Key takeaways:
- While innovation in digital payments will be led by the private sector, the Fed’s role will focus on coordination, infrastructure upgrades, and risk guidance.
- Stablecoins offer lower transaction costs and enable agentic commerce, while tokenization will transform asset trading and settlement. Meanwhile, AI is enabling faster, safer transactions and global scalability.
- Along with opportunities, there will be challenges, including balancing technological progress with the creation of industry standards, robust governance and consumer protection.
The US Federal Reserve (the Fed) held its first ever Payment Innovation Conference last October, with industry experts discussing the latest developments in next generation digital payments. Among the topics covered were how to bridge traditional finance with the digital asset ecosystem, stablecoin use cases, AI usage in payments and tokenisation. From the conference, it was apparent that a lot of effort is being put into the integration of digital payment technologies, and that it is managed in a way that does not compromise existing compliance, reporting and fraud prevention requirements.
How is the Fed supporting the shift to digital finance?
Fed Governor Christopher Waller is encouraging the central bank to embrace the innovation and disruption occurring across the payments landscape. He believes most innovation should continue to be driven by the private sector, with the Fed providing support in areas such as facilitating better co-ordination across the industry and upgrading its own payments infrastructure.
“…….. we are well into a technology-driven revolution in payments, and I am here to say that the Federal Reserve intends to be an active part of that revolution.”
Christopher Waller, US Federal Reserve Board of Governors & Chair Fed Payments Committee1
Bridging traditional finance with the new digital ecosystem
There is a lot of excitement around the potential benefits of blockchain but there are challenges in bridging traditional finance with the digital asset ecosystem. Key elements include ensuring that on-chain connections recognise the importance of maintaining strong compliance, reporting and accounting standards, as well as minimising potential fraud and identity issues. The ability to incorporate smart contracts that prove compliance on-chain comes naturally within the Decentralised Finance (DeFi) ecosystem (removal of third parties and financial institutions from financial transactions). Meanwhile, the incorporation of AI should result in safer and faster payments. Greater knowledge and improved capabilities of digital assets in traditional finance will be requisite. The transition to a hybrid system is anticipated over the next few years, as banks grapple with the complexity of managing digital wallets and integrating advanced security measures. Among the recommendations that were put forward to the Fed was the need to make existing infrastructure compatible with DeFi, and providing guidance on risks, particularly concerning fraud and AI developments.
Stablecoins: The future of cross-border payments
While most stablecoin use today is in crypto trading, consumers in emerging markets particularly in Latin America are using stablecoins not just to help preserve wealth, but also for transacting. Stablecoins will also be a key facilitator of DeFi transactions and used in institutional international payments. Despite the technological advancements that stablecoins offer versus existing payment rails, challenges remain in governance, user adoption, and the creation of an industry standard. The latter should benefit companies like Circle Internet, which recently launched its USDC settlement capabilities in partnership with Visa in the US,2 advancing stablecoin integration in mainstream payments systems. While it’s still early days, the GENIUS Act should help both on fungibility and governance. Stablecoins also offer the benefit of being programmable, with an example today being automatic settlement of trade finance when goods leave the factory floor in transit to the customer. There is an imperative need for seamless on-and-off ramps to link bank accounts, debit cards and payment apps to crypto platforms, to enable the instant exchange of traditional and digital currencies.
There is also debate around revocability, given transactions on blockchain are irrevocable as consumers are used to an environment where chargebacks are possible.
Tokenization: Facilitating 24/7 financial markets
Tokenization’s role in digital finance is growing; according to Boston Consulting Group, tokenized markets could surpass US$16 trillion by 2030.3 Tokenization enables digital representation of any tangible or intangible asset ownership for example stocks, cash, cryptocurrency, and data sets on a blockchain. In token form, the asset can be quickly and cost-effectively stored, transferred, traded or used as collateral.
Use cases today include shareholder records on chain, tokenized money market funds where yields are paid intra-day reflecting the actual time invested, as well as tokenized US Treasuries that eliminate intermediary risk when trading and which can be collateralised for the precise time needed, down to the minute. Tokenization does not mean that tokenized assets become fungible across asset classes. Instead, we should think of it more as a programming language / technology that facilitates new ways of doing things as well as driving efficiency. Transactions on-chain come with one source of truth, which eliminates significant cost in reconciliations.
There is broad consensus that frequently-traded financial assets will move to 24×5 or 24×7 trading, which has implications for infrastructure required to operate seamlessly. The flash crash in crypto markets on 10 October 2025 highlighted aspects that need to be improved, with the temporary failure of cryptocurrency platform Binance leading to liquidity problems and automatic position closures with conflicts of interest evident in that process. Although we are still in the very early days, tokenization is likely to follow the typical ‘S’ curve adoption path, with expectations that a few years from now, every instrument that is traded frequently will be on-chain.
AI in payments: Driving efficiency and global scale
The use of AI technologies is gathering pace in payments. To-date efforts have focused on cost reduction and increasing efficiency in transactions, software, fraud detection, and risk management. Agentic commerce and payments are viewed as the next wave. Consumers can already transact directly on ChatGPT and use agents such as Phia, an AI shopping assistant co-founded by Bill Gates’ daughter, Phoebe Gates. Stablecoins are viewed as well suited to agentic commerce as AI agents cannot open traditional bank accounts but can access wallets and be programmed for conditional payments. More broadly, AI applications and blockchain can help accelerate economic growth – by improving financial inclusion, streamlining supply chains, and enabling easier cross-border transactions.
Stripe, the online payment processor and ecommerce software company, which was represented on the panel discussion at the Fed conference, provided some interesting insights. Based on its analysis of the top 100 AI companies using its payments platform, Stripe sees these companies growing very quickly, with the potential to achieve circa US$30 million in annual recurring revenue (in ARR) in just 20 months on average.4 This is some 3 to 4 x faster than its 2018 cohort of top 100 SaaS (Software as a Service) businesses. Key to this is that AI companies are going global from day one, facilitated by large language models (LLMs).
Stablecoins are also helping accelerate growth e.g. AI developer tool business Vercel has benefited from customers in certain markets being able to pay in stablecoins; previously transacting would have been too costly and difficult. Overall, building with AI and blockchain is seen as a paradigm shift that can offer significant benefits with payments on-chain being reconciled far faster versus fiat payments. Coinbase, the cryptocurrency exchange platform, can reconcile its crypto payments with one person in half a day versus using 15 people over three to four days for fiat reconciliations.5 Thus, AI is driving demand for new, more efficient payment methods.
Challenges and opportunities in digital payments integration
The Fed’s digital payments conference underscored that digital payment technologies are rapidly becoming integral to the financial ecosystem. By embracing innovation and collaborating with private-sector leaders, the Fed is showing that it is embracing the transformation required for the central bank to integrate into this new era of digital finance.
Stablecoins, tokenization, and AI are converging to redefine payments by enhancing transaction speed, processing and cost efficiencies, while improving security and risk management. The challenge lies in balancing technological progress with the creation of industry standards, robust governance and consumer protection. Investment opportunities in the next era of finance will be shaped by those companies that can navigate this intersection of innovation, integration and regulation.
1,5 Federalreserve.gov; “Embracing New Technologies and Players in Payments”; 21 October 2025.
2 Investing.com; “Circle stock rises after Visa launches USDC settlement in US”; 16 December 2025.
3 Boston Consulting Group; “Relevance of on-chain asset tokenization in crypto winter”; 22 May 2022.
4 Financial Times; “AI start-ups generate money faster than past hyped tech companies”; 27 September 2024.
Agentic commerce: Refers to AI agents offering shopping services enabled by reasoning models. This includes AI anticipating consumer needs, navigating shopping options, negotiating deals, and executing transactions., all in alignment with human intent yet acting independently via multistep chains of actions enabled by reasoning models.
Annual Recurring Revenue (ARR): The total predictable subscription-based revenue a company expects to earn each calendar year. ARR is a key metric for companies that operate on a subscription or contract model, such as SaaS businesses and provides a clear picture of sustainable revenue.
Blockchain: Serves as a digital ledger, offering transparency and security, however it comes with risks including regulatory uncertainty, privacy loss, and fraud.
Decentralised finance: DeFi is an emerging peer-to-peer system that removes third parties and centralised institutions from financial transactions. It involves cryptocurrencies, blockchain technology, and software that allows people to transact financially with each other.
Fiat currency: Government-issued currency that is considered legal tender and is not backed by physical commodities like gold.
Fungibility: The characteristic of an asset that allows it to be interchangeable, meaning one unit can be substituted for another without loss of value.
GENIUS Act: Legislation that paves the way for the US to lead the global digital currency revolution. The Act prioritises consumer protection, and aims to strengthen the US dollar’s reserve currency status, and bolsters national security.
LLM (large language model): A specialised type of artificial intelligence that has been trained on vast amounts of text to understand existing content and generate original content.
On-chain: Refers to transactions that occur on a blockchain and have been verified and authenticated. Any data made immutable and permanent on the blockchain is referred to as being on-chain. Bringing data on-chain ensures its security and transparency.
Payment rail: The underlying infrastructure and systems that facilitate the transfer of funds between parties.
SaaS: A cloud-based software delivery model where applications are accessed over the internet, with the cloud service provider responsible for infrastructure, security, and updates. applications live on software providers’ servers.
S-curve: The S-curve shows the performance of a technology as a function of the cumulative development effort and indicates when the technology is running up against its performance limit and is in danger of being replaced. It is so-called because performance resembles the letter ‘S’ showing a cycle of slow start, rapid growth and gradual slowdown or stabilisation.
Stablecoins: A form of digital asset that has its value linked to stable assets like the US Dollar or gold, which makes it less volatile.
Tokenisation: The conversion of real-world assets into digital tokens on a blockchain.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
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