We are live here at Money 20/20 in Riyadh. Joining me now is Abdulaziz Kanoo, Co-Founder of ARP Digital. Thank you very much for joining us.
Thank you very much.
Saudi Arabia is pushing payments deeper into its economic structure. What tells you that the Gulf is now entering a new phase where the real competition is around settlement infrastructure?
If you think about volumes that flow from the Gulf to emerging markets, it is about $900 billion annually. And if you think about the mechanism that settles these transactions, you have a structural issue. You fundamentally settle on a dollar-based rail which flows through dollar-based bank accounts, and you can have at times 5 to 6 intermediaries in the chain. You have a structural disadvantage from the GCC because it is an outward remitting market — so there is no incentive to market make an illiquid currency when on one hand you have a peg and on the other hand you do not have two-sided flow. That is why the problem persists. The third problem is cost — cost is not spread, cost is float. Your cost on float is effectively the loss you could have earned on capital you need to park in emerging markets and the risk weighting associated to that capital. And the fourth is a structural imbalance — the relevance of this part of the world to global trade is increasing, but the infrastructure supporting it is decreasing. Correspondent banking penetration in the Middle East is in heavy decline.
What can stablecoins and tokenised deposits actually change in practical terms for a corporate treasurer or a payments company?
The key innovation, if I simplify, is this: in a legacy system, the FX component and the settlement component are coupled together. You can only settle a dollar transaction via a dollar rail. In the stablecoin settlement network we have developed, you can decouple these two things. You can settle via dollar stablecoin but you do not necessarily need to settle on a dollar correspondent rail. And if you think about the same innovation when it comes to bank accounts — effectively, if you have a stablecoin and you can offer yield on it, that is the equivalent of a current account that businesses or people can self-custody. Very attractive for them.
How much of the problem today is about fees and uncertainty over the final amount received?
If you ever want to build a payments company, the two things you need to optimise for are speed and cost. You need a fundamental cost advantage to service a certain kind of flow. A lot of merchants do not necessarily know the cost to transact. You can find a merchant doing $10 million worth of payments annually that is leaking about $40,000 in payment fees — and he does not even know it. Once a merchant realises how much they leak on transaction charges, it becomes a problem they want to optimise for.
ARP has now processed more than $4.4 billion in volume across more than 300 counterparties. What has that taught you about where digital settlement works well today?
Our thesis in the company is that incentives drive outcomes — where your margin lies is where the true pain point exists. When we came across the efficiencies on transaction banking being a pain point solved with stablecoins, we found it because our first product was allowing merchants to swap fiat currencies for digital assets. The volume coming to us was not Bitcoin or Ethereum — it was stablecoins. We understood there was a big need to source stablecoins for payments. We built that out, then found there was also a big need for merchants to accept stablecoins as a form of payment. We then built a full cross-border settlement network that settles via stablecoins on the back end and pays out fiat currency in each market.
Thank you very much for giving us your time.
Thank you. Good to be here.
