Transcription:
Transcripts are generated using a combination of speech recognition software and human transcribers, and may contain errors. Please check the corresponding audio for the authoritative record.
Chana Schoenberger (00:00):
Hi, I'm Chana Schoenberger. I'm the editor-in-chief of American Banker, and I have with me here Kristiane Koontz from Zions Bancorp. Tell me what your title is now.
Kristiane Koontz (00:08):
I'm now director of Treasury Services and Payments.
Chana Schoenberger (00:11):
So exciting. So welcome to Florida where we're having our digital banking conference this week.
Kristiane Koontz (00:16):
Thank you. Thank you. Great to be here.
Chana Schoenberger (00:18):
Should be fun. So you have responsibility for payments now. Tell me what you guys are doing in payments these days.
Kristiane Koontz (00:25):
We're up to a lot of really exciting things. We're focused on helping our customers, in particular with improving efficiency and creating competitive advantage with payments.
(00:36):
So one of the areas that I'm most excited about is instant payments. We've been accepting real time payments for a number of years and we're now piloting instant payments sending through RTP. And so that is creating a lot of opportunities for customers, not only for efficiency. There's so much there in terms of the finality of the payment, reducing reconciliation and some of the other work that goes along with other forms of payment, but also looking at ways to create competitive advantage. So we heard, for example, from a speaker this morning about stablecoin and he said, well, banking is so five days a week, only within business hours. Well, real-time payments are already pushing the boundaries of that. Transactions can settle outside of business hours seven days a week. And then that finality of payment is something that particularly as we talk to our commercial middle market customers, we're seeing a lot of interest in.
(01:38):
So a lot of really exciting conversations that we're having in that space. And then from a treasury management perspective, we're really talking to customers about how we go more deeply within their payments processes. How can we actually embed more of the bank inside of their companies to take over portions of the process. So integrated receivables, integrated payables, helping that full sort of value chain of payments, not just running on the rails of the bank for the simple transaction, but what happens before the transaction and after transaction is actually where the magic happens. And I think where a lot of the value is. So that's sort of a very business focused lens, and we really are sort of known as a small-business and commercial market bank. And so that's the primary areas that we're watching. And then of course, you can't have any conversation these days without mentioning stablecoin and so
Chana Schoenberger (02:32):
Not in payments. No.
Kristiane Koontz (02:33):
Not in payments, no. And so at this point, that's something that we're watching and waiting to see how that evolves.
Chana Schoenberger (02:40):
So what do you anticipate stable coins will do for your business?
Kristiane Koontz (02:43):
I think it's really, there's a lot of promise there and it's going to be really interesting. Clearly we've got a regulatory regime that is very pro-crypto, very stable coin. Something is going to happen here imminently and there's no sort of stopping as a bank. Some of what we look at is, how are consumers going to respond to this? Are we going to get widespread adoption of this? Is it going to be the kind of engaged folks that are already in the crypto space or is this something that's going to go and become mainstream and much broader than just the crypto folks? Today you talk about stablecoin and that implies stability, but some of the questions that we have and that we're watching is there's obviously a lot of opportunity for this to create instability in the banking system. And so how will that play out? Fundamentally, banks are in the business of lending money and in order to lend money, we take deposits, and we turn them into loans. So imagine a world where stable coins become mainstream and consumers are perhaps holding their assets not in US dollars in bank deposits, but maybe they're holding those in a stable coin with a tech company that's now issued that, or a top 10 bank,
Chana Schoenberger (04:12):
Which by the way, if they hold it with a tech company that is not FDIC insured.
Kristiane Koontz (04:16):
Correct. I mean the entire regulation that we've seen so far that's proposed and not passed actually explicitly clarifies that there's not FDIC insurance on these assets. But imagine is a consumer going to understand that? Probably not. It's called think about USD and am I going to understand that that's not really FDIC insured. It sounds like a US dollar. It looks like a US dollar, smells like a US dollar. If I can pay with my phone at a point of sale in a purchase that's denominated in dollars, do I really know anything different?
Chana Schoenberger (04:52):
Right, right. Yeah. And there are all kinds of rules about you can't advertise that something is FDIC insured if it is not guaranteed, if it's not held in an FDIC member institution. They have regulatory supervisory actions against that all the time. So I wonder what that will mean. Maybe they'll come up with rules about what you can call a stable coin. You can call it pizazz coin, but you can't call it dollar coin, for instance.
Kristiane Koontz (05:19):
Yeah, I worry about the proximity and consumer confusion around that. And then I think we go through cycles. And so when you're in a period of relative stability, you forget about the importance of FDIC insurance. Certainly pre 2023, we had been in a very stable banking environment for quite some time. And so people weren't thinking about FDIC insurance limits. They hadn't really given that a lot of thought since maybe 2010.
Chana Schoenberger (05:46):
Well, there was also the whole issue of the synapse bankruptcy last year, which has nothing to do with crypto at all or stable coins or payments, but it really did bring to the fore the precariousness of a lot of bank FinTech partnerships. I think there were a lot of banks that may not have realized, or certainly there were a lot of customers that did not realize exactly what was going on and the fact that it was all kind of held together by string and chewing gum. And there definitely was not a consumer understanding in the mass market that if you have money in one of these quote accounts, it is not actually a bank account in your name.
Kristiane Koontz (06:23):
Absolutely. I think the other thing that example really shows is it just takes a while for these products to mature.
(06:30):
And so undoubtedly there's a lot of promise with stablecoin and with tokenized deposits, but it's going to take us some time to learn what some of the risks and the stop gaps are to harden risk processes and governance processes. And so I do have some concern that over the next few years as those processes get hardened, if we see really rapid widespread adoption of this, we may end up learning some very painful and costly lessons as a result. So I think it's just a matter of really good risk and governance frameworks, really thinking through this. And then I think we should be clear on who this is for.
Chana Schoenberger (07:12):
Who is it for?
Kristiane Koontz (07:13):
Right? I mean, if you look at this, banks today can tokenize US dollar deposits in their traditional form. You don't need a stable coin to do that. In fact, Zions participated in a proof of concept around a regulated settlement network with SCA and a number of large banks that completed earlier this year and published a white paper.
Chana Schoenberger (07:33):
We wrote about that.
Kristiane Koontz (07:34):
And that white paper basically showed that within the existing regulatory framework and the technology that we have available today, you can tokenize deposits and securities and use those to create real time settlement using blockchain technology without actually needing crypto or a stable coin per se. And so what I haven't heard a really clear response on yet, and I'm sort of trying to understand myself is what do people see as truly the benefit of a stable coin versus simply tokenized deposits? And if you ask yourself that question and you say, well, who is it for? I mean the main difference is the participants. And so stable coins take this outside of the banking network and open this up much more broadly. And so you got to ask yourself the question, is this coming from consumers or is this coming from a handful of people from criminal enterprises and from those that really stand to benefit from those kinds of changes?
Chana Schoenberger (08:34):
Well, there's no question that a lot in the whole DeFi world, there's definitely a tension between very sort of logical business driven applications that allow you to do things more efficiently and that is good for everyone, banks and consumers. And then there are certainly on the edge there seem to be quite a few things that are mainly about fraud.
Kristiane Koontz (08:59):
Yeah, I have those concerns. And then I think you've got to be really careful around sort of the regulatory guardrails as this kind of legislation goes in. So we've talked about FDIC insurance and the current regulation not allowing that. The current regulation as it's proposed also says that you shouldn't be able to earn yield on these kinds of assets. And that's sort of what they're pitching as the hedge, the sort of safety measure. We've seen this time and time again, though there's so many ways around those kinds of regulatory guardrails. I can think of five products just sitting here of how I might create a yield earning vehicle around a stable coin. I won't talk about those. I'm not going to give those ideas out to anyone, but so certainly the regulation is not going to prevent that.
Chana Schoenberger (09:50):
Right? Well, we all grew up going to those carnival arcades where you get the tickets coming out of the skeeball machine, and that's essentially what you would get.
Kristiane Koontz (10:00):
Yes,
Chana Schoenberger (10:01):
I'd like to buy Tootsie rolls with mine. I don't know about you.
Kristiane Koontz (10:03):
I want that really big stuffed teddy bear, the one that you can never get and you just keep feeding it all your money to finally get that perfect number of tickets. And you realize that you don't really see a lot of people walking around with that big teddy bear.
Chana Schoenberger (10:17):
No, you really don't. And so many retail markets, it's not clear that this is really set up to benefit the retail. I mean, I want to say investor because now we're almost talking about investments, but we started talking about savers, which is again, that's a banking term.
Kristiane Koontz (10:33):
Yeah. Now what I did think was interesting is the speaker that we heard earlier this morning from
Chana Schoenberger (10:39):
Anchorage Digital
Kristiane Koontz (10:39):
From Anchorage Digital, terrific perspective, really insightful around how he's thinking about it. But one of the things that he talked about was inflation and the age of inflation and consumers wanting a vehicle essentially that protects them from inflation. And so he saw a benefit in crypto and stablecoin as sort of an inflation protected asset. Now clearly that hasn't necessarily played out always historically, depending on the timing. Blockchain is up and down, and we obviously saw the crypto winter a few years ago. What I think is interesting though is consumers are very interest rate aware and sensitive. They woke up over the last few years and they are and have been conditioned to search for yield. And if you think about US financial history, and the last time that happened, it was sort of the late seventies, early eighties, the era of hyperinflation. And you think about all of the innovation and disruption that happened then the surge of money market accounts and the move of assets away from banks into many money market accounts, the ability to write checks. Now in that case, banks were handicapped by regulation like Reg Q that capped the amount of interest they could pay. And so they simply could not compete with the money market managers. I think what's really important here is that we don't create a scenario where we are disadvantaging banks from a regulatory perspective as we go through what I think is going to be a pretty unprecedented era of innovation over the next few years.
Chana Schoenberger (12:15):
Well, you can do that. You can make it so that it's better for consumers to have accounts with fintechs only, but then you won't have a banking system anymore.
Kristiane Koontz (12:24):
That's right.
Chana Schoenberger (12:24):
And then you're not, the public utility aspects of that are going to go away because fintechs are not regulatorily obliged to do things like community reinvestment
Kristiane Koontz (12:35):
That's right. That's right. I mean, I just spent two days in DC last week with the American Bankers Association and a group of colleagues on our core platforms committee, and we were starting to really talk about what is the bank of the future as you talk about, well, what does the customer need of the future? And a lot of really smart CEOs in that room, and I think we all came out of there with a grounding that community banks, for example, have a responsibility to serve their communities and are regulated and chartered in a way that enforces that. And so you think about those fintechs, like you said, or tech companies broadly, they don't have those requirements, and that's not in their governing documents.
Chana Schoenberger (13:22):
Right.
Kristiane Koontz (13:23):
And so that is now the purpose that they've been created for, the purpose that they've been created for is to maximize shareholder returns, absent other factors as well. And so you got to ask yourself, is that the society that we want? Is that the economic system that we want?
Chana Schoenberger (13:38):
But it's difficult because, and I know you, Zions, famously did a decade-long core conversion, so you know all about bringing a bank from traditional to digital, but customers now just assume that everything is Uber, everything is Starbucks, and they don't want, or most of them don't want a bank, that is stodgy where you have to walk into a branch. What they want is to be able to go on their phone and see everything amplifi, gamified. And I'm the same way. I want my Starbucks stars, and that's why Starbucks is one of the biggest payments networks in the country because even knowing better, I will load an extra $10 onto my account so that I can pay with my app. I understand the economics here, and I still am doing it anyway. So that's what customers want. And whenever we do customer experience surveys, that's what we hear.
Kristiane Koontz (14:30):
Yeah. I mean, what we find is customers want to do digital. When they want to do digital, they want a frictionless experience and to be able to self-service, and then they do want to talk to a banker when it matters, a high value transaction. When we see fraud,
(14:45):
They want to reach someone. And by the way, that's one of the common complaints about some of these fintechs is something goes wrong and there's no one I can call, there's no one I can talk to. But I think back to the kind of central premise around what do customers want and need? All of that's actually possible with the technology that we have today. Banks just need to invest in that. And then we do need to see broader adoption of things like instant payments and tokenized deposits that would further reduce friction and give us a real-time settlement network.
Chana Schoenberger (15:17):
Great. Well, thank you so much for coming in. Really appreciate it.
Kristiane Koontz (15:21):
Thank you so much. This has been really fun.
Chana Schoenberger (15:22):
And enjoy the conference.
Kristiane Koontz (15:23):
Thank you.
