Fintech Brainfood Founder: on Why Stablecoins Are The WhatsApp For Money

Transcript

Ladies and gentlemen, welcome back to Stabled Up, episode number 33, our premiere weekly stable coin show powered by our friends over at FRA with our F FRXUSD product. Visit frack.finance to learn more. None other than Simon Taylor today. Big fans over here. Uh you are the fintech uh encyclopedia along with Chuck. I I would call you guys the dictionary and the encyclopedia one by one. So good to have you on, man. >> I appreciate you guys. Uh you guys are crushing going daily. I do not have the lungs for that. Big respect for the content you guys are pumping out. Really appreciate it.

>> Thank you, man. Yeah, it's a it's a grind, but uh but we love it. We do it for the love of the game. Uh you you have a great show as well. Obviously, give a shout out to tokenized. Uh we got introduced uh via our mutual fund Pet uh and uh you know, he he said you guys have got to have Simon on. Uh and so Simon, man, you you've been in the space a long time. Why don't you just give give the people a quick uh you know a quick blurb as far as what led you to uh tokenized tempo and everything uh and your your focus now on stable coins. >> Yeah, I'm a recovering banker. So I did uh sort of 10 15 years in banking. I did cards and payments. I worked in a bank doing like separate implementation and

fed wires and swift and all of that kind of good stuff getting this stuff into production. And so I saw the pain. I saw how hard it was. Um, and then when uh Bitcoin kicked off, Ethereum kicked off back in 20134, I was the guy walking around internally going, "We should pay attention to this." And, uh, eventually, uh, back at Barclays, I became head of crypto R&D back in 2015. And when you have that job at a bank, they roll you out in front of every regulator in the world to go explain what Bitcoin is. And it turns out my superpower is taking complex stuff and translating it. So now I call myself the Tradfi translator. So in the the past 15 years, I've been a consultant. Uh we've bootstrapped an advisory business on the back of launching Blockchain Insider and Fintech

Insider. Um and then since then, you know, I've kind of worked with a number of startups. Um most recently, Tempo, but I run my newsletter, Fintech Brain Food, and the tokenized podcast, which I co-host with Kai Sheffield, uh from Visa. And as you know, uh when you have conversations like this every single day, uh it just makes you so much smarter about the industry. You get to interview the smallest people. And so sharing those learnings is a real passion. Um, and I love it too. It's it's really really fun. >> Yeah, that >> most definitely. >> I mean, we we have a very similar mindset. I the thing that I love about doing the show so much is that we talk to people smarter than ourselves. You know, we constantly upgrade our mental model and our thesis and then we're just re reiterating it back to the next

person to to check it once again, upgrade, and it feels like we're constantly learning and uh we're able to to share those learnings with everyone that watches along. I I'm just curious on on the tokenized side um and just as you're going, you know, what has stuck out like what are are there any moments from the tokenized podcast that were like massive light bulb moments and and said, "Okay, this is a point where I'm going to shift my mental model because this is so, you know, transcendental to the way that, you know, this industry is shaping up." >> Yeah. I I got to give a shout out to Kai on some of these things. He he said some of the big ones. Uh the first one was like how uh Western Union and MoneyGram are the opposite of cooked because of stable coins. I think that was an

assumption for quite a while. And what he came up with was like actually stable coins are a way for them to monetize the recipient of the payout. Like historically they monetize the person sending the money. You would charge that person a fee and then it gets to the last mile and it's cash. Whereas now with stable coins, I can give that person at the last mile a mobile app and I can give them a card attached to that mobile app. So now I'm making money from them. Maybe they can I can offer them a yield product. Maybe I can offer them tokenized equities. So this is like a really good thing for those businesses and it solves a bunch of problems for them. So that was number one. And the other thing he says a lot is like um I want to ban bank holidays. Like we

should just kill them. Like weekends and bank holidays just need to go away. And uh stable coins don't, you know, uh banks don't work bank holidays and weekends, but stable coins do. They're instant. They're 24/7. Now, there's some nerdy drawbacks to that as well, like um you know, you don't get some collateral efficiency. you don't get to do netting and some of those things, but I think in a market that has hyperlquid doing SpaceX preipo stock type of stuff, I wouldn't put it past the the innovators in DeFi to like come up with some really cool stuff to solve those problems as well. And and that's what's so fun for me is like I have this history and all of these relationships in trifly and banking and I see those folks now like

really grappling with this stuff especially after Genius thinking hey maybe this isn't just a threat to me maybe it's an opportunity and I see the stable coin industry going hey how can I learn from how Trodfy always did things. So it's like the world has come and discovered my weird little obsession and I'm stuck in the middle of it and it's it's a beautiful place to be seeing both sides of that. Yeah, man. I mean, we often call this the convergence uh neo finance. It's really just kind of this bringing together of both these worlds and really just kind of making it into one. I actually had a a pretty large bank uh associated kind of head of a in innovation with regards to fintech in the office here yesterday. were in New York and he he was talking about how

their specific bank is investing so much capital into fintech neo banks and and into really this idea that stable coins and tokenized tok to tokenized assets are going to end up being a large part of their balance sheet of their usage and of a lot of these products that they're funding you know Simon when it comes to thinking about the thesis at large right you've been very directional on why you believe that crypto rails for fintech just makes sense. And I think there's the obvious kind of faster, cheaper, better settlement times, etc.

But I'm curious kind of how your thesis has evolved since you've been working in, you know, kind of in the juncture between these two industries as of late. All right. Obviously with Tempo, there's a focus on private payments, too. kind of how is the how's Simon Taylor's fintech meets stable coins meets payments kind of this trifecta how has that thesis materially evolved over the last couple of years into where we are in the industry today given the institutional adoption kind of walk us through what your core thesis and core idea is.

>> Yeah. Um I I'd been playing with it for a while. I called stable coins the rail above rails probably about for six months. Before that, I was calling stable coins like this alternative to the Euro dollar. So, you know, Euro dollars are dollars that exist outside of US banks historically, but only other banks could hold them. The Euro dollar for everybody else was my original thesis, which is, you know, I'm in Argentina, I've got hyperinflation, and I just want to uh hedge that inflation risk. And I think people kind of get that now. It's kind of understood. Um, but then this rail above rails is interesting because we have Fedwire, we have Visa, we have Pix, we have UPI. There are all of these like domestic rails and then the Swift and

they all sort of sort of connect to each other but not very well. But stable coins are like um it was actually Henry at uh Privy described it this way. Stable coins are like getting into orbit. Like it's really hard to on-ramp to orbit, but once you're there, you can move around really quickly. And that was another way of describing what I call this rail above rails in that like once you're in stable coins, uh, then everything gets way lower friction, way easier, way more instant, but it's a lot harder to get there in the first instance until you've got like regular, you know, until you've got uh SpaceX coming along and just making that super easy and super cheap. And I think that's what the process we're going through is now is the the old plumbing is all

getting wired up to stable coins. A bit like how the internet service providers and the ISPs all had to get wired up to the internet and upgrade their infrastructure. We're kind of going through that process now. But then once you're on stable coins, it starts to look like the WhatsApp for money, right? So, uh, historically, you have all your ISPs, they'll sell you a data plan, um, but they also sold you a voice plan. Right? Now you can just live off a data plan. I can call anybody anywhere using WhatsApp. I can send them any message and it's global and it's instant and it doesn't cost anything. And I think that's where we're going with with money as well. So Starlink for money and WhatsApp for money are like my big thesis. And far from uh stable coins competing with cards, far from stable

coins competing with Swift, I think they just slot in and become this thing that sits above them, none of those old things go away. the ISPs are all still there. Like they're still doing their thing, but maybe they just didn't take the opportunity that was presented. So, stable coins become this like platform that you can build new products upon. And that that's uh that that's a big big trend that I think is going to be one that fintech start to lean into. Um I look at what RAMP's done with it global accounts and Stripe and others. You know, we we joked for a while uh in our little crypto bubble that, you know, Ethereum and uh Coinbase were L2s on uh on a on a stable coin L1. Uh but, you

know, it it also seems as if you know, Visa, Mastercard, Rain, you know, all of these businesses are ultimately building on the platform of stable coins as well. Uh, and so they really are, like you're saying, they're this underlying infrastructure, but they're also this rail of rails, this rail for rails, which is is very uh is very incredible to think about the scale of of stable coins. I think, you know, everyone at this point would would almost certainly agree it's a stable coin super cycle. There's an AI super cycle, tokenization super cycles in the in the air as well, but you know, stable coins um are are are really proliferating. Who do you think, and I'll just preempt my question by saying you'll probably say Tempo given your affiliation, but who do you

think is in position to benefit the most from the stable coin super cycle as we continue to see this play out? >> Well, I think anybody who has distribution, right? Like uh that's that's one of the most uh interesting characteristics. Um can the incumbent get uh innovation before the innovator gets distribution? And and that's the the difficult thing here. And so uh who has distribution? The remittance companies. Who has distribution? Yes, obviously a company like Stripe. Uh who has distribution? There's a a lot of banks do. The banks have an interesting um challenge in that uh for them stable coins are actually very expensive to hold directly on their balance sheet. So

they do look at first glance a little bit like a threat. but stable coins used only at the weekends for banks or maybe I'm not one of the gibbs. I'm one of the smaller banks. Uh then maybe it's better than correspondent banking even for me as a bank that does correspondent banking. Um we've uh at Tempo we've announced Coastal Community Bank is going live doing stable coin settlement between them and another bank in another country. And so that I think is like this this um narrative violation of like actually there's all of this money to be made as a bank by leaning into stable coins as another payments rail, another product, being being a really great

off-ramp. So, anybody who's got distribution and anybody I think willing to do the hard yards of like understanding your risk appetite, understanding who your vendors are, how do I wire all of this stuff together, how do I make it safe, how do I comply with regulation, like that stuff's not easy, but there are people figuring that out. So, I think you need the book mixture of those two things. Um, but it's kind of like uh who wins is a little bit like uh who gets to play to their strengths. I always think about it like a personal trainer. like the my answer for you might be different um than it is for somebody else depending on where they're starting at. Like if I'm a if I'm a a founder or an entrepreneur, I'm going to say right, you can go global instantly like Cass

did, like Altitude did, like Dakota has done, you know, they they just play into that the fact that they can quickly go global and they can do like a Mercury ramp type of play. But if I'm Mercury or ramp, I can use stable coins just the same way to to go globally and and solve a bunch of problems. So it's like what's your strength? I don't know that anybody is immediately advantaged or disadvantaged other than those. I think the most dangerous position to take is I'm just going to sit back and lobby against this. I'm going to assume it's nothing but a threat and I I can compete. And I think the smart ones and even some of the loudest ones are not actually only doing that. um they might be saying things in public but behind the scenes uh working really really hard

to understand their opportunity especially where there's client demand to do so. And so the Genius Act was just such a watershed moment for people starting to understand that there's hey there's there's revenue here that there's opportunity. Um and you know if you're if you're one of the biggest banks in the world you you have to take time to figure it out otherwise you know the costs of failure are just too high but you'll get there and you'll do a great job. If you're smaller, then your advantage is speed. >> Yeah. And you mentioned uh Mercury. They just raised $200 million at a $5.2 billion valuation. Four years profitable. I think like $650 million of revenue looks like conditional OC charter coming, you know, from the Mercury from the ramp perspective. I'm

curious kind of for their NEO bank play. How does that how does that differ from some of these um you know smaller kind of more upstart neo banks right like it seems like there's this cohort ramp Arabore Mercury that are really starting to be kind of like a real threat and challenger to actual banks but I'm just curious like this embedded finance take an approach what do you see as like the strategic angles of gaining market share over the next year what are the pivots what are forks in the road that you know the ramps and Mercuries and Arabors will have to take as it pertains to kind of stable coins, agentic finance that you

think will be decision makers in the future for their own success or for their uh you know kind of lack or or gaining of market share. >> I I think it the answer varies depending on each of them, right? Like uh for Arabore like one could argue they're the Bank of American dynamism. So if you were previously fearing being deplatformed, uh you wanted like a bank with just really great tech and really great APIs, then something like an Arabore solves a problem for you and you can go to them and they've attracted uh something like a billion dollars of deposits in seven days. That tells you I think there was some demand uh certainly from from some ports parts of the tech

community for exactly that product. Mercury came up a different way, right? Mercury is uh unapologetically a bank where the center of gravity is the account. This is your operating account. It's where you pay invoices from. Um you start as a founder on Mercury and you grow with them and then maybe you take um debt products from them and a card and spend management and all that stuff later. And you know they've had two really big jumps of growth. One was when um SVB and uh Silvergate and Signature and FB uh were were all collapsing. They just saw a spike in account openings.

You know who else saw a spike in account openings? JP Morgan. So being in the right place at the right time, I think really really helped them with a product um and a and a distribution uh strategy. The the second spike in their growth now is is really um can they uh as more companies are created from vibe coding from AI you know the app store is seeing more apps created after a long-term plateauing stripe says Stripe Atlas is seeing more new companies formed than than any time in their history and it's it's accelerating. Mercury is one of the first places you go when you're opening your first bank account. It's a place you put your first um you know uh VC check, it goes into the Mercury account

quite often. And when you're bigger, you get a few more banks and whatever else. So for stable coins, for them it's like well a lot of these companies want to accept stable coins. They want to pay their staff in stable coins. They want to move them internationally. So that's just like a thing they should add and they absolutely will. For RAMP, it's a little bit different. Like look where they started. They started with the best spend management card in the world and it's like how can I save you as a company as much money as possible and how can I make it so that you have as few clicks as possible like they are aggressively focused on how can I save you a millisecond of time can I make that page load a little bit faster and so if I'm a company if I'm a CFO today

and I'm logging into Coinbase to manage my stable coins and I'm logging into uh RAM to manage my fear that well that just sucks like why don't we just put this all in one place and the CFO gets to see a single dashboard but also then uh they see that as territory expansion right because there are parts of the world like um Nigeria and the global south more broadly where getting access to things like Netflix and chat GPT isn't as simple as just using your credit or debit card because there isn't a local ramp or a local mercury but if you open a stablecoin backed account in those markets, then they can open that for you and they can assign a card to it and presto, they've got a new customer.

So, each of them, I think, is thinking about it in in slightly different ways. Um, and this won't be one sizefits-all. I think there's actually a lot of complexity here where every fintech, every neoank, every upstart, uh, every incumbent is going to have a slightly different answer. >> Yeah. Yeah. And then Simon, I mean to flip that on its head then even like that's kind of like the big behemoth neo bank and then you've got Tempo, you've got ARC, you've got Plasma, you've got these like underlying like blockchain settlement layers which ultimately will be competing for that flow, right? Like these banks and their customers are going to >> likely choose one perhaps offer a a

couple. The end of the day customer just wants to move that money. they don't want to really think about or care about what chain they're on, but the those blockchains and those banks, they really need to make sure that things are all, you know, tight, squared away, done up, and also win those relationships. And so, one of the things that Tempo has prioritized is this kind of MPPP, this machine payments protocol, if I'm not mistaken, you got it right. >> And in addition to that, privacy. And so these two things feel very very complimentary and also uh futuristic and kind of forwardlooking you know within the tempo stack s I'm curious what makes tempo one of the best places for stable

coin payments at large um and kind of how does how does the technology end up leading to winning some of these relationships to building out a very vast network right because w with these things the network effect really really hits big tron Tron has been dominating tether payments simply because it has been dominating tether tether payments for so long that you you you know you just use Tron with Tempo. How do you how do you see the technology side leading to winning some of these commercial relationships distribution through Stripe? How does it all kind of come together?

>> I I think actually it's uh thousands of little things. Like if you think about a really great product, it's very rarely just one thing that makes it great. I don't know what your favorite um brand is or sports car or whatever it is, but when you when you have something of high quality, it's the thousands of tiny details that really add up and really matter. And to payments professionals, there's just hundreds of paper cuts in using uh the existing blockchain infrastructure out there. Surprisingly simple one, uh gas. G gas is volatile. Um gas fees can spike. Um so being able to pay that in stable coins and have fee consistency is extremely valuable. And it's not surprising that um there are now a class of blockchains doing exactly

that feature. But I also think there's uh a lot of other things as well being able to pay fees in any stable coin or tokenized deposit. So there's a lot of especially financial institutions that don't want too much exposure to a stable coin for precisely the reasons I said about balance sheet risk earlier. So being able to pay fees in their own tokenized deposit is like an amazing thing. uh other small things that you have to do as a CFO, as a payments business, is you have to take all of those stable coin payments and match them to all of your fiat payments.

That's really hard to do and no blockchain has tools for that. So, we just made it really easy to add memo fields and to make all of your referencing work. And and I could sit here for hours going through every tiny feature and honestly um it really depends on who you are and what you want to achieve. And there's probably a top three or four features that I would give to you. Like if you're a large bank, I might lean into how we're doing privacy zones and how that can give you like uh your own version of uh tokenized deposits that's closed loop. But actually on Tempo it could go open loop and you could swap that for stable coins really easily. And we've put a lot of detail into uh into how all of that works. I think generally as well uh from

the uh stripe heritage from my heritage uh there's a lot of people at tempo not from stripe I'd say 90% are either paradigm heritage or from fintech or or from crypto but have done payments we're payments nerds we've been there we've had to deal with the fact that reconciliation is a real nightmare and we've had to deal with the fact that uh ISO messages are really painful and every bank uses them slightly differently and it's these things that like what's uh if you know you know there's thousands of those where people look at tempo and al honestly when I'm with a prospect or when I'm with a client I get this sort of moment where everyone has this like oh finally somebody did it native account abstraction like most

people today going to you know a privy or to a bridge or to a BBNK or to any of those players they don't have to think about account abstraction because you know somebody else has taken care of it but if I'm going to start moving moving enough volume on chain. Maybe I want to go directly to the chain myself. Maybe I want to run my own RPC node. Maybe I want to run a validator. Well, then suddenly that matters a whole lot more that the chain can do more out of the box. And so again, I I don't know which one. It's like what's my favorite child? You know, what's my favorite movie? I I like the industry. I like all of them.

>> It's fascinating. Um, you know, Simon, you mentioned earlier, and I I know we've only got a couple minutes left here, but, you know, one of the things that's holding back these larger banks, those who can really move significant volume, uh, I is, uh, the idea that stable coins are very expensive, uh, to hold on the balance sheet of banks. Um, what, you know, h how do we overcome this? Is this what you think is the biggest blocker to ultimately making stable coins ubiquitous in the payment space? Is there another bigger blocker? How how do we ultimately overcome and and uh really scale uh to the point where I think everyone understands this is inevitable but uh you know fighting the good fight how do how do we get there?

>> So I think we just have to realize that tokenized deposits and stable coins solve different problems for different people and they're both valid. So tokenized deposits are money that stays still and can only exist inside of the bank. Stable coins are money that moves. It's open loop. It can go to anybody with compatible software instantly and 24/7. What stable coins can't do is offer the same kind of yield uh that uh banks do. It also if you park $50 million at a large bank, guess what? Your lending rates are going to get a lot better. Your FX rates are going to get a lot better. And so there's a whole bunch of advantages to deposits and tokenized deposits that I think we just don't recognize sometimes. Meanwhile, stable coins, they can go open loop. it

can go anywhere instantly and 24/7. So I think what we have to do is make the business case for why these two things coexist and why that's beneficial to the financial institutions. And that's where I spend a lot of my time, which is like, hey, there's new fee revenue here over the weekend. I don't know if you've noticed, but at weekends there's quite a lot of geopolitical and price volatility at the moment. I'm sure your clients are screaming about doing something about it. Wouldn't it be great if you just had this small pocket of time in which you let them settle with stable coins, but the rest of the time it swapped back into tokenized deposits so you didn't bleed out too much balance sheet risk.

Oh, and by the way, since you do that, that's a new service. You can probably charge quite a good fee for that if the clients really want you to do it. So, this is actually instead of losing money from trading deposits, >> you're going to be net making money. And so I think we have to frame things in those terms so that we can start to start to make sense of it. And so that's where um maybe not this Sunday but next Sunday I'm going to release like the business co business case for stable coins for banks on fintechbrainfood.com. And it's something really top of mind for me because I think it's something that's um that's not done enough and not done in a way that a banker would write it. you know, uh, often when we talk about stable coins being cheaper or

better than deposits, that's immediately the banks are going to dismiss that because it's obviously not true. And the second thing we can claim is that uh that you know, oh well uh you should just do it and you should compete on yield and something of that nature. You've got to make the case in their terms and they're going to say you haven't even mentioned uh SOC 60 or the liquidity coverage ratio or how am I going to take this to Alco all of these jargon terms that to a bank is like how do I make money and how do I make this comply and that's the stuff that I think uh the industry is now starting to wrestle with and which is why I love my job. Can you tell I'm a nerd? I love this stuff

>> man. For everyone listening guys go to fintechbrainfood.com. I'm a huge fan reader of your LinkedIn, your ex, your newsletter pod. So, Simon, thanks for spending some time with us. Go get your kids, go educate them on finance. I'm sure they've already got an account on Tempo. If not, they soon will. I would highly recommend it. >> Thank you so much, guys. It's been fun. Take out.