Transforming Transactions: Shaping the Frontier of Payments and Settlement Networks

Transcript

very happy to see quite some people here so you made it to the to the afternoon so I believe you very much like crypto and you are interested in the different topics uh before we kick off I would like to um invite the panel please have a seat already so I can introduce you and then we can kick off in the meanwhile I explain a little bit what who am I what I am doing and why I'm standing today in front of you so by now you probably know already what is the CVA um we have different working groups and I in my volunteer time chair the working group education in this working group we organize webinars everything in and around education and we have a flagship um project which is the annual research journal in where we would

Define a topic invite or or let dedicated authors and professionals apply and and join this sort of call for papers and if you're an author you can uh write from the perspective of Technology you can write in the perspective of legal and um it's already the third uh year where we announce this year's topic and um hence we have this panel on payments today this year's research call is on payment and settlement net networks you will later on after the conference see all the social media announcement but now we kick off today officially at the CVC conference with our payment panel hence we want to talk about payments we

we we put together quite quite an interesting panel with with um three three different High Caliber Representatives um before we kick off uh I'd like to invite the author the the the the speakers to quickly introduce yourself so the the audience know who you are what you do and which which company you represent today if You' like to start Daniel since you sit on my side sure thank you very much and thanks for the invitation uh I'm Dan capraro Chief product officer at the appeal and one of the co-founder so we founded the appeal 2018 as a pure BTC wallet in the threatfire environment uh we built up our own TX deack we have uh we hold our own licenses in regard of uh uh fintech

license and uh um a license for issuing courts so we are the principal member of Visa gives us the opportunity to is cards for ourselves and for any part any third party hi my name is Maria I'm a business development manager for the company vestro uh vestro is a vendor and Venture of MasterCard and we are providing MasterCard and Visa solutions to fex and crypto companies hi I'm Jess holgrave I'm the CEO at wallet connect um wallet connect is an open ource project that connects apps and wallets uh in an offchain and

and encrypted way uh to send messages between each other um prior to this I was running the crypto team at checkout.com which is a Global Payments company and I sit on the bank of England Advisory board for Central Bank digital currencies so payments are very close to my heart so as as you can already see High Caliber panel everyone with their own project and and Company here so we can all agree that blockchain technology hence the the original of Bitcoin most of the application we also see here in Switzerland are related to investment products right I think also in terms of Geographics on Continental Europe we have a functioning ebun system right we

kind of contr trust the system um maybe here here are some bits and Bobs here which we can improve but if we then look at the new application on blockchain or maybe even in a different geographic location let's say Latin America where you have plenty of fragmented countries that do not communicate with which each other their payment or payment rails become increasingly important are actually the new goto uh uh uh application on blockchain technology maybe Jess um as you as you just uh spoke last where do you see the current challenges in the payment system and and settlement networks so I think that there's a there's a few things firstly the

technology ology that most of these old systems are built on is very Antiquated the Swift messaging system which is um 8503 is if you've ever tried even just looking at the code it's it's a brain rot um so for companies to recruit Engineers who want to work on this Tech stack it's it's very challenging um and it's complex to maintain these old payment processes and and work with the viser MasterCard and Swift networks um so there's a there's a technical challenge in in that regard there's also just a number of other challenges in terms of the efficiency of that in terms of where the how the data is stored the complexity of data storage and and the amount of storage that that takes many

of these systems don't talk to one another um and so you end up with fragmented uh fragmented systems that um don't work particularly in a crossborder method I often use the example like if you've ever tried to send a small amount of US dollars from the US to somewhere in Africa or actually even worse if you've tried to send currency from one African country to another a lot of that clears through London for example um and what you end up with is that $100 becoming 75 and all of these rent extractive parties who add maybe some value but I I find it hard to justify 25% of the transaction taking taking

rent out of that system and the people that are most impacted by this are the people who need it the most um we're talking about creators we're talking about um people doing gig economy work for whom that extra $25 is incredibly significant and so I think we have with this new payment rail opportunity with blockchain and ability to recreate something that can be lent less rent extractive for people absolutely I I can just join on on what you said and I like to double tab on the inefficiency when when you send money cross border especially when the fees are so high there are different layers of intermediate uh Banks who who take the card they they process it takes some

time in my professional occupation I work in payments as well and we specialized to focus on Latin America so exactly what you said when you then try to send funds to to Europe from Brazil in this case this takes days weeks a lot of compliance work sometimes you don't know where the funds are they're somewhere stuck in the middle and it's a huge issue um what do you think Mariah about those challenges especially now that that you said with MasterCard vestro background how do you see blockchain technology overcoming those those inefficiencies well I I would like to add actually that indeed there is um huge issue with crossborder uh transactions and um it's related a lot

to regulatory issues and uh G20 uh set a road map in order to um streamline the crossb uh transactions and make them cheaper and faster and it looks like that uh near future in the near future there would be this pockets of uh interoperability within regions like Asian uh region for example where um there would be improvements on crossb transactions uh for example in um 20203 there was this initiative between uh the government of Singapore in India to create the network of um Banks um that and participating banks will have a much

smoother and faster operations on crossborder transactions and apart from it there is also problem with digital borders uh the problems of inter interoperability between um large digital um platforms for example uh the users of alipe cannot send money to users of meta and there are some actions that should be taken around this as well AB absolutely I think one one big advantage or let's let's rather put it this way I think that you know blockchain technology will probably not yet totally replace the the financial system of today it's rather gives per use case a very good alternative maybe something the email did to post industry

um what Spotify did to MP3 players right what what what news blogs online did to the newspaper I think this is a little bit where it goes cuz as you say you client on a platform let's say Alibaba or you want to send send money across border then you can do it in real real time you just sent me your QR code which is you know pretty much representing your your your your wallet and in real time I can send you money but now Daniel as far as understood you have the technical background and your company is is Swiss focused how how do you look at the the efficiencies or inefficiencies from from a tech point of view yeah absolutely I just echoing what my colleagues already mentioned because uh

in especially International payment is really awful today the those Solutions which are out and there I see a huge potential for uh web 3 technology uh to step in um then I would say from from our point of view as we are um performing basically on the thread side and are being a player for embedded Finance especially when it comes to payments and cards so from that point of view we would like to use our most modern technology to already enable uh and bridging there the the worlds between trfi and defi so from that point of view I see there are a lot of uh opportunities collaborating with um defi companies and from that point of you I

think that makes it then really accessible so that you can pay uh with your um digital assets for every day is good uh for a coffee whatever you like and I think that another step that we need to make those currently as investment treated funds really making accessible on an everyday spend clear I think maybe to the audience also to to maybe separate this a little bit you have crossb payments where we try to just to bridge the inefficiencies of the Swiss system when transfer mro but then there's of course also the perspective of the user of paying with their crypto asset let it be stable coin Let It Be BTC eth you name

it I think there are two two differences um do do you see from your experience JZ an adoption or is there a faster adoption in crossb payments or users actually paying with crypto so I think when we think about like use in e-commerce and end user buying goods and services with crypto we still don't have quite all of the infrastructure necessary to enable that in an easy way um one of the reasons that card schemes so popular for end users is because there's a ton of consumer protection mechanisms built in um if I buy something and the company goes bust um but I want to return my broken Furniture um there's a back stop

there the card acquirer and ultimately the card scheme will step in and and refund that for me um if I order something online and it never arrives the card acquirer will step in um if I'm subject to fraud the card acquir will step in crypto is a one-way uh permanent transaction that has none none of these consumer protections and so it might work really well for example for some transactions but where I want more consumer protection uh it doesn't exist today um similarly until pretty recently actually doing transactions using crypto that are cost- effective and very fast and settle very quickly has also been difficult um there's certainly no way you'd want to use Bitcoin to buy a

coffee at the corner Because by the time you actually got to drink it would have gone cold um and so actually using crypto in in e-commerce I think until today has been very challenging we're now starting to see more and more payments companies offering this stripe being the latest who reintroduce crypto payments to their payments stack uh this quarter um but there are certain you know there are certainly things which I think still don't make crypto necessarily the preferred instrument for developed Count's consumer uh everyday payments I think that will change over time as more and more companies step in to fill some of these gaps we use things insurance and other sort of um other

methodology um and also now we have the technology using smart accounts that for the first time we can recreate pull payments um effectively which we've never been able to do before and a big chunk of consumer payments are direct debit subscription payments and these again are only just recently being unlocked so I think that that's likely to to grow a lot over than over the near term but it's um it's certainly very nent crossborder payments I think is where there's a lot more traction today um in this space there's a lot more inefficiency and a lot more cost especially if you're comparing it to uh a developed country where you've got some form of faster payments mechanism that's already in place so I think we'll see a big big adoption there and the

other place that I think we'll see big adoption is is where we've got much more of a Kind of Green Field with respect to faster payment systems and there are places in the world where are there aren't faster Payment Systems um and where I think this technology if you're designing something from scratch today is is the obvious one to use yeah I'm very very much inlined what you said like from a consumer perspective or crossb perspective there's different let's say level of adoption or how do you see it from from your perspective or peal Daniel I fully agree uh so basically there's just um this I would say these two hot spots and uh I would I think as well this morning when we heard the guy from Swiss National Bank speaking they

they already have seen that this is a huge pain point the international payment and I think that's pretty obvious that this would might be the the first step crypto costs are already there uh some of them are using them quite good which makes then uh the the digital assets accessible for everyday spending so basically there the tools would be already available and yeah just gonna make it more accessible to the the huge market then absolutely I think the user like let's let's take this example from stripe I think they they they reimplemented the the crypto payment functionality but as far as I'm informed then the user would still need to have a

metam mask and then it suddenly becomes a little bit again a problem right the normal user then see some add-ons and popups I think this not really help helps um the payments it should be more immediately maybe just exchanging the rails in the background so this this is more efficient but then again it's very nent as you said JZ um there's still sometime adoption if you look at Bitcoin as an investment product it just arrived in Switzerland and at the banks right so give it some time um another good good thing the the panel just discussed is the consumer protection with cs but maybe then for Maria um why would crypto companies would want to issue a card are

there differences in transaction volumes how do you see this uh well um first of all crypto card right now is one of the fastest growing payment methods that actually allow crypto to enter mainstream and crypto can be already used for everyday purchases uh MasterCard and Visa are offering a crypto card um uh and it's called crypto card but in fact it's a card that is transacting like any other normal card in Fiat but it can be linked to the uh crypto uh balance of the user in the crypto wallet and how it works is

that uh the partner debits the crypto balance in the wallet uh converts crypto into Fiat and then this Fiat is used to transact through Mastercard or VISA card uh so basically it's it's quite a fast process and it means that crypto is already entering mainstreams through crypto card and um for crypto companies and crypto wallets it's a chance to improve user experience of course uh and uh secondly it's additional um Revenue mainstream uh because uh crypto companies can uh make money on the transactions from the card they can charge for transaction they could they

can also charge uh per usage of card and they're earning money from interchange interchange it's a uh scheme uh payment scheme within a MasterCard and visa when acquirer is paying a certain fee uh to the issuer and uh it's quite high for cross border payments it can go up to 2% per transaction for crossb payments quite expensive undertaking I actually some remember some time we two three years ago suddenly all larger crypto projects Let It Be crypto.com binance and all others they all try to issue cards that was like the thing to do right I'm not sure if they ever

arrived or or or or I think some some of the offering changed back then with crypto.com there great cash B uh functionality and so forth um however um I think again buying something with BTC your coffee is probably cold by the time you you you you get it but then we see all these challenges in terms of user adoption right then I I mentioned the use case stripe popup metamask my grandma doesn't know what it is from from where do you see like improvements on technology should it be rather let's say changing the rails in the background without the user actually tell telling them that what what's happening or how do you see this well basically we can see that as well what happens in in

other payment uh Industries before um as as you just had complicated checkout processes uh it really avoids a mass adoption and and as long as you need all these metamask and and entering complicated addresses and you basically need a deeper understanding of how the technology works so long I or at least my assumption is that uh it won't really step in into M Market so it's just a tap and go and in addition what what has been mentioned as well well is the security on top because I grew up in an age where credit card payments on web has been really bad from a point of view

and they only the security that has been added on top and really that you the cash back uh mechanism that just meant before is is really then important for the convenience and the um the felt security of the persons because um yeah no one's want to get uh playing around with the money just on a unsecure way maybe as a Fireside quick question J did you ever pay anything with crypto yes many many things um I've tried to actually almost entirely opt out of the traditional Financial system um for many reasons but mostly because if I'm trying to build this stuff it's important for me that I actually use it and know how

it works I think it's also a shame to consider that the only people who can solve this are the Visa and Mastercards of the world because they are the rent extractive uh people within the current system that are under under supporting the people who need it most so I actually whilst I think we've got a long way to go before the user experience is really there in terms of security and protection um I do think that the market can deliver that in a different way um I think that the wallet experience is improving smart accounts have a a huge amount to to be thanked for in terms of delivering better user protections enabling users to set permissions on spending limits for example um and providing more uh programmable payments

options where for example if something wasn't delivered um there could be a dow type Insurance mechanism that would provide some consumer protection so I actually disagree with Daniel a little bit that I think that the only way to do it is behind the scenes because I think that if we take that approach we've sort of admitted failure um so I think actually yeah there's a lot that we can do to make it better and I hope that that will be where we end up Maria you did you pay anything uh in crypto already in your in your life let it be a coffee or maybe your tax bill in zuk you know not not yet actually there there's um always um you know um good good good it's always a good moment to to start and try but then now that we have actually you know three plus four let's

say pay payment provider on on the panel maybe Mariah since you have the microphone already in in your hand um how how important do you think that institutions let's say traditional institutions but also new fex or crypto focused payment provider should collaborate in order to to move this industry forward what do you think about this uh well talking about payment networks again like Master Card of Visa I can see that there is lots of collaboration happening already and there was a big change in terms of the entry barriers uh for fex uh to join the network of Master Guard and Visa uh like before it was very complex process when

you have to wait for one year of integration to the network uh it required lots of Human Resources it was just impossible for uh small uh medium players uh but now um there is this new layer of intermediaries like like us like a bill that uh actually um connecting fex and crypto companies to MasterCard and Visa Networks and it provides a very fast um uh entry to Market because practically the cryp company can issue payment cards like in three months so there are yeah I think that's a very positive change and massard and Visa obviously realizing that they

cannot exclude um fex from this space so it's not just big traditional banks that work with this networks now like naturally organically the industry grew um beat TC as a technology is accepted so I can assume that traditional payment processes they would also now a little bit be a little bit more open to it see look at it and say okay look when you have transaction cost of 2% we can probably lower this to somewhere 10 bibs or something right which is a huge drop in fees which ultimately results in what what we do at the Enterprise I work we focus on computer games so we give this discount to the user and then you can imagine giving a $5 discount for a computer game player in Brazil is a lot

of money right so there's the benefit benefit of the user then um I you know we should not have our monologue here down down on the stage I'd like to invite the audience is there a question yeah we see already one to okay let's start well in this sorry sir ladies first who wants to

volunteer I can try to take that for me clear it has to because uh it can't be that a new system based on cbdc is not more effective more uh faster and and um yeah lowers the cost quite significantly because basically there are no more the need of all this intermediary uh that you have between um there are clear entry and and end points and so it's a strict line and it should be relatively fast almost instantaneously so that you can transfer money from wherever uh on the on the planet in in my experience most cbdc teams around the world aren't really speaking

to each other about the underlying technology which is the issue here so whilst yeah sure if we were all going to build our St our cbdcs on the same underlying rails we could Bridge these very easily the reality is that most of them aren't doing it like that um people are looking at various different permissioned systems um and completely underly different underlying rails and programming languages um so I think the idea that it will help with crossborder payments is is where maybe a little far off from have one one more comment to to this or show do you want to answer the next question from the gentleman maybe in the light of the time let's listen to the next question please what need happens to remove the

pain points and ruce the cost of ons and offs sometimes very challenging trying to convert fat to crypto there are verying like very high or when you're sending money to whatever this is rather maybe more like Fiat crypto question who who who wants to take this I can I can share a few thoughts um most of the Fiat on-ramp if you're talking about an onramp process um and

you take the it's somewhere normally between about 200 300 basis points that you're paying uh a a western developed world like someone like a moon pay um if you break that down um the actual costs in there are relatively low because the cost base is um uh doing a kyc check which is normally measured in cents um it's a card acquiring fee um and the actual fee to the card processor is relatively low some of that is interchange um but the margin that most um acquirers are making on crypto transactions is incredibly high if you compare it to something like

retail um they will tell you that that's because there's additional fraud and things like that measures needed but the reality is that it's not um it's just there are so few card acquiring companies who are willing to process crypto because they don't understand it that the supply and demand curve off is off in this space and then there's also um for the for the on-ramps themselves they're taking pretty pretty high margins there um and they're doing that because they need to split those margins with distribution because there's just such big kind of competition for different getting different stable coins out there in particular um and so there's just a lot of like rent extraction out of that 300 or 400 basis

points that will only come down when um when the those different entities get more and more comfortable with this space and can begin to actually price it more realistically from a risk perspective um and when more acquirers are willing to enter the space um so that's one element on the on the on-ramp on the off-ramp it's a it's a little different also um I think it it's it's mispriced because the settlement risk is is almost zero um if you're doing an offer ramp um and here again I think we're just at the stage where there are so few options realistic options in terms of offramp the youi have to go through the card route um in which case your provider is taking a chunky fee

because that's the only way that crypto wallets make money um and they don't have other other revenue streams so unfortunately in the light of the time um let's let's some concluding marks we understood that there's the the element of consumer protection when it's only one-sided way which maybe hinders the progress of of crypto payments per se uh we see that since this is like a new use case the adoption is not yet there and also since we speak here from from the from the perspective of the working group education a lot of Education still has to be done with let's say the retail clients when they pay so maybe it's an option to just

exchange the rails in the back without telling the user in the front end what actually happens in the back they would just pay with the local alternative payment method and then we as technology provider we we just you know do the magic in the background that being said uh I still would like to invite you for a little networking session just here outside uh the the the the lecture room to ask more specific question and in this regard are you guys have a good day and I see you outside