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Speaker 1: Because you're a subscriber to this Bloomberg podcast, we thought

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Speaker 1: you'd be interested in a sponsored podcast called Evolving Money,

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Speaker 1: produced by Coinbase and Bloomberg Media Studios. It explores how

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Speaker 1: money has changed over the centuries and whether cryptocurrency is

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Speaker 1: just the next logical evolution of how we pay for

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Speaker 1: things and store long term value. Here is a recent episode.

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Speaker 2: I never set out to make a radical lifestyle change.

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Speaker 2: I couldn't even tell you when it took place exactly.

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Speaker 2: It just sort of happened. I went cashless. I remember

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Speaker 2: when I'd have to hit the ATM on my way

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Speaker 2: to work. These days, I pay for my morning coffee

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Speaker 2: with my phone, and I tap my credit card when

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Speaker 2: I pick up my dry cleaning. In fact, I hardly

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Speaker 2: ever touch paper money, and this cashless system makes paying

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Speaker 2: for stuff feel totally seamless until I start spotting the scenes,

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Speaker 2: like a sign at the corner store telling me that

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Speaker 2: I'll be charging extra three percent if I pay with

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Speaker 2: a credit card, or that painful moment when a client

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Speaker 2: just paid me for the work I did, but the

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Speaker 2: bank needs another week to get that money to me.

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Speaker 2: So I've been wondering, is this the best our cashless

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Speaker 2: system can do, and thankfully the answer is no. It

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Speaker 2: turns out the payments industry is moving into a new

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Speaker 2: era of the cashless economy. This is Evolving Money from

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Speaker 2: Coinbase and Bloomberg Media Studios. I'm your host, Maggie Lake.

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Speaker 2: On this podcast, we take a different look at cryptocurrency.

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Speaker 2: It's been cast as a radical departure for the monetary system,

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Speaker 2: but what if it isn't radical at all, just the

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Speaker 2: next logical evolution of how we pay for things and

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Speaker 2: store long term value. Along the way, we'll explore how

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Speaker 2: money has changed over the centuries and look for lessons

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Speaker 2: that might predict its next evolution. In this episode, we're

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Speaker 2: talking about stable coins. That's the term for cryptocurrencies that

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Speaker 2: are pegged to a fee currency like the US dollar,

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Speaker 2: which can make them a powerful medium of exchange, changing

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Speaker 2: the way people move money around the world. Today, companies

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Speaker 2: are using stable coins to dramatically shrink transaction fees and

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Speaker 2: cut settlement times as they take customer orders, pay their suppliers,

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Speaker 2: and cover day to day costs. To learn how this works,

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Speaker 2: I'll talk to Jose Fernandez D Ponte, Senior vice president

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Speaker 2: of Digital Currencies at PayPal, about how stable coins are

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Speaker 2: helping multinational companies and small businesses match the twenty four

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Speaker 2: to seven piece of today's financial world. To understand how

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Speaker 2: we got here, I want to share a seventy five

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Speaker 2: year old story about an innovation that set us on

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Speaker 2: the path to a cashless world. In nineteen forty nine,

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Speaker 2: businessman Frank McNamara walks into the major's cabin growth.

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Speaker 3: He's taking a client out to lunch in New York City.

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Speaker 2: That's doctor Sean Vanada, financial historian and author of the

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Speaker 2: book Plastic Capital, Banks, credit Cards, and the End of

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Speaker 2: Financial Control. So in the story, the check arise for

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Speaker 2: Frank and his client. Frank pats his jacket for his wallet.

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Speaker 3: And realizes that he's left his wallet in his other suit.

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Speaker 3: It's back at home in Long Island.

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Speaker 4: What is he going to do?

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Speaker 2: Okay, So this story's more of a marketing myth than

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Speaker 2: literal history. I've heard urban legends where Frank has to

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Speaker 2: do the dishes or wait for his wife to bring

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Speaker 2: the wallet from home. But whatever happened, the idea of

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Speaker 2: paying with credit was all Frank could think about.

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Speaker 3: McNamara was a kind of credit executive, so he knew

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Speaker 3: something about consumer credit, and he thinks to himself, well,

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Speaker 3: you know, shouldn't a business executive like me have access

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Speaker 3: to the credit that I deserve? Why do I have

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Speaker 3: to carry around all this cash? Why do I have

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Speaker 3: to keep track of my wallet? Shouldn't I just have

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Speaker 3: a card that can do this for me?

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Speaker 2: Now? Prior to nineteen forty nine, charge cards did exist,

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Speaker 2: but not in the way we think of them today.

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Speaker 3: You were well off, you shopped at fancy department stores,

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Speaker 3: you would be familiar with metal tokens that were called

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Speaker 3: charge plates that you'd be able to use to charge goods.

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Speaker 3: But it was always built around individual relationships with specific

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Speaker 3: stores that you had to build up over time.

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Speaker 2: Frank came up with a simple but powerful change. What

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Speaker 2: if people had one credit account at all the restaurants

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Speaker 2: they went to.

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Speaker 3: His vision was to create this kind of universal system.

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Speaker 2: The next time Frank turns up at Major's cabin Grell,

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Speaker 2: when the bill comes, he whips out a little piece

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Speaker 2: of cardboard, which he calls the diners Club Card. The

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Speaker 2: diners Club card is often credited as the very first

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Speaker 2: credit card as we understand them today, something that you

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Speaker 2: could use up multiple businesses who are all in the

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Speaker 2: same ecosystem of payments.

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Speaker 3: What the club would do every month is mail you

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Speaker 3: back a copy of your receipt. That really makes as

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Speaker 3: valuable for people who are you going out to drinks

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Speaker 3: with clients having to keep track of their seats.

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Speaker 2: The idea caught on. American Express, then known for its

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Speaker 2: travelers checks, introduced its own card, and in nineteen fifty eight,

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Speaker 2: Bank of America issued its Bank America card that was

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Speaker 2: the forerunner to Visa and the payment networks that enabled

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Speaker 2: credit cards to be used across the globe on a

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Speaker 2: daily basis.

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Speaker 3: For the cardholders, I think it probably felt a bit

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Speaker 3: like magic right.

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Speaker 2: The invention of the credit card was a major update

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Speaker 2: to how people and businesses make payments, and as payments

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Speaker 2: went digital in the twenty first century, everything seemed like

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Speaker 2: it got even more convenient, But we also deal with

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Speaker 2: the fees and delays that come with that convenience. Now

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Speaker 2: we may be at the beginning of another shift that's

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Speaker 2: just as big as the one that started when Frank

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Speaker 2: McNamara debuted the Diners Club card. Thanks to a new

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Speaker 2: kind of digital currency.

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Speaker 4: I've been in crypto since twenty fifteen. I was very,

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Speaker 4: very skeptical walking into it.

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Speaker 2: That's Jose Fernandez d'pontei, Senior vice president of Digital Currencies

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Speaker 2: at PayPal. Jose, like a lot of people back then,

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Speaker 2: was a cryptosceptic, but that changed.

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Speaker 4: The first use case that I had on crypto was

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Speaker 4: in payments, and it was about moving money cross border

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Speaker 4: between bank accounts. You see a blockchain layer. I was

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Speaker 4: looking at the account where the money was leaving and

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Speaker 4: then the account where money was arriving, and it was

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Speaker 4: five minutes from one place to the other across nine

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Speaker 4: thousand miles of ocean. This is something that you could

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Speaker 4: not do before. I think there was a moment that

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Speaker 4: brought it to life for me.

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Speaker 2: Jose was looking at stable coins, a type of cryptocurrency

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Speaker 2: that's grown its market cap to one hundred and sixty

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Speaker 2: four billion dollars in just the past four years. He

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Speaker 2: liked that stable coins could be moved in a way

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Speaker 2: that was fast, cheap, programmable, and interoperable. He also liked

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Speaker 2: that when they're pegged to a stable yacht currency and

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Speaker 2: back by reserves of that currency, stable coins typically don't

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Speaker 2: fluctuate in value. That's why stable coins like USDC can

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Speaker 2: be spent like US dollars.

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Speaker 4: The beauty of this instrument is that for most of

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Speaker 4: the mainstream users you can provide an experience that is

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Speaker 4: fiat on the front, where people are interacting with dollars

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Speaker 4: as they have always done, but it's a stable coin

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Speaker 4: on the back.

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Speaker 2: That was exciting to Jose because he's been in the

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Speaker 2: payments business for over twenty years and he could see

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Speaker 2: every little problem in the system, especially when it came

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Speaker 2: to making payments across borders.

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Speaker 4: Imagine that you are a US company who needs to

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Speaker 4: pay a supplier in Central America. With the current payment infrastructure,

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Speaker 4: it's going to cost you something between thirty and fifty

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Speaker 4: dollars to send that money. For the company that you

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Speaker 4: are paying on the other side, is slightly going to

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Speaker 4: set them up one to two percent when they need

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Speaker 4: to convert their payment into the local currency.

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Speaker 2: Transactions are costly and slow.

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Speaker 4: If I want to send money, I need to do

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Speaker 4: it Monday to Friday.

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Speaker 2: Nine to five coins fees are much lower and transactions

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Speaker 2: are way faster.

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Speaker 4: If I can send the same amount of money on

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Speaker 4: a stable coin on a high throughput lockchain, what is

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Speaker 4: going to happen is the payment will settle in seconds,

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Speaker 4: not in days. I will be able to send that

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Speaker 4: money outside of banking hours, and if I'm doing an

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Speaker 4: international transaction, I can time intransaction to the moment in

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Speaker 4: which the exchange rate between the two currencies is the

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Speaker 4: most convenient.

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Speaker 2: Stable Coins also help with another barrier to paying people

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Speaker 2: in a different country. They need to hold reserves of

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Speaker 2: the local currency on their side of the border.

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Speaker 4: That can be risky because if I need to get

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Speaker 4: that money internationally quickly, it means that somebody on the

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Speaker 4: other side will need to prefund that is going to

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Speaker 4: They will need to pay on my behalf. And there

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Speaker 4: are many times for a business that means that you

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Speaker 4: need to keep money in profunded accounts for the destination country,

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Speaker 4: and sometimes that in some of those markets that are

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Speaker 4: a more unstable. Dot carri is counterparty risk with your

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Speaker 4: partner over there.

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Speaker 2: HOSE is interested in what stable coins can do right now,

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Speaker 2: and it's tracking how these benefits play out with real

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Speaker 2: businesses across the world.

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Speaker 4: It was talking a few weeks ago to someone who

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Speaker 4: was using a stable coin to send value from the

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Speaker 4: wallet in the US. This person was using a Vema

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Speaker 4: wallet to send value to a relative in Malawi in

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Speaker 4: Southern Africa to a local wallet, and they did the

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Speaker 4: experiment of sending the stable coin on one side and

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Speaker 4: then sending the money on traditional rails. The person on

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Speaker 4: the receiving end ended up with forty percent more on

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Speaker 4: their local currency, just because it was not only faster,

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Speaker 4: but it was more liquidity on that side and they

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Speaker 4: could get a better exchange rate. So you're increasing the speed,

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Speaker 4: you're getting more bank from your book, you're getting a

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Speaker 4: better exchange rate, you're reducing your counterparty risk. That is

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Speaker 4: happening today.

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Speaker 2: Last year, the stable coin market settled more than two

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Speaker 2: trillion dollars worth of transactions for real goods, services, or remittances.

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Speaker 2: That's twenty to twenty five percent of the total transactions

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Speaker 2: may by major credit card companies in the same year,

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Speaker 2: and over the past two years, we've seen a nearly

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Speaker 2: twenty percent year over year increase in transactions made through

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Speaker 2: stable coins. This massive growth in spending among individuals certainly

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Speaker 2: doesn't surprise Jose.

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Speaker 4: There are thirty to sixty million individuals who engage with

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Speaker 4: stable coins today, and many of them are cross border.

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Speaker 4: Many of them want to purchase from US or European

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Speaker 4: based merchants, and many of them lack an international credit card.

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Speaker 2: He says, in many cases, it's likely you don't have

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Speaker 2: a card that allows you to make payments and settle

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Speaker 2: transactions across borders.

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Speaker 4: There are some very good recent reports that are talking

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Speaker 4: about use of stable coins in places like Turkey and

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Speaker 4: Nigeria and Brazilian and other markets. Those are vast, vast

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Speaker 4: populations with increasing a expenditure power that are yearning for

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Speaker 4: a mechanism that they can use for purchases overseas, and

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Speaker 4: stable coins are going to be one of those cases.

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Speaker 2: PayPal Jose's company is already pushing towards mainstream adoption. Earlier

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Speaker 2: this year, they launched a proprietary stable coin pegged to

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Speaker 2: the US dollar PayPal USD because.

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Speaker 4: This is not going to be a hack. This is

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Speaker 4: going to be a tool in the toolbox of the CFO,

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Speaker 4: and it should coexist with the instruments and the platforms

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Speaker 4: that they are using today.

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Speaker 2: When their stable coin completed its first business payment in October,

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Speaker 2: it was an exciting and nerve wracking moment.

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Speaker 4: It reminds a little bit of that NASA launches when

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Speaker 4: you are at the war room in one of those

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Speaker 4: launches and you have people all over the world and

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Speaker 4: then there are like thirty seconds. So if everybody holding

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Speaker 4: their breath and then you see it come through and

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Speaker 4: then there is a burst of enthusiasm and congratulations, is fantastic.

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Speaker 2: But PayPal already has thirty six million merchants relying on

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Speaker 2: the company as their primary payments platform. So you may

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Speaker 2: be wondering why would any of those thirty six million

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Speaker 2: people make the switch to stable coins.

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Speaker 4: If you're a small business who's operating on those wafering

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Speaker 4: margins and trying to figure out how to make and

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Speaker 4: meet this is a game changer. There are more than

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Speaker 4: four hundred million accounts on the Papal universe that are

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Speaker 4: more than thirty million merchants. If we can make that

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Speaker 4: easily available to interact with a stable coin, and they

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Speaker 4: like the trust of the brand that they have used,

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Speaker 4: we believe that we can provide an initial jumpstart to

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Speaker 4: the system.

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Speaker 2: Jose told me about one company that illustrates the benefits.

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Speaker 2: Fig Tree Pods is a small ceramics business in Austin, Texas.

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Speaker 4: Selling their wares locally for many many years, and we

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Speaker 4: were talking to Renee, their CEO and her frustration was

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Speaker 4: that she had to actually decline international wholesale orders because

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Speaker 4: they couldn't just figure out the way to be paid

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Speaker 4: by their wholesale in the Middle East.

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Speaker 2: Fig Tree Pods is a small shop. All of vernaise

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Speaker 2: pieces are made in her little home studio. She doesn't

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Speaker 2: have the time and resources to figure out the complexities

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Speaker 2: of international payments and foreign exchanges.

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Speaker 4: When you are often in an alternative I mean her

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Speaker 4: eyes lid apps saying okay, so you're telling me now

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Speaker 4: they can't pay me in this stable cooin instrument, I

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Speaker 4: can receive that in the wallet that I do all

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Speaker 4: the time. I can send it quickly to my bank account,

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Speaker 4: and I can get that additional business for Rene.

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Speaker 2: Getting rid of these barriers to cross border payments could

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Speaker 2: unlock entirely new markets.

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Speaker 4: There is a cost component, but she's very excited about

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Speaker 4: the prospect of being able to sell more of reaching

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Speaker 4: consumers that she cannot reach today. If she's selling from

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Speaker 4: her physical art gallery, from local markets and from a website,

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Speaker 4: this allows her to too charge that website and make

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Speaker 4: it available for overseas consumers.

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Speaker 2: Over two decades ago, PayPal was at the forefront of

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Speaker 2: the financial system. Shift to a digital cashless world. PayPal

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Speaker 2: users could make seamless and secure digital payments from anywhere

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Speaker 2: to anywhere with crypto. Jose believes PayPal is taking another

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Speaker 2: huge leap forward with an eye toward practical adoption of

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Speaker 2: this game changing technology.

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Speaker 4: We started to be in this space because we are

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Speaker 4: a payments company. We were talking about the ideological components

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Speaker 4: of blockchain. We are not on that ideology. None of

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Speaker 4: us have laser eyes. We are in this because for

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Speaker 4: many of us, this is the first time in a

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Speaker 4: long career in payments that we have seen technology that

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Speaker 4: can fundamentally upgrade the financial infrastructure. So we started on

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Speaker 4: these because we were experimenting with some of these protocols

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Speaker 4: five years ago and we were able to move value

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Speaker 4: for a cost that is the equivalent of twenty six

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Speaker 4: times cheaper than moving money from a bank account to

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Speaker 4: a bank account, and it's four hundred times cheaper than

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Speaker 4: moving money through a paper check. And if you believe

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Speaker 4: in physics, do you believe that the universe likes a

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Speaker 4: low energy state, And if there is a technology that

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Speaker 4: will let you move value twenty six times cheaper, that

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Speaker 4: technology eventually will see the light of day.

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Speaker 2: For businesses discovering and adopting this new technology, seeing the

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Speaker 2: opportunities and the changes it can spark. It's kind of

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Speaker 2: like the first time we use little pieces of plastic

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Speaker 2: to pay for lunch. It can feel like magic.

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Speaker 4: And when you think about the waves of innovation and payments,

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Speaker 4: the credit card is a very good example. You're moving

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Speaker 4: people to change their behavior. They need to understand that

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Speaker 4: the direct and of plastic that they're going to swipe

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Speaker 4: at a merchant is actually going to go against their

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Speaker 4: bank account and it's going to work well. Same thing

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Speaker 4: when you're tapping to pay at a grocery today with

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Speaker 4: your phone. There are billions of dollars who have gone

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Speaker 4: into habituating consumers to act in a certain way, and

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Speaker 4: when you're trying to change that behavior, you need to

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Speaker 4: provide a ton of additional value in the short term

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Speaker 4: for folks to change. We will see that with the

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Speaker 4: stable compayments as well.

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Speaker 2: Like credit cards seventy five years ago, stable coins come

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Speaker 2: with a new infrastructure that can break down decades old

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Speaker 2: opst to making everyday payments, and like so many people

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Speaker 2: have embraced a life without paper bills, Companies and consumers

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Speaker 2: today are realizing that stable coins could reshape our basic

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Speaker 2: expectations of how to move money. Thank you to Sean

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Speaker 2: Vanada and Jose Fernandez du Ponte. This is Evolving Money

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Speaker 2: a podcast from Coinbase and Bloomberg Media Studios. If you

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Speaker 2: like what you hear, subscribe and leave us a review.

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Speaker 2: I'm Maggie Lake. Thanks for listening.