups.
Under the hood
Behind the scenes, each Dakota client is assigned a unique blockchain address — crypto’s equivalent of a bank account number. Clients can deposit in fiat currencies, which are then instantly converted into USDC, USDT or Dakota’s own stablecoin DKUSD, which is not exchange traded. Once the funds are crypto-fied, Dakota says it can move money faster and cheaper than traditional correspondent banks, slashing transfer times from days to minutes and fees to nearly zero, it says.
Keeping the funds in stablecoins reduces the need for foreign exchange transactions. When Ismael pays Starlink with his Rizon card, for example, the transaction is denominated and processed in dollars end-to-end rather than as a Kenyan shilling-to-dollar foreign currency transaction, when local banking rails are involved. These stablecoin-linked Visa cards are offered through providers like payments infrastructure company Rain or Stripe’s Bridge. They allow users to spend their balances, or withdraw cash at local ATMs.
If the recipient wants local currency, though, the neobank needs to route the funds through a local banking partner. This tacks on additional costs. Some firms, for example, will charge a currency spread on top of the actual exchange rate of up to 1% of the transaction’s fiat value.
It’s not just the tech infrastructure that aspiring banks can get off the shelf from firms like Stripe’s Bridge or Dakota, but also the regulatory licenses, compliance checks and network of local bank partners needed to onboard new customers and integrate with local economies.
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“The neobank provides the front-end experience, while the regulated activity happens through partners, allowing global reach without country-by-country licensing,” Ari Redbord, global head of policy at blockchain compliance firm TRM Labs, said.
Launched just a few months ago, Rizon is currently active in 147 countries with more than 120,000 installs, Rizon co-founder and chief executive officer Ignas Survila said in an interview.
Not all tailwinds
Even with growing momentum, stablecoin-powered neobanks still face plenty of hurdles, including operating in an increasingly crowded market. They compete with established remittances companies like Western Union and MoneyGram International Inc, as well as fintech behemoths like Remitly Global Inc and Revolut Ltd that have brand recognition and are rapidly adding stablecoin support.
“There is lots of competition, especially from actual neobanks,” said Lex Sokolin, a co-founder at venture capital firm Generative Ventures. “But I think the end client is going to be different — likely younger, more tech savvy, and more global.”
Their reliance on crypto infrastructure may leave them in a regulatory gray zone in certain jurisdictions and access to banking rails can be fragile if dependent upon a local banking partner whose risk appetite, or regulatory mandate, may change.
Local governments may also become uneasy about a rising share of commerce taking place in a foreign currency, according to Jannah Patchay, founder and director of Markets Evolution, a London-based fintech consulting practice.
“If you’re a central bank or a government, this means that you’re seeing outflows from your local currency and that creeping dollarization,” Patchay said.
Uploaded by Lam Seng Fatt
