This is the next post in Lead Bank's stablecoin series. Last time, in Settlement Sleeps: How Stablecoins Fix the Weekend Problem, we saw how card settlement stalls over the weekend because the rails underneath it keep banker's hours, and how stablecoins, running 24/7/365, let money settle any day of the week. The result was capital efficiency: when funds can move any day, less cash has to sit locked up as idle collateral.
This post zooms out. Before we can explain how stablecoins change the other places money moves, we have to explain how money moves today, both domestically and across borders, and why the payment network a transaction rides on matters so much.
Every payment rides a network
When you send money to a friend across town or a supplier across an ocean, it rides a specific, proprietary network with its own rules about who can join, how messages are formatted, how transactions are authorized, and how funds actually settle. Just like tracks guide trains, payment rails guide money. And every set of tracks is laid by a different actor, or group of actors, to a different gauge, on a different schedule. How money moves, and when, and at what cost, is decided by the network it rides.
Said another way, payment networks are closed systems, and closed systems by definition create friction. Anyone who lives in NYC has felt this pain. A commuter from New Jersey might take the PATH into Manhattan and then have to exit the turnstile and enter the MTA subway. A commuter from Connecticut takes Metro-North into Grand Central and then switches to the subway. Each system runs on its own schedule, its own rules, and its own way to pay the fare, and friction is the price of moving between any two of them.
Even once you're on the subway, the friction doesn't end. NYC's subway is really two technically incompatible railroads - the narrow Interborough Rapid Transit Company (IRT) numbered lines (e.g. 1,2,3,4,5,6) and the wider Brooklyn-Manhattan Transit Corporation/ Independent Subway System lettered lines (e.g. A, C, E, W, R, Q, T) - bolted under one fare system in 1940 but never physically merged. That legacy means the subway maintains two separate fleets, yards, and parts and bespoke, aging infrastructure that needs individual attention line by line. The result is riders left with long, awkward transfers between stations cascading delays at junctions that were never designed to connect. The map is unified, but the infrastructure underneath still isn't.
Sending money is no more seamless, and its frictions are driven by the networks the payments run on, just like a subway rider's experience is defined by the legacy infrastructure beneath the tracks. When a payment feels seamless to you, it's for one of two reasons: either you're sending money that doesn't need to "transfer" in networks at all, or the app you're using is quietly absorbing all the complexity and cost of the transfer so you never see it.
Now take that analogy and expand it globally. There are hundreds of payment networks in the world, from legacy core systems like ACH, Fedwire, and SWIFT, to commercial card networks like Visa and Amex, to alternative payment rails like PIX, UPI, and M-Pesa, to emerging blockchain and digital asset networks.
Payments may be one of the most complex systems we have, because the networks are so often webbed together. You can operate within one network, but that network may itself run on top of another, which layers on more rules to follow and more limitations that result.
Card networks, which we covered in the last post, are a great example. They have their own rules about who can join, how authorization works, how communication works, and how settlement works. But they also rely on another rail underneath in the United States, Fedwire, to actually move the money, which binds them to Fedwire's rules, pricing, and messaging system. And as we saw, Fedwire's business-hours schedule is exactly what leaves capital locked up idle over the weekend. Adopting a new rail changes that. When card networks added blockchains as another settlement mechanism, they bound themselves to that rail's rules, pricing, and messaging instead, and one downstream effect was more efficient capital because it could now move on the weekends.
Stablecoins are a story of capital efficiency
The story of trains is a story of fragmentation and high switching costs. But when standardization is introduced and systems are unified, efficiencies follow. Riders move between lines more easily, transfers get shorter, and the whole network moves more people with less friction - though not with zero friction.
Blockchain networks are open networks that anyone can join and use 24/7/365. This new, globally available rail can connect rails that used to operate in silos and reduce the friction of switching between them. When you can move money any time, to anyone, in new and novel ways, you unlock efficiency.
Stablecoins are most often discussed in a cross-border context, because that's where the efficiencies are most obvious (though in a later post we'll see how they create efficiencies domestically, too).
How to move money
A common saying in payments is "the best way to move money is to not move it at all." Nowhere is that more true than cross-border. Say you're sending money from the US to Cyprus, an experience all too familiar in my Greek family.
The best route looks like this:
- You go to your bank in the US and say, "send euros to my aunt in Cyprus"
- Your bank takes your dollars
- Your bank sends a message to its outpost in Europe with the payment details
- Your bank’s European outpost goes into its own account and gets Euros
- Your bank sends Euros via SEPA, Europe’s payment rails, to your aunt’s account in Cyprus
What we’ve described here are the 3 components of cross-border payments:
- Messaging - your payment instructions (e.g. “send Euros from X account to Y account”)
- Settlement - the actual money movement (e.g. takes dollars from X account, sends Euros to Y account”)
- FX - currency swap in between (e.g. buys Euros with dollars)
For this to work, your bank needs an account in Europe, it needs euros in that account, and it needs a connection to the European payment rail, SEPA.
If you're a big global bank like J.P. Morgan or Citi, you might simply own a bank in Europe that's connected to SEPA and use it for all your dollar-to-euro payments. In fact, J.P. Morgan has an institutional presence in over 100 countries, and Citi in roughly 95.
If you don't want to own the bank, you can ask a bank in Europe to give you an account that lets you hold euros. These accounts have special names: a nostro account is "our money in your bank," and a vostro account is "your money in our bank." This kind of relationship is called correspondent banking. J.P. Morgan holds vostro accounts for more than 4,000 correspondent banking partners worldwide.
While J.P. Morgan and Citi can move money on their own within their networks, they still lean heavily on these correspondent partners for corridors they do not have their own presence in. Now imagine every one of those partner banks has its own rules and standards for communicating. If J.P. Morgan or Citi had to follow thousands of bespoke processes just to move money between two banks, it would be technically and operationally impossible. It's precisely because of that friction, and the sheer number of permutations, that in 1973 a group of major banks created a standard format for international banking messages: the network we know today as SWIFT.
SWIFT, the messaging layer
Like the card networks, the actual money movement happens elsewhere, through correspondent relationships and local clearing systems. The combination of SWIFT + correspondent banking is the infrastructure component that enables international wires. Because J.P. Morgan already has an account at its correspondent bank, it doesn't need to move any money. It just needs to tell the other bank, "take money from my account and pay out to X."
The other beauty of SWIFT is that you're truly in a network. You don't need a messaging connection with every bank in the world, just a connection with one bank that has relationships with others, and so on. Think of it as a game of telephone: I tell one friend, they tell their friend, and the message eventually makes its way across the network to the intended recipient. So if a Citi client needs to pay a beneficiary at a small local credit union or a regional bank in Europe, Citi can use SWIFT to securely message and route the payment to that destination. The catch is that along the way, each "hop" may charge a fee and slow things down. Every hop adds friction.
Even though sometimes international wires and SWIFT are used interchangeably, they are not the same things - SWIFT is just one component of an international wire. While SWIFT allows you to talk to over 11,500 banks worldwide, it does not help you establish a correspondent relationship with those banks. If you want to open an account at a bank in Europe that allows your institution to hold Euros, you have to go build that correspondent banking relationship yourself to enable international wires.
Because going bank to bank to establish relationships is hard, time-consuming, and expensive, big global banks like J.P. Morgan and Citi will offer correspondent banking services to smaller banks that want to leverage their network for moving money globally. Connecting through a correspondent is easier than building out one’s own network, but there are still tradeoffs, primarily around liquidity and compliance. To use a correspondent like J.P. Morgan or Citi, a smaller bank typically maintain pre-funded clearing balances at the correspondent and complete exhaustive compliance audits.
That compliance burden buys you something important: regulatory. Moving money through a correspondent lets you operate legally without obtaining your own licenses in every country you pay into. Rather than getting licensed, learning a new market, and reporting to a foreign government, you simply become a customer of the correspondent and follow their rules. In most jurisdictions that is a far easier path, though not an effortless one.
For all that SWIFT and correspondent banking enable, they come with real drawbacks. For one, correspondent banks typically keep banker's hours. Even though SWIFT messages can move 24/7/365, partner banks may only process instructions on business days or during set cutoffs.
In addition to being slow, wires can also be expensive. This is because every correspondent in the chain may take a cut, meaning on a small payment, the fees can swallow the payment. This makes use cases like remittances, which tend to be small-dollar (think $100 or $200), particularly painful.
Lastly, both these drawbacks can be exacerbated based on the route. A clean two-bank corridor can settle quickly. A payment that has to hop through three or four correspondents to reach a remote currency can take days, with each hop adding time, cost, and a fresh chance for something to go wrong.
There Are Other Models
To recap:
- Money moves on payment rails.
- Payment rails are closed-loop networks that run on their own rules, pricing, and messaging systems.
- Moving between rails usually comes with friction, in both time and cost.
Two things are worth pulling out:
- Moving money by not moving it requires a large amount of capital for pre-funding. Money has to sit waiting in correspondent banks scattered across the world so it's ready to pay out.
- SWIFT, the most prevalent network for messaging, requires a way to move money. Participants either need to open their own accounts globally or to use someone who already has accounts.
International wires using SWIFT and correspondent banking are just one way to move money. Many private companies have developed their own closed-loop networks for moving money. Companies like Payoneer use the same "trick" of (mostly) not sending money across borders at all. Payoneer maintains local bank accounts and holds the licenses to pay out over local rails. When you send US dollars to a friend in the UK, you pay dollars into Payoneer’s US account over a domestic rail like ACH. Payoneer then pays your friend out of its UK account over a domestic rail like Faster Payments. The money never crosses the border, only the data does. Because Payoneer owns both the entry point and the exit point, it's a closed-loop network: the messaging and settlement happens entirely on Payoneer’s internal ledger.
To pull this off without parking infinite capital everywhere, Payoneer matches flows. An American sending money to Britain can be offset against a Brit sending money to America — the two cancel out, and only the net difference ever needs to actually move. At the end of the day or week, the treasury team tallies the imbalance for each corridor and moves one large lump sum to rebalance. This is net settlement, and it's the same logic the card networks use.
These models gave the world something genuinely new: cross-border payouts that feel instant and cheap, riding fast local rails on both ends.
So what's the catch?
The Catch: The Liquidity Trap
To pay someone instantly in local currency, you have to already have that local currency sitting in that local account. Payoneer keeps their accounts in every country permanently topped up - millions in euros here, millions in pesos there - just so the money is ready the instant a request arrives. This is pre-funding, and the cash sitting in all these accounts is dead weight - it earns very little and serves no purpose except to sit and wait.
The industry calls this trapped liquidity, and at scale it's staggering - billions of dollars frozen in accounts worldwide, doing nothing but acting as a buffer for payments that haven't happened yet.
And notice what just happened: in solving the speed problem with international wires, these networks recreated the card networks' collateral problem. They net their settlements precisely because the big rebalancing moves still ride international wires and correspondent banks still keep banker's hours. The pre-funding exists because money can't move on the weekend. The constraint never went away. It just moved.
Building one of these networks from scratch makes the cost obvious. You'd have to (1) pre-fund accounts in every destination country, draining your own balance sheet; (2) you have to secure and comply with local payment regulations; and (3) convince local banks to open accounts for a cross-border fintech. Even accessing a private network means deep API integration, your own pass-through KYC and AML liability, and pre-funding the provider's wallet before a single payout clears. The trapped capital doesn't disappear. It just gets passed down the chain.
So Where Does This Leave Us?
We have two broad ways to move money across borders today. International wires are trusted and universal, but slow, business-hours-bound, and ill-fitted to modern local rails. The pre-funded private networks are fast and cheap for the end user, but only because someone, somewhere, is sitting on a mountain of idle cash to make the speed possible.
Both are clever answers to the same underlying constraint: money can't move 24/7, so we either wait for it or pre-position it.
What if money could move any day, any hour, anywhere — settling in seconds on a network anyone can join, with no correspondent chain and no idle buffer required?
In walk stablecoins. Next post.
