WEBVTT - Evolving Money: A Faster, Cheaper Way to Pay (Sponsored Content)

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<v Speaker 1>Because you're a subscriber to this Bloomberg podcast, we thought

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<v Speaker 1>you'd be interested in a sponsored podcast called Evolving Money,

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<v Speaker 1>produced by Coinbase and Bloomberg Media Studios. It explores how

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<v Speaker 1>money has changed over the centuries and whether cryptocurrency is

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<v Speaker 1>just the next logical evolution of how we pay for

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<v Speaker 1>things and store long term value. Here is a recent episode.

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<v Speaker 2>I never set out to make a radical lifestyle change.

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<v Speaker 2>I couldn't even tell you when it took place exactly.

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<v Speaker 2>It just sort of happened. I went cashless. I remember

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<v Speaker 2>when I'd have to hit the ATM on my way

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<v Speaker 2>to work. These days, I pay for my morning coffee

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<v Speaker 2>with my phone, and I tap my credit card when

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<v Speaker 2>I pick up my dry cleaning. In fact, I hardly

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<v Speaker 2>ever touch paper money, and this cashless system makes paying

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<v Speaker 2>for stuff feel totally seamless until I start spotting the scenes,

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<v Speaker 2>like a sign at the corner store telling me that

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<v Speaker 2>I'll be charging extra three percent if I pay with

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<v Speaker 2>a credit card, or that painful moment when a client

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<v Speaker 2>just paid me for the work I did, but the

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<v Speaker 2>bank needs another week to get that money to me.

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<v Speaker 2>So I've been wondering, is this the best our cashless

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<v Speaker 2>system can do, and thankfully the answer is no. It

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<v Speaker 2>turns out the payments industry is moving into a new

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<v Speaker 2>era of the cashless economy. This is Evolving Money from

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

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<v Speaker 2>On this podcast, we take a different look at cryptocurrency.

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

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<v Speaker 2>but what if it isn't radical at all, just the

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<v Speaker 2>next logical evolution of how we pay for things and

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

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<v Speaker 2>money has changed over the centuries and look for lessons

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

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<v Speaker 2>talking about stable coins. That's the term for cryptocurrencies that

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<v Speaker 2>are pegged to a fee currency like the US dollar,

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<v Speaker 2>which can make them a powerful medium of exchange, changing

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<v Speaker 2>the way people move money around the world. Today, companies

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<v Speaker 2>are using stable coins to dramatically shrink transaction fees and

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<v Speaker 2>cut settlement times as they take customer orders, pay their suppliers,

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<v Speaker 2>and cover day to day costs. To learn how this works,

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<v Speaker 2>I'll talk to Jose Fernandez D Ponte, Senior vice president

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<v Speaker 2>of Digital Currencies at PayPal, about how stable coins are

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<v Speaker 2>helping multinational companies and small businesses match the twenty four

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<v Speaker 2>to seven piece of today's financial world. To understand how

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<v Speaker 2>we got here, I want to share a seventy five

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<v Speaker 2>year old story about an innovation that set us on

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<v Speaker 2>the path to a cashless world. In nineteen forty nine,

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<v Speaker 2>businessman Frank McNamara walks into the major's cabin growth.

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

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<v Speaker 2>That's doctor Sean Vanada, financial historian and author of the

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<v Speaker 2>book Plastic Capital, Banks, credit Cards, and the End of

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<v Speaker 2>Financial Control. So in the story, the check arise for

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<v Speaker 2>Frank and his client. Frank pats his jacket for his wallet.

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<v Speaker 3>And realizes that he's left his wallet in his other suit.

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<v Speaker 3>It's back at home in Long Island.

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<v Speaker 4>What is he going to do?

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<v Speaker 2>Okay, So this story's more of a marketing myth than

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<v Speaker 2>literal history. I've heard urban legends where Frank has to

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<v Speaker 2>do the dishes or wait for his wife to bring

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<v Speaker 2>the wallet from home. But whatever happened, the idea of

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<v Speaker 2>paying with credit was all Frank could think about.

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<v Speaker 3>McNamara was a kind of credit executive, so he knew

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<v Speaker 3>something about consumer credit, and he thinks to himself, well,

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<v Speaker 3>you know, shouldn't a business executive like me have access

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<v Speaker 3>to the credit that I deserve? Why do I have

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<v Speaker 3>to carry around all this cash? Why do I have

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<v Speaker 3>to keep track of my wallet? Shouldn't I just have

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<v Speaker 3>a card that can do this for me?

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<v Speaker 2>Now? Prior to nineteen forty nine, charge cards did exist,

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<v Speaker 2>but not in the way we think of them today.

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<v Speaker 3>You were well off, you shopped at fancy department stores,

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<v Speaker 3>you would be familiar with metal tokens that were called

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<v Speaker 3>charge plates that you'd be able to use to charge goods.

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<v Speaker 3>But it was always built around individual relationships with specific

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<v Speaker 3>stores that you had to build up over time.

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<v Speaker 2>Frank came up with a simple but powerful change. What

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<v Speaker 2>if people had one credit account at all the restaurants

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<v Speaker 2>they went to.

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<v Speaker 3>His vision was to create this kind of universal system.

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<v Speaker 2>The next time Frank turns up at Major's cabin Grell,

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<v Speaker 2>when the bill comes, he whips out a little piece

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<v Speaker 2>of cardboard, which he calls the diners Club Card. The

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<v Speaker 2>diners Club card is often credited as the very first

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<v Speaker 2>credit card as we understand them today, something that you

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<v Speaker 2>could use up multiple businesses who are all in the

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<v Speaker 2>same ecosystem of payments.

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<v Speaker 3>What the club would do every month is mail you

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<v Speaker 3>back a copy of your receipt. That really makes as

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<v Speaker 3>valuable for people who are you going out to drinks

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<v Speaker 3>with clients having to keep track of their seats.

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<v Speaker 2>The idea caught on. American Express, then known for its

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<v Speaker 2>travelers checks, introduced its own card, and in nineteen fifty eight,

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<v Speaker 2>Bank of America issued its Bank America card that was

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<v Speaker 2>the forerunner to Visa and the payment networks that enabled

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<v Speaker 2>credit cards to be used across the globe on a

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<v Speaker 2>daily basis.

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<v Speaker 3>For the cardholders, I think it probably felt a bit

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<v Speaker 3>like magic right.

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<v Speaker 2>The invention of the credit card was a major update

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<v Speaker 2>to how people and businesses make payments, and as payments

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<v Speaker 2>went digital in the twenty first century, everything seemed like

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<v Speaker 2>it got even more convenient, But we also deal with

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<v Speaker 2>the fees and delays that come with that convenience. Now

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<v Speaker 2>we may be at the beginning of another shift that's

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<v Speaker 2>just as big as the one that started when Frank

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<v Speaker 2>McNamara debuted the Diners Club card. Thanks to a new

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<v Speaker 2>kind of digital currency.

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<v Speaker 4>I've been in crypto since twenty fifteen. I was very,

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<v Speaker 4>very skeptical walking into it.

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

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<v Speaker 2>at PayPal. Jose, like a lot of people back then,

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<v Speaker 2>was a cryptosceptic, but that changed.

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<v Speaker 4>The first use case that I had on crypto was

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<v Speaker 4>in payments, and it was about moving money cross border

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<v Speaker 4>between bank accounts. You see a blockchain layer. I was

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<v Speaker 4>looking at the account where the money was leaving and

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<v Speaker 4>then the account where money was arriving, and it was

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<v Speaker 4>five minutes from one place to the other across nine

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<v Speaker 4>thousand miles of ocean. This is something that you could

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<v Speaker 4>not do before. I think there was a moment that

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<v Speaker 4>brought it to life for me.

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<v Speaker 2>Jose was looking at stable coins, a type of cryptocurrency

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<v Speaker 2>that's grown its market cap to one hundred and sixty

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<v Speaker 2>four billion dollars in just the past four years. He

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<v Speaker 2>liked that stable coins could be moved in a way

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<v Speaker 2>that was fast, cheap, programmable, and interoperable. He also liked

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<v Speaker 2>that when they're pegged to a stable yacht currency and

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<v Speaker 2>back by reserves of that currency, stable coins typically don't

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<v Speaker 2>fluctuate in value. That's why stable coins like USDC can

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<v Speaker 2>be spent like US dollars.

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<v Speaker 4>The beauty of this instrument is that for most of

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<v Speaker 4>the mainstream users you can provide an experience that is

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<v Speaker 4>fiat on the front, where people are interacting with dollars

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<v Speaker 4>as they have always done, but it's a stable coin

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<v Speaker 4>on the back.

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<v Speaker 2>That was exciting to Jose because he's been in the

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<v Speaker 2>payments business for over twenty years and he could see

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<v Speaker 2>every little problem in the system, especially when it came

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<v Speaker 2>to making payments across borders.

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<v Speaker 4>Imagine that you are a US company who needs to

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<v Speaker 4>pay a supplier in Central America. With the current payment infrastructure,

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<v Speaker 4>it's going to cost you something between thirty and fifty

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<v Speaker 4>dollars to send that money. For the company that you

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<v Speaker 4>are paying on the other side, is slightly going to

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<v Speaker 4>set them up one to two percent when they need

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<v Speaker 4>to convert their payment into the local currency.

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<v Speaker 2>Transactions are costly and slow.

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<v Speaker 4>If I want to send money, I need to do

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<v Speaker 4>it Monday to Friday.

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<v Speaker 2>Nine to five coins fees are much lower and transactions

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<v Speaker 2>are way faster.

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<v Speaker 4>If I can send the same amount of money on

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<v Speaker 4>a stable coin on a high throughput lockchain, what is

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<v Speaker 4>going to happen is the payment will settle in seconds,

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<v Speaker 4>not in days. I will be able to send that

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<v Speaker 4>money outside of banking hours, and if I'm doing an

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<v Speaker 4>international transaction, I can time intransaction to the moment in

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<v Speaker 4>which the exchange rate between the two currencies is the

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<v Speaker 4>most convenient.

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<v Speaker 2>Stable Coins also help with another barrier to paying people

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<v Speaker 2>in a different country. They need to hold reserves of

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<v Speaker 2>the local currency on their side of the border.

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<v Speaker 4>That can be risky because if I need to get

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<v Speaker 4>that money internationally quickly, it means that somebody on the

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<v Speaker 4>other side will need to prefund that is going to

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<v Speaker 4>They will need to pay on my behalf. And there

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<v Speaker 4>are many times for a business that means that you

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<v Speaker 4>need to keep money in profunded accounts for the destination country,

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<v Speaker 4>and sometimes that in some of those markets that are

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<v Speaker 4>a more unstable. Dot carri is counterparty risk with your

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<v Speaker 4>partner over there.

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<v Speaker 2>HOSE is interested in what stable coins can do right now,

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<v Speaker 2>and it's tracking how these benefits play out with real

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<v Speaker 2>businesses across the world.

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<v Speaker 4>It was talking a few weeks ago to someone who

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<v Speaker 4>was using a stable coin to send value from the

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<v Speaker 4>wallet in the US. This person was using a Vema

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<v Speaker 4>wallet to send value to a relative in Malawi in

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<v Speaker 4>Southern Africa to a local wallet, and they did the

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<v Speaker 4>experiment of sending the stable coin on one side and

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<v Speaker 4>then sending the money on traditional rails. The person on

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<v Speaker 4>the receiving end ended up with forty percent more on

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<v Speaker 4>their local currency, just because it was not only faster,

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<v Speaker 4>but it was more liquidity on that side and they

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

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<v Speaker 4>you're getting more bank from your book, you're getting a

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

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<v Speaker 4>happening today.

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<v Speaker 2>Last year, the stable coin market settled more than two

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<v Speaker 2>trillion dollars worth of transactions for real goods, services, or remittances.

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<v Speaker 2>That's twenty to twenty five percent of the total transactions

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<v Speaker 2>may by major credit card companies in the same year,

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<v Speaker 2>and over the past two years, we've seen a nearly

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<v Speaker 2>twenty percent year over year increase in transactions made through

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<v Speaker 2>stable coins. This massive growth in spending among individuals certainly

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<v Speaker 2>doesn't surprise Jose.

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<v Speaker 4>There are thirty to sixty million individuals who engage with

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<v Speaker 4>stable coins today, and many of them are cross border.

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<v Speaker 4>Many of them want to purchase from US or European

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<v Speaker 4>based merchants, and many of them lack an international credit card.

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

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<v Speaker 2>a card that allows you to make payments and settle

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<v Speaker 2>transactions across borders.

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<v Speaker 4>There are some very good recent reports that are talking

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<v Speaker 4>about use of stable coins in places like Turkey and

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<v Speaker 4>Nigeria and Brazilian and other markets. Those are vast, vast

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<v Speaker 4>populations with increasing a expenditure power that are yearning for

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<v Speaker 4>a mechanism that they can use for purchases overseas, and

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<v Speaker 4>stable coins are going to be one of those cases.

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<v Speaker 2>PayPal Jose's company is already pushing towards mainstream adoption. Earlier

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<v Speaker 2>this year, they launched a proprietary stable coin pegged to

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<v Speaker 2>the US dollar PayPal USD because.

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<v Speaker 4>This is not going to be a hack. This is

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<v Speaker 4>going to be a tool in the toolbox of the CFO,

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<v Speaker 4>and it should coexist with the instruments and the platforms

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<v Speaker 4>that they are using today.

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<v Speaker 2>When their stable coin completed its first business payment in October,

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<v Speaker 2>it was an exciting and nerve wracking moment.

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<v Speaker 4>It reminds a little bit of that NASA launches when

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<v Speaker 4>you are at the war room in one of those

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<v Speaker 4>launches and you have people all over the world and

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<v Speaker 4>then there are like thirty seconds. So if everybody holding

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<v Speaker 4>their breath and then you see it come through and

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<v Speaker 4>then there is a burst of enthusiasm and congratulations, is fantastic.

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<v Speaker 2>But PayPal already has thirty six million merchants relying on

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<v Speaker 2>the company as their primary payments platform. So you may

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<v Speaker 2>be wondering why would any of those thirty six million

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<v Speaker 2>people make the switch to stable coins.

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<v Speaker 4>If you're a small business who's operating on those wafering

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<v Speaker 4>margins and trying to figure out how to make and

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<v Speaker 4>meet this is a game changer. There are more than

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<v Speaker 4>four hundred million accounts on the Papal universe that are

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<v Speaker 4>more than thirty million merchants. If we can make that

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<v Speaker 4>easily available to interact with a stable coin, and they

0:12:16.760 --> 0:12:18.600
<v Speaker 4>like the trust of the brand that they have used,

0:12:18.960 --> 0:12:21.480
<v Speaker 4>we believe that we can provide an initial jumpstart to

0:12:21.520 --> 0:12:22.440
<v Speaker 4>the system.

0:12:23.360 --> 0:12:26.760
<v Speaker 2>Jose told me about one company that illustrates the benefits.

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<v Speaker 2>Fig Tree Pods is a small ceramics business in Austin, Texas.

0:12:31.120 --> 0:12:34.559
<v Speaker 4>Selling their wares locally for many many years, and we

0:12:34.559 --> 0:12:38.040
<v Speaker 4>were talking to Renee, their CEO and her frustration was

0:12:38.080 --> 0:12:42.960
<v Speaker 4>that she had to actually decline international wholesale orders because

0:12:42.960 --> 0:12:45.360
<v Speaker 4>they couldn't just figure out the way to be paid

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<v Speaker 4>by their wholesale in the Middle East.

0:12:48.200 --> 0:12:51.200
<v Speaker 2>Fig Tree Pods is a small shop. All of vernaise

0:12:51.200 --> 0:12:54.000
<v Speaker 2>pieces are made in her little home studio. She doesn't

0:12:54.040 --> 0:12:57.319
<v Speaker 2>have the time and resources to figure out the complexities

0:12:57.320 --> 0:12:59.719
<v Speaker 2>of international payments and foreign exchanges.

0:13:00.440 --> 0:13:03.360
<v Speaker 4>When you are often in an alternative I mean her

0:13:03.440 --> 0:13:05.600
<v Speaker 4>eyes lid apps saying okay, so you're telling me now

0:13:05.840 --> 0:13:08.400
<v Speaker 4>they can't pay me in this stable cooin instrument, I

0:13:08.440 --> 0:13:10.880
<v Speaker 4>can receive that in the wallet that I do all

0:13:10.920 --> 0:13:13.880
<v Speaker 4>the time. I can send it quickly to my bank account,

0:13:14.200 --> 0:13:16.800
<v Speaker 4>and I can get that additional business for Rene.

0:13:16.840 --> 0:13:19.680
<v Speaker 2>Getting rid of these barriers to cross border payments could

0:13:19.800 --> 0:13:21.480
<v Speaker 2>unlock entirely new markets.

0:13:21.800 --> 0:13:25.000
<v Speaker 4>There is a cost component, but she's very excited about

0:13:25.559 --> 0:13:28.360
<v Speaker 4>the prospect of being able to sell more of reaching

0:13:28.360 --> 0:13:32.040
<v Speaker 4>consumers that she cannot reach today. If she's selling from

0:13:32.280 --> 0:13:35.880
<v Speaker 4>her physical art gallery, from local markets and from a website,

0:13:36.080 --> 0:13:39.080
<v Speaker 4>this allows her to too charge that website and make

0:13:39.120 --> 0:13:41.400
<v Speaker 4>it available for overseas consumers.

0:13:42.559 --> 0:13:45.240
<v Speaker 2>Over two decades ago, PayPal was at the forefront of

0:13:45.280 --> 0:13:49.400
<v Speaker 2>the financial system. Shift to a digital cashless world. PayPal

0:13:49.480 --> 0:13:53.479
<v Speaker 2>users could make seamless and secure digital payments from anywhere

0:13:53.559 --> 0:13:58.360
<v Speaker 2>to anywhere with crypto. Jose believes PayPal is taking another

0:13:58.520 --> 0:14:02.200
<v Speaker 2>huge leap forward with an eye toward practical adoption of

0:14:02.240 --> 0:14:03.920
<v Speaker 2>this game changing technology.

0:14:05.280 --> 0:14:07.440
<v Speaker 4>We started to be in this space because we are

0:14:07.440 --> 0:14:10.760
<v Speaker 4>a payments company. We were talking about the ideological components

0:14:11.000 --> 0:14:14.000
<v Speaker 4>of blockchain. We are not on that ideology. None of

0:14:14.080 --> 0:14:17.760
<v Speaker 4>us have laser eyes. We are in this because for

0:14:17.840 --> 0:14:19.160
<v Speaker 4>many of us, this is the first time in a

0:14:19.200 --> 0:14:22.160
<v Speaker 4>long career in payments that we have seen technology that

0:14:22.200 --> 0:14:26.680
<v Speaker 4>can fundamentally upgrade the financial infrastructure. So we started on

0:14:26.720 --> 0:14:30.640
<v Speaker 4>these because we were experimenting with some of these protocols

0:14:30.640 --> 0:14:33.240
<v Speaker 4>five years ago and we were able to move value

0:14:33.320 --> 0:14:35.480
<v Speaker 4>for a cost that is the equivalent of twenty six

0:14:35.520 --> 0:14:38.120
<v Speaker 4>times cheaper than moving money from a bank account to

0:14:38.160 --> 0:14:41.520
<v Speaker 4>a bank account, and it's four hundred times cheaper than

0:14:41.760 --> 0:14:45.120
<v Speaker 4>moving money through a paper check. And if you believe

0:14:45.120 --> 0:14:48.080
<v Speaker 4>in physics, do you believe that the universe likes a

0:14:48.120 --> 0:14:50.240
<v Speaker 4>low energy state, And if there is a technology that

0:14:50.280 --> 0:14:53.120
<v Speaker 4>will let you move value twenty six times cheaper, that

0:14:53.160 --> 0:14:55.200
<v Speaker 4>technology eventually will see the light of day.

0:14:57.960 --> 0:15:02.160
<v Speaker 2>For businesses discovering and adopting this new technology, seeing the

0:15:02.200 --> 0:15:05.560
<v Speaker 2>opportunities and the changes it can spark. It's kind of

0:15:05.600 --> 0:15:07.880
<v Speaker 2>like the first time we use little pieces of plastic

0:15:07.920 --> 0:15:10.840
<v Speaker 2>to pay for lunch. It can feel like magic.

0:15:11.280 --> 0:15:13.480
<v Speaker 4>And when you think about the waves of innovation and payments,

0:15:13.720 --> 0:15:16.560
<v Speaker 4>the credit card is a very good example. You're moving

0:15:16.600 --> 0:15:19.520
<v Speaker 4>people to change their behavior. They need to understand that

0:15:19.720 --> 0:15:21.960
<v Speaker 4>the direct and of plastic that they're going to swipe

0:15:21.960 --> 0:15:24.400
<v Speaker 4>at a merchant is actually going to go against their

0:15:24.440 --> 0:15:26.960
<v Speaker 4>bank account and it's going to work well. Same thing

0:15:27.000 --> 0:15:29.880
<v Speaker 4>when you're tapping to pay at a grocery today with

0:15:29.960 --> 0:15:33.320
<v Speaker 4>your phone. There are billions of dollars who have gone

0:15:33.360 --> 0:15:36.760
<v Speaker 4>into habituating consumers to act in a certain way, and

0:15:36.840 --> 0:15:39.480
<v Speaker 4>when you're trying to change that behavior, you need to

0:15:39.520 --> 0:15:42.320
<v Speaker 4>provide a ton of additional value in the short term

0:15:42.360 --> 0:15:45.840
<v Speaker 4>for folks to change. We will see that with the

0:15:45.840 --> 0:15:53.480
<v Speaker 4>stable compayments as well.

0:15:53.520 --> 0:15:56.520
<v Speaker 2>Like credit cards seventy five years ago, stable coins come

0:15:56.520 --> 0:15:59.520
<v Speaker 2>with a new infrastructure that can break down decades old

0:15:59.560 --> 0:16:03.040
<v Speaker 2>opst to making everyday payments, and like so many people

0:16:03.120 --> 0:16:06.640
<v Speaker 2>have embraced a life without paper bills, Companies and consumers

0:16:06.640 --> 0:16:10.280
<v Speaker 2>today are realizing that stable coins could reshape our basic

0:16:10.400 --> 0:16:14.840
<v Speaker 2>expectations of how to move money. Thank you to Sean

0:16:14.920 --> 0:16:18.920
<v Speaker 2>Vanada and Jose Fernandez du Ponte. This is Evolving Money

0:16:19.040 --> 0:16:22.720
<v Speaker 2>a podcast from Coinbase and Bloomberg Media Studios. If you

0:16:22.840 --> 0:16:25.320
<v Speaker 2>like what you hear, subscribe and leave us a review.

0:16:25.760 --> 0:16:27.640
<v Speaker 2>I'm Maggie Lake. Thanks for listening.