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

Summary

Foundering Podcast Summary: “Evolving Money: A Faster, Cheaper Way to Pay”

Release Date: January 16, 2025

Introduction

In the January 16, 2025 episode of Foundering, hosted by Bloomberg, the focus shifts to the transformative potential of stablecoins in the global payments landscape. Titled “Evolving Money: A Faster, Cheaper Way to Pay” and produced as sponsored content by Coinbase and Bloomberg Media Studios, this episode delves into how stablecoins—cryptocurrencies pegged to fiat currencies like the US Dollar—are poised to revolutionize the way individuals and businesses handle payments and store long-term value.

The Evolution of Payment Systems

The episode opens with a historical perspective on the progression of payment methods, tracing back to the mid-20th century. Jose Fernandez Diponte, Senior Vice President of Digital Currencies at PayPal, recounts the origins of the credit card industry:

“The invention of the credit card was a major update to how people and businesses make payments. And as payments went digital in the 21st century, everything seemed like it got even more convenient. But we also deal with the fees and delays that come with that convenience.”
[05:28]

The narrative highlights Frank McNamara’s 1949 introduction of the Diners Club card, an innovation that laid the foundation for modern credit systems. Dr. Sean Venotta, financial historian and author of Plastic Banks, Credit Cards, and the End of Financial Control, provides context:

“If you were well off, you shopped at fancy department stores, you would be familiar with metal tokens that were called charge plates that you'd be able to use to charge goods. But it was always built around individual relationships with specific stores that you had to build up over time.”
[03:59]

This historical backdrop sets the stage for understanding the current shifts in the payments industry.

The Rise of Digital Payments and Emerging Challenges

As the world transitioned to digital payments, the conveniences came with inherent drawbacks such as high transaction fees and lengthy settlement times. Diponte emphasizes the inefficiencies that persist despite digital advancements:

“Now we may be at the beginning of another shift that's just as big as the one that started when Frank McNamara debuted the Diners Club card. Thanks to a new kind of digital currency.”
[05:31]

Embracing Stablecoins: Diponte’s Journey from Skepticism to Advocacy

Diponte shares his initial skepticism towards cryptocurrency, which transformed as he witnessed the practical applications of stablecoins:

“I've been in crypto since 2015. I was very, very skeptical walking into it. The first use case that I had on crypto was in payments and it was about moving money cross border between bank accounts using a blockchain layer. I was looking at the account where money was leaving and then the account where money was arriving and it was five minutes from one place to the other across 9,000 miles of ocean. This is something that you could not do before. I think it was the moment that brought it to life for me.”
[06:18]

Stablecoins, pegged to stable fiat currencies and backed by reserves, offer several advantages:

• Speed and Efficiency: Transactions settle in seconds rather than days. Diponte illustrates this with a comparison:

  “If I can send the same amount of money on a stablecoin on a high throughput blockchain, what is going to happen is the payment will settle in seconds, not in days.”
  [08:04]

• Reduced Costs: Lower transaction fees make cross-border payments more affordable.

• Programmability and Interoperability: Enhanced flexibility in financial operations.

• Stability: Pegging to fiat currencies minimizes volatility, making stablecoins reliable for everyday transactions.

Benefits of Stablecoins in Cross-Border Transactions

The conversation underscores how stablecoins address the limitations of traditional payment systems, particularly in international contexts. Diponte provides a real-world example:

“I was talking a few weeks ago to someone who was using a stablecoin to send value from their wallet in the U.S. to a relative in Malawi in Southern Africa to a local wallet. And they did the experiment of sending the stablecoin on one side and then sending the money on traditional rails. The person on the receiving end ended up with 40% more on their local currency just because it was not only faster but it was more liquidity on that side and they could get a better exchange rate.”
[09:07]

This example highlights significant benefits:

• Increased Speed: Immediate transfer of funds regardless of banking hours.
• Enhanced Exchange Rates: Better rates due to higher liquidity.
• Reduced Counterparty Risk: Eliminates the need for pre-funded local accounts, mitigating risks in unstable markets.

PayPal’s Strategic Move into Stablecoins

PayPal’s aggressive push into stablecoin adoption marks a pivotal moment in the payments industry. Diponte discusses PayPal’s launch of its proprietary stablecoin, PayPal USD, and its integration into the existing payment ecosystem:

“Earlier this year they launched a proprietary stablecoin pegged to the US dollar, PayPal USD. Because this is not going to be a hack, this is going to be a tool in the toolbox of the CFO and it should coexist with the instruments and the platforms that they are using today.”
[11:07]

PayPal’s extensive merchant network—36 million merchants—positions the company to facilitate widespread stablecoin adoption by providing a trusted and familiar platform for businesses to transition seamlessly.

Case Study: Fig Tree Pots

A compelling case study featured in the episode is Fig Tree Pots, a small ceramics business in Austin, Texas. Rene, the CEO, illustrates the transformative impact of stablecoins:

“When you are offering an alternative. I mean, her eyes lit up Saying, okay, so you're telling me now they can pay me in this stablecoin instrument. I can receive that in the wallet that I do all the time, I can send it quickly to my bank account and I can get that additional business.”
[13:00]

By adopting stablecoins, Fig Tree Pots can overcome barriers to international payments, enabling the business to tap into new markets without the complexities and costs previously associated with cross-border transactions.

PayPal’s Vision for the Future of Payments

Diponte reflects on PayPal’s long-standing role in the digital payments revolution and its current trajectory with stablecoins:

“Over two decades ago, PayPal was at the forefront of the financial system's shift to a digital cashless world... PayPal is taking another huge leap forward, but with an eye toward practical adoption of this game changing technology.”
[13:42]

He contrasts ideological motivations behind blockchain with PayPal’s pragmatic approach, emphasizing the company’s focus on enhancing financial infrastructure:

“We started on these because we were experimenting with some of these protocols five years ago, and we were able to move value for a cost that is the equivalent of 26 times cheaper than moving money from a bank account to a bank account. And it's 400 times cheaper than moving money through a paper check.”
[14:05]

Overcoming Behavioral Shifts in Payment Technologies

Diponte acknowledges the challenges in altering entrenched payment behaviors, drawing parallels with the adoption of credit cards and digital payments:

“Think about the waves of innovation in payments. The credit card is a very good example... When you're trying to change that behavior, you need to provide a ton of additional value in the short term for folks to change. We will see that with the stablecoin payments as.”
[15:11]

He underscores the necessity for stablecoins to offer immediate and tangible benefits to encourage widespread adoption, much like previous payment innovations.

Conclusion: The Promise of Stablecoins

The episode concludes with Diponte’s optimistic outlook on stablecoins reshaping the payments ecosystem:

“Like credit cards 75 years ago, stablecoins come with a new infrastructure that can break down decades-old obstacles to making everyday payments. And like so many people have embraced a life without paper bills, companies and consumers today are realizing that stablecoins could reshape our basic expectations of how to move money.”
[15:53]

Closing Remarks

“Evolving Money: A Faster, Cheaper Way to Pay” offers an insightful exploration into how stablecoins are not merely a technological innovation but a fundamental shift poised to address longstanding inefficiencies in the global financial system. Through expert interviews and real-world examples, the episode paints a comprehensive picture of the potential for stablecoins to mainstream and revolutionize the way we handle money.

Thank you to Sean Venotta and Jose Fernandez Diponte for their contributions. This episode of Evolving Money is produced by Coinbase and Bloomberg Media Studios and is part of the Foundering series.

Transcript

[Maggie Lake]

Because you're a subscriber to this Bloomberg podcast, we thought you'd be interested in a sponsored podcast called Evolving Money. Produced by Coinbase and Bloomberg Media Studios, it explores how money has changed over the centuries and whether cryptocurrency is just the next logical evolution of how we pay for things and store long term value. Here's a recent episode.

[Jose Fernandez Diponte]

I never set out to make a radical lifestyle change. I couldn't even tell you when it took place exactly. It just sort of happened. I went cashless. I remember when I'd have to hit the ATM on my way to work. These days I pay for my morning coffee with my phone and I tap my credit card when I pick up my dry cleaning. In fact, I hardly ever touch paper money. And this cashless system makes paying for stuff feel totally seamless. Until I start spotting the scenes like a sign at the corner store telling me that I'll be charged an extra 3% if I pay with a credit card. Or that painful moment when a client just paid me for the work I did, but the bank needs another week to get that money to me. So I've been wondering, is this the best our cashless system can do? And thankfully the answer is no. It turns out the payments industry is moving into a new era of the cashless economy. This is Evolving Money From Coinbase and Bloomberg Media Studios, I'm your host Maggie Lake. On this podcast, we take a different look at cryptocurrency. It's been cast as a radical departure for the monetary system. But what if it isn't radical at all, just the next logical evolution of how we pay for things and store long term value? Along the way, we'll explore how money has changed over the centuries and look for lessons that might predict its next evolution. In this episode, we're talking about stablecoins. That's the term for cryptocurrencies that are pegged to a fiat currency like the US Dollar, which can make them a powerful medium of exchange, changing the way people move money around the world. Today, companies are using stablecoins to dramatically shrink transaction fees and cut settlement times as they take customer orders, pay their suppliers and cover day to day costs. To learn how this works, I'll talk to Jose Fernandez Diponte, Senior Vice President of Digital Currencies at PayPal, about how stablecoins are helping multinational companies and small businesses mass match the 247 pace of today's financial world. To understand how we got here, I want to share a 75 year old story about an innovation that Set us on the path to a cashless world. In 1949, businessman Frank McNamara walks into the Major's Cabin Grill.

[Dr. Sean Venotta]

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

[Jose Fernandez Diponte]

That's Dr. Sean Venotta, financial historian and author of the book Plastic Banks, Credit Cards, and the End of Financial Control. So in the story, the check arrives for Frank and his client. Frank pats his jacket for his wallet.

[Dr. Sean Venotta]

And realizes that he's left his wallet in his other suit. It's back at home in Long Island. What is he gonna do?

[Jose Fernandez Diponte]

Okay, so this story's more of a marketing myth than literal history. I've heard urban legends where Frank has to do the dishes or wait for his wife to bring the wallet from home. But whatever happened, the idea of paying with credit was all Frank could think about.

[Dr. Sean Venotta]

McNamara was a kind of credit executive, so he knew something about consumer credit. And he thinks to himself, well, you know, shouldn't a business executive like me have access to the credit that I deserve? Why do I have to carry around all this cash? Why do I have to keep track of my wallet? Shouldn't I just have a card that can do this for me?

[Jose Fernandez Diponte]

Now, prior to 1949, charge cards did exist, but not in the way we think of them today.

[Dr. Sean Venotta]

If you were well off, you shopped at fancy department stores, you would be familiar with metal tokens that were called charge plates that you'd be able to use to charge goods. But it was always built around individual relationships with specific stores that you had to build up over time.

[Jose Fernandez Diponte]

Frank came up with a simple but powerful change. What if people had one credit account at all the restaurants they went to?

[Dr. Sean Venotta]

His vision was to create this kind of universal system.

[Jose Fernandez Diponte]

The next time Frank turns up at Major's Cabin Grill when the bill comes, he whips out a little piece of cardboard, which he calls the Diner's Club cart. The Diner's Club card is often credited as the very first credit card as we understand them today, Something that you could use at multiple businesses who are all in the same ecosystem of payments.

[Dr. Sean Venotta]

What the club would do every month is mail you back a copy of your receipt. That really makes this valuable for people who are, you know, going out to drinks with clients, having to keep track of the receipts.

[Jose Fernandez Diponte]

The idea caught on. American Express, then known for its traveler's checks, introduced its own card. And in 1958, bank of America issued its BankAmericard. That was the forerunner to Visa and the payment networks that enabled credit cards to be used across the globe on a daily basis for the cardholders.

[Dr. Sean Venotta]

I think it probably felt a bit like magic, right?

[Jose Fernandez Diponte]

The invention of the credit card was a major update to how people and businesses make payments. And as payments went Digital in the 21st century, everything seemed like it got even more convenient. But we also deal with the fees and delays that come with that convenience. Now we may be at the beginning of another shift that's just as big as the one that started when Frank McNamara debuted the Diners Club card. Thanks to a new kind of digital currency.

I've been in crypto since 2015. I was very, very skeptical walking into it.

That's Jose Fernandez Diponte, senior vice president of Digital Currencies at PayPal. Jose, like a lot of people back then, was a crypto skeptic. But that changed.

The first use case that I had on crypto was in payments and it was about moving money cross border between bank accounts using a blockchain layer. I was looking at the account where money was leaving and then the account where money was arriving and it was five minutes from one place to the other across 9,000 miles of ocean. This is something that you could not do before. I think it was the moment that brought it to life for me.

Jose was looking at stablecoins, a type of cryptocurrency that's grown its market cap to $164 billion in just the past four years. He liked that stablecoins could be moved in a way that was fast, cheap, programmable and interoperable. He also liked that when they're pegged to a stable fiat currency and backed by reserves of that currency, stablecoins typically don't fluctuate in value. That's why stablecoins like USDC can be spent like US dollars.

The beauty of this instrument is that for most of the mainstream users, you can provide an experience that is fiat on the front, where people are interacting with dollars as they have always done. But it's a stablecoin on the back.

That was exciting to Jose because he'd been in the payments business for over 20 years and he could see every little problem in the system, especially when it came to making payments across borders.

Imagine that you are a US company who needs to pay. A supplier in Central America with the current payment infrastructure is going to cost you something between $30 and $50 to send that money for the company that you are paying on the other side is likely going to set them up 1 to 2% when they need to convert their payment into their local currency.

Transactions are costly and slow.

If I Want to send money, I need to do it Monday to Friday, 9 to 5.

With stablecoins, fees are much lower and transactions are way faster.

If I can send the same amount of money on a stablecoin on a high throughput blockchain, what is going to happen is the payment will settle in seconds, not in days. I will be able to send that money outside of banking hours and if I'm doing an international transaction, I can time my transaction to the moment in which the exchange rate between the two currencies is the most convenient.

Stablecoins also help with another barrier to paying people in a different country. The need to hold reserves of the local currency on their side of the border.

That can be risky because if I need to get that money internationally quickly, it means that somebody on the other side will need to pre fund that they will need to pay on my behalf. And there many times for a business that means that you need to keep money in pre funded accounts on the destination country and sometimes in some of those markets that are more unstable, that carries counterparty risk with your partner over there.

Jose is interested in what stablecoins can do right now and he's tracking how these benefits play out with real businesses across the world.

I was talking a few weeks ago to someone who was using a stablecoin to send value from their wallet in the U.S. this person was using a Venmo wallet to to send value to a relative in Malawi in Southern Africa to a local wallet. And they did the experiment of sending the stablecoin on one side and then sending the money on traditional rails. The person on the receiving end ended up with 40% more on their local currency just because it was not only faster but it was more liquidity on that side and they could get a better exchange rate. So you are increasing the speed, you're getting more bang for your buck, you're getting a better exchange rate, you're reducing your counterparty risk. That is happening today.

Last year the stablecoin market settled more than $2 trillion worth of transactions for real goods, services or remittances. That's 20 to 25% of the total transactions made by major credit card companies in the same year. And over the past two years we've seen a nearly 20% year over year increase in transactions made through stablecoins. This massive growth in spending among individuals certainly doesn't surprise Joseph.

There are 30 to 60 million individuals who engage with stablecoins today and many of them are cross border, many of them want to purchase from US or European based merchants and many of them lack an international credit card.

He says in many cases it's likely you don't have a card that allows you to make payments and settle transactions across borders.

There are some very good recent reports that are talking about use of stablecoins in places like Turkey and Nigeria and Brazil and other markets. Those are vast, vast populations with increasing expenditure power that are yearning for a mechanism that they can use for purchases overseas. And stablecoins are going to be one of those cases.

PayPal, Jose's company, is already pushing towards mainstream adoption. Earlier this year they launched a proprietary stablecoin pegged to the US dollar, PayPal USD.

Because this is not going to be a hack, this is going to be a tool in the toolbox of the cfo and it should coexist with the instruments and the platforms that they are using today.

When their stablecoin completed its first business payment in October, it was an exciting and nerve wracking moment.

It reminds a little bit of the NASA launches. When you are at the war room in one of those launches and you have people all over the world and then there are like 30 seconds of everybody holding their breath and then you see it come through and then there is a burst of enthusiasm and congratulations, it's fantastic.

But PayPal already has 36 million merchants relying on the company as their primary payments platform. So you may be wondering why would any of those 36 million people make the switch to stablecoins?

If you're a small business who's operating on those wafer thing margins and trying to figure out how to make ends meet, this is a game changer. There are more than 400 million accounts on the PayPal universe. There are more than 30 million merchants. If we can make that easily available to interact with the stablecoin and they like the trust of the brand that they have used, we believe that we can provide that initial jump start to the system.

Jose told me about one company that illustrates the benefits. Fig Tree Pots is a small ceramics business in Austin, Texas, selling their wares.

Locally for many, many years. And we were talking to Rene, their CEO, and her frustration was that she had to actually decline international wholesale orders because they couldn't just figure out the way to be paid by their wholesale in the Middle East.

Fig Tree Pots is a small shop. All of Renee's pieces are made in her little home studio. She doesn't have the time and resources to figure out the complexities of international payments and foreign exchanges.

When you are offering an alternative. I mean, her eyes lit up Saying, okay, so you're telling me now they can pay me in this stablecoin instrument. I can receive that in the wallet that I do all the time, I can send it quickly to my bank account and I can get that additional business.

For Rene, getting rid of these barriers to cross border payments could unlock entirely new markets.

There is a cost component, but she's very excited about the prospect of being able to sell more of reaching consumers that she cannot reach today. If she's selling from her physical art gallery, from local markets and from a website, this allows her to turbocharge that website and make it available for overseas consumers.

Over two decades ago, PayPal was at the forefront of the financial system's shift to a digital cashless world. PayPal users could make seamless and secure digital payments from anywhere to anywhere with crypto. Jose believes PayPal is taking another huge leap forward, but with an eye toward practical adoption of this game changing technology.

We started to be in this space because we are a payments company. We were talking about the ideological components of blockchain. We are not on that ideology. None of us have laser eyes. We are in this because for many of us, this is the first time in a long career in payments that we have seen technology that can fundamentally upgrade the financial infrastructure. So we started on these because we were experimenting with some of these protocols five years ago, and we were able to move value for a cost that is the equivalent of 26 times cheaper than moving money from a bank account to a bank account. And it's 400 times cheaper than moving money through a paper check. And if you believe in physics, you believe that the universe likes a low energy state. And if there is a technology that will let you move value 26 times cheaper, that technology eventually will see the light of day.

For businesses discovering and adopting this new technology, seeing the opportunities and the changes it can spark, it's kind of like the first time we use little pieces of plastic to pay for lunch. It can feel like magic when you.

Think about the waves of innovation and payments. The credit card is a very good example. You're moving people to change their behavior. They need to understand that rectangle of plastic that they're going to swipe at a merchant is actually going to go against their bank account account and it's going to work well. Same thing when you're tapping to pay at a grocery today with your phone. There are billions of dollars who have gone into habituating consumers to act in a certain way. And when you're trying to change that behavior, you need to provide a ton of additional value in the short term for folks to change. We will see that with the stablecoin payments as.

Like credit cards 75 years ago, stablecoins come with a new infrastructure that can break down decades old obstacles to making everyday payments. And like so many people have embraced a life without paper bills, companies and consumers today are realizing that stablecoins could reshape our basic expectations of how to move money. Thank you to Sean Venata and Jose Fernandez Diponte. This is Evolving Money, a podcast from Coinbase and Bloomberg Media Studios. If you like what you hear, subscribe and leave us a review. I'm Maggie Lake. Thanks for listening.