Crypto Neobanks: The Race to Replace Your Bank

Transcript

Oh, welcome guys. This is one of the bright spots in the cryptob market, crypto nail banks where all you guys are growing. Um, yeah, a lot of interesting questions. Very excited to have all of you here. So, yeah, let's get into it. Um maybe briefly let's go through around u do a short introduction yourself and then in one sentence explain from your perspective what is a crypto neo bank and what's the one thing you do that a bank can >> uh so uh I'm Mike Siligadzo I'm founder and CEO of Etherfy Ether is uh as has been called a crypto neoank uh the idea there is basically to create a

non-custodial alternative to tradition traditional bank. So, a full endto-end replacement that lets people save, invest, spend, do all the things they would normally do with their uh trady uh bank um uh but do it in a self-custodial uh way uh and ultimately give them a better product with you know higher rewards, lower fees. I think there's a bunch of things that uh this category um uh just structurally is better than traditional fintech institutions. one, it is a lower cost base. So, Ether Fry has about six half billion dollars in uh in assets. Um we're doing a couple billion dollars in payment volume. Uh if you take the numbers, if you sort of

profile EtherFi and say, "All right, how big would you need to be as a Tradfy institution to operate at this scale?" We'd need to have probably around 5 or 600 employees. Uh whereas Ether has about 40 employees. So there's an order of magnitude difference in cost structure which means we can create a product that doesn't extract as much for the users. It doesn't charge as much and ultimately gives them more rewards. That's why I think ultimately the you know this becomes the template. This becomes the model that all uh fintech moves to.

>> Sean Sean Clark director of partnerships at RAIN. Uh for those who don't know Rain, Rain is a global stable coin card issuer and stable coin infrastructure company. Um in one sentence, I think really the difference between traditional neo banks and crypto neo banks is that traditional neo banks built a nice interface on top of legacy rails. Whereas crypto neo banks have built on internet native money that's programmable. So you kind of everything moves more quickly behind the scenes and as you were saying Mike things just become inherently more efficient.

>> Hey guys, my name is Septicar uh CSO and founder at Plasma. So Plasma like Etherfy is in the you know crypto dollar account crypto neo bankank space. We're both powered by Rain. Um so you know big shout out to Rain. We're we're big fans. I think the biggest difference between crypto neo banks and traditional neo banks is that traditional neo banks are mostly just not neo banks. They are a nice UI that exists for a bank and that's the only difference and they don't have physical locations in most cases. Um I'm a Revolute user myself in the past and it's just a awful product and we wanted to bring about a product that is advancing as fast as other industries. I think we like to really complement ourselves in the crypto space

as being very tech forward. You know that money 2.0, money 3.0, whatever you want to call it. Um, but in reality like we haven't delivered on those promises until I think both, you know, companies like Rain, Ether, Plasma, whatnot, have come to the market, been able to issue cards globally and make your stable coins actually spendable and fungeable with with, you know, just fiat systems. I was in Korea last week and we had this whole conversation about, you know, what does stable coins mean etc. But the reality is it shouldn't mean anything. It's just a better form of money and that's the only thing we want to actually care about.

>> Oh, thank you. So, next question for Mike. EFI started as a restaking protocol. I remember the good old days when I actually st my Eve on EFI, but like now the card is your fastest growing revenue line. When do you realize that the NEO bank was the business was the opportunity and how many of your users have never touched sticking before this? Uh so I'll answer maybe the last part first which is almost all of them uh at this point. Uh the staking and yield vaults is very um it's almost like institutional facing. Uh but anyway I so we raised our series A back in 2023 so three three years ago. Um and in our

series A pitch deck we had this slide that talked about how we're we're going to build this vertically integrated uh uh fintech business. Um and staking was the first component of it because that that served as the yield layer. It's almost like think of it as like okay we had to create a T- bill and then on top of T bills we created you know the strategy vaults you know investment uh tools um and then we built the spending component. So we sort of built these pieces uh up over time but this was actually the uh the vision from from day one. It's just that staking and restaking specifically just went apeshit uh for for like a year and that was helpful to us because you know it helped us grow and financed a lot of the uh the

development. Uh but this this idea of bu you know creating this crypto neo bankank platform was actually there oh >> from day one. >> I didn't know that. Good to know is realizing you your vision which is nice. >> Um next one are here. Um you used to run a profitable hedge fund split capital. We closed it down and it's called it crypto's last dance. Why why move or why b on a neo bank next and why does a chain's own consumer app instead of letting users letting others build on top of it? >> Yeah. Um I want to answer the second question first stealing Mike's uh move here. You know we've seen every sort of iteration on a chain in the last 5 6 years. None of them work really well

when it comes to trying to build out like a new ecosystem. Even the best you know uh chain that exists today in terms of usage which is probably hyperlquid in terms of like having a very core application. It's not like the ecosystem in hyperlquid is thriving and you know there's all kinds of new apps that are built on top of it. I think generally speaking you know ecosystem teams in crypto are pretty poor and the best companies already exist right unis swap exists a exist all of the best companies already exist. Why would we try to, you know, replace them? Why would we even try to give grants for new people to come and build it? And so instead, what we focused on was we wanted the best partners to come build natively on plasma and then focus on the distribution application building ourselves, which is plasma 1. So this

was already in the kind of, you know, um, landscape for us. We knew that if we built a high performance chain, that alone wouldn't get, you know, usage. We do $30 billion a month in stable coin settlement between exchanges on USDT. But even still, that's not going to drive network demand in and of itself unless we're able to power the application. On the hedge fund side, the reason why I left, you know, while I'm down the hedge fund, we made money, you know, both years of operation really it came down to portfolio diversification. Um, you know, it ended up becoming a case where I owned Hyperlid, I owned Plasma, and there was basically nothing else in my portfolio. And I didn't want to run a vehicle where this was the only consensus bet that I had. I think this was, you know, at a time more than a

year ago when this category was still yet to be proven um as having provident market fit. Now it's very rapidly becoming probably the only real space outside of perp trading that is getting real PMF in in in crypto. And I think a lot of conversations, I'm sure this applies for Mike and Sean as well, a lot of conversations that we have in the background are with the largest payments companies in the world in a very real way that they want to, you know, adopt and accept stable coin. So I I I think there's a massive perception mismatch between how large this market is going to be and retail focus on how this will actually end up working out. There's a lot of payment specific knowledge that ends up going into this whole

conversation and that's like probably where the the the chasm comes from but I think in a year two time this is going to be you know seen in hindsight as the most obvious trend that you know was happening in real time. All right, cool. Sean, so Rain, you you obviously had an infrastructure for both Plasma and and EFI. Um, and Rain sees over you oversee over 200 different card programs. From your perspective, what separates the one that scale from the ones that stall? And what are some of the more common mistakes that you see card issuers um I guess program run programs run? What are some of the mistakes here? Yeah. So, there's a couple things I think about

here. Um, an issuer running competitive programs is not new. Uh, large traditional banks have uh powered airline hotel programs that that may compete, right? So, that's completely normal. We're building the infrastructure to empower our partners, right? Stable coin is not stable coin card is not the product and uh infrastructure is not the distribution. So we have we build the building blocks. We listen to our partners to understand what they want us to build and how we can help them the most. Um and then we go from there. I think going too far and wide and not focusing on what they're good at, honing in on specific market,

speaking to their customers, understanding their customers. So so narrowing in on that focus area uh and and truly delivering the best experience for them is is how to succeed. Basically basic back to basics understand your customers. >> Yes. >> Maybe I guess a question for Mike and are here now. Um is the economics for running a new bank good? I mean you guys pay 3 to 4% cash back. You pay you on the balances. Where does the money come from? And how long can it last? Are you guys subsidizing users and that's kind of how the use coming from or is it actually sustainable?

>> Uh yeah it's look there's different ways. uh there's a lot of nuance uh there in terms of how the rewards are are paid out um and having multiple lines of product. So for EtherFi, you know, we have the interchange revenue from card spend. Uh we have our lending market where people are borrowing and we take a spread. We have token swaps that people do an app where we generate some revenue. Um there's the staking rewards. There's the yield vault. So multiple products is is very uh important. Um uh and the way that the rewards are are paid out uh if if if one is uh uh thoughtful about it um uh you know the entire thing can be quite quite

profitable. So yeah, so we make money on every uh user. We make we have very nice positive unit economics in terms of cost of acquisition and and revenue. Uh we're we've been profitable since day one as a as a business. So, it's yeah, it's actually it's a great business. [laughter] >> Congrats. >> Well, that's why I mean we're we're spending like $15 million in buybacks this year, you know, buybacks of our token. I mean, that's and we're profitable net of that. So, it's uh yeah, it's uh it's actually quite good growing this fast and being profitable. >> It's like in my previous company, it was a SAS B2B SAS company. Uh very different world. So, >> that's the world that I live in, right?

But I mean it's incredible that you only have 40 employees and you scale this thing up that uh this quickly. >> Is that here? >> Yeah. I think um you know similar to Mike like really it comes down to how you want to run the business. You can go super aggressive and not be profitable and just want to get user growth. It really depends on what your what your goal is. I I think we've been in a position now where we we you know we're we're we're growing rapidly. We're constantly getting you know month overmonth growth at a at a pretty brisk pace. I think even for any sort of like traditional startup anything like this.

So um it really just depends on how you want to actually end up you know structuring your your uh your unit economics and basically the revenue that you want to generate. I think for us like we we I come from San Francisco grew up in the Bay Area. Um it's very much a game of you know getting revenue on the board but also making sure that your users have a delightful customer experience uh end to end on the app. And I think that's going to be the thing that gives us the longevity to keep growing and and and building this thing out. So, you know, when it comes to like running the NEO bank, it is obviously going to be a very expensive proposition, but at the same time that over a long enough period of time, you will make a tremendous amount of money

doing this. On the flip side of it and we've seen a lot of neo banks, a lot of like you know um business banking accounts that sort of thing have very good kind of steady growth and then at some point they just kind of die because they can't acquire the next user. So there's a lot of stratification in the existing kind of neo bank or business banking uh universe that ends up happening where two companies can look the exact same on the revenue side and everything looks good and one can be worth like 10 or 100 times more and that's really when you have to dig into like you know how does the market understand it and this applies more for traditional neo banks but it will increasingly apply for crypto banks as well. M >> everyone's talking about AI this time around as well you know building banks

or payment solutions for AI agents what's your take on agentic payments do you do you see them as the next big group of users instead of humans or not really it's all hype right now >> uh yeah I mean I think it's going to be the default for every uh uh fintech I mean this is just a starting point to have an MCP service that your agent can M so that you can plug it into Muse or Instinct or whatever. Um we actually just released ours uh so people can can try it out. Um uh so then you know a lot of this stuff will be uh will be abstracted. Um um I'm still we're still trying to figure out how do we um uh

inject u intelligence into the product in a way that's not um doesn't feel bolted on and kind of pointless, right? like a lot of products you see just kind of like plugging in a dumb not dumb whatever a chatbot and it's like oh now we're agentic you know give us an AI multiple um so we haven't we've sort of resisted the temptation to uh to do that I think there's definitely something there but I think it needs to be done thoughtfully >> uh kind of to Mike's point you have to meet your customers where they are so where are they going to engage with agentic payments uh I think giving agents the spending power is not the challenge.

It's putting like scoping that spending power out so spending doesn't get out of control. So I don't think agents will replace humans necessarily for spending. Uh they can go out and and try to make that purchase but at the end of the day uh there will need to be a human to approve that purchase. >> Yeah. Yeah, I mean I think long run it's all exciting and interesting stuff but the overwhelming majority of people in most western markets still go to a physical bank to do their transactions. I think finance is too personal for most people. I think this is also why you have like relatively low crypto adoption rates globally because it is still a hairy problem dealing with finances. Um so again it's very exciting in the sense

of like being able to see what you can do. I've seen like Revolute's kind of you know AI program internally. It it's it's kind of like an advanced version of Siri where it's not really that useful, but it's like kind of fun. Um, again, I think we're so like people in crypto can opine on this because we've seen how long it's taken for, you know, people to even adopt digital payments as a service. I I think it'll take a while before agentic payments really takes off. I think it's a very strong narrative though for the biggest fintexs in the world that want to kind of push this idea forward but I don't think it's going to get much user traction probably for the foreseeable future while these kind of you know uh AI personal agents are still in their nent stages.

>> Yeah, I guess we all live in this bubble where everyone's talking about AI but the real world is very it's not ready for it yet I guess. Yeah. Now Sean, um, Rain powers all these programs, 200 World Card programs that obviously compete with each other, including the two of you. Where where is the mode actually? Is it the licenses that you hold, the tech that these guys build, or the distribution that these guys have? Where do you think the modes are? >> So I think it's a combination of all three really. Um, the stable coin infrastructure issuing stack that Rain has put together is is quite differentiated. Um, but at the end of the day, our our partners and what they build on top of our platform is our

mode, right? We do what we can to empower them and build for them, but they're the ones distributing the product, acquiring the customers, and and we're here to empower them. So, a combination of all three, but without our our partners, we'd kind of be nothing. >> And now, from your positions, like where do you see demand coming from? Is it US, Europe, LATAM, Southeast Asia, Africa? Um, which markets are you most bullish on? >> Yeah, I think it's different for every uh uh neo bank, crypto, neo bank. Um, we so we're pretty much like the entire world except for North America is like our [laughter] our market. We have very

few users in North America for a lot of reasons. Um um uh but yeah, for us like Latamu uh chunks of Europe, Southeast Asia, that's that's where a lot of our growth is coming from. >> How many countries do you guys serve? >> Uh there's about 15 markets that like are meaningful for us. 15 countries. >> 50 big ones. >> Yeah. I mean I I think it's much more of a regional game over time. And it's kind of like oil in the sense that there's oil globally. There's just a price of extraction of how much it will cost you to go and get that oil.

So as the demand scales globally, like there's demand for this product everywhere in the world right now and we can get a user everywhere in the world within reason. Obviously not sanctioned country CTC, but um the the problem becomes where are you seeing it just the easiest and where do people want it the most? And we find that it's pretty typically in high spending power countries or regions that don't have good, you know, banking access. So it's like one or one end or the other end of the spectrum. I think you know when it comes to like targeted markets, targeted focus, we see a lot of demand in the GCC, we see a lot of demand in APAC broadly, we see a lot of demand in in Europe surprisingly. Um so it's it's all over the place.

>> Yeah. So across the board globally we're seeing the most adoption where the friction of money is the greatest. So in Latin America for example you might have volatile currencies they want US dollar access that that can be the product right in more mature markets the the efficiency of the stable coin issuing stack is the product that isn't visible to the end consumer. So for example uh rain settles with Visa 7 days a week. Traditional banks need to adhere adhere to uh traditional banking hours. That alone creates so much capital efficiency for our partners that is somewhat invisible to the end card holders. But you know hearing these guys talk about

uh the increased rewards and things that they can provide that's the thing that kind of flows down to the the end card holders and they can't see that invisible infrastructure behind the scenes. And how do you see like neo banks differentiating themselves to win market share? I mean, you have it. I'm curious to hear from you guys here. >> Yeah, I actually think regionally is probably what it's uh what it's going to look like. You're going to have folks that specialize like right now. I think all of the these crypto neo banks are working off of a very small user base, relatively speaking. Like we've got, I don't know, like 600k accounts, maybe like 150k cards, something like that. um like that's a very small number. Like that's that's in in the grand scheme of

things. Like that's that's a that's not a serious, you know, global financial player. Um it gets interesting once we get into like 10 million users, 50 million users. Um the only way we're going to do that is by having really good local offers. Like you look at any random country, right? um they have their own you know QR payment thing they've got their own you know transfer system between you know uh between banks like here you got I think it's fast pay or something um in Brazil they have pics and uh and they have their own you know retirement accounts and there's probably like a bunch of different flavors and all like there's all this special stuff

and they use different social media you know in every you know pretty much every region like here you know or uh around here like line is really Brazil like Instagram is is the thing. So like you there's no oneizefits-all like yeah for the couple hundredk users in crypto fine that you each probably have all of these you know cards and uh pick the ones with the best rewards. Um but if you want to go beyond that you got to really specialize in every country. like you got to have a team, you got to have licenses like VAS, MSB, whatever the license you need there to actually market in that region and issue local cards, local stable coin, local rails. So that's just so much work that I think you know uh products are going

to specialize and we'll pick you know five or 10 markets who are really good at uh and like hopefully dominate there and I think other others will pick different markets like to to just like red. pay for example which is the I think the largest player like we never compete with them >> we don't see them at all because they operate in completely different markets than uh than we do >> the market the licenses that that that's the mode basically. Yeah. >> Yeah. Um is that here anything that you want to add on? >> Yeah. I think there's also just product verticals and areas that people want to you know focus on a little bit more. I think for us it's, you know, it's far and away always going to be a regional thing, but there's also enhancements that certain users want in certain

markets that might differentiate the product more. Maybe some people care more about having a good earn profile. Maybe some people care more about a UI. Maybe some people care more about the rails that you know people can pay in and pay out and so on and so forth. So it really just depends and it's it's a very different answer in every single region. Um and we again similarly we we we cannot be we are a global you know kind of audience but at the same time we can't go to a 100 countries at once and do the same process. It's just it's iterative it takes time and you want to prove it over a long enough period of time. Yeah, I guess it's it's like it's subjective to the competitive level in each country, right? depending on who which is their wise is it revolute in

the country and then like I guess if if they are there I mean kind of like solutions work then like how are you off what what are you offering that's better than wise or revolute and and why should people use you and obviously there's customer acquisition call so I guess that's there yeah it's all very regional and all and do you think like going beyond consumer into corporate cards treasuries B2B they're like a bigger opportunity for you guys or like consumer is kind of where the big growth opportunity is like a at least for now before going down B2B.

>> Uh no, corporate is great. Yeah, we it's a it's a meaningful size of our our business actually now is uh our corporate offer. Um and uh we're we're planning to continue uh like really investing in that in that product. Um it's um it's probably like 15% of our volume or something uh right now. Giving away trade secrets here. Um but uh but yeah, it's pretty meaningful and it's also much more profitable. Again, trade secrets. Um cuz for corporate users, they don't really care about cash back.

You don't need to give them, you know, tokens or perks or lounge passes. Uh it's just uh they just want to be able to like run their business uh really easily. Um so, uh yeah. So, I think corporate is is huge. Yeah. >> Do you guys do corporate? >> It's not it's not live. >> Okay. Um, and we're [laughter] thinking about >> so many secrets being shed today on stage. >> Thanks, Mike. I'm kidding. But no, I think I think all of these product verticals I think will, you know, we're thinking through it and for us it really just depends on again going down making a very delightful user experience, you know, up and down the app, making it such that people have no friction, that they can always have a reliable kind of

uh banking interface. And I think it we're asking users to do a lot, right? I think outside of the group that you know Mike has highlighted right crypton natives who have used MetaMask and Rabby and other wallets um over a long enough period of time I think like people are just now like wow like you can have good UI it's like who who could have thought right but I think if you want to get to the next level of users who want to use you know safe feeling app they don't want to see a contract address they don't want to see you know like I got the wrong decimal here or I'm sending the wrong stable coin to the wrong chain and all this stuff so that matters a lot more to us to get right and I think then you can have product iteration o you know over and over again

over a long enough period of time so that again like it will inevitably happen but it's just how we get there by the way please everyone check out Bobby's shoes they're super dope coin gecko branded >> cool man [laughter] thanks for shout out yeah you talk about stable coin we all refer to USD stable coins obviously if you're playing a regional game Like the rest of the world don't really use only the US use US. I mean a few different countries use USD but like if you go like different countries obviously there's demand from people in these countries to want to use USD but like do you see like cards program evolving in the future to have local stable coins in the future?

>> Yeah 100%. I mean that's again that's how you go from like the digital nomads and crypto people who are just for whatever reason they've got a bunch of uh you know crypto and stables uh in you know in Brazil for example. um great. Okay, that's like this tiny segment of the market that you know we can we can target. But a normal person in in Brazil or otherwise um uh like they get paid in their local currency, right? They want to be able to deposit. They're never going to use a like a pure US dollar denominated product as their day-to-day.

Maybe they'll use it as a travel thing. Maybe they'll use it as a way to offramp their uh you know their sketchy crypto. Um, but they're they're not going to use it as like their primary day-to-day and they're going to it's essentially impossible for a player like us to compete with like the really sometimes good local uh fintech players without having like those really deep local integrations. So absolutely that means loco stable coin one:1 fiat to to stable coin deposits onetoone spending uh all of this like really hard stuff that uh needs to be uh needs to be done um uh you know you got to do it if you're going to be >> but you also save money as well because

if you have a USD stable USD USD card and you're spending SN dollars every inter every every transaction has this like FX compact yeah it's actually it's a double FX cuz it's you get FX on the way in to convert to USD and then you get effects on the way out and then you're having to pay a bunch of cash back to subsidize that. And so everyone's kind of doing the math like well okay I pay 20 bips to get in and I pay 30 bibs to get out and but the cash back is this and it's and it's like well again for crypto dgens maybe that's okay. Uh for a normal like you know Brazilian grandmother is never going to do that. They're just not going to use the product. So uh so we're this is like 2027 for uh for Ether is like turning on

all these local licenses, local stable coins, local fiat rails, local banking integrations to make it truly onetoone competitive with any local uh fintech. >> Anything else to add from you guys? >> Yeah, I just add that uh that's exactly right. I think we're going to see more localized stable coins. there's a lot of rules and regulations around paying payroll in your local currency. So, so just because of that we'll see it. But so at at Rain, our our thesis is kind of interoperability, right? Like we don't think the company at the end of the day is going to win that tries to get you to force forces you to use their own stable coin. It's the company and the companies that get you to not think about the

stable coin that you're going to use, >> right? Yeah. Yeah, I mean, you know, Euro C is already starting to to get traction, but I think there's a reason why 99% of the market for stable coins is in USD. People want to hold dollars. And I think there's obviously like an advantage to using, you know, local rails when people are paying locally, but people still want to hold dollars. Y >> and I think until that changes, it's not going to be a dramatic change for us in terms of, you know, the the core focus. Maybe the backend architecture that no one should care about will be different for us. But again, people want to hold USD. And until that's not true, we we we won't really deviate from that really.

>> All right, with that, we're out of time. Thank you very much, guys. Thanks a bunch.