The Great Fintech Migration: Why Every Payment Company Will Run on Stablecoins

Transcript

[Music] Good uh good afternoon uh ECC. Uh after a very technical uh topic about staking, we're going to we're going to move to a a bit uh of a more uh Trafy oriented uh topic uh and talk about what we see happening uh at the moment uh in the in the transition of traditional fintex even if it feels weird to say traditional fintex but that's uh that's what we're going to talk about and the way they they are slowly embracing um stable coin and uh why we think it's a

it's a global uh global phenomena and why we think uh everybody should uh should uh should uh focus on it. Uh and and first of all uh potentially a a bit of a uh status of where we are with that transition. Uh huge acquisitions are happening. uh you probably also the the acquisition of um of our friends at Brievy and Bridge uh by Stripe uh iron by Moonpay. So there's a there's a lot of lot of h lot of things happening around stable coin and and Stripe being very much a fintech stratfi player and investing so much into the into a into a stable coin infrastructure is not a is

not a is not a small signal. Uh in term of volume we also see uh that uh the the the volume of stable coin transaction is growing uh uh almost every month and uh and definitely every year. Uh they have reached volumes this is the non I don't know if you know that website by visa where they try to minimize the volume of to recalculate the real volume of stable coin. So that's a total volume but even even if we take the visa version of it which is about 7.5 million uh in the last 12 12 months uh trillion sorry uh million would be would be would would be small compared to visa but it it is it is more than what what visa processes every year and uh and it's their

estimation of of how much is happening. So stable coin are definitely definitely uh um overtaking uh the world. uh we also see uh that the supply of stablecoin is growing I mean plus 69% uh last year which is also coming with huge revenues for the stable coin issuers because as you know most of the the revenue from the uh from the stable coin issuers come from the holding of currency that they have and and the the the T bills that they buy with it on so this is this 59% is probably correspond to a 59 uh% of increase of the uh the total revenue of that industry, stable coin issuing and uh and there's

there's a huge volume out of all of the the transaction that are settled on chain. Uh 79% involve stablecoin uh and either uh transfer or swaps or things like that. But that's a that's a huge proportion of uh of what's happening on chain that is uh that is uh bas stable coin based if yeah uh and and does that mean that all fintech should uh should um should should jump on it? We hear a lot that it's a third world country or emerging market phenomena that it is only for transactions in emerging markets that only Nigeria and Argentina are should be interested in in Sablecoin or the the

fintex that are targeting this market should be uh should be should be carrying. uh as we'll see uh it is not the case. There's a lot of smaller improvement but still a lot of improvement for traditional fintex that can happen through stablecoin and uh and the ones that are not going to jump on the train are probably going to be late and uh and are going to probably be disrupted quite fast by other fintex that have made the transition or pure stablecoin uh pure players that are going to um disrupt and jump start their their growth through stable coin. And why why is that? Why why is stable coin so important for the fintex?

When you come from from stratfi, there are so many so many uh inefficiencies that everybody's used to like uh capital trapped in motion. So there's a lot lot lot lot of money that is stuck somewhere because it's a it's a weekend because it's a bank holiday because uh because someone is uh is is having a break. So it's uh it's uh in in the hundreds of billion of uh of annual capital that is trapped uh in in motion and when you look at it there is no technical there's a risk factor but there's it it doesn't make any sense that money cannot fly cannot move at the the the speed of uh of the internet even if it's not stable coin all money is digital nowadays and

it's just that uh the the the the way the money is is transferred doesn't doesn't doesn't didn't scale and and stable coin is definitely definitely uh there to um to prove it. It's also there are use cases where capital is trapped in motion uh because of escrow accounts because of you have a lot of because that this this uh this money is not moving fast enough. You have a lot of businesses that have been created around trade finance around all of these use cases and and it is very inefficient and uh the the stable coin will definitely for this type of businesses that are into moving money that's it's definitely um a must

less less obvious but also very especially for us who issue issue cards and who have a um who have a liability towards towards Visa and Mastercard Collaterals are a huge pain for Fintex. Uh I used to work for for for a spend management platform and we were building the um the the payment stack for them. We had a collateral of about $8 million uh that was had to be in a bank account ready for uh Visa to uh to pick just because because the money doesn't move in the weekends because the money doesn't move uh during the um during the bank holidays and card holders still keep on paying during these weekends. The liability that we were taking uh towards

the Visa Mastercard uh was not we were not able to settle. we are not able to reduce this uh this uh counterparty risk that that was growing during the weekends and the bank holidays. So they were telling us and the thing is it's a bit of a geopoly so they they can impose the conditions and we uh we had to put that amount of money they wouldn't want to take the risk so we were the one who had to take the risk of putting 8 million $8 million in in uh and we were not a huge fintech decent one but it's a it's a it's a very very common problem and uh and stable coin and I mean a 247 settlement will be will be the solution for that and also because the money takes time to move that you

have additional fees, you have additional unknown costs and all of that reconciliation is is a huge problem uh for this uh for this uh for this fintex who are uh moving money uh on on on traditional rails. It's uh it's uh it's um it's for the even operational teams that are responsible for just making sure that the money is reconciled and we know where where each dollar is. And that's something that the transparency of uh the chain and the the visibility of the chain will be able to um to solve. We can automate much more uh the the financial processes uh thanks to uh thanks to the the the transparency of the chain.

So as I said 24/7 365 and or six depending on the year settlement is definitely what what the stable coin is bringing is reducing that counterparty risk is reducing the uh the the the just the friction and the the working capital. I forgot to mention but for merchants the fact that the money is not moving instantly to them when when you use your card for example is like 3 to seven days of working capital that they have to uh to advance uh in fact when you go buy your pound sugar in in a bakery in in can the guy lending you the the amount until they receive the money and uh and and uh that's a that's a pain

that could be completely removed if we manage to uh settle uh instantly in stable coin. which is what what a lot of us are working on. The fact that the the money becomes programmable, you can have tread finance use cases. You can have very interesting um um I mean yeah um intermediaries that get removed because the money can be can be pre-programmed and the trust can be can be there because of the programmability and the transparency of the chain. Uh of course global reach that's that's an obvious one. uh anybody can be uh can have a wallet anywhere in the world and there's no uh I mean if you if you take self-custod wallet there's no legal I mean compliance requirement or legal

requirements to res to open one of these accounts and you can you can hold uh dollars or current the currency you want in one of these uh in one of these wallets and that's um definitely something that for the emerging market is very important but will also be for treasury management for the for the the the the big companies will be will be immensely useful and it's also something that uh the large fintech don't realize but they've built an alternative to that by uh netting the the transfer that they do when they when they send money from the US to uh to Europe or uh they are netting so that they can reduce the cost but that doesn't that doesn't exist for them in like more exotic payment uh

corridors and also it's the stable coins are bringing that level of efficiency to the the the newer players and and it's creating a lot of a lot of competition for them if they don't uh take the take the take jump on the train to um harvest the the efficiency of uh of stable coin. Uh and also yeah that's a bit of a we do we do as you you might know we do debit uh we do the uh crypto cards so the the fact that we can plug the stable coin uh chains uh and the stable coin um liquidity into a card or into an IBAN makes it makes makes it very much uh connected to the to the real life

and that's a few a few fints have jumped on the on the on the on the train I mean We didn't we didn't add we we had to we had to give the slides before Robinu Ribu's announcement but this type of uh this type of uh uh move is definitely definitely uh happening. Uh so the stripe of this world the new bank the new bank the revolutes even Visa Mastercard are slowly starting to um to to to adopt this uh this uh the shift. It is not an easy one because for them it's a lot of compliance changes. It's a lot of technology changes that that they need to embrace. That's one of the reasons why probably Stripe invested so

much in acquiring I mean pure players like uh like bridge and and and privy and and didn't want to build that infrastructure themsel and just acquired the company that had done it. Uh and it's uh it's definitely a uh a big move for them. The goal is for them to just supercharge their payment infrastructure with uh with stablecoin and uh and that's happening. It's accelerating. I mean I I was expecting to see the level of adoption that we see now in a couple of years and it's definitely definitely happening right now. Uh which is also um a bit overwhelming. So it is definitely an inflection point. I think the FOMO created by the big investments that that

Stripe has done and and that more players have done is is definitely um uh uh putting a lot of pressure on on on a lot of fintexs. Um and they used to look at it now they realize that they have to move and uh and some of them are clearly not ready. uh the window is narrowing in a sense that because it used to be a compliance risk to do to move in that direction. A lot of the a lot of the fintexs were like okay we we we'll wait until everything is clear in term of compliance before we move now now that that clarity is coming uh it is it is it is now for them and that's also compounding the the effect of uh the adoption uh that's already existing by

end users and um and and so the critical question is uh should they move now or can they afford to wait and uh and and we clearly believe that uh that they shouldn't they should not wait and uh they should uh they should should jump now and yeah any questions I don't see I don't see anything if you have a question please raise your hand Um

so the question is do you think that this traditional or like the fintex are going to try to build their own uh infrastructure for that or uh acquisition and and third party providers are the solution? I would say it depends. No, you you have you have some of these fintexs. There was one name there starting with with an R and finish him in evolute. Uh they are known for building everything and uh and even we're having discussion with them and like yeah thank you thanks for the idea but we might uh we we might not need you. Uh so that's some of them will build uh some of them it depends how

strategic they see the the infrastructure. If they are payment fintexs, they'll probably acquire and make sure that they replace the infrastructure they have with with with new uh new new tech. Uh it will also be dependent on the level of urgency that they perceive. if they need to be if they realize the that that they have to be ready quick they'll they'll probably acquire and uh but if it's not strategic to them because they are they already using you have fintex that are using bank as a service providers for example the uh the stripe issuing of this world or the uh the the swan of this world um this one will just continue to uh to uh to buy services from from others uh all the the trend around embedded finance

that that we've seen happening in the in the fintech world. Uh so yeah, depending on the size, depending on the the the strategic aspect of it and their appetite for um owning or not owning is is the F. So the question the answer is it depends. Thank you. More question since Yeah. Um, how do you think that Visa and Mastercard cities uh something that's beneficial for them or something that is inevitable and they need to jump on? Is there anybody from Visa Mastercard in the room? Just to know what what I can and can't say uh they

so a shift that happened also in in in their heads uh as I mean Visa Mastercard or and full disclosure I used to work for Mastercard. So um they are very much a brands. They are a trusted they want to be a trusted third party. They want to so anything before that anything that was potentially tinted by I mean FTX and all of the all of the the the the unfortunate bad reputation that the crypto had had created uh was definitely shying them away from the from the from from from crypto.

But on the flip side, they realize that it is a threat that potentially it is a if if they don't look if they don't if they're not careful enough and if they don't make that transition into into using enabling stable coin and if they remain on the old payment rails uh they will give a good reason for merchants to look at something else and and the merchant because at the end of the day what is the the it's in in for for them the chicken and egg is there. So the if you have a lot of merchant accept it you'll have a lot of users and and the other way around. So Visa Mastercard are definitely looking at it as a um as a

potential threat and and they also realize that their key asset is not the settlement. Their key asset is all of these terminals that all of these merchants have. all of this payment page where the the at the end of the day they are the the the jewel of the crone is the capture of the intent the habit that people have to swipe a card or tap a card on a terminal rather than scan a QR code and not not I mean so the trust and the habits the payment habits is is there so for them plugging that capture of intent into a better uh set infrastructure for them is a is a is a benefit it. Um, they also realize that they are huge customer bases to be to be

uh to be uh to be add and and putting their logo on on one of these card is is a way for them to to have more business. Um, yeah. And in a nutshell, they also they have a very so when when you have to realize that Visa Mastercard, their customers are the banks. Their main customers are the banks. So they also work trying to work out how they could help the bank jump on the stable coin reals jump on and and that's why they have this uh Mastercard token network where they're trying to um to uh to have a some sort of se semi-private uh um uh chain where the banks can potentially play in a in on in a in a safer playground or the most trusted

playground. So, and also helping them with with stable coin issuance, uh, standardizing stable coin issuance with USDG. So, they want to be part of it. Um, mainly because they they they are they both an opportunity and a threat. Sorry for the long answer. Thank you. There is a time for one quick question. Thank you. Uh so you so you mentioned uh their clients are the bank but uh with time with stable coins couldn't visa and masterard just break free of the banks uh and build their own banks for

instance and just rely on stable coins they could I mean they they they could and couldn't the the because the key difference that you have between MX for example and Visa Mastercard at at the end of the Okay. What what what Visa Mastercard and what the stable coin potentially are not really doing is all of the all of the of the the credit in a credit card. And when you look at it, Visa Mastercard, I think they will never ever move into the MX direction. MX is both the bank of the of the card holder and the in the bank of the of the merchants. So, it's easier for them to manage all of that because they don't

have to be connected. It's all one left and right hand. But at the end of the day, MX is giving the the credit line to the to the card holders. And I can tell you in 2008, the situation was way worse for MX when the when the subprime happened was way worse for MX than Visa Mastercard because Visa Mastercard, they're just connecting banks together. They didn't have any exposure to the to the to the the whole subprime and the credit uh situation. So they they are not going to they are not going to compete against their their own uh their own u their own customers and that's not how they see themselves.

Definitely not. Thank you. Thank you for the question and thank you Axel for the presentation. Thank you. [Music]