Track 5: Next wave of adoption for payments: What's your crypto strategy?

Brendan Berry, Head of Payments Products, Ripple; John Adams, Executive Editor, American Banker

Transcript :

John Adams (00:09):

Good afternoon. I am John Adams from American Banker and I am here with Brandon Berry, Head of Payments Products at Ripple. We are going to discuss crypto payments, which is a big topic given that all that is going on in the past year in cryptocurrency and a lot of the innovation around blockchain and crypto and in general is a lot of opportunity and just a lot of development going on, really football over the world. Brendan, thank you for joining us. Tell us a bit about what you do at Ripple.

Brandon Berry (00:41):

Awesome, John. Thanks for having me here and thanks for the folks who are still trickling in and joining this talk today. So at Ripple I, I am the Head of Payments Products, so I lead all of our Innovation development strategies associated with cross-border payments and as a company, we are an enterprise blockchain or cryptocurrency company. We have been around for over 10 years. Our insertion point has been cross-border payments and since then we have gone to market with launching some analogous or complimentary pro products for our customers, solving problems associated with accessing digital asset liquidity or tokenizing assets, whether that be through CBDC or Stablecoin. But everything that we have done is a company inclusive of the cross be border payments products that I lead really surrounds trying to enable value move to move at the speed with which information's moved today, which as everyone knows in this room, we have got a lot of catching up to do as a broader industry in order to realize that vision.

John Adams (01:53):

Crypto is, for years been used, is an investment vehicle as well as for payments, which is a use case that is evolved over the years. We are overall, it is been a tough year for crypto and in some ways with some market swings and firms that have struggled. What are some of your thoughts on where the crypto industry stands today?

Brandon Berry (02:14):

So for folks who have not been paying attention in this specific market, 2021 was a boom year. There was a lot of growth in terms of investment in the space net broader participants. And then what happened in 2022, there was a pullback. So we are now in a period which referred to as a crypto winter, and if you kind of zoom out, there is been a lot of market cycles over the last 11 years or so. And thankfully our firm has been around for over 10 years, which roughly dates the start of blockchain technologies and innovation. And this period, although it is a winter or a pullback, is a period that I view as actually incredibly exciting. And specifically I view it as a period where you are going to see and are consistently seeing a lot more innovation that is happening as what's being separated are companies and players in the space that really are surrounding hype and speculation from participants in the space that are really focused on utility and solving problems using technology that is actually purpose built to create value and uniquely solve problems for customers.

(03:40)

I view the recipe during this time period as really straightforward and one that We have certainly adopted as a company over the last 10 years, which is you will many companies are starting to harden on a long-term use case and really developing technology that is and technological expertise that is purpose built and fit to solve problems for customers rather than force fit fitting technology in search of a problem, which is what you see in times of boom and speculation. So as a builder in this space, my main sort of message is you have got a lot of consumers with a healthy dose of skepticism that are more interested in understanding what unique value you are providing to them than just trying to check the box on a crypto thesis or a inability to say to their firm or company that they're participating in blockchain technology.

John Adams (04:41):

Now, where do you think things stand today with the industry? Is it close to what the turnaround for lack of a better term, or what do you think the next couple years will look like?

Brandon Berry (04:52):

So with respect to predicting the future, I always smile first off, I do not have a crystal ball. I wish I did. If I did, I probably would be on a beach somewhere and enjoying a cocktail, not discounting how much I enjoy these conferences, but what I will say is the industry is incredibly nascent. We have seen a lot of ups and downs in a compressed period about 10 years. I draw the parallel of early internet as a technology that really changed and revolutionized the world. It took many years to really figure it out how that technology would be applied to realize its impact. And you saw many market cycles during that period with companies that were really just an internet company without actually solving a problem, ultimately failing. And so when I think about the next couple years and what is going to happen, I will be consistent on this point because I fundamentally believe in it, which is what will happen is you will see this technology realizing its potential through solving problems and again, differentiating itself from just speculation and being measured by market capitalization increase or returns that people are getting from speculative investments.

John Adams (06:12):

Now, what are some of those problems or pain points? What are some of the things that crypto can solve where in some ways might be falling a bit short now? What are some of the things that it can do that it is not going?

Brandon Berry (06:26):

Yeah, I will say inherent to the technology, there is a lot of benefits that are immediately applied to any tokenized assets. But in terms of the, and those benefits include liquidity, transferability, transparency and so forth. But specific to utility and where it is driving benefits today, I will start with cross border payments. There is been a few different speakers who have talked about this today. Many people in the room are uniquely sort of experienced the pain associated with moving funds across border, namely slow with settlement times for wires, oftentimes taking multiple business days, costly lack of transparency, inefficient and lack of availability. Those are characteristics that are inherently built into blockchain technology. When you invert those problem statements as a solution or benefit other areas where you are seeing real benefits include tokenization with a lot of different assets ultimately being able to be transferred, you see liquidity pools coming online on that front as well, as well as in-app payments, access to lending or capital more broadly.

(07:48)

So you are seeing a lot of different utility. One area that I like to point to is that I think is a really great example of an industry that has already realized the benefits. This is not a hypothetical that is in the future of, hey, what does the next 10 years look like? But is the remittent space. That is an industry that is roughly 300 billion of annual remittance volume. Remittances drive GDP for many different nations, but also are made up of individual remitters, which are highly vulnerable and are oftentimes realized the inefficiencies associated with legacy technology, namely individual remitters historically paid on average about 6% of their transaction cost in order to send funds. They also had settlement times, there were multiple days, they were a forced to initiate remittance payments during business hours, physically going into stores. But through a lot of remittance companies and digital first companies adopting decentralized and blockchain technologies, you have seen this huge rise in mobile first solutions for remittance, for individual remitters that have driven the cost of remittance payments from about 6% down to a very small fraction of that basis points on their transaction with settlement times relatively instantaneously.

(09:16)

The movement of value being instant, the ultimate payout beholden to the domestic pay payout rail speed, but then with great availability, these individual emitters are able to send funds on Christmas morning and so forth, dramatically changing people's lives. Then these are things that are recognized just not by people within the industry, but you have seen the World Economic Forum recognize the impact that blockchain and crypto has had on remittance. Even the Obama and the Obama, the Biden Administration's executive order on crypto recognize the impact that blockchain and cryptocurrency is happening on remittance payments. And so that is an example of the here and now, not the future that is already changing the way funds are flowing between borders.

John Adams (10:06):

And what is it about the technology? It seems to work well in a case where you have a lot of transactions that are smaller than say large bulk transfers, what it is, about the technology that is amenable to that.

Brandon Berry (10:19):

Yeah, so when looking at the traditional ways of funds that move  across borders, whether it be an international wire or even correspondent banking, those were systems that were designed for a particular customer or user and who those users were very large banks. And so you got technology that was purpose built for that solution. Now, if you invert that and say, well, what is blockchain really purpose built for? It is highly scalable. You can send a large number of transactions at a fraction of a penny in many cases depending on the blockchain. And so that lends itself very well to high volume, low value transactions. But I will say that the value of this technology is not limited to remittance payments. Our product that Ripple provides ripple payments. We service enterprise customers and that includes treasury payments as well as bulk payments in the form of millions of dollars at a single time. Now, your challenge that you are solving there is really a liquidity challenge. It is not a technology challenge and that has its own issues in itself. But the point being is that this technology was immediately purpose built to serve a customer base that was underserved. But that does not mean that it can not serve very large bulk payments that you referenced before. it is just that those systems and technology that currently exist were designed to better meet the needs of those users.

John Adams (11:59):

And it also sounds like there there would be a fit here for small business and particularly small businesses that are looking to sell online. They are looking perhaps internationally for suppliers or for customers. What are some of the use cases there and how is this technology applicable in that sector?

Brandon Berry (12:15):

Yeah, so I certainly small businesses, and I think the same parallel there is again, just looking at who is underserved by technology that was not purpose built to their needs. I am going to stick to payments, but use cases within small businesses. You can think about accepting payments, whether that be in-app payments. You have seen a lot of businesses be impacted very positively through crypto in the context of being able to pay their suppliers, whether that means providing efficiencies in their payroll or in the context of trade, being able to free up capital that was previously trapped in Nostra accounts and initiate payments on demand. And so by having that flexibility specifically to small and medium sized businesses, you are unlocking a large amount of working capital by using technology that is actually providing real solutions and flexibility that they expect. Yeah,

John Adams (13:23):

Okay. The one thing I wanted to mention that we were open for questions. If anybody has a question at any time, just feel free to weigh in. But one of the thing you mentioned briefly before Brandon, is the idea of hype. How does crypto suffer from that, from the hype that goes around it? And what can be done to move beyond that to where people see uses that are more tangible?

Brandon Berry (13:51):

Yeah, I struggle with the word suffer there because I think it is a double-edged sword in that hype brings attention, attention brings interest, that interest ultimately encourages adoption. But where that needs to separate in terms of the long-term value that gets unlocked is really a focus on utility. And when you have a lot of hype, you have participants who enter that are not really focused on utility, but are focused on trying to latch onto that hype. And in the context of crypto, that is been speculative investment. Speculative investment really sells the technology short. that is not to put down any use cases in the context of speculative investment, but that is to say that the technology has so much inherent value, whether that be defining ownership, providing transparency, enabling transferability and so forth that it, it is not picking advantage of that. And when attention and hype just focuses on speculation, it is really selling the technology short.

(15:04)

And so when I view moving beyond that, it is the next wave of builders, it is the next wave of companies that are really focused on solving real problems. Now, signals that I view that are really positive of moving beyond hype is you see a lot of very large, well-respected, whether it be financial institutions or just enterprise customers who recognize the utility and the technology and are adopting it as such. And you can point to examples, whether it be Amazon, eBay in our world, visa, MasterCard, GameStop, who these are players who are looking at this technology and saying, hey, I can create a loyalty system to engage my customers for the first time ever. I can pay my merchants who are selling on my platform in real time, freeing up capital for my organization, but creating a more sticky and stronger value proposition for them to sell on my e-commerce platform and so forth. And it is the focus on this utility that really separates from the hype when you are start to see much more focus, not just on again, Bitcoin's price, but rather what are the unique solutions that have been unlocked through adoption of technology,

John Adams (16:22):

Turning to financial institutions. What are some of the use cases that they can embrace that will make an impact on day-to-day operations when utilizing blockchain or their digital assets?

Brandon Berry (16:34):

Yeah, I will, I will just say the financial institution tech stack has a parallel in the context of blockchain. When you think of a checking account, there are custody solutions for digital assets. When you think of a savings account, there are yield generation solutions when you think of international wires or initiating payments in more traditional ways, there are same parallel in the context of digital asset ecosystem. But when I think about the value or opportunities for financial institutions in the space, it is looking at blockchain as a technology that is something that can really benefit by broader participation and collaboration across financial institutions as they exist today and vice versa. I view the value is really unlocked when we look at these two systems as complimentary but not and not competitive. And examples I will give are, even in the FX space, you may not have a problem today when you have a customer that you want to serve who's coming in and needs to move funds to say us to Euro.

(17:49)

Those are two highly liquid corridors, super efficient to move funds in and out. But say a customer to comes into your business and wants to move funds from a less liquid currency pair, I am going to make this up on the spot and say the Peruvian soul to South African Rand. I am assuming that that is not very liquid, that is really difficult to service in the existing construct. But in the viewpoint of looking at how you can look at and embrace the advancements in the context of cryptocurrency and blockchain, that is really easy for crypto to solve bridging those assets. So if you want to serve that customer, you can do so and say, Hey, you want those two currency pairs? No problem. We can move those funds into South Africa, liquidate that into South African Rand and pay that out all within the same day at a very low cost. And that is opening up new opportunities for financial institutions to serve customers. But that opportunity is created by looking at the bridge or that connective tissue between two systems right now, which is a work in progress in terms of connecting.

John Adams (19:03):

Now in terms of using crypto let us for retail for payments that with the point of sale, how much of that is happening and what is the potential there? What sorts of things would need to happen for to broaden acceptance with crypto at the point of sale?

Brandon Berry (19:24):

So at the point of sale, when I think about, I am extremely repetitive on one point, so apologies in advance, but this is intentional because I believe in it. And that point is around utility. And so when I think about point of sale transactions is what is digital assets? What are digital assets really providing in terms of value to a consumer, but also to a merchant? And in the merchant side, acceptance you have seen increasing due to the benefits that merchants get in terms of settlement times, they are able to get funds in their pocket much faster. And that creates a lot of value, especially for small and medium sized businesses who are operating with very little working capital. So you have merchants who are interested in adopting this technology because it provides benefits to them. And then on the consumer side, you have consumers who are interested in paying with crypto for a large number of reasons.

(20:25)

There are tax benefits depending on your jurisdiction. You may have a preference to do so depending on your ideology and viewpoint on currencies, but then also their financial reasons why consumers are continuing to engage and participate and devote more of their wallet share to digital assets, especially in the context of e-commerce as well. And so I think that your question was around where do you see that adoption increasing and it is that marriage of utility on both sides of the question, both the merchant as well as the consumer, and naturally that will continue to adopt. I increase, and I do not see that paradigm decreasing unless one of the two participants is not realizing value or utility.

John Adams (21:15):

Now, do you see a world where crypto and fiat currency can work together to change the future of finance?

Brandon Berry (21:24):

Yeah. I touched on this already in the context of answering a prior question, but I get this question a lot about, do you see a world where these two forces can work together? And the underlying implication that most people have is that these two forces are inherently competitive or combative. And I fundamentally do not view it as such. The partnership or interplay between cryptocurrency and the financial institute systems that exist today are critical. You need to be able to move funds, physical fiat funds from your bank account or from cash in hand into a digitized blockchain, and then ultimately you need to move it out of them. And there is value that is created at that interchange of on and off-ramps. You are seeing a lot of banks and financial institutions really realize that more and more financial institutions are stepping in to become stablecoin issuers or currency issuers, which serve as an on and off ramp for digital assets. And by doing so, you are creating that connective tissue where there is value that can be created on both sides, both for financial institutions who are interested in offering additional services to their customers, but then blockchain innovators who are trying to create services that rely on consumer's ability to get money into the ecosystem and system for that to work.

John Adams (22:56):

Now, very early on in the conversation, you mentioned Central Bank digital currencies. What is some of the opportunity there? And also considering that some of these are very long developing and may not happen at all, but in terms of what you provide and what are some of the places where you can enter Central Bank digital currencies and what types of benefits can they have?

Brandon Berry (23:24):

Yeah, I will, I will say on the topic of central bank digital currencies, I mentioned that crypto is nascent. that is a topic that is extremely nascent. I do not have a better word to describe that, but it is really, really early stages in terms of thought. The company I worked for Ripple, we are participating in this space really in a pilot capacity. We have had a number of governments reach out to us to help them work through and think about central bank digital currencies in the context of their country's needs, three of which are public. We recently announced a recent partnership with Monte Negro, but have partnered with Bhutan as well as Palau. I think that those are the three that are exclusive lists of what's public now. But the way that I view it is really you have a lot of value that is created through tokenization of assets, where that will go, whether that be becomes the predominant central bank digital currency, or rather you see that as an alternative form of currency, whether it is a fiat back, a lot of potential and value that is created there.

(24:38)

I hesitate to speculate too much on the future and what that looks like, but from my vantage point, I do see tokenization being in a unavoidable trend that will continue to pick up steam as there is so much value that is created by taking a digital representation of an asset, creating an ability for that to be liquid, transferable, transparent, as well as accessible and in the context of currency. That is incredibly valuable. Where that goes, where in the world that is adopted, whether it is it takes shape as central bank, digital currencies are discussed today or a different form, I do not know. But I do know that tokenization will play a much larger role and CBDC's are really one example of that.

John Adams (25:32):

Okay. Well, we have a couple minutes left. Do we have any questions? Oh, here we go. Yeah.

Brandon Berry (25:44):

Thank you for the brave soul in the front.

Audience Member 1 (25:46):

Yeah, sure. So I was just treating John Adams report this morning, the banker about Swift and what they are doing. And you mentioned, I think you said you are working with some international banks given your history and cross border payments that seem like a natural place for Ripple to play. And do you see a role for yourself in working with Swift or with Embridge and some of these pilots, or are you kind of focusing more on the MENA area?

Brandon Berry (26:22):

So I will say, start by saying that, I do not know what specifically in terms of the announcement you were referencing by Swift, so I am going to answer a little bit more generically about part

Audience Member 1 (26:35):

I was discovering ongoing.

Brandon Berry (26:37):

Got it. Okay. So when I think about SWIFT as a technology or a way for financial institutions to communicate, it was really purpose-built in, I think the sixties for large financial institutions. And I want to contrast that with my comment around purpose-built technology and the question of, hey, why are you seeing a lot of adoption in use cases where such as small vol, high volume, low value transactions? And that is because Swift as a technology was not designed to really support all consumers in use cases, both in the enterprise space as well as the end user that inherits those pain. Swift is a messaging layer. And so what we are offering and what we are looking is really the differentiating factor in the space by applying crypto is not just messaging and having consistent standards in a similar way, but actually adding on a layer of settlement. You can not move funds in a physical way with great efficiency. Oftentimes taking a bag of cash and putting it on a plane is much faster than sending an international wire or a SWIFT message to your correspondent bank and waiting for that payout. When you introduce a digital asset in the flow, you are able to actually move those funds from party A to party B in real time. And that is really what is differentiated in addition to some of the benefits around the edge of more transparency and reliability associated with the actual messaging components.

John Adams (28:30):

Okay. Well, Brandon, if there was something that you wanted to, wanted us to take away, say from this conversation, one or two themes, what would they be?

Brandon Berry (28:40):

Yeah, I will say we are at a really interesting stage right now where the impact that digital assets are having, specifically in the space of cross-border payments is no longer a futuristic topic. It is a topic that are impacting real consumers and enterprise customers today. And there is so many examples of that. Even in my own world, our product has processed over 30 billion in transaction or in volume, across 20 million transactions, our last public number, and we are a player in this space, but we do not represent the entire space. So there is real volume being moved. And the reason that real volume is being moved is because there is utility that is already been created for enterprise customers and financial institutions. And so I would just encourage this audience to think about blockchain and cryptocurrency, not in this futuristic concept to that is far out in 10 years, but why is there so much adoption here and now and what is the utility that is being delivered that could potentially impact my business?

John Adams (29:54):

Right. Well, we are at time, Brandon. Brandon, thank you very much for doing this. Thank you everybody for attending.

Brandon Berry (30:02):

Thanks.