Banks Are Going Onchain on Weekends

[0:03] I [music] don't believe in the pacing the fintech frontier. I think if I was leading a global bank, I would just embrace it and rather disrupt myself than waiting to be disrupted. [music] >> We still have not seen any meaningful demand for direct consumer to merchant [music] stable coin payments. And and it's not that there aren't any merchants that accept. I mean, like you said, Shopify [music] accepts, Stripe is accepting. there's just not material demand of of consumers who would, you know, rather pay. If you look at what the fintech companies are doing, there's
[0:33] your road map. But then I think the big thing you got to do is give the agent a reason [music] to choose you. You got to make your bank worth choosing. Welcome to Tokenized, the show focused on stable coins and the institutional adoption of tokenized real world assets. My name is Simon Taylor, host [music] of T tokenized for today and of course author at fintech brain food and head of market tempo. I'm joined by the one and only Kai Sheffield, head of crypto at Visa. How you doing, Kai? >> I'm [music] fantastic. We've got a legend, a great friend, mentor. Excited
[1:04] for the show today. >> Yeah. Making a return to uh tokenized, but a debut on the news show. It's Christian Catalini, who's founder at the MIT Cryptoeconomics Lab, and you were the co-founder of Lightspot. Christian, always good to have you back. How you doing, sir? >> I'm doing great. I mean, two of my friends are on the show here, so I'm looking forward to this conversation. Let's do this. Before we jump in, I got to remind viewers and listeners that uh views and opinions of our contributors today are their own and might not reflect those of companies they represent. Please don't take anything we say as tax, legal, or financial advice.
[1:35] And to remind you that this podcast is sponsored by our friends at Modern Treasury, who I had dinner with on Tuesday evening. Shout out to Dmitri and the guys. This episode is sponsored by Modern Treasury. Stable coins are here and so are checks and a they're not going away. RTP and Fed now and new types of payments rails are emerging all the time. The challenge now is integrating all of these without slowing down. Modern Treasury offers one single
[2:06] API for fiat and stable coins, helping teams launch payments products in days, enter new markets and serve more customers. Trusted by companies like Procore and Navan and Morse and backed by over $600 billion in payments history. Learn how to adapt to changing payments rails with scale and confidence at moderntreasury.com. All right, thanks sponsors and uh big big news this week to lead off with uh OpenUSD is live on Telo, Ethereum,
[2:38] Salana and Base. Uh this is the uh open standard organization that announced OSD in June and switched it on yesterday uh on those chains and uh uniquely businesses can mint and burn stable coin the stable coin O USD at one so at par and at no cost through Coinbase, Stripe, Visa and um Mastercard and of course Bridge the Stripe company. [snorts] Um, Bridge issues the token and the reserves
[3:08] stay at Black Rockck Bernie and Lee Bank. So, Christian, you've seen stable coins come and go. You've seen attempts to do tokenized money come and go numerous times. What is your thoughts on all things uh stable coins and how important do you think the economic model is here? >> So, look, as I've wrote when uh open USD was announced, I think it's a really important effort uh to some extent. There's two potential scenario for all of this, right? Either, you know, one one currency, one asset becomes kind of
[3:39] the the interrupt layer for the digital economy or we're going to have massive fragmentation across stable coins. Um, it's been amazing to see that, you know, the group has brought together not only for the most prominent names in this space, but also like a longer tale of other participants. Um I do think that it would fill a big gap in just making interoperability really seamless uh between wallets, fintex, you know, even traditional financial institutions. The big question mark is going to be you know what does Zach do now that he's
[4:09] essentially you know leading this effort and building the team uh in really ensuring what is a very difficult and delicate not only governance I'm less concerned about you know the governance structure I think you know the group has has been tough on that but like with all of these efforts historically it's like how do you get momentum how do you convince even your own founding partners to to actually go uh there's always a little bit of a waiting game where everybody's waiting for somebody else to to make the assets actually truly meaningful and useful. Uh it looks like partners have committed liquidity which
[4:40] I think is a great first step. Uh the next step is like you know there's some really interesting use cases that that a you know more global and interoperable stable coin could serve. I do bring those to life. I mean the proof is really in the usability and application pudding. U I think that's going to be the test. Uh, of course, the Stripe DNA brings a lot of practical focus on on things that this could do for merchants. Um, and and and there was a post right by Zach, I think a few weeks ago on what are the key things that we want to solve for. Uh, I know we have Kai here, so you
[5:12] know, I'll be remiss not not to surface that at some point, as we've seen back in the day with Libra, you're bringing together members that are going to have conflicting incentives on how the technology may shape. And so, how does the OpenUSD team navigate that? How do you get momentum so that people can really see this as a solution? Personally, I think it's strictly superior to, you know, everybody using uh stable coin from a single issuer. Uh it's a more tal approach to that problem. Um but yeah, you know, eventually the market votes. Huge shout
[5:43] out to the the open standard team and they've they've just been cooking and and moving incredibly quickly. And it's interesting when you think about like the concept of a consortium and and bringing together a number of large entities with you know distribution and and scale like the the first challenge that you know a lot of people go to is like well how are they going to agree on anything and how are are they going to be aligned enough and then are they going to be able to move quickly enough and you know we've seen consortium
[6:14] approaches you in the stable coin tokenized deposit space that have been announced years ago and still haven't gone live yet. And so I think that the the biggest thing was really just this concerted effort of we've got a product. Uh and you know having under Zach's leadership and and a great you know team you know there at Open Standard that that's still kind of you being built out being able to move quickly and get this product off the ground. I think that's the first step in demonstrating that you can really have an operating model where
[6:44] you move quickly and you iterate with a product while still having the backing and the support and the distribution of of major entities. And then, you know, there there's something really cool to me about, you know, that this balance of cooperation and and competition. Uh, and I I think that that kind of echoes some of the the Dehawk principles and the early days of of Visa. And so I I like the idea that, you know, you can get, you know, O USD, you know, at Visa, through VSSP, you can get it through BBNK with Mastercard, you can get it
[7:15] through Stripe, uh you can get it through Coinbase. And so there are many different places that you can go. It's not a single entity, a single kind of place that you have to be. And then you you can cooperate around the standards and how to issue it. But then we expect to have you vigorous competition among these members around the use cases and the value add services and the products around it. And I I think that that's a really good market structure um that it's going to take time to to play out, but I I think it's off to a really good start. >> Yeah. And and Kai really building on on
[7:46] your comment there, right? So I do think the original visa is exactly the the right way to think about this. That also surfaces an interesting tension which is to some extent there's two futures for open USD two successful futures uh but there are different degrees of intensity. One is it becomes kind of a Linux foundation for open standards around money movement and the asset is kind of the the forcing function right for standards on merchant payments on uh delivery versus payment all sort of
[8:16] interesting applications where some partners will have conflicting views but somehow open USD manages to find the superset that [snorts] everybody can agree on and then you compete in the market. So that's one scenario. Uh the other one is the probably the most ambitious one which is it becomes like a visa-like entity that many years after it's its own very profitable business its own network. Of course, [snorts] you can see that it I could imagine some founding members would prefer one or the other uh depending on where they sit in the stack and and I think that's the
[8:46] ultimate tension that at some point will materialize uh but maybe it doesn't matter right so maybe if you bring use cases to market early on you get adoption and then you know the thing solves itself but those are two very different visions for where you could go like does it become a super profitable network of networks or does it become kind of a piece of standard infrastructure that everybody really trusts and relies Amazon is super neutral, but it's never meant to to make too much money to some extent. >> Yeah, I think that's interesting because it's a question for sort of 20 years
[9:16] time. Uh, [laughter] we don't know if that's going to be even even a consideration until this thing is successful. Uh, job number one is is get the thing off the ground. It was however many years, like 20, 30 years before Visa even considered that. Um just I've been at Cybers in Miami uh all weekend dialing in from my phone in a hotel room and uh it's been so interesting to me to hear financial institutions tell talk to me with absolute excitement around open USD because I think a lot of the um oh
[9:47] we don't like stable coins was because of private issuers um and I think private issuers have done really well you know circle and tether will continue I think to play a massive role in the ecosystem um and They've made uh huge strides for innovation and they'll continue to do so. But there are still some very large financial institutions that see that as adversarial. The feature of OpenUSD, I think, is this neutral entity that is doing everything it can to give away as much of the economics as possible and and
[10:17] incentivizing as many participants as possible in the reserve sharing. Really changing those economics. And one thing that I think gets lost is uh yes, no mint burn fees. People are excited by that. But the most excited feedback I got was um redeeming at onetoone redemption for stable coins and USD. Like I don't want to be thinking about having to maintain uh some hedging against the tiny movements of a stable coin against regular dollars. A dollar is a dollar. It should work like that.
[10:48] And so to get that feedback has been really interesting. And I've also had other folks go, "Oh, you know, we could extend this idea. What about um O Euro and OGBP and O security and so on. So lot of excitement um but also super super early days. Um well there's I just checking um OSD. FYI I think there's 477 million of supply so far. I think there are bigger commitments behind it and more to come. Um but uh you know shout
[11:19] out to the guys that have delivered all of this. Um, I know the team at Tempo is uh hugely excited by this and what it can unlock for big capital markets players. Um, certainly I can say that I've been in conversations with some of the largest capital markets folks again in the last few days but also the last uh year or so and uh this has been a huge unlock for them. they they see the opportunity for something that unlike a deposit can actually go outside the walls of any one individual bank but unlike a private stable coin feels
[11:49] somewhat credibly neutral. So interested in your reflections on that one. You know, I think I think that's exactly the the way to think about it. And look, the ultimate test is like I don't doubt that even given the initial set of partners, open USD can do really well in the forwardlooking fintexs that are, you know, building wallets, all sort of new infrastructure and products and services and are kind of more crypto forward. I would say the ultimate test is like is this a more comfortable solution for for a bank that
[12:20] is being corded maybe by circle with arc come onto our network you know trust our asset um or you know banks that are getting together with with probably confused objectives on like oh we should issue our own stable coin I think there's at least one effort right with 21 or more institutions that's trying to do that um can open USD essentially convince them then like why bother this is already the right structure Is it neutral enough, you know, or do you worry about, oh, the influence of, you know, a Stripe or Coinbase or Mastercard
[12:51] and Visa into that mix, right? That that's the ultimate test. And and I think to be honest, your intuition of like it's all about shipping product is the right one, which is like if this consortium can can get together effectively and ship wonderful product experiences, people will gravitate towards it and the economic design is the right one. It's very similar to what we had in Libra. Look, a few months into the Libra process, there were already discussions between different members that have conflicting incentives of some
[13:21] features of the standard. So, I think you know, Zach and team should expect some of that tension. As soon things get real, you get excitement, but you also get people starting to pull in different directions. So, that's one test. But to me the ultimate test is like can you convince a gibb that this is a better solution for interrupt than whatever they may be discussing you know across the spectrum from like clearing out and tokenized deposits to maybe using some form of tokenized money market fund or whatnot to the things like finality
[13:51] where you're trying to get as close to the central bank metal as as as as possible. That would be ultimate victory for this standard if you can convince banks to peel off and start using it. Um >> I was just going to add I think one of the biggest opportunities are large emerging market banks. Uh and from the the initial announcement in in the summer, you know, one of the the most interesting kind of set of participants is, you know, you had FNB, you had ABSA, you had it, you you had some of these,
[14:21] you know, very large banks that are seeing stable coins in their backyard. Uh but they haven't really invested and built and integrated stable coins into their products yet. Uh and I think we see that as a big opportunity for Visa. We've got, you know, close relationships with many of these banks. you know, they need, you know, support, you know, services, infrastructure, you know, to help, you know, build those products out. And I think it's also really important like when they go to regulators, you know, we've gotten this feedback from from banks in a number of markets, like it means something to say
[14:52] that, you know, we're working, you know, with Visa and Open Standard, this entity that has some of the largest companies in the world kind of coming together around the stable coin. uh and that you know the reputations of of those entities go a long way towards getting some of the first kind of regulatory approvals you know for these large banks to be able to to get to the space and so uh that's something that I think we'll we'll continue to see and then I I think capital markets is is just you know wide open as there'll be many use cases uh in both trading onchain lending uh that you
[15:23] know there just there's room for more competition it's it's early enough that you know I think OSD has a a really important role to play >> yeah definitely Kai I mean, uh, on that, um, if you look at the OpenUSD list of companies, um, anyone could look at that and go, "Oh, I see something that looks a bit like me." And I don't know if that was true of Libra. I don't know if that's true of the 21 Bank consortia. I don't know if that's true of many other things, but in this one, um, it it really is has made a concerted effort to
[15:53] be for everybody, but it's this interesting dance of sort of, um, there are some short-term use cases that have real traction. And the failure mode of this is um, it wins at those use cases and nothing else. And if it does that, it's an enormous success. And if uh, it can do more in capital markets and beyond that, then then it gets really really interesting. And I think one of those use cases links us nicely to the next story. Actually, um I found it so interesting that that one of the UK's largest banks, Lloyds, used USDC to settle $750,000 with Visa. Um this was a
[16:26] 7-day live pilot. Um Lloyds bought the USDC through UK company Artax. Shout out to those guys who are a UK regulated digital asset exchange. Um and the obligations were booked through their corporate markets branch in Jersey and then sent to Visa in the US. Really nice uh regulatory work here. Um the head of digital assets at Lloyd says stable coins could be particularly valuable for crossber payments where moving money between markets, currencies, and infrastructures adds times and
[16:57] complexity. Kai, we've been talking about card issuers sort of using stable coins for for scheme settlement for for a while here. Um, interesting that, you know, USDC here is still involved. Interesting that a UK bank is involved. Lots to pick on, but I know this is a big topic for you. >> Yeah, huge shout out to to the Lloyd's team and, you know, this is a a major major financial institution that's going on chain, you know, settling on a a Saturday and Sunday. We purposely wanted to do the the 7-day, you know, pilot so
[17:28] that you we could prove that the weekend out. Uh, and I think it's one, it's exciting to just see how far stable coin settlement, you know, has come and starting with crypto companies and then stablecoin native fintexs and then regular fintexs and then fintech focused banks and then, you know, now major banks. And so it's just this progression, you know, of of adoption has has been really cool to see. I think the other thing that that resonates a lot is, you know, we we've talked a lot for years of you just you have to get off zero in the sense of if you've never really made onchain transactions, you
[18:00] know, as a large financial institution, the earlier you can get to the point where you can test end to end, you know, send a million dollars one place, get money sent back, and you know, I I think we we did this first time and uh I think it was 2021 was like the the first onchain transaction that Visa made. Uh, and it was like such an intimidating moment of like, whoa, like we're we're gonna send money over a blockchain and how are we going to manage gas and what is this going to look like? And and we did it and we're like, okay, like nothing broke, nothing blew up. Like it's it's possible, you know, to be able
[18:30] to to move money on chain. uh and I think we're seeing large FIS all over the world looking for what are the opportunities of very clear scoped pilots that have you know low risk that give us an opportunity to be able to start to move value you know onchain and and to be able to you prove some of the most interesting properties like the ability to move value over the weekend uh and so I think it's it's great that kind of Lloyds you know took this on to say you know let let's demonstrate how we can use USDC use public blockchains
[19:00] you moving value over the weekend and uh we excited to partner with them on that and I think you'll see many other banks, you know, look at settlement as this first use case to get some experience that then can evolve into many other use cases in in the future. But Christian, your your thoughts on the the settlement space and how how large banks, you know, should be looking at kind of dipping their toes in getting their first, you know, onchain transactions. >> I mean, look, honestly, also beyond the the value of learning. So I I think any financial institution that wants to stay relevant needs to experiment with this
[19:31] uh above and beyond the immediate benefits and so yes settlement is really important. Uh eventually programmability, collateral all sort of new solutions that that will be possible once assets are probably uh pro correctly represented on chain um will will become available uh to everyone. Um the key here is also like the cost of liquidity, the cost of credit, the cost of essentially any sort of financial intermediation is coming down and yeah
[20:02] as an institution you need to start experimenting with this. Um I I feel like these pilots are really a glimpse of of what we can do in the future and I imagine over time you know does scale up uh dramatically across uh a number of things. What what's interesting to me is that in a sense it's almost like we're still in this phase where you know you're running the the car on the road that's designed for horses and so every one of these pilot has to create all these kind of convoluted structures and and and flows but eventually as more of this is all on chain suddenly I I think
[20:34] that composibility will really unlock all sort of interesting applications so uh it's almost like a slow ramp up but um I I would imagine as as soon as large institutions really come on chain and and start putting really interesting assets on beyond cash and cash equivalents. Uh there's going to be a whole you know new economy of how these assets get used uh more efficiently. So yeah very very optimistic about what what's possible here. >> Stable coin operations usually mean a wallet from one vendor, an on-ramp from
[21:06] another and then your controls are stitched together across both of them. The Visa stable coin platform fixes this handily. You can mint, move, and manage stable coins, access OpenUSD, and remain your own custodian all in one single shared environment. Then, stable coin linked cards let you spend balances anywhere Visa is accepted. And we know stable coin linked cards are in hyperrowth, as our good friend Kai likes to say. That is Visa, of course, the global leader in payments and of course
[21:37] sponsor of this show. You can find out more at visa.com/crypto. This episode is sponsored by Privy, a Stripe company. Stable coins can move money anywhere as we well know, but only with powerful wallets at their core. Trusted by more than 160 million accounts across 180 countries, Privy powers secure customizable wallets that enable you to go global from day one. From business banking and payments to
[22:07] trading platforms and consumer apps, Privy powers the wallets behind modern financial products. Stop building with Privy. Learn more at privy.io. All right, the next story is that City Bank is going to let its corporate clients accept stable coins. This is Spring by City, the bank's merchant acceptance platform, which once in a past life we uh we helped work on um at a company I used to work for. Um, so Coinbase payments converts uh stable
[22:37] coins into fiat and city settles as the bank of record. So the merchant only ever sees dollars. Coinbase virtual accounts run on city's virtual account wallet, part of its banking as a service stack and business customers can accept, hold and pay fiat and incoming dollars convert into stable coins on arrival. Um, City built Spring in 2019 with global payments on cards and pro and local payment methods. Um, Coinbase now fits alongside uh that as its stable
[23:07] coin solution. Um, guys, I'm interested in your view here. Stable coin acceptance for merchants seems to be the one area that hasn't really taken off. I think Shopify has had this capability for for quite some time. I don't know that consumers are banging the door down of large merchants to pay with stable coins. But do you guys have any evidence otherwise? Is that a bias of mine? Am I am I wrong on that? Do you think that's going to change soon? Um Christian car your thoughts? >> I I do think it's a much more compelling solution when you go cross border, right? So if it is a global merchant
[23:38] trying to accept um payment um maybe that that's a more viable payment method, but at least domestically. I mean all of these banks uh PSPs have kind of struggled historically. Uh as you pointed out right city had an effort uh before in this in this arena. There's a lot of reasons why you know the point of sale is is still dominated by you know other methods. Um, I think where it's interesting is that if you zoom out, right? So, here you have two entities that clearly are going to be competing uh on on different fronts,
[24:09] each embracing a piece of the other in a way that's that's potentially like a slight slight expansion. Um, I I don't think that's the end state, right? I would imagine banks will will want to control much more tightly uh some of their interface, especially if it is their merchant network. You know, how that happens. Is it going to be with a partner? Are you going to do it in house? Uh on the other side I I do think we need to be more prepared for a world where all of these different companies and all of these different assets and instruments will blend and you know to some extent it won't matter for
[24:39] consumers or merchants they will just use whatever it's available to their wallet to their particular situation in time. Uh but I do think you rais a really important point which is like okay u what would trigger switching right from from maybe a more costly payment method for the merchant to something like this that can be more bare bones more final you know stable coin settled. >> Yeah we we still have not seen any meaningful demand for direct consumer to merchant stable coin payments and and it's not that there aren't any merchants that accept. I mean like you said
[25:10] Shopify accepts Stripe is accepting. uh there's just not material demand of of consumers who would you know rather pay and and I think it's also the success of of stable coin link cards has really taken you know people who have a stable coin balance and want to spend it yeah it is much more convenient uh for them and and now with you know many of the rewards programs and the competition in the stable coin like card space argument of if I have a stable coin balance why wouldn't I spend it on a card why would I pay it you know directly to the
[25:41] merchant have a worse experience. It's just we have not you seen that that play out. Um I I think the area where it makes the most sense is is on the B2B side. So I I read the story more as you kind of preparing for some of the B2B use cases. Um we've heard some of the the title transfer you know companies are now accepting stable coins that that people are doing kind of large value what used to be a wire is now a you know $100,000 you know stable coin payment. you know, I I could see many of those use cases, you know, that, you know, those kind of, you know, consumer or
[26:12] kind of small business wire use cases uh move move over. Uh I think that the experience that city's enabling here is something that, you know, I expect to be really common across, you know, most banks. If you fast forward, you 5 years, you should be able to have someone send you a stable coin and it automatically just shows up, you know, as a deposit or you should be able to withdraw from your deposits and have it set out, you know, as a stable coin. Uh, and I think we're starting to see more examples of, you know, that kind of seamless ability to,
[26:44] you know, treat a stable coin like digital cash and automatically clear it, have it show up as a deposit. There's a lot of work on the back end, you know, to to make that smooth. Um, but there there's no real incentive for banks, at least in in the US, to hold a stable coin on behalf of a consumer. Uh, and so you need that ability to, you know, let someone accept it automatically have it show up, you know, in their bank account as a deposit, you know, the same way that they would if they walked into a bank with, you know, $1,000 of cash that they were depositing. >> I I think that B2B thing is super
[27:14] interesting as as Christian um was was about to allude to as well. Uh it's the wires have been just such a painful thing for anybody trying to do B2B payments. A isn't a lot better. It taps out above a certain threshold. Uh and and international wires are even worse. And so kind of having this instant lowcost um solution is something that there are a portion of businesses that deal internationally that could that could find that extremely valuable. I
[27:44] find it such so interesting as a theme that you have a very large bank leaning into this and having a partner like Coinbase kind of allows you to do that. Um, City's been quite open to partnering with fintech companies. They've done stuff with Nan, they've done stuff with Gusto. Um, I believe they've done a little bit with Brex as well historically, although I might be wrong. Um and so kind of interesting how in the corporate and investment bank they have done quite a few partnerships that uh you go under the radar and don't necessarily get the most attention but it's a good way for an incumbent to innovate if they can't necessarily
[28:15] engineer their way into having competitive solutions is like do some partnerships with fintex these are these are not necessarily your enemy >> I think there's a underlying question that every large bank will need to answer which is like it's clear the word is going towards a word with greater interrupt a lot of the friction you know, will disappear. And how do you play your cards, right? Do you embrace a stable coin? Do you try to, you know, go clearing houses plus the deposit tokens or tokenized deposits? Um, do you use a tokenized treasury? Like what what is
[28:45] that interop solution and and what interop solution you're going to use for different use cases? So, I think what what makes this interesting is that you're seeing glimpses of banks dipping their toes on the stable coin side and trying to understand what do we gain, what do we what what do we lose? I mean there's the looming debate around you know deposit flight and the yield and clarity that's that's of course top of mind for many of these banks but it's interesting to see that different parts of the banks will have very conflicting incentives on this. >> Yeah I I I think speaking of deposit
[29:16] flight you maybe we we should we should move to the the next story. It's it's funny that we like we've covered deposit flight you so many times you on the show. Yeah. But the context of of how you know it's come up mostly has been uh stable coin rewards and yield on stable coins and just this this battle that played out you know in DC between you know the banks and the the crypto lobby which ultimately concluded in really nothing happening in terms of you know clarity you not not going through and
[29:47] and the status quo has has rem remained on uh on genius. Uh but for the the last story, you know, we wanted to to to talk about that the Apollo chief economist says agents like amuse will cause deposit flight. Uh so you know the the consumers don't just want a better deal. An agent can move deposits that earn you a fraction of a percent to above 3%. This went absolutely viral. I feel like we got takes you all across the the spectrum. And so, yeah, Simon, I have to
[30:18] give a shout out to to you for your your brain food, you know, last week, which I thought was was really really good. Christian, this covers a bunch of topics that you and I have have discussed in the past. So, so maybe Simon get you want to start with just like what your high level, you know, take was on this and then Christian really curious. We haven't talked about this yet. Uh, so I want to hear what >> Yeah. So, I don't buy that agents will cause deposit flight any more than FinTech cause deposit flight. If you look at sort of 2013 to today, um, bank deposits went somewhere from around 9
[30:49] trillion to about 19 trillion. Banks are just fine. Um, deposits haven't gone anywhere. What they have done is miss out on all of the uh, incremental revenue opportunities that fintech created and I think that's that's been meaningful. Uh, fintech now represents something like 4% of global financial services revenue. uh if it keeps compounding at this rate um it will take about 20 years before they're half of all financial services revenue um banks are not growing anywhere near the same
[31:19] compound annual growth rate. It's something like 21% versus 6%. So banks are slowly eroding in market share and uh this will muse will and and agents like it will massively compound that issue. So yes, okay, agents could move your deposits, but think about the consumer um kind of perceived friction of moving your deposits where your direct deposit goes. Oh, what's going to happen to all of my uh bills and what's going to happen to like my uh kind of everything that comes out of it and my
[31:49] mortgage and yada yada yada. I've got all of these other things that are linked to it. The fact is there are solutions that with a single click will take care of all of that for you. But that doesn't get rid of the perceived difficulty from consumers. There's a psychology issue here that I think is much much bigger. But there was a really really interesting um study by AIVO. They ran more than like 2,000 conversations with chat GPT, Gemini, Perplexity proposing as a small business owner choosing a bank. And in this uh
[32:21] the banks came up almost never. Uh so Mercury won with 327 endorsements followed by Wise with 184 and Relay with 68. The best rated bank Chase got to 60. I think this is going to be the really big thing. If I go to my agent and it's helping me manage my money, which it can already do via Plaid, by the way, at least on a readonly basis, and it can sort of help me find new financial products, it's not necessarily going to recommend a bank. And that I think over
[32:53] time compounds to be something something really meaningful and something you should pay attention to. So in the in the full piece uh the agentic bank run which you'll find on my social account or fintechbrainfood.com or brainfood.xyz soon um then you will sort of see that I break down what should banks do about it will fintex do about it and the lessons you can learn from it. But um it's a really fun piece to write because I I don't buy the deposit flight uh story at all. Uh Christian, do you disagree with me or what are your thoughts? >> No, and I had very strong opinions on on
[33:25] X when this came out. I I think it was a clever headline by Apollo. It drew a lot of clicks and a lot of engagement. But let a few thoughts. So first of all, I think recently there was a report by Clarivis on on this whole deposit flight story and they painted as deposit flight. If you look at the data, it was just people moving you know assets to fintex and crypto exchanges to trade. So there the first of all point one there's no evidence of deposit flight to date. Um, but second, as you start thinking about what the agentic economy will do, this is what I've been spending, you
[33:56] know, most most of this year on friction and any sort of business that relies on what I call for for those that that are old enough to remember the blockbuster late fees, that model where whether you're an insurance company and your consumer doesn't shop around or you're holding and earning NI or net interest income because people are lazy, uh, um, that stuff is going right. So long-term, are we going towards an economy that will favor business models that serve consumers and businesses more accurately
[34:27] and better? Yes. And like you pointed out already, Simon, this is nothing new. Fintech has been doing it progressively for for more than a decade. This is going to be an accelerant towards that. Um, now many reasons why deposits are sticky. Well, first of all, you know, think about FDIC insurance and the guarantees that come with that. Now we know that genius stable coins are probably as safe at an FDIC insured deposit right especially uh if it's you know HQLA's um but more broadly the idea
[34:57] that everybody will shift in mass because Muse is recommending or Grockbot uh or whatever Google comes out with I mean there's going to be multiple of these and that's going to cause a run that's that just makes for a good deadline it's not how it's going to unfold that said the reality I think is going to be that over time consumers and businesses will be a lot more thoughtful with their cash and cash equivalents. Today the only interrupt layer in the United States for your money is unfortunately a checking account. uh whether you connect to your fintex you
[35:28] like eventually your salary everything your mortgage like you were pointing out everything has to route through this clunky piece of infrastructure and that's what has made this extremely sticky but you know we have number portability for mobile eventually you know you can imagine a scenario where we're going to have really good interoperability between all these different services that's when I do think the agents will make the right calls and will drive business so if you're a bank yes I think you should have a and for a future where the the
[35:58] comfy park deposits are going to go away through competition, through fintech, through stable coins, through through everything. But yeah, is this something that is almost like the agentic swarm that we've seen with OpenAI, you know, attacking arguing phase? Is that's going to be the same where all the funds are going to move away that this just makes for a good headline? >> I don't know if you saw the Meta stock was up like 15% and the S&P bank stocks was down 5%. It's like it's like Catrini research all over again, but I don't exactly think this is the bank apocalypse.
[36:28] >> Yeah. And and and look, I think I think this is where I mean the market is is is doing a lot of vibes lately, but people have been thinking about the I bet as essentially it's all going to be entropic and open AAI. Uh I've written extensively about this, but I strongly disagree. I think the winners in the AI market will be the orders of complimentary assets. So what you're seeing with Muse is essentially looking at a massive platform with massive distribution that can create wonderful product experiences saying we don't need the the frontier model right we can make
[36:58] it actually useful to consumers meta is not going to be the only one I think you're going to see Google eventually even Apple everyone is going to play in that some leading fintech will do the same uh yeah that that's just going to happen >> yeah and and so then how how should banks respond I think even if you don't believe it sounds like you know We're pretty much in consensus that this deposit flight boogeyman that you know is just kind of this fear that is thrown out there for any new technology. Uh but there is this you know steady progressing over a longer period of time
[37:29] reduction in friction and any business model that is you know expecting a consumer to not have perfect information or shop around is is going to have more difficulty. Uh Christian, how how do you think about put yourself in the shoes of you're a a bank CEO, you're looking at kind of this future of agentic banking, agentic finance, like what you what should you do about both continuing to maintain the customer relationship and then also I'd love your thoughts on how do you think about like the sovereign AI
[38:00] stack and for banks to actually progress and use AI like what what do you need to do as as a bank CEO to to remain relevant? Yeah, look, I don't believe in the pacing the fintech frontier. Uh I think if I was leading a global bank, I would just embrace it and rather disrupt myself than waiting to be disrupted. Um build something customers want. Right now customers will want more choice. They will want better products and services. You can be ahead of that game. And now that can be very painful for
[38:30] companies that have a meaningful share of revenues in their payment business coming from park deposits. But look, it's it's happening, right? So you can slow it down, you can try to make it uncomfortable, you can create all sort of friction. If you look at the music labels, right? So the ones that embrace streaming and understood that the the economics of distribution of music were going to zero and they had to win in a different game, they tried. So I don't think this is a extinction event for the incumbents that embraced the technology and understand that yeah, the blockbuster lead fees in the financial
[39:01] services industry are going away and we should play by new rules. There's plenty of ways to add value. There's plenty of way to make that deposit still sticky and useful, but there's are going to be new ways. And to answer your second question, I I think it's going to be almost ridiculous a year from now or two years from now for any fintech or bank executive to send their traces back to a closed frontier model. They're going to realize that part of what makes them a viable business is they're essentially a finance verification factory. they can
[39:32] get information in, better measurement in, and they're going to manufacture better tokens out of that process. And if you don't own those traces, if you don't own your weights, if you're not running on a model that maybe it's like an open waste model plus your proprietary context, you're essentially slowly sending your secret sauce away to someone else. That could be a disruptor. Now of course you know the labs don't have licenses and so there's always going to be friction but imagine a world where you're essentially just a dumb pipe the holder of licenses and all the value is created at the chat GPT level
[40:03] or at the cloud level. I think that's not the future banks want and Simon was already going there by saying you know if your agent tells you which bank account to open then well they're the massive aggregator and you know as we know aggregators are really valuable when things get unbundled. So Christian, should should banks build their own agents? Should they build CLIs? Should they build MCPs? Like how do you think about just staying relevant from a distribution standpoint? Like do you think are MCPs going to be like, you know, the same way every bank has a
[40:33] mobile app today? They're going to need to have an MCP in the future and they're going to need to connect into these agents. Like what what would you do on the the the front end side of it? >> Absolutely. I I think they need to embrace the technology. they need to dip their toes and look maybe in the end they're going to use a a third party for some of this but nothing beats the exercise of going through the motions of building your own MCP server trying to make an agent available to your customers it's not that different than back in stable coin early days right we we we were all there when the [snorts] the forward-looking institutions were
[41:04] playing with permissionless blockchains and you know maybe there were pilots maybe there were early experiments I think all all of those institutions are better off today because of that learning I spoke to three different leadership teams at banks last week more or less as who'd all been playing with Muse and then when this news broke I spoke to another one as well. They all asked me two questions. One, should we block this? They saw that Amazon had blocked Muse and they were like, is that a thing we should do? Um there was an insurance company called Insurify that did that
[41:35] and their stock price spiked. There's I'm getting sort of flashbacks of um open finance and open banking where some of the big banks would like intentionally sort of break screen scraping. Um and I think that's a possibility but also um you I don't think the evidence is there for doing that just yet. Like I think it's a bit early but I do think you need to uh understand how that's the cure interaction is going to work to to the point that Christian was going to make. If if an agent is coming to your data,
[42:05] how are you making sure that that's 100% secure? Cuz there's so many things that could go wrong for consumers and businesses if that data leaks in some way. I've spoken to many banks as well who are intentionally knowledge knowingly a little bit behind on what they could do with AI because they don't just want to go do an enterprise deal with one of the big labs because those big labs will tell you till they're blown in the face. We won't train on your data. We'll never see your data. But frankly um and I think experience
[42:35] with big tech has taught us people say that and it's true until it isn't. Uh the second question I get is should we build our agent? And I have a very simple answer to this only if it's actually good. Nobody wants another chatbot. They really really really really don't want a terrible chatbot. So don't do it. What you can do is learn I think from uh public.com and Robin Hood who I think have done this really really well. Um so they opened um brokerage um
[43:05] accounts for people's own personal agents like Claude Code and uh you know Codeex and that sort of thing. They ended up with about 150,000 people who had these separate agentic accounts, tightly constrained, you know, really limited in what they could do. But these power users allowed them to observe what will people do if they had access to the account. And then just a couple of days ago, they announced Robin Hood agents, which is like the consumer packaged version of that. So if you think about the difference between clawed code and
[43:35] using Muse or Instinct, there's like a consumer version and a and a nerd version. That's a thing you could do as a financial institution. You probably have some customers who are massive nerds. Um, and you can give them a really sandbox version of that account to to learn from. Coinbase has done this. Mercury's shipped an MCP server and an account for agents. Meow. Ramp. Go look at what the fintech companies are doing. There's your road map. Um, but then I think the big thing you got to do is give the re the agent a reason
[44:05] to choose you. You got to make your bank worth choosing. like keeping them money customers money safe is one thing but like you're in a competitive market now and the reason you're showing up last I think on a lot of uh these uh these AI benchmarks is because objectively your product offer doesn't look as good and certainly isn't described as well on the internet. So I think there's there's three things you can do and you've got to move faster. You just got to move faster. I think this is going to be much
[44:35] bigger than mobile because with mobile somebody launches a new neo bank mobile app and you do one that's like half as good and you keep most of your customers. This is like actually the consumer has its own agent. How is a consumer going to delegate authority to that agent for it to be allowed to interact with the bank? I think Visa is doing some work on this with TAT protocol and um I've seen some other good efforts but like you really need to be thinking about that and I know a lot of consumer finance teams are so long
[45:05] may that continue. Um so I'm conscious of the time. Uh Christian Kai any any final thoughts before we move on? >> I I think my my parting thought is really like look we're going towards an economy where if you're not doing something that customers and business really value and want you're going to be in trouble. And so to to go back to your gradient of how fast you accelerate, the more you rely on friction that's about to disappear, the more you should really hurry up and and both embrace, you know, stable coins, tokenization, uh but also
[45:36] the agentic flows. If you're already delivering value, then maybe maybe you're less at risk, right? Uh the agents will find you no matter what. >> I like it. The agents will find you. Um sounds vaguely like something from the Matrix. Um but there's a bunch of stories we didn't have time to cover this week. Uh the DTCC took a stake in I capita. Cloudflare opened its closed beta of its monetization gateway which lets websites charge AI agents per request in uh stable coins. The financial conduct authority has started
[46:07] accepting crypto authorization applications ahead of its 2027 regime. Allelujah. Um and Robin Hood is going to launch per weekend stock trading for its US users. Always more news. I wish we could do a longer two, three hour show, but Kai's got to go be a dad and Christian's got to go save the world. So, thank you everybody for watching and listening wherever you are. Kai, if people want to find out more about you, where do they go to do that? >> OnX. Kai Sheffield and visa.com/crypto.
[46:37] >> Christian seealini onx. >> You'll find me at sytail on all of the socials at fintechbrainfood.com and of course at tempo.xyz XYZ where we're doing lots of interesting things with large financial institutions. Uh please please please remember to subscribe to this podcast wherever you get your podcast and leave us a review. Uh hit the like button if you're watching on YouTube. Uh it really really helps us. Thank you and we'll catch you next time.
[47:11] >> [music]