Video: SouthState Bank’s dual token strategy: transforming payments with stablecoins and tokenized deposits

Steven:
Hello, I’m Steven Ramirez, the CEO of Beyond the Ark, and I am at Finnovate this time.

It’s the spring here in San Diego, and I could not be happier for this next conversation with Chris Nichols from South State Bank.

Chris, I cannot believe that we have this opportunity.

Chris:
Deep, thanks for having me.

Fun to be here in beautiful San Diego.

Great show.

great bunch of partners out here that we’re talking with.

lots of new ideas to take back.

Got pages.

Steven:
Yeah.

So one of the things that you know was really a highlight you know best of show winners you know and I always love this part of Finnate that we have startup companies that are innovating with really unique solutions.

So one of those companies is they’re using stable coins for international money transfer and for FX.

but that’s just the icing on the cake, right?

That’s just one of the use cases for stablecoin.

Chris, I know this is an area of great expertise for you.

How are you seeing the landscape?

Chris:
Yeah.

So, congratulations to them for winning best of show.

That’s fantastic.

Not an easy task and their product’s impressive.

the use case of crossber usage for stablecoin is probably our second favorite use case in that.

Now, we have a dual token strategy.

We like the deposit token for domestic payments and for some account attributes.

you can create a bunch of stuff that we can talk about accounts attributes on accounts that we can’t do on our core but also it’s one of the cheapest forms of payments and then when we talk about using a crossber application then we switch over to a stable coin so anytime you may not know the name of South State Bank or one of our correspondent banks out there a stable coin makes sense because you can validate the reserve you get a third party attestation it’s regulated and so it has some nice attributes and so for international payments.

It’s actually very nice because now instead of using one or two correspondent banks in the mix, each taking their time with, you know, potentially, you know, doing fraud checks, etc.

Now we can go right through to the end customer.

And so while I love the crossber use case of sending a US dollars to a euro payment or a yen payment or Australian dollars, what’s really interesting to us in our number one use case is the store of value internationally.

So the customers, the non US customers of our customers, so you have a subsidiary in Australia or Mexico or what have you.

they have expenses in dollars that now change into mex and Mexican peso for example and then they get revenue and then they have to change it back to repatriate that money much more efficient to hold some of that in a US dollar stable coin and that’s deposits that we don’t get now so with a stable coin I love the fact that a we can now capture those deposits that we haven’t for our bank and b those reserves behind that stable coin we can put a portion of that back into FDIC insured demand deposits per the new OC regulations.

So we like that aspect of it as well that we’re not losing the deposits.

It’s either going into treasuries or repo or our own demand deposits.

Steven:
Yeah.

So Chris, one of the things I have always found interesting about you and about your job is that you are driving some incredible innovation not just at the bank but across banks, right?

And I think that we’ve jumped right into the meat of you know how things are evolving from stable coins.

But I’d like to just take a half step back and say from a South State Bank perspective, what’s your role and why is it that you know so much about stable coins and tokenized deposits?

Chris:
Yeah, so we have an offering and the vision is to make it simple for not only our bank but our bank’s customers and our correspondent customers at that.

So at South we have a bunch of different verticals you know whether it’s homeowners associations or payroll companies, FinTechs, etc.

but one of them and our oldest is correspondent banking.

So one of the largest in the US and with that we clear and settle in an analog form right now.

So almost a batch process that all gets tokenized.

So we’re moving that over the next couple years to a tokenized world using a deposit token as its base and then layering in a stable coin.

Again a dual token strategy with our deposit token for our bank or for any bank that’s interested.

You can pay an interest rate or you can have some nice account attributes that we can’t do on our core.

So if I want to pay you a 5% interest rate on your birthday or you know give you a special bonus or make it so if you don’t touch an account your rate goes up.

So a true savings account type of structure.

Again we can’t do that on our core.

We can now do that on chain or a smart contract that you know once you receive goods you can get the payment anything like that.

And if you know us and interbank transfers for example perfect for do deposit token anything else stable coin we’ll put smart contracts on that as well a bank we’ll make it easy for a bank that you can either integrate and have you know everything you want directly into your core or you can make it simple we can clear for you and so a very small sum you can try it out with 10 customers see how you like it cancel at any time you can build it yourself you can go to a number of consortiums you can actually combine and have maybe a circle USDC combined with a consortium stable coin like we’re talking about and you can mix and match to whatever your use case is because our use case isn’t the same for that small bank’s use case.

They may not have the international but they might have you know a church group or a doctor’s group or something that may need a stable coin or a tokenized payment.

Steven:
Yeah.

Well, I think, you know, Chris, there’s a lot to unpack there, but I think even for small banks, you know, I always think about, for example, Witchah, Kansas, right, which is the home of, you know, aircraft parts manufacturing and service.

Aircraft industry is international.

You might be a small community bank there and have, you know, and have a need for lots of global payments.

I think that one of the things that you said though is really resonates with me and I want you to expand on it a little bit more is, you know, for a lot of maybe community banks, regional banks, they don’t have necessarily the expertise or the capabilities to develop these strategies, much less deploy these new products.

I wonder how do you help those banks as kind of the on-ramp to these new opportunities?

Chris:
Yeah.

So, like we’ve done with our interest rate hedge product or our foreign exchange product, we can help the bank from soup to nuts.

The operational part that we just talked about for stable coin or tokenized deposits is I wouldn’t say it’s simple, but it’s not as complicated.

It’s rolling out the whole product that you alluded to.

So whether it’s marketing help or operational help like we’ll stand by and since we’ve done it for our bank or are doing it for our bank we can show other banks how to do it and they can use our materials but you mentioned on the crossber side and if you’re in the middle of Kansas and if you know bank and airport aircraft manufacturer parts manufacturer most likely you’re not seeing that foreign exchange revenue it’s coming by the part manufacturers’s bank and you’re just having to pay in US dollars.

Well, now if you’re buying parts from Germany, for example, we can say, “Hey, wait a minute.

Maybe you can make more money and make more foreign exchange fees that will split with the bank to now handle the currency translation either on or offchain depending on what you want to do and get some of that revenue that you didn’t before.” And that pertains to a number of things.

So, we can show a bank how to capture a reserve account at some of these companies that as they save for furniture or building replacement or whatever it is, we can show them how to do that.

Or if they have an apartment building with a bunch of renters, show them how to capture those payments.

So, we have a number of product different applications on the same theme that can help up and down the supply chain.

Steven:
Well, Chris, it sounds like it’s making it very practical and kind of a simple series of steps to get on boarded with something that’s actually pretty complex.

Chris:
Yeah, you can make it as complex as you want.

We’re trying to remove that complexity and make you know a payment and an account.

And so it’s actually getting easier and easier with the rise of AI and tokenization that now we can do any number of things that we couldn’t that was just too expensive to do before.

So again that smart contract concept where we can create some releases of payments that we would have had a manual person or had to develop an application now instead of seven months of development time it’s you know could be as short as two days but it’s probably like two months after testing etc to roll that out.

So that opens up all new products for a bunch of banks.

Steven:
So for a treasury management, you know, if you’re a bank and you’ve got your treasury management suite, right?

You’ve got checks, you got wires, you got lockbox, right?

It sounds like now I can also very easily add instant payments, stable coin, tokenized deposits.

I mean, is that what it looks like from the bank side?

Chris:
That’s what it looks like.

And so you’ll either have a specific use case and you know, we’re believing really it’s instant payments first.

for example, right now when we get a deposit token, as we expand into deposit tokens and stable coin, we’ll add those.

But what that really calls for is orchestration, a payment hub, so to speak.

So when you say it’s complicated, yeah, you’re absolutely right.

It’s complicated now.

And hopefully technology makes it more simple.

So again, that customer just wants to send a payment.

So we ask some basic questions.

How much do you want it?

When do you have to send it?

Where do you have to send it?

And through that algorithm, we can say, “Hey, you should be sending it via stablecoin or you should be sending it via instant payments or, you know, you should be sending it AC.” You’ll probably never send a check.

I’m not sure why we still have checks right now, but I’m looking to get rid of those.

Steven:
Don’t get me started on that.

Definitely don’t want to go down that.

So, Chris, I know that in this conversation, you have now sparked many questions for people.

what’s the best way for them to find you?

Chris:
so you can find me on LinkedIn, under Chris Nichols, at Southstate, email cnicholsstatebank.com.

and my number, my phone number is readily out there, and I know a lot of partners don’t hesitate to text, so feel free to do that as well.

Steven:
Excellent.

Great.

Well, Chris, thank you very much.

I really appreciate it.

And, definitely want to thank everybody for joining us for this conversation.

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