Stablecoins in Emerging Markets Face Growing KYC Test

Stablecoins may have begun as plumbing for crypto trading, but in emerging market the digital holdings are being eyed as payment options to pay for groceries, rent and utility bills — a shift that will force financial firms to rethink compliance as much as consumer demand.

That shift was underscored last week by two announcements from key players in cross-border money movement. Western Union is reportedly weighing the launch of its own stablecoin to cut costs in cross-border transfers, where it has long faced competition from faster, cheaper rails. “We are exploring the opportunity for us to issue a stablecoin, particularly in non-U.S. markets,” CEO Devin McGranahan said, adding the instrument could function “almost like a savings account in U.S. dollars” for customers in inflation-prone economies.

In Canada, payments processor Nuvei said it is now routing international payouts through stablecoin rails behind the scenes, enabling same-day or next-day settlement into local bank accounts. The company pitched the move as particularly valuable in “fast-growing economies where outdated infrastructure holds businesses back,” cutting reliance on Swift transfers and costly intermediaries.

Stablecoins and the Cross-Border Remittance Landscape

Remittances are one of the clearest use cases where stablecoins promise efficiency gains. Global remittance flows reached $669 billion in 2023, with developing countries receiving the bulk, according to the World Bank. Traditional transfers often carry fees as high as 6% of the principal and can take several days to settle, particularly when routed through multiple intermediaries.

The appeal is straightforward: 24/7 transfer availability, transactions settled in minutes, and an effective “digital dollar” hedge against local currency volatility. Nigerians reportedly used stablecoins for roughly $3 billion in sub-$1 million transfers in just the first quarter of 2024, highlighting how retail use now dwarfs institutional speculation. In Latin America, stablecoins are flowing into small-ticket merchant checkout and peer-to-peer remittances, while BitPay reports they are being used for bill payments and gift cards that link directly to retail and food delivery networks.

Yet the more stablecoins resemble mainstream payments, the more they inherit mainstream risks. The Financial Action Task Force (FATF), the intergovernmental watchdog for money laundering and terrorist financing, has warned that inconsistent compliance among wallet providers and exchanges could allow stablecoins to become a channel for illicit finance. Its standards require know your customer (KYC) checks, sanctions screening and the so-called Travel Rule, which mandates that originator and beneficiary information accompany transactions just as it does in the banking system.

Without those guardrails, scaling stablecoins as everyday spending money in emerging markets could introduce vulnerabilities regulators and payment firms are keen to avoid.

FATF Risk Statistics on Stablecoins in Emerging Markets

Illicit finance exposure: FATF reports that weak or inconsistent KYC and Travel Rule implementation significantly increases the risk of stablecoins being used for money laundering and terrorist financing.

Regulatory fragmentation: FATF notes that differing national rules around stablecoins complicate cross-border transfers and make consistent compliance harder, especially in emerging markets.

Sanctions evasion: FATF highlights stablecoin transfers linked to sanctions bypass in weak-compliance jurisdictions, underscoring the need for vigilant monitoring.

As mainstream firms like Western Union and Nuvei, and others, pivot toward stablecoin infrastructure, their ability to scale responsibly will hinge both on technical rails and on compliance. Robust KYC, transparent reserve audits and interoperable Travel Rule solutions can forge a multi-pronged strategy that serves to satisfy regulators and maintain consumer trust.