(Sm)all banks should compete on technology, not fear it

Community banks face competition from larger institutions that offer better apps, faster payments, and more convenient treasury services. However, smaller banks should not fear stablecoins, instead focusing on using new forms of digital money to enhance customer relationships. For decades, smaller banks have watched customers move towards larger institutions, but the concern about stablecoins being a threat to deposits may be overblown.

The American Bankers Association warns that as much as $6.6 trillion in transactional deposits are theoretically exposed to stablecoin migration, but actual deposits grew by roughly 26% between 2019 and 2026, with no significant relationship between stablecoin growth and deposit outflows. The real danger lies in banks protecting deposits but losing the surrounding financial services.

Community banks can compete by offering customers the right rail for each transaction, using stablecoins and tokenized deposits to provide faster settlements and software-based controls. Congress has passed the GENIUS Act to establish a federal framework for payment stablecoins, giving banks a clearer basis for partnering and managing risks. The key is to give customers the most choice without leaving the institution they trust.