The latest trend in fintech startups is revolutionizing cross-border payments by harnessing the power of stablecoins, cryptocurrencies pegged to actual currencies or commodities to maintain stable prices. This shift is not only transforming the way businesses and individuals make international transactions but also attracting significant investor interest.

Cedar Money, a U.S.-based startup, is the latest example of this trend, having recently closed $9.9 million in seed funding led by global fintech investor QED Investors, with participation from Lattice, NIV, Stellar, and Wischoff Ventures. Cedar Money acts as a bridge, allowing businesses and individuals to transact using a fiat-based site, while stablecoin transactions run in the background.

The startup plans to scale its payment infrastructure and tackle the inefficiencies in international payments, particularly in Africa, where businesses face higher transaction fees and hidden costs in currency conversions due to added risk and the costs of working with local banking. According to Cedar Money's founder and CEO, Benjy Feinberg, "If you look at the SWIFT network, fees globally are around 2-3%, but in Africa, they're much higher. It's even more gouging in places where people have less money."

Feinberg, who founded Cedar Money in 2022 after nearly a decade leading alternative financing provider Behalf, recognized the potential of stablecoins in emerging markets, where businesses need dollars to pay for imports, even when buying from countries like China. In countries like Nigeria or Argentina, getting dollars can be a struggle due to weak local currencies like the naira or the Argentine peso.

Cedar Money launched in early 2024, starting operations in Nigeria, helping businesses in the country accept and send money to others globally. "You want to go to a place where you can solve a big problem, and the adoption will be easier. That's why we started in Africa—because the need is greatest here," Feinberg explained.

However, despite their popularity, stablecoin platforms face limitations that may affect their scale across markets. Feinberg acknowledged that building the payment rails—converting fiat to stablecoins, transferring them, and converting back—is challenging, but the real difficulty lies in building the compliance rails to accommodate every country's unique regulatory requirements and banks' extensive documentation to ensure legitimate transactions.

These requirements are particularly tricky in markets like Africa, where infrastructure differences make seemingly simple demands—like providing a street address—much more challenging. Feinberg argued that the winners in this space will be those who can scale their operations globally while navigating complex compliance requirements, especially in underserved regions.

Despite these challenges, the U.S. is setting the tone for favorable regulatory sentiment towards digital assets, which could ease compliance. Many stakeholders in the industry believe this event, coupled with others like Stripe's acquisition of stablecoin startup Bridge, will not only cause a broader acceptance of stablecoin payments but also make banks and regulators globally and in emerging markets relax their strong views on stablecoin adoption.

The adoption of stablecoins is already reshaping the global payments landscape. Charts from a16z and other sources illustrate this clearly: in 2017, stablecoin transaction volumes were negligible compared to traditional systems. Fast forward to today, and stablecoins have surpassed Mastercard, PayPal, and Visa. In Q2 2024, stablecoins transactions reached $8.5 trillion across 1 billion transactions compared to $3.9 trillion in volume across fifty times more transactions.

Cedar Money, founded a year ago, processes tens of millions in monthly transaction volume by focusing on import and export businesses handling tangible goods such as rice and shoes, supported by bona fide invoices, an approach that simplifies underwriting for banks since transactions involve clear documentation and physical commodities, according to Feinberg.

QED Investors partner Gbenga Ajayi cited why the global fintech firm invested in Cedar Money, saying the fintech is "uniquely positioned to tackle the inefficiencies of the global financial system."

Cedar Money joins a growing list of players like Conduit and Caliza, which serve businesses in emerging markets with stablecoin-powered payments. However, despite growing relevance, reaching a $205 billion market cap last year, Feinberg says their collective share of the international payments remains small, so Cedar Money has no direct competition at this stage.

"Today, two-thirds of international payments are through the correspondent banking network. The size of the biggest fiat innovators is probably 2-5% of the market. So if you're looking at this and you're saying, well, two-thirds are the banks, 5% are the fiat innovators, and 0.01% are the stablecoins guys. Then your competition, or your way forward, is not to compete necessarily with other players; it's just to find your little corner because the market's just so big," Feinberg concluded.