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A Fintech Expert On Stablecoin Disruption And The Future Of Digital Payments
00:58:22
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- [00:01]
Host
Welcome to another edition of the Chit Chat Stocks podcast. We have a fantastic interview for the listeners today. There's been a lot of talk, there's been some legislation, a lot of press releases, product announcements around stablecoins and the fintech space, and it's become a huge point of discussion within the investor community. So that is why we wanted to bring on Jev from popular fintech newsletter, Fintech Expert, someone who's worked in the industry a long time. So, Jev, welcome to the show. And I have an introduction question from a Twitter user that I think can inspire the discussion and what we're going to talk about today. So thank you to the Twitter listener for saying this. Here's the question. I'm just a dude who works 80 hours a week, buys Starbucks on occasion, drives a Nissan Versa and caves in immediately in an argument with his wife because I just don't want to deal with it. What can stablecoins do for me?
- [01:01]
Jev
I'm really excited to be here. I think it'll be a great conversation. Should we jump into this question or let's try to make it a theme and arrive at the conclusion at the end.
- [01:15]
Host
Yeah, we could actually keep it as a teaser and we could start out with just what are stablecoins? But either way, however you want to go about it, maybe just explanation what they are, you go. You go with what you want to do.
- [01:30]
Jev
Sure, sure. Right, let's start what stablecoins are stablecore. Stablecoins are essentially a representation of money on blockchain, a token that is packed to specific currency, whether it's dollar or euro, and that can be used in blockchain. How I try to frame it is there used to be time when people would get the salary in cash, bring it to the bank, and the bank would essentially turn cash into digital money. And this digital money opened a whole magical world. You can buy stuff online, you can travel globally with your link debit card and spend your money and send it to your friends instantly over Venmo. So many, many, many things became possible because money became digital. And so if you think of stablecoins, you come to an issue, let's say circle. It doesn't really work like that with consumers, but let's assume it does, right? You come to circle with with your fiat money and circle gives you a token which is equivalent of your fiat money on blockchain. And then blockchain essentially opens up you a new magical world of possibilities that you can do on blockchain. Currently, this is very limited. You can send the money across the globe instantly can earn higher yield through lending protocols, maybe do a few other things, trade on decentralized exchanges. But this is the very essence. You're entering into the world of blockchains.
- [03:29]
Ryan
And maybe we can go back to that initial question, which is, and we're going to talk about the different industries where stable coins can maybe have an impact, but when we think about transactions and the use case here from our Twitter listener, where it's like just. I think he's painting himself as just the average Joe who wonders how are stablecoins genuinely going to impact me? What do you think are some of the nearest term applications for stablecoin adoption for in this case, the average Joe?
- [04:07]
Jev
Yeah. Yeah. So it is absolutely fair question. And a fair answer would be not much at the moment, right? It is still a hypothesis, right, that essentially the barrier infrastructure and openness of the system, so open architecture can allow us building better things that we have now. Those things are not built yet and I don't think we have even formulated what are those things. I typically hate analogies, so I will not bring the horse and the car. But let's take more recent example, the mobile phones. If you remember Nokia phones, I mean those were amazing phones. Could call anybody. Battery lasted a week or two. You could hammer nails if you wanted with that, right? So we're amazing devices. But then iPhone came, kind of also make the call, it was worse. The battery was dying in hours, network was dropping, but it had GPS and now we have Uber. So essentially the barrier technology enabled things that were not even possible before. And maybe us walking with Nokia phones around, we did not imagine not calling a taxi company, but making a few taps on the phone and then it's more, right? So data, they have more powerful processors, so kind of all the messaging and streaming became possible. But there was even more, right? So Apple opened the app Store and then essentially allowed, hey, look, come and build on that. And people started building all kind of crazy stuff on top of what was essentially a mobile phone. But it had all this technological capabilities, right? It could. Could process more data, process more faster, had a bigger screen, better resolution and so on. And I think we're pretty much there with stablecoins, right? So we are discussing kind of what to do with them. Current applications are pretty basic. In most cases, the existing experience is better, right, than the experience with stablecoins. But it is not about that. It's literally the superior technology, the open architecture that bring the hope that we will build better services on top of this infrastructure. So again, back to the question is like today, not much in 10 years. Probably a lot of things that we cannot even imagine nowadays.
- [07:08]
Host
Okay, well, I know the listeners of our show and they are probably interested in what could be the impact over the next 10 years and how it can impact any stocks in their portfolios. We can talk first, I think about how and how these things could work in looking at specific sectors. So I want to talk about how this is one that's close to my heart and Ryan's as well. So we're going to choose them first. Remittances. How could they affect the traditional remittance market?
- [07:38]
Jev
Are you Tim Remedley or Tim Weiss?
- [07:42]
Host
Both, right?
- [07:43]
Ryan
Yeah, both.
- [07:45]
Jev
All right, let's talk about remittances and just cross border payments. I think a brief intro of how money moves across the borders would help. I believe sometimes people kind of miss what's happening under the hood. In some cases people see the end consumer experience and make judgment that, hey, it's fine, you know, maybe it's fine for you as a consumer. It's not fine for a merchant or your issuer or somebody in the value chain. A great example is chargebacks and fantastic thing for consumers. Every merchant hates them. So let's start with remittances, right? And we can kind of transition to card networks and other payment trails that we have. So people use term, you know, use Swift to move money. Swift doesn't move the money. Swift is just a messaging network, right? This is a global network that helps banks and different financial institutions talk to each other through a set of standards. So I'll give you an example how I could, for instance, send you money in dollars over the existing Rails. So I come to my bank and say, hey, I want to send money to Ryan. Say Ryan has an account with Chase or my bank. To do that, they need to go to someone like Citi or JP Morgan or Deutsche or what we essentially call correspondent banks. Say, hey, we want to allow our customers to send money in dollars right across the globe. Suitable review, right? The bank, they essentially hold the keys. They can say, no, we do not trust your policies. We do not like your clients. That risky. We will not act as your correspondent bank. No, it's kind of, you know, it raises smiles, but it is a reality, right? There are a few large correspondent banks and they essentially control who gets to play who is not. So my bank essentially signs an agreement with Citi and then what happens is my bank opens an account in C. US and puts dollars in there. So when I Send now dollars to, to, to Ryan. My bank takes euro from me, right? Or converts them, sends a swift message to cd. You ask and tells, hey, send this money to Ryan. So Citi would take money from my bank's account with them, right? So it's just a entry on the ledger and would send it over domestic rail in the US to Chase account, right? So you see in, in reality the money doesn't move across the borders, right? It, it kind of, it was there in the first place, right? So my bank has to figure out how to fund that account, how to put the money on their account with ctus. So my bank's clients can send money in the US and imagine if you want to enable multiple currencies, right? You want to send Polish Lottie and Hungarian foreign and Mexican peso. And so you need to find city for pretty much every currency, right? And so on, right? So this is what we are up against, right? And then to Remedy and Vice, and I've been saying it quite frequently, my thesis about what Vice is building Remedy is a bit different. What Vice is building, they are essentially building a modern correspondent bank, right? They are, they are the city, cities crown jewel is its global network, right? They have banks in many, many countries. They have the licenses, they have the connectivity to local payment trails. This is why they can actually move the money for the corporate clients and they can offer it to other banks, right? So but the way Vice moves money is the same, right? They essentially have this pre funded liquidity pools and all the corridors. So they have the, in the US they have the money, I don't know in Philippines and have money in Mexico. So for you when you send the money to that country, they have the money locally that they could send over domestic cheap and fast rails, right? So for you as a consumer it's kind of magical. In reality it's pretty much the same thing. It's just what happened is that they don't have these correspondent banks in the process. It's their own process, right? They control how fast money moves and the messages moves. So they are essentially pretty much doing the same thing with the modern technology and better processes. But it's still the same thing. It still requires having those profundity accounts. Now let's look at if I send you money over blockchain, right? So I send you stable coins. Let's for now kind of put aside the question of on ramps and off ramps, right? Let's, let's assume that I have USDC and you have an address to send it to and I happen to know this address. So the money kind of actually does move, right? The money doesn't sit in any country. It doesn't care where I'm based, right? It's somewhere, somewhere on the blockchain, right? Across all the different computers across the globe. And the money actually does move instantly, right? So when my bank tells Citi, hey, send the money, it's actually just a message. The settlement happens the next day in the stable coin transaction. The money moves right away. Actually does move, right? Not some kind of entries between different ledgers. It really moves from me to you. Moves instantly, right. And that's it, right? That's the magic.
- [14:12]
Ryan
Okay, can I pause you there, Jeff? So let me kind of walk through this transaction as I'm understanding it. Basically, Jev, you open a wallet with a wallet provider, which I think that's basically like Circle or Coinbase or something like that.
- [14:32]
Jev
No, Essentially, yeah. So let's walk it through, right? So for now, you as a consumer cannot come to Circle and say, hey, I'll give you dollars, give me usdc, right? So you need to come to one of their partners. Coinbase is a huge partner for them, as everybody is now aware, and, and read the agreement, the revenue share agreement, right? So you come to Coinbase and say, hey, you deposit Fiat over local rails, for instance. In Europe they use Sepi instance. So for me, you know, topping up my Coinbase account is instant and I can convert on Coinbase, my Fiat into USDC and then I can move it to my self custodial wallet on Blockchain. What happens under the hood is actually Coinbase at some point comes to Circle, says here's Fiat and Circle mints those tokens and sends them to Coinbase's exchange address. And then I essentially buy from Coinbase already prem inted stable coins, right? But I guess maybe in the future, right, so there will be a process to buy stable coins directly, right, that you could essentially come to Circle, send them fiat and they would give you back stable coins, right? And the opposite way, right, you send them stable coins, they give you back fiat, right?
- [16:13]
Ryan
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- [17:15]
Jev
Exactly. Yep, yep.
- [17:16]
Ryan
And then on the whoever's on the other side, they can pull from USDC in their through their custodian USDC back to whatever their fiat is.
- [17:25]
Jev
Exactly.
- [17:26]
Ryan
And I know we didn't want to talk about the on ramps, off ramps they're holding off, but. But is there. Because that sounds like it's zero cost essentially like that. Specifically going from wallet to wallet. What about going from taking the money out of your custodian to your bank account? Is there going to be friction there?
- [17:51]
Jev
Yeah, it is. Right. And this is one of the arguments, you know, hey, we don't talk about the cost of on ramp and off ramp, right? Because I mean, okay, I sent you usdc, but you really don't have kind of where to spend it, right? So you'll still probably need to convert it and your exchange would charge you money for that. That's clear. Right. So but let's kind of think a bit ahead, right? And I'm kind of trying to paint a bullish thesis, right? I think there are plenty of bear thesis on Twitter, you know, you don't have to look far. So I'm being a bit optimistic, but I'm kind of being open that this is still a thesis. Let's say over time there's higher adoption of stable coins, right? So what if, you know, companies start paying you in USDC and you can spend this USDC either through a wallet or a card that is linked to your self custodial wallet. So why would you even convert to fiat? Right? It's essentially if you get the money in stablecoins because for your employer it is more convenient and you can spend it, then the need of this on rampant off ramp kind of disappears, at least partially. Right. And second part, this on ramp and up ramp is somewhat similar to a fixed transaction in the fiat world. Right? And then if there is a demand there will be competition, Right? Because it's not such a difficult transaction. Yes, you have to do probably KYC to to do that. But but in reality, you know, it should be pretty simple to do. And and then essentially the cost of of of these on ramps and off ramps will go down right? Where where. So I I expect these two things to happen, right? So the need to to. To to convert from fiat to to stable coins to to also the cost of on ramps and off ramps to decrease.
- [20:08]
Host
Interesting. So maybe the players that are already trying to drive down fees can benefit from this if they take on stablecoin adoption. And then I guess, correct me if I'm wrong, but would you say the number one thing that stablecoin issuers want to do is get stable coins accepted as a form of currency at or a form of payment at your local grocery store, any online payment terminal. That's the key to actually building this ecosystem. Which leads me to how this could impact the credit card networks and merchant acquiring store terminals, the existing you know, business to consumer payment process.
- [20:57]
Jev
Absolutely right. So stablecoin issuers particularly let's say Circle, which is now a public company, so you can look look up how they make money. They currently in the current setup they they just make money from from the interest that they earn on the reserves, right? So when you give them the the fiat and they give you back the USDC token, they don't keep this money in in fiat. They put them into certain treasuries and deposits with with the banks and and they earn the interest on those funds. So so for them kind of the the key metric is how much USDC is in circulation, right? And and, and and and currently it's something like 61 billion, right? Probably total market cap of of stable coins is 250 billion. This is nothing, right? This is this is still kind of limited adoption, right? So that people use stable coins, right? So clearly they are motivated in in, in in in increasing this adoption because then they would have more reserve earn more more more interest on on on those reserves. And then you touched on very important parts, right? So so someone is also interested in in distributing. So for instance, Coinbase allows for free conversion from Fiat to usdc, right? There is a kind of Circle is clearly paying them, right? And and through through, through this revenue share agreement, right? But but Coinbase is also playing a long term game, right? They they want want want to give it in in in the hands of of customers, right? Trying let them kind of experience it let them start exploring what are the use cases. Give it in the hands of of companies developers, everybody around, right? It's it's they, they even kind of pay rewards, right? They cannot pass the yield, but that would pay you rewards for holding usdc, right? It's again, kind of essentially the goal is very simple to drive that option. Right? So let's get into the hands of as many people as possible and let's build around it.
- [23:06]
Ryan
Okay, so I think I'm following and to kind of relay this back to the initial Twitter question, which is like, how does this impact the lives of the individual person? There could be a world in which he mentioned that he buys Starbucks on occasion. He could go up to Starbucks, pull out his Coinbase app, which holds his wallet, which holds usdc. We've got you. You've described the process in what it takes to get fiat to usdc and you've mentioned that Coinbase does it for free. He could potentially, theoretically here, if Starbucks were to accept USDC payments. I don't know if they've ever announced anything like that, but let's say they did. He could then pay. It's instantaneous transfer. There's no. You strip out the 2.5% or whatever it is from Visa and MasterCard and then Starbucks has USDC. And in a world where everyone's accepting USDC, they can then pay their employees with that essentially. But whatever that off ramp is for them, that's.
- [24:16]
Host
How did you, how do you accept the payment? Because those businesses aren't going to exist without those fees.
- [24:25]
Jev
But let's touch on that, right? This, this is also important question, which I believe sometimes is, is sort of misunderstood. So let's start with acceptance. Right, so you're absolutely correct. Right. So currently there is a lot of experimentation of how to, how to enable stablecoin spend. Right. So how I sent you usdc, how do you spend it? Of course, I mean, the trivial application is that, hey, let's give special QR codes to merchants and you would pull up like Coinbase Wallet with your usdc and that would be like. But this is not how retailers work. Ask if any merchant or retailer would want another terminal in the store. And then they need to somehow reconcile all the stuff they spend decades trying to build the processes of how they reconcile all the transactions. They really don't want to do it. So there are some kind of adventurous folks. Coinbase had this campaign of hey, let's, we can buy coffee with usdc. But like, practically, you know, for merchants, this, this is a dead end. So another dimension of this experimentation is that people are building cards that actually work off your USDC balance. So Think of a debit card, right, that is linked to your bank account. In here it would be linked to your self custodial wallet or non self custodial but still a wallet, right? So you, for the merchant, nothing changes, right? You top a card under the hood, you know, you're charged usdc. Your issuer of the card settles with Visa in usdc, which is either Bitcoin possible. Visa allows issuers to settle in usdc and then the merchant can decide how they will want to get the money, whether they want it in fiat or they want it in USDC too. Right? So, so this is kind of the next evolution, right? So we still use the card Rails and all the POS terminals, right? And all the kind of reconciliation infrastructure that is built around post terminals and, and card acceptance. But underneath that would be not fiat but, but stable coins.
- [27:09]
Ryan
Okay, so I think I'm following. So my, I guess my next question would be what if I like my credit card rewards? Like I know it's, it's still maybe the merchants save some money in that transaction, but as a consumer I like my credit card rewards. Is it possible for those card issuers to offer some sort of incentive program like that? Sound the alarms. New Sponsor Alert this episode is brought to you by TSOH Investment Research. TSOH is run by recurring guest and friend of ours Alex Morris. Inside his research service, subscribers get access to 6 high quality stock research reports per month, including initiation reports as well as regular updates on current TSOH holdings and watch list stocks. Plus there is 100% portfolio transparency on the service. This coverage includes companies like Airbnb, Celsius, Roblox, Netflix and many others. TSOH is a premium research service. If you are serious about investing, this is like outsourcing. A professional analyst, we read his write ups every week and to be totally honest, I lean on him for quarterly coverage on many of the stocks I own. If you are interested, head on over to the science of hitting dot com. The link is in the description. Again, that is the science of hitting dot com. All right folks, if you are a regular listener to Chitchat stocks, then you know that we use Fiscal AI, formerly known as FINAT Daily. Fiscal AI is our complete stock research terminal. It's where we have our investment dashboards. It's where we create financial charts. It's where I read all the transcripts for conference calls, sell side events, shareholder meetings. And it has Morningstar's high quality reports on more than 1700 companies. It really is the complete research platform for stock focused investors. If you use our link fiscal AI chitchat, you will automatically get two weeks of Fiscal Pro for free. And if you find that it's worth upgrading, which I think you will, you'll get 15% off any paid plans with our link. Again, that is fiscal AI chitchat. The link will be in the show notes.
- [29:21]
Jev
Now let's talk about the rewards, right? Because somebody is paying for the rewards, right? So let's walk a bit, you know, through where the rewards come from. First of all, that's the merchant, right? So they pay to the acquirer. Buy scheme rules. Part of this fee goes to the issuer, right? So essentially your bank that issued you a card, this is what's called interchange, so they can share some of that interchange that you earn with you in the form of rewards. And this could be not kind of even distribution, right? So you need to hit certain threshold, right? So they would earn interchange on every transaction, but only if you spend, I don't know, 5k a month, then kind of your rewards start making any sense, right? And then you can do something. So essentially the high spenders get the benefit, the low spenders don't, but bank gets the interchange every time. Then there is second part, right? So this is essentially revolvers funding transactors. So in credit cards there are typically two types of customers, those who pay off the balance and those who don't. And then essentially the bank or your issuer starts earning interest and you can use part of that interest to create rewards. And there is monthly fees or annual fees, like in case of Amex, right, that compensate part of those rewards. Then there are special deals with merchants again, right? So for instance, Amex comes to, I don't know, a restaurant chain and says, hey, we will promote you in our rewards program, but you need to give us 5, 10% discount for our members, right? So essentially you see, kind of all of these things are paid by someone, right? This kind of money doesn't come out of the air, right? And part of it comes from the merchant. You know, there is nothing in the scheme that cannot be replicated on blockchain, right? So recently I wrote about Coinbase Commerce payment protocol, right? Where essentially Coinbase worked with Shopify and they said, okay, this simple wallet to wallet transactions don't really cut it for merchants, right? The commerce is a bit more complex. You know, sometimes you have to refund transactions, right? There has to be some kind of fees paid in this transaction, right? So this simple account or kind of wallet to wallet transaction and they build the whole protocol and this protocol has all this mechanism, right? They have a mechanism to charge a merchant for accepting usdc. They have a mechanism to reward an issuer, right? The same way as issues are rewarded. So back again to your question and sorry for long intro, but I think it's worth revisiting how those rewards kind of happen to be. There's nothing that cannot be built on blockchain, right? And currently we already start seeing things like coinbase Commerce protocol that does pretty much all that out of the box. But you don't have the network in there, you don't have the time lag between the authorization and the settlement, right? So there is no cost of money, there is no credit risk, right? Because sometimes issuers fail, right? Sometimes acquires fail. All kinds of things happen before the transaction is settled. All of that is gone because the transaction kind of the value moves immediately, right? So and these are just kind of very basic benefit of stablecoin and running it on blockchain network, not on visom. What's the card, right? This is something that is obvious very on the surface, right? We haven't even touched the programmability, we haven't touched the open architecture of that. This is purely kind of one to one, right? Like hey, you can build all of that just in kind of instant settlement, right? So completely eliminating lots, lots of risks and costs on the way it we've.
- [34:13]
Ryan
Described or you've described sort of the ways in which it could be used for transactions and we've primarily been talking about USDC as sort of our example stablecoin here. Who else, what other organizations or startups or whatever should, should or could be launching a stablecoin. Can anyone launch a stablecoin?
- [34:36]
Jev
Pretty much yes. And there is even more. Anybody can launch a chain to run this Stable Coin on. So USDC is second largest, the biggest one is still tether, right? So I think the positioning of the two is one is we are for freedom and self custody and what's not, right? So USDC says we're the most compliant Stable Coin. So example is that in Europe we now have the regulation MICA and then TETU decided that they don't want to be compliant and so exchanges cannot even offer you that, right? So in Europe you have to use one of the compliant ones and that is UHC is fine, but then PayPal has its own stablecoin, right? Py, USD, Robinhood with few other partners just kind of launched together with Paxus Global dollar, right? So usdg quite, quite a few of them, right? So it is not that hard to launch them, right.
- [35:45]
Host
And I saw, I saw that Amazon and Walmart were quote unquote exploring, launching a stablecoin. Or is that. Was I reading that article incorrectly?
- [35:55]
Jev
No, you're correct. But somebody replied to that. Of course there is like a huge payment simulation in Amazon. It's their job to explore it, right? If, if, if they can cut costs, they have to explore, right? It doesn't.
- [36:06]
Host
Huge, huge cost for them.
- [36:07]
Jev
Yeah, exactly. But, but it is still kind of network is still a huge cost for them, right? So. And, and of course they are curious how, how to eliminate it. And then of course they explore. I think what, what occupies my mind is that, you know, Visa is not sleeping, right? Visa is, is this innovation. They are experimenting with issues, right? Experimenting, kind of investing in companies that, that experiment on blockchain and stable coins. And I'm thinking that, that maybe, you know, Visa will actually launch its own blockchain. So it would essentially instead of living this kind of the opportunity to somebody of building it on Ethereum or on base and using USDC visual say, hey, here is the compliant blockchain. All the benefits of instant settlement, you know, 247 availability, all that. But you know, with the quality stamp of Visa and the funny part that for them it will actually be super, super easy to decentralize it. They can enforce that every issuer and every acquirer has to run a node if they want to participate. So you know, if they decide to do it, I think, you know, they can.
- [37:35]
Host
Right? They have a lot of acceptance around the world and a lot of cards already.
- [37:38]
Jev
Exactly. And exactly right. And they will say, you know, same rules, but you know, we don't use those kind of domestic Rails and the messaging system, the Visa Net that we built, we will just build it on blockchain and kind of keep that opportunity to ourselves.
- [37:57]
Host
Interesting.
- [37:59]
Jev
It is one of the scenarios, right? Because you see, I mean Robinhood said that they are launching their own chain. So probably there will be many, many chains and go figure who will win essentially, right?
- [38:12]
Host
That one makes sense for especially trying to tackle the international market. Now what I see a lot of announcements around stablecoin issuers trying to, I don't want to call it exactly replicate, but that's sometimes how you can see it. They're getting, trying to get bank charters or they're buying bank charters by acquiring companies. Why are they doing this and are they trying to just replicate the existing financial system with more efficiencies? Is that the end goal here?
- [38:49]
Jev
Here's my, maybe my Take, right. So in the US in order to access fedvire, right, which is how banks move the money between themselves, you have to be a bank, right? You as a fintech cannot get access to that. Right. It's just, just a requirement. You, you need a banking charter and then there is a separate application, right, with the Fed to get the master account. And that, that gives you a lot of flexibility. So if you think of Circle, right, let's, let's leave aside all the, all the kind of regulatory requirements and so on. Just, just for them, getting a charter, getting access to the local rail means that they can do on ramp, off ramp with, without any partners, right. You can send them fiat your dollars, right. Or from your bank, they'll send you back us to see, right. There is nobody. So essentially they will control the whole value chain of on ramps and off ramps because they have this access. And I believe this is kind of one of the key reasons why they do it, right. At least this is absolutely. Why does that. Right. They want this access, right. They don't want to have a partner in between them and the local US Rail, right. As I said, eventually when it doesn't move across the ocean, it kind of stays where it is. It's purely accounting entry, but it does move domestically over domestic rail. So for Vice, this is really accessing the payment trail to enable those cross border transactions. For Circle, I believe it is to enable on ramp and off ramp without having anybody in between.
- [40:35]
Host
Right. And I could see, I guess I'm just kind of spitballing here, some of these modern remittance players trying to adopt, you know, USDC or something like that within their process, is that going to turn into a competition or could they be collaborators?
- [40:53]
Jev
This is one thing that I actually don't understand. So Christa was asked in one of their next calls how they see use of stablecoins in their business and he said something like, when we will see that this can improve the quality of our service or drive down the cost for our customers, will explore it. But there is nothing to report on this subject right now. So essentially he was saying that, you know, no, the way we do business is still better than what table Coins can enable us to do. I've heard, you know, Vice's compare Rolex, right. The founder wrote, wrote a tweet that, you know, he doesn't see a value in stable coins. Right. A very heated discussion that kind of people trying to persuade him, you know, why there is a value. Right. And he's pushing back, right, because he clearly understand this business very, very well. Right. And, and then just what like yesterday or the day before, you know, people spotted a few open job job openings at Air Wallace hiring for stablecoin engineers. So at least they will start experimenting. Right. But again back to my thesis, right. I think there is absolute value for this companies at least to enable this internal money movement. Right? That may be, yes. For kind of the last mile will run on the local rails, but them kind of moving the money across Vice UK Device US or Vice India can, can definitely work on, on, on, on blockchain.
- [42:39]
Host
Right. Especially if their whole value proposition is we're trying to reduce costs as much as possible compared to Western Union or the, or the big banks.
- [42:46]
Jev
Exactly, exactly. Exactly.
- [42:49]
Host
All right, now you're talking about rapid adoption of or not rapid adoption, but adoption across let's say the United States. We'll use that as an example. You what does the US government do about this? Maybe you don't know or have like this is maybe kind of a curveball in the situation. But would they argue that they already have, we already have a digital currency called the US Dollar. Would they be okay with this? Like if trillions and trillions of dollars were USDC and convert into that and that's where all the power was.
- [43:29]
Jev
Yeah, but you see kind of the current administration is very pro crypto. Right. I mean the Genius act was passed. You know, there is more legislation coming essentially building the legal basis for stable coins. I mean banks now can do crypto. Right. So Sophie is back in the game. Right. So clearly they will try to, to become on ramps and off ramps to stable coins. Right. Especially as stablecoins kind of find their use cases and find the adoption. Right. This is why I was saying that the cost of on ramps and off ramps will go down because every bank can essentially pretty quickly spin up on ramp and off ramp and the tech is there, the, the legal basis is almost there. There's no hostile regulator anymore to prevent that. Right. So they would participate in that. But again it is really, really, really early start. Kind of the main thing is adoption. Right. So what is it that will make, you know, spend USDC instead of fiat that on buying things and, and what is it that that will make companies, you know, pay salaries and, and use the CEO over, over fiat and and so on.
- [44:59]
Host
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- [45:44]
Ryan
So going back to the discussion, we talked briefly about Visa and how it could potentially be implemented there. We got a lot of questions about Visa and MasterCard, as you might imagine, since they seem to be. Everyone seems to think they're at risk in the stablecoin world, which I guess sounds possible, but let's say Visa did become the disruptor to themselves in this case. Does it? Wouldn't that really hurt their existing business?
- [46:17]
Jev
I think, I think it would. Right. But again, let's step back and discuss very briefly how Visa and MasterCard actually work. So Visa and MasterCard are somewhat similar to Swift. They are the messaging networks for you as a consumer. The transaction seems to be instant, right? You swipe your card or put it in the post terminal, the transaction is done. In reality it's just messages traveled around the globe and there was a handshake between merchant and the issuer that the money will come, don't worry. But then there is the settlement process where Visa calculates who owes whom across the globe and then starts moving that money over the same rails as everybody else. They move it domestically over domestic Rails. They use correspondent banks to kind of seal the move the money across the borders to actually settle that transaction. And then in the US and Europe the settlement is super fast. And in Brazil, credit cards are settlement 30 days. Right. So, and so you see essentially they're doing the same thing as banks, sending money over swift, as we say it, right. So there is this cost and I wrote, I believe yesterday, right. That they report cross border transactions, right. This is one of the key drivers why it is costly for them. It is more difficult for them to move the money across the borders. And they charge extra for that. They charge extra for that. Acquirers charge extra for that. And then essentially blockchain would eliminate this bit. Right. There is no reason why it should be more expensive than a domestic transaction. Right. If this transaction is actually settled over blockchain rail and there is no objective reason, so anybody could go and challenge why are you still charging us actually for that? And this is not only Visa and MasterCard. PayPal. Right, PayPal for PayPal. This is also very critical revenue source, right. If you try to multiply how much money they make on extra surcharge for cross border, this is an important part of the transaction margin, right? So I think kind of this is very simple, very straightforward, kind of pretty much next evolution step, right? So somebody will do it, right? If not themselves. And clearly they have very limited motivation to do it. So probably need to have some kind of trigger to that.
- [48:57]
Host
Yeah, little kick in the butt for that.
- [49:00]
Jev
Well, I mean, you see it's still a league of poly, right? So maybe who blinks first, right? And then maybe Master will, right? Because there is still a competition between the two, right? Maybe amex will create some kind of bare rail, right? Because amex still in Europe, they are a challenger. They don't have the coverage of Visa, MasterCards. Right. Maybe they will make it kind of their application. So I really think that the kind of few years ahead will be super exciting.
- [49:36]
Host
And, and yeah, I mean, sounds like there's a lot of uncertainty, a lot of paths for change within payment transactions. I think we, that's all our questions regarding stablecoins and the payment landscape. We got to get 45 minutes there. I think listeners will really enjoy that. We have a couple follow ups on your broader fintech coverage. The first one I have, and then I'll let Ryan go after this. What is an important, important topic in fintech or payments that you believe we aren't talking enough about today, say as the investing community?
- [50:12]
Jev
One thing I still don't understand, why people, why there are no more people moving from banks to fintechs, right? There kind of maybe first few years, right? Maybe even like first decade. We were saying it's, it's an actor, right? Like we kind of people used to bank with the bank. You know, they, they got their account when they were a teenager. So there's some loyalty. But so, and then there is kind of, it's still an effort to change your bank, right? Even if somebody else is paying high, higher rates. So what, what is it? Right? Because, because like it's been like what, over a decade now, right? And it, it is still working, right? So, so bank of America laziness maybe, right? So, so bank of America is like their, their average cost in, in retail banking is like 60bps.
- [51:14]
Host
Yeah. Well, I'll give you a anecdotal example. I still have an account at bank of America, but I Try to minimize as much as possible the amount of money I hold there because I think I still get direct deposits to that account. So I don't think I'm actually making them much money. I transfer most of it to an actual high yield savings account and try to use, you know, whatever, maximize my personal finance stuff in that, in that way. But I totally understand where bank of America provides a terrible value proposition if I'm going to fully use them for my personal finance needs. But hey, I still have an account open.
- [51:55]
Jev
Yeah, but, but you see, kind of you are an exception. Clearly the data tells you that you are an exception, right? They have, because you're just exactly right. Trillion deposits, you know, some of them like not paying anything, right? And literally, you know, money sitting on accounts, running nothing. And, and people still don't, don't switch, right? So, so this, this is something that I kind of don't understand, right? Okay. There is probably some risk, right? But, but in the U.S. you know, kind of still, it's not like in Europe, we have mostly money institutions, right, which have different kind of protection, right? I mean fintechs like Chime, they, they still bank under the hood, right? And you have your FDIC protection, right, In a high yield. Why people don't move, right? Why more people haven't moved, right? Why chime has only 8 million customers. Like, what is going on? And I really don't understand, right. And I haven't found a very reasonable answer. Right. Some time ago it was still, okay, people lazy, they're not aware, don't trust. But come on, enough time has passed for people to realize that they're just leaving money on the table and they still don't switch.
- [53:11]
Host
Yeah, I, I'm with you there. I. My hot take is that those banks are either gonna have to change their business models and earn less or they're going to be at least on the consumer side of things, slowly dying businesses. Let's get the last question.
- [53:24]
Jev
Maybe generation, right? Generation needs to change, right? So that's kind of for Robin Hood. It's a big bad, right, that, that the, the younger generation who grew up on, on Robinhood will inherit the money. So probably the same with all those balances in bank of America and Chase that pay nothing, you know, so maybe this is what it takes.
- [53:43]
Host
Okay, now here's our last question before we get out of here. You've said that E Commerce creates a strong foundation for payments. What are some companies that have capitalized well on this and what companies have struggled?
- [53:57]
Jev
Yeah, affirm, affirm. Is a great example. Right. So Affirm is essentially two things, right? The credit underwriting capabilities, right. That they can underwrite in real time a transaction, not the customer credit companies, right. They really score every single transaction and they can make a decision whether to underwrite or not. But second part is distribution, right. I mean they are just distribution kings, you know, I mean they, they've done deals with, with every retailer that, that was kind of worth making a deal with. And, and, and so and, and, and and why this is magical because you are at the right moment, right? So the person is, is, is found the thing that they want to buy and they are buying, right? And, and we're there, right? This where we need the money, right. We don't when kind of watching TV or something we think about it in very special moments and shopping is one of them. Right. So Affirm is a very good example. And if we go outside of it then Latin America clearly Ricardo Libre, right? Southeast Asia Sea with the shopee. They are the e commerce platform. They are there with the customers when customers make a purchase and they are there to offer them the loans and what's not.
- [55:23]
Host
Right.
- [55:24]
Jev
It's just that in the US somebody else is filling this role. Not Amazon.
- [55:30]
Host
Yeah, it's interesting that Amazon was not able to capitalize on that but I guess they have very strong relationships with. Who is it? Well, Visa with the Amazon card and just Stripe for processing.
- [55:45]
Jev
Yeah. And you know, kind of a firm filled, filled the void of lending at checkout. Right. So and I think they did it really well. Right. Maybe in some of the markets, you know there was just nobody else to provide this function. And so the e commerce platforms had to build it themselves or they saw an opportunity. Right. And Amazon saw a competition and decided that they will do it better.
- [56:14]
Host
Okay, before we get to the disclosure and get out of here, tell the listeners brief elevator pitch about the popular Fintech newsletter. I see some articles on there recently posted that I think are quite interesting. How Coupang missed the fintech opportunity, how Mercado Libre built a fintech empire stuff I think our listeners will very much enjoy. So what is it? And for anyone interested the link will be right in the show notes.
- [56:40]
Jev
Yes, I write about publicly traded fintech companies so really go, go deep, you know into the business model, into the financials, right. So how they make money and kind of trying to catch the trends or the change in the landscape that would help them make more money. Right. So recently I explored e commerce platforms, right. Like Coupang and MercadoLibre. But I wrote about PayPal, I wrote about block and add in and pretty much every publicly traded fintech companies is covered there. So that's a place if you want to learn about these companies and if you want to, to catch those kind of moments of change, right, where something is happening, which I believe kind of I notice and try to explain.
- [57:38]
Host
All right, wonderful. Jev, thank you once again for joining the show. We knocked another country off our list for guests in Estonia. So glad you were able to join from halfway around the world. But let's hit the disclosure and get out of here. We are not financial advisors and then we say on this show was not formal advice or recommendation. Ryan Irony Podcast guest may hold securities discussed on this podcast, may have held them in the past and may buy, sell or hold them in the future. Thank you to all the listeners for tuning in once again and we'll see you next time. Mama Papa.
- [58:23]
Ryan
Mi cuerpo crece a un ridmo al armante. Il arro PA que comprento.
- [58:35]
Host
Amazon.
- [58:37]
Jev
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