Ladies and gentlemen, the program is about to begin. Reminder that you can submit questions at any time via the Ask Questions tab on the webcast page. At this time, it is my pleasure to turn the program over to your host, Jason Kupferberg. You may begin.
Thank you very much. Appreciate all of you joining us for this fireside chat session with PayPal. Specifically, we have Frank Keller, who is SVP of Merchant and Payment. We're always happy to have PayPal at our events, but this is especially interesting because for Frank, this is his first fireside chat at an investor conference. Frank, we're honored. Thanks for being with us.
Thanks, Jason. Looking forward to it.
I thought it would be helpful just, since many in the audience have not heard from you in the past, can you just talk a little bit about your background, your time at PayPal, and then also touch on your current role and responsibilities?
Sure. Happy to. I've been with PayPal for a while. I joined in 2011 in Germany. I'm German. As back in the days, heading strategy, business operations for the market. The first thing I did, we actually bought a buy now, pay later player in the German market, BillSafe, which I integrated. I ran the market for a while. It's one of our strongest growing markets, third largest market for PayPal. After that, I moved to the U.S., held several international roles. I was the VP Europe. I led globally inside sales, which is the distribution to our small and mid-sized merchants. I helped basically transforming the sales organization. As we've been acquisitive over the years, we've acquired a lot of different companies.
They all had their separate sales organizations, we needed to get out to merchants basically selling a whole platform approach. We integrated all of these different sales teams, and that was a big strategic effort that I led globally, reshaping our sales organization as you see it today. Also with front book and back book, as we've been penetrating, especially in our core markets, which is U.S., Europe, Australia, Canada, we've been reaching higher saturation points with Pay with PayPal. Our product suite became deeper, and we needed a different sales approach. Now for two and a half years, I've been on the product side.
I'm now the GM, as you said, of the merchant and payments business, basically defining the product strategy, owning the P&L of our merchant-facing products and payments platform. The key product that entails is our checkout products like Pay with PayPal, Pay with Venmo. It's Braintree, our payment processing platform for very large clients. We're just in the mix of building a similar product for partners and small businesses called PayPal Complete Payments, PPCP. There's payout products like Hyperwallet, which we've acquired. It's also post-purchase. We've acquired Happy Returns, which is doing in-store returns. Building out the product suite for our growth markets, which is China, Mexico, Japan, Brazil, and then all the payment platform capabilities.
As I said, we've been acquisitive with different payment platforms and integrating all of that, doing FX and pricing. Before joining PayPal, I had my own startups in Germany, two IT startups, and I have an engineering background. I actually have a PhD in software engineering.
Excellent. Well, you've got a lot on your plate clearly, so, there's plenty of ground to cover here. I wanted to start just on modernization of core checkout. Clearly a priority for PayPal. We've been hearing more about that on the earnings call. Just outline for us, what does that modernized experience actually look and feel like for the consumer versus the current state? To what extent does that vary between, desktop and mobile, between browser and in-app?
Sure. Happy to. I mean, most of you probably, I hope, are using PayPal for shopping. And what you see is basically the result of 20 years of history of the company. We've been integrating our services and expanding our services over the last 20 years with merchants and with partners. The result is a high variation, not only of flows that we offer, but also of integration patterns. Tech changed. We have different types of technical integration that merchants are sitting on. Regulation has changed, which led to different requirements on the flows. We have entered new verticals, use cases. We started out with physical goods, then there came digital goods and services. We went into government. We're working now on new verticals like transportation and hospitality and franchisees.
All of that led to a certain degree of fragmentation in what a consumer experiences as they go on a merchant's website, to the next merchant, it might look slightly different. That's what we're working on right now. Which basically means that we need to work through the different merchants and through the different integrations to really make sure that the experience itself is similar, but also harmonizing our flows. If you look at one of the challenges that we get reported a lot is about something doesn't work on the merchant website. As we've been digging into it, a lot of it is actually an integration issue on the merchant side.
Basically, something breaks on the merchant side, and there it doesn't help that we have a plethora of all these different variations and permutations of integrations. It's very complicated. One of the thing we're doing is really having a much more simplified approach to integrations, also deprecating some of the old patterns that we have. And excuse me if I go into some technical language here and there, but there's NVP/SOAP, and then we have REST integrations and GraphQL, and some of these older ones we're trying to eliminate. That obviously leads to Why should merchants do it, and what's the advantage there? The other thing that we have really gotten feedback on is developers.
We have not focused a lot on developer experience, and one of the reasons was actually that we always had a white glove treatment approach almost for especially large merchants and partners, where we helped them integrating. Our developer experience, our tooling infrastructure and so on wasn't great. About a year ago, we started focusing on that, and I'm really, really happy to see the progress. One of the examples is, Postman is one of the tools out there that's used by 20 million developers, one of the top tools in the industry, that help developers to test APIs and to help with the integrations. We were ranked one of the top 10 APIs actually last year, even though we've been just new on this, we're actually number seven out of 10.
The number one in fintech ahead of some of our very famous competition that is well known for nicely done integrations and APIs. Very happy to see the progress. One of the things that I want to talk about today is we're putting focus on where the pain points of our customers are. What we see is if we don't do a scattershot, but really are focused on some of these issues, we see progress. The other part I want to talk about is operational effort. It's also something we have not looked a lot at, is what is the operational effort we put on merchants in their back end.
A lot of the challenges are actually not front-end challenges, they are also backend processing challenges, which make it hard for merchants to use PayPal. That's one reason I talked about going into new verticals. When you go into franchises and so on, it's a very heavy lift for those franchisees, like hotels and so on. McDonald's is a great example. We're simplifying the way, the lift they have to do, and I see good progress there. Latency, another issue, where we've already reduced 40% of latency, but it goes across all of our stack. If you think about how our architecture is designed, you have different domains.
I have the checkout domain, which is kind of all the front-end stuff, and then it goes through risk, and it goes through payments, and it goes through compliance and all these different domains. In order to bring latency down, what we had to do is really cross-functionally create this objective of bringing latency down and chopping that off across across everything. Like we're focusing on bringing more of the compute capabilities to the edge, which means closer to the consumer that the payload, meaning the data that is transported over the web doesn't isn't that much, and therefore the speed goes up. It's a lot of detailed execution that needs to happen to improve the experience, but I'm very, very happy to see that we're making progress there. Same on presentment.
We wanna be earlier presented in the funnel. We've done quite a good job on buy now, pay later, and I think we'll talk later about that. We've done a lot on mobile, for instance. We have not had a mobile experience, and I think that is also something we wanna go into later. Last but not least, I think what we're right now a lot focused on, I see as a huge opportunity, especially as we've made so much progress also on the unbranded side of the house, meaning our payments processing capabilities with Braintree and PPCP. I see there is a huge synergy that we can drive for merchants.
If you take the lens of a merchant right now and you take PayPal, the share of checkout ranges dependent on the merchant and the use case and so on, let's say 5%- 25%. From a merchant perspective, we wanna manage all of their payments, and that is the big strategy. Now that you see all consumers, you can also improve some of the things that we see on Pay with PayPal and the branded side of the business, because we know those consumers as they onboard, they have a better experience. We have more data. I think what you will see us talking much more about going forward is actually the data play, as we are one of the few players that is in every transaction, and we see all the details there. This is where our integrated product strategy is also important as we go from pre-purchase, meaning offers to consumers, to actually doing the purchase, to post-purchase services as Happy Returns or package tracking.
Okay. Let me pick up on your comments around mobile, 'cause that's a topic that comes up a lot. If you can just maybe hone in on some of the specific efforts that are underway to modernize that PayPal checkout experience in mobile, whether that's mobile web or in app.
Yeah, sure. PayPal has grown up in the web era, not in the mobile era, That's why you see a lot of our experiences start and started with a web experience. We had gaps to mobile experience. Even though a lot of our volumes actually go through mobile, especially when you take an example, a merchant app, the experience is a mobile web browser experience, meaning you go and select PayPal, you go out of context, a mini browser pops up, the actual PayPal login experience and so on happens all in that mini browser, which doesn't feel like it's native in the app. It's embedded.
You have a context switch, which leads to drop-offs. What we've done, we've developed a native mobile experience for merchants' apps where the consumer does not leave the context, where it does not have a redirect, where we are going passwordless, which is a big, big initiative for us, is to recognize customers on their device so that we know it's them, and we don't have to prompt for a password. If we have to do so, we have different means of authentication, like one-time passwords and others. We're deploying long-lived sessions across all of our experiences, but that's especially important on mobile, where still today, we see across the industry a lot of breakage in checkout. From a development approach, the big shift is to a mobile-first approach.
We have in-house with Venmo, clearly a mobile leader. They're mobile only. That's something that we're learning from and disseminating that across the business. The other thing that I would say that is important is that we take a much more scientific approach in how we progress with experience improvements. That's something our new Head of Product, John Kim, brought to us and is pushing really hard in terms of high-frequency experimentation. In the past, we did, let's say, we did five tests, and now we're doing hundreds of tests to see what wins. We know that only four out of 10, that's industry practice, of improvements in experience actually create a lift. What we see with the mobile experience, for instance, we see 3% to 10% lift.
It's not very clear from the beginning what kind of experience changes will win. We need to have that scientific approach of fast learning and iteration, having a data-driven approach creating hypothesis out of that data and testing that out. Then getting nuanced because not every experience is the same for every customer. That's kind of where I see us heading to, is how can we be as tailored as possible, Jason, for you in this moment right now on that type of merchant, what you wanna do.
Mm-hmm.
You have different expectations, right? If you buy jewelry, let's say for your wife for over $1,000 versus you buy some accessory for $10. It's very different expectations. You're differently nervous about it, and I think we need to humanize that experience more, and that is something that I see it's very challenging for merchants to do because they're not experts in checkout. Very few are really experts in checkout. Having the data, having the experience how to optimize their overall checkout, and I mean now not only the pay with PayPal or pay with Venmo, but their overall checkout experience is something where I see PayPal playing much more in the future.
Okay. Yeah, I mean, I know we've heard as recently as the latest earnings call some of the progress that's been made. You're getting more and more, you know, starting with the big merchants, right? More and more of the top 100 are now in some way, shape, or form on some of the latest checkout integrations. I wanted to drill into that a little bit. I mean, how much time, how much money does it take for, you know, if you're a top 100 merchant and PayPal says, "Okay, you know, we wanna bring you this modernized checkout experience," you know, what does that look like, you know, in terms of implementation time? Do you get pushback on this? You know, as you do more of these, do you get better at them?
Do they go faster?
Yeah. The last year was really doing a lot of digging. I come back to the 20 years of history. Our merchants have been very creative in how they've implemented PayPal and made it work for use cases we never thought-
Mm.
In the beginning when the experiences came out. What we had to learn is that some of the hurdles that we had were that between different version of our checkout integrations, there were incompatibilities. Meaning a merchant couldn't lift to the latest because a minor feature wasn't available on that newest version. We've closed most of those gaps. That was a huge effort going through all the top 100. What we've also seen is a merchant is not a merchant. If you have a let's say you have a mobile app player that's huge globally around the globe, but has just one use case. It's much easier than you have a conglomerate of retailers that show up as the top 100, but in reality, it's about 100 retailers with 500 use cases, right?
The degree of variation is very different. We're working through those. The upgrades work through value add sales basically. The strategy that we're shifting to, and this is why the unbranded and the branded and the whole product suite is so important, is that we're trying to cross-sell additional capabilities, and as we do so, we upgrade the integration. Give you an example. Buy now, pay later is a good one. A lot of merchants want buy now, pay later. I think we're going to dig a little bit deeper later. We've been very successful in actually entering into that market and driving the cross-sell.
We see that consumers who adopt buy now, pay later spend about 30% more with PayPal, and 90% is incremental. That is a reason for the merchant to say, "All right. I want buy now, pay later, but now in order to get a great experience, I need to upgrade it." For instance, we've done billing agreement integrations, which is basically storing the PayPal credentials on a merchant so that when you go there, you don't have to log in all the time. The problem is now you wanna also cross-sell buy now, pay later. If you have remembered and stored your funding method, let's say your Bank of America card-
Right
... and in this case, you wanna use something else, it conflicts with buy now, pay later because that funding method is stored.
Right.
Choosing buy now, pay later is now an option you wanna have, even though that's pre-stored, and that requires an integration change. The good news is that with the strategy of using Braintree and PPCP as our core platforms, these will be the rails that all future integrations are going through. Meaning whatever kind of new capability PayPal is going to sell and offer to you, Mr. Merchant, we will go and offer that through the Braintree and PPCP rails and technology. That will make it easier for everybody to consume additional services. While in the past we've done, as I told you from a sales approach, we've been selling them independently, but also the product needs to have that integrated experience.
Right. Right. When a merchant is signing up for Modern Checkout, are they doing it on their website and in their app at the same time typically, you know, these top 100, or are they doing it more piecemeal?
Yeah. As I told you, it really depends on the merchant.
Okay
... what they focus on. With our mobile native SDK, we're now very systematically going to every merchant that offers a mobile app, make sure they get the best integration. Like, we're in the game of conversion uplift.
Right.
The merchants are usually quite receptive to eliminate any kind of breakage later in the flow. From a merchant perspective, if you have breakage in checkout, it's very, very expensive.
Yeah.
You've done all your marketing, you have the right in inventory, you convince them that they should put things in their basket, now they wanna buy it. You've done all the work, now it doesn't work, right? You wanna get every basis point out of this in order to make this happen. Yes, merchants are upgrading across the board, we need to show them that it drives value, then they're going to do it.
Right. Right. I think some of the numbers that were mentioned on the earnings call, was it a 1%-3% uplift in checkout for those that are on the new experience? I mean, everything you're saying makes it certainly seem like you expect this will help PayPal to actually take share in the core checkout market. Is that a fair assumption?
PayPal in general, as I said, is a conversion uplift. When you compare to traditional cards, we have around a 600 basis point better conversion rate. Which means translated that, like out of 100 customers, we approve six more, right? Out of 100 purchases. On top of that, we've seen with mobile, for instance, 3%-10% uplift. With some of the, If you think about the, all the optimizations that we're doing, touched upon them already, it's the integration, which means the way how it is expressed, not the way how the different flows is on us. We have all these different permutations that's focus of the team. Merchant doesn't have to do much here. This is behind the scenes. Latency is behind the scenes.
Some of the experience uplifts require the merchant to do something, and some of them actually don't. And we're focused on both.
Okay. Okay. I'll ask you one more on Modern Checkout, and then we're gonna jump over to Braintree. I guess, if we think about going forward, more of your merchants are gonna be on Modern Checkout. How do you make consumers aware, right? Is that something that PayPal is gonna do, or do you do that jointly with the merchant? 'Cause clearly it seems like there'll be some real benefits to the consumer, but, you know, unless or until that consumer happens to go to that merchant site or app, you know, and sort of almost discovers it by accident, how do you create that awareness so that you can drive the adoption of the new checkout experience from the consumer perspective?
On the merchant side, we do co-marketing programs, especially if you think about if we were introducing a buy now, pay later, for instance, where we go upstream and do upstream presentment. We do banners on the merchant's website so that they know that they get that type of experience. We're also playing around with what kind of messaging we can have actually on the button that is dynamic to your to your situation. We are working on, in general, upgrading our value prop for merchants. Again, if you think about pre-purchase, purchase, post-purchase, these general additional value props of having better rewards, having offers, having buy now, pay later, i.e. meaning more flexibility in the purchase. Then also post-purchase.
Package tracking is something our merchants are quite interested in, for instance, because it allows them... A lot of the questions merchants get is, "Where's my item?" and, "Where's my money?
Yeah
We get those too. We can help them. If we show through our channels the consumer where the package is, they don't call the merchant.
Right.
Another benefit for the merchant is as they get protection claims, if they're participating in our program and deliver us the data that they have shipped it and what it is, it reduces their operational hassle because a lot of the claim handling has already happened, so they don't have to do anything because they have provided us a proof of shipment. What we're seeing here, for instance, super interesting, is that now merchants can actually, instead of doing the claim on the transaction claim handling, they can go on the line item, imagine you have bought five different thing, but only one pair of shoes didn't arrive. So you don't have the claim on the whole transaction, but on that line item detail. That is the sophistication that we're getting into.
As those value-added things are happening that the merchant is happy about, they're also promoting our services more. The app is for us, of course, a key outlet. 50% of our customers are using it. We see a lot of engagement that is driven through that as we can offer, create offers and so on through the app. We're focused on marketing that as well.
Understood. All makes sense. Yeah, let's switch over to Braintree, always a hot topic. Maybe just if you can sort of succinctly articulate what you think the real core value proposition of Braintree is for merchants as well as a bit on your go-to-market strategy and where that stands today.
Absolutely. We're super happy with the progress of Braintree. Braintree has started out as a payments gateway. I would argue mostly as a mobile payments gateway. It has really grown into a full stack processor that's today serving the most sophisticated digital platforms that there are around, and like super high demand customers, where we actually process in some share exclusively or are the primary processor for them. Take for example, Live Nation, Airbnb, Uber, DoorDash, in Brazil, iFood. We've made huge progress with these large global brands in providing full stack processing, alternative payment methods, passthrough pricing, payments optimization, auth rate optimization, treasury reconciliation. It's really a full stack service. We're in 50 markets across U.S., Europe, Australia, Canada, Brazil, to 130+ currencies.
Our Braintree Vault that stores consumer credentials, financial instruments and other customer data is actually one of the most sophisticated in the industry.
Yeah.
We have superior auth rates where we win a lot of, actually deals based on our auth rate capabilities. It also enables different use cases like where we keep the merchant safe. So they have a, for instance, a loyalty program, and they wanna pass on information in a PCI compliant way. We help them forwarding those credentials, and that's a key capability for us. It also, as I said, serves as a platform for our own APMs, Pay with PayPal and Pay with Venmo, as an integration way to integrate and provide the best possible experience. As we're doing all of that, we're also generating a lot of data, and we have very sophisticated ML models and an AI that fuels risk decisioning, auth rate optimization, cost optimization for merchants.
It's really a fantastic platform. We had so much growth that over the last two years, we've put a lot of effort into actually scaling up the core capabilities, integrating it more into core PayPal, and something my teams right now are super focused on. Another thing that I'm super passionate about is orchestration, which means merchants see PayPal as their primary point of interaction, right? We have a plethora of services and... but they also need backup processor, right? They need backup PSPs. They need PSPs in markets that we don't serve. That's where our orchestration and forwarding capabilities come into play. I think we'll talk about PPCP later, which is our new platform for SMB and partners.
For sure. For sure. As Braintree's capabilities expanded over time, tell us a bit about how the competitive landscape has evolved. This comes up a fair amount in investor conversations. We naturally think of an Adyen or a Stripe kind of being on that shortlist alongside Braintree. How does Braintree really differentiate itself?
Yeah. As I said, the huge advantage that we have is we have 20 years of relationship with a lot of merchants. We are integrated in 80+% of the top 1,500 merchants in our core markets. We're leveraging that relationship, create bundled capabilities. We're really this trusted partner out there that can serve, pay with PayPal, pay with Venmo, buy now, pay later, post-purchasing capabilities out of one hand. Those package deals are sticky. They create a nice value prop. They provide us the ability to negotiate top of the stack placement. We're strong in the U.S., but we also expand internationally. Brazil is a core market that we right now expand. We also differentiate through value-added services. I talked about orchestration.
One of our approach is really having an open ecosystem, not a closed ecosystem, because we fundamentally believe merchants need choice. Choice has been always a core principle at PayPal. Merchants can play with different players, and we're the facilitator of all of that. I think with our whole suite in pay in but also pay out, we acquired Hyperwallet, as you know. We also have our own PayPal, our payout capabilities with MassPay and so on. We have highly differentiated capabilities. What we're working on right now, and that's still in the making, is bringing them all together so that it's for the merchant operationally easier to handle, and they don't have to log into different portals and so on. That's, that's still ongoing. Hyperwallet is also a very strong capability.
How much of the Braintree business is international, and are there specific international markets you would highlight as seeing particular degrees of strength for Braintree?
Like, a lot of our, like what we call global accounts, are residing in the U.S.
Right.
They are going internationally, really around the globe, almost any market. Take Uber, for example.
Yeah.
We are very strong in the U.S. We're also in Canada. We are also in Australia. We're making strong progress in Europe. Brazil is a market where I've seen fantastic growth. We've also taken share from not only incumbents, but also the two that you've mentioned. We're winning deals against Adyen and Stripe, especially through our bundled value prop, position and our integrated offering.
Okay. I mean, last year, if we look at the unbranded processing for PayPal, it was 40% plus volume growth there in 2022, obviously a big number. Braintree is a large piece of that. At the time, we knew that there were some large merchants obviously ramping during the course of 2022. If you can just talk about some of the key drivers maybe of Braintree's success last year, and then how should we think about the growth trajectory for Braintree in 2023?
Yeah. I mean, we're now processing more than $400 billion in volume on Braintree, so it's substantial platform, right? We've won over the last couple of years, especially last year, couple of very large deals, especially in the travel and ticketing industry as well. Some of the things that we are a bit cautious about this year is lapping those major deals. Also lapping, we've seen a lot of uptick in the travel and ticketing industry. As people were coming out of COVID, everybody wanted to travel, everybody wanted to go to concerts. We see the huge spikes on Live Nation when people buying Swift tickets and others. We're a little bit cautious about that lapping into this year.
I must say huge kudos to our sales teams because the pipeline is super strong. We had a really good start into the year, and I'm very pleased with the successes that we're seeing. Even though we've been a little bit cautious about that lapping of the massive growth that we saw last year, I feel we're really well-positioned, and as we're enhancing our orchestration and machine learning capabilities, one of the things I see us going next into more is actually omni-channel.
Mm.
-meaning in store. What I mean by in store is not going after the in-store pure play, but rather those merchants that have an strong online offering but also an in-store property. They want more out of one hand, they want both, businesses to be served because their customer are shopping in store and are shopping online. That's something we're right now working on. We're having the first pilot merchants going live, as we speak, and, we'll see much more growth, and there's a much higher, addressable market also.
Right
... in that space. Again, this is where merchants need the sophistication of playing truly omni-channel, playing truly also in the future. How do they sell not only on their website? How do they sell, for instance, on social and so on? I think democratizing and linking it back also to checkout, democratizing a one-click checkout experiences through Braintree, but also our new SMB and partner platform is something that where we wanna bring those things together and leverage really it's centered, everything centered around a holistic customer identity.
Mm-hmm.
We recognize Jason, no matter where you buy with what you want and need so that we can reduce your friction as you go through the checkout on different merchants. That is what I'm really, really excited about is that we break the silos between merchants and provide the more seamless experience across different merchants. Something we've done with PayPal-
Yeah
... I can pay with PayPal, but what we also now are bringing to almost every merchant with our processing platforms.
Let's actually segue over to PPCP, which is the latest new acronym, PayPal Complete Payments. You touched on it a little bit. You're taking the Braintree-like.
Yes
... for unbranded processing, to the SMBs, and I think that's starting in the first half of this year. Just touch on the market opportunity there as well as the sales strategy, both for new and existing merchants. Let's start there.
Absolutely. It's a huge market, right? It's $750 billion total addressable market roundabout. What Braintree really good at is being very sophisticated in, and nuanced in the needs of those merchants. What it isn't specialized on is supporting, especially large scale partner platforms and helping them to onboard hundreds of thousands and millions of merchants at scale, providing KYC, providing us taking the risk, them taking the risk, all these different models. That is what PayPal Complete Payments is doing is it is much simpler to integrate. It's much more cohesive. It is focused on scale and number of merchants. It is focused on leveraging the strength of the PayPal platform that is around the globe. Yes, we start in the U.S. We have first pilots live.
We're super excited about the results that we're seeing. We've focused last year on getting capabilities out, like vaulting that we know from Braintree, all the different third-party payment methods that merchants need. You asked about the sales approach. The approach is two-tiered. Our, especially the inside sales teams will lead with that platform going forward, selling all of our capabilities to SMBs and mid-market. Also pay with PayPal, also the integration upgrades. The true enablers is partners. I don't know how much you are aware, but a fairly large share of our volumes go through partners. These are shopping platforms like BigCommerce, Adobe, and others. As we're providing those services for those partners, they also get their integrations upgraded.
We have to make sure those partners are enabled, and then our sales teams actually co-sell with the partner going out to merchants, addressing them directly, addressing them through the marketing channels of our partners. That has been always for PayPal, a great leverage, and we're repeating that principle for PPCP. It's also something where we deprecate some of our legacy products. We have HSS, hosted solution. We have PayPal Plus, especially in Mexico and Germany. Those are legacy products that we're deprecating and replacing with PPCP as the more modern platform that's also scalable for new capabilities. PayPal Pro is another example where we haven't invested in the past, you'll see us having really end-to-end capability in full stack payment processing for small merchants as well.
Okay. How long would you estimate it takes until PPCP can potentially move the needle on PayPal's overall TPV, and are these initial pilots and the broader roll-outs just gonna be in the U.S., or how do you kinda phase this overseas potentially as well?
Yeah. We are launching in the U.S. Europe is actually second half of the and I expect that to really roll out across all of our key markets. I expect actually a huge driver out of this. We this is where our stronghold is. We've always been strong with small businesses and mid-market businesses, a very strong relationship. We're very trusted, and we haven't served them in the full stack processing part that well. We had early products, think about WPS, one of the first methods for merchants to accept payments in general on their website, but it's outdated. And replacing those old products with new capabilities and doing more for our merchants, especially together with partner platforms, is where we'll see huge amount of growth. These could be very large-scale platforms.
These could be small platforms. We'll go across, and I think we'll see moving the needle quite a bit.
Okay. I guess, do your efforts start initially with the existing base of SMB merchants that you already have converting.
Oh
... to PPCP, or not just that?
It's both.
Okay.
It's front book and back book.
Okay.
The back book is really focused on upgrading existing experiences and deprecating old experiences to get the best in class consumer experience out there. The front book is really opening up new opportunities. This makes it easier to distribute our own payment brands, pay with PayPal, pay with Venmo.
Right. Right. We've covered a lot of ground. We've talked about a lot of product initiatives that are pretty active right now for PayPal. I mean, does the company have the quality and the quantity of engineering talent that's needed to execute on these key initiatives?
Talent is actually something I'm super excited about. We have brought in really, really strong industry talent. I would say we're driving right now a massive cultural change of getting the best-in-class experts in the roles. Under me, we have product line leaders. We have somebody from Braintree, who's been a long-tenured expert in driving payment processing with one of the largest platforms out there. Same on PPCP. On checkout, we brought somebody in who's been on the merchant side, knows exactly, has client empathy, and understands really the merchant and what they need. In go-to-market, I brought in somebody over, for instance, from our sales teams because the person really knows what it means to distribute through our ecosystem.
On my team, my next bench, I feel really solid, and they're driving a lot of upgrade of our capabilities. Also from a talent perspective, I would say the biggest shift is we're super focused, we're super client-centric, we have a lot of empathy, and we're detail-oriented. Look, detail matters. Attention to detail matters. It's the small things that throw customers off, and getting that right is very important. You need the right people that are able to do that, to not accept, "Oh, this is how we've done it the last 20 years." No, this is what the customers expect now, and also have some level of foresight, where is everything heading, and how can we bring our assets together? Think about the $400 million that I talked about on Braintree.
We do the same on PPCP, and we have Venmo and PayPal. These are massive assets. We have all of our payouts capabilities. We know billions of customers actually around the world. Bringing all of that together, having a data-centric culture, and upgrading our experiences is what we're doing. I would say the huge difference between last year and this year is, we've gone through restructuring, which has helped us because we had so many people coming in, and more people create more complexity. As we've been refining our internal structures, creating more end-to-end empowerment across all of the business. The person leading right now, leading Braintree does it end to end and brings all the different function. The person leading checkout does it end to end. The person leading PPCP does it end to end.
Versus you need a bunch of people to come in together to make it happen. I mean, we still have that, but it's empowerment, and you need the right talent. As, like we, people have let people go. There's a lot of great talent out there that are actually super hungry to join our mission. We're doing the upgrade on the engineering side. We're doing it on the product side. We're very, very focused on data and AI right now. We have industry-leading machine learning and data experts. The reality is we have used a lot of that actually for risk and fraud management, and auth rate optimization and so on. Now we're getting that also into our experiences.
That's kind of what we're focused on, is not using just our capability internally around data and ML, but really expressing it so that our consumers and merchants are directly experiencing those things.
Well said. Well, we are out of time. I think we covered a lot of topics here. This was super insightful. Frank, we really appreciate you joining us and sharing all your thoughts on, what's going on within the product organization. Thanks for your time, and thanks to everyone who listened in to the presentation. Our next session will be at 1:15 P.M. Eastern with, privately held Socure. Thank you, everybody.
Ladies and gentlemen, the program is about to begin. Reminder, this webcast presentation is for Bank of America clients only. If you are a member or representative of the media or press, please disconnect now. Thank you. At this time, it is my pleasure to turn the program over to your host, Jason Kupferberg. You may begin.
Thank you very much. Thanks everyone for joining us in the next session of our two-day virtual payment symposium. I'm Jason Kupferberg, the payments and fintech analyst here at Bank of America. We're very excited to have Socure with us here for the next session. We have Pablo Abreu, who is the Chief Product and Analytics Officer at Socure. He's gonna walk us through a slide deck, giving us a bit of an overview of the company, business model, et cetera. Then we'll jump into some questions and do it that way. With that, Pablo, over to you, and thanks very much for joining us.
All right. Awesome. Thank you, Jason, for the introduction. It's a pleasure for me to be here. Let's get started. I'll walk through just the company overview, the problem, how we've been actually successful at it. Just so that everyone is aware of Socure, we have over 1,500+ clients, four of the top five, 13 of the top 15 issuing banks, over 400 fintechs. We've been growing our revenue for the past four years at over 70%. The core of the DNA and everything that we do here at the core, we are a data science-centric company. Data science and engineers who are all under my organization are actually composed 40% of the headcount.
We receive over $350 in private banking, in private venture funding, and then we're a remote-first company. You're able to see to the right some of the big name logos. Yes, Bank of America is a client of ours. Let's move into the problem statement and what we solve here. Identity fraud has been a problem for quite a long time, obviously exacerbated by the digital transformation. You're able to see huge numbers from the digital economy of fraud losses. In 2022, we observe over $721 billion. It's actually not only a problem on the private side. We're seeing that on the public sector as well.
There's been huge challenges with fraud losses as it relates to identity due to the pandemic. We're seeing that from the unemployment side, Medicaid as well as PPP loan, there's been some major losses throughout the digital transformation. Even, it is actually one of the top item agenda for the U.S. President Joe Biden. We're super excited to be able to have the product and actually to start partnering with them. We actually have major clients already from the state and are looking to be able to also help them out from a federal side of the house as well. What have we been doing at Socure? We've been heads down for the past 10 years on this core mission.
How do we verify 100% of good identities in real time and completely eliminate identity fraud? Our core has really been at around how we find that equilibrium of who do we let through digital channels while keeping the bad guys out as much as we can. As a longer-term vision, at Socure, we want to be the world's most accurate and inclusive risk and identity verification company, developer-friendly platform for enterprise and consumers to first verify, authenticate, and manage their identities anywhere in the world. When we look at five years out, this is where we're aiming to be able to take the company towards. How do we solve for this?
At Socure, we've been heads down building a end-to-end or what we believe is the end-to-end most accurate identity verification platform. To be able to answer three primary questions. The first question being, are you a real person? Second being, are you who they say they are? Last but not least, do I want to do business with this consumer? From a end-to-end platform perspective, we've created a set of various different products starting with the first square. This is all around our graph-defined fraud prevention solutions. We have our Sigma Synthetic, Sigma Identity Fraud. That composes or brings or every single element of the digital identity that is being collected during the time of onboarding.
Your name, your email, your physical address, your phone, your IP address, and device information all being collected to be able to deliver a best in class score and solution for solving synthetic and identity fraud. We also have point solutions as it relates to email, phone, and address risk score. Typically, utilized primarily in conjunction with the Sigma scores and recent calls are returning every single transaction, but also are utilized for account takeover type of use cases or any sort of non-monetary account event changes. To the right, we have our data-driven regulatory solution.
Primarily, this is your KYC, you know your customer, and where we're able to verify with high accuracy that this is a real consumer and that the elements that have been provided belongs to that consumer. We also have our global watch lists and screening monitoring solutions to be able to ensure that this consumer is actually not part of any sort of a list that will allow your institutions to be able to not do business with that consumer. We have seamless integration with the SSA database. We have couple of use cases as to how we utilize some of the eCBSV data. One is in an indirect one, as our KYC solution calls the eCBSV solution as well.
There is a pass-through, direct way, to be able to get the intelligence from the eCBSV. To the right or moving to the right, we have our instant document verification. Essentially, our very own, homegrown solution to be able to verify a document and selfie and allow to solve for any sort of a step-up, type of, use cases for our clients. Last but not least, and then moving into, some of the very, new things that or new, verticals that we're penetrating is our account intelligence.
Our ability to be able to verify that this account, this routing number and this account number as it relates to banking, belongs to that individual, to be able to provide those status and active checks prior to any sort of payment transaction. What you have here is the most comprehensive end-to-end identity verification solution that essentially are all homegrown products. One, to be able to onboard consumers safely. If you think about from the fraud checks to the compliance to being able to also have a step-up type of a mechanism with document verification, and then, even after the consumer has been fully onboarded, to be able to verify and authenticate a payment transaction prior to executing them.
All of these solutions can be utilized through a decision module. We provide our clients the ability to orchestrate their customer logic and to be able to perform analysis to understand how any sort of logic changes will impact their overall onboarding. All of these solutions in combination provide to all of our clients the most comprehensive platform to be able to maximize who you're onboarding while keeping the bad guys out. What is unique about Socure, and why do we continue to win? Why are we evaluated, and why are we worth $4.5 billion? Since the beginning of the company, we've been actually building the most comprehensive identity graph.
We have over 70 billion rows of identity data, and then the largest database across all of our customers of who's a good and who's a bad identity. The combination of this identity graph with fully automated machine learning platform for which we receive multiple patents, is really what is allowing us to continue to differentiate and deliver the most accurate solutions in the market. The more data, or the more customer we have, the more network data effect we'll have, and the more accurate our solutions get over time.
Just to give you an actual perspective of who's providing us, hundreds of millions of good identity data, just repeated across our customers, we have banking, fintech, healthcare, e-commerce, gaming, and others that are actually providing us, is this a good consumer? Have I seen, is this a good consumer versus is this a bad consumer? All of these actually provides the basics of our identity graph. At the core, if we go back to what I was saying on the mission of the company, we have been heads down actually on how do we get to 100% accuracy in classifying good and bad.
Throughout the history, or throughout, or even earlier than 2018, we've been tracking as to how accurate our models and solutions have been getting. Our latest solution is a Sigma 3.1, for which is up in the 97%-98%, really depending on the industry. Our aim by the end of 2023 is actually to be able to proclaim that we have eliminated identity fraud. What these numbers really mean, as we really deep dive into our performance, these are actually shows anonymized data and our performance benchmarks as to how and what is the value that we deliver to all of our clients.
From a credit card, DDA lending, and online brokerage, we summarize some of the real truest statistics. Typically, our clients decide to decision between the risk is 2% and the risk is 3% of the score. You're able to see that within Credico, we're delivering about 82% fraud reduction as it relates to identity and synthetic. Within lending, we're delivering 92% or so. Within DDA and online brokerage, we're close to the 60s percentages. This is from a fraud perspective as it relates to our ability to say yes to more, much more good consumers. We're ranging into north of 15%-20% again against any legacy provider.
If you're today out approving 65% within your credit card line of business, and we're able to take that all the way to high 90s as shown here to 98, this is why Socure is winning, and this is why we evaluated and is why we're gonna continue to win here within this market. It is about for us, it's about the accuracy, it's about how do we take full advantage and how do we unlock the full potential of all of our data internally to be able to deliver the most accurate solution in the market.
I have today within my organization over 300 employees, and the vast majority of them have clear, concise goals as to how do we want to first track these performances, and then how are we going to continuously improve them throughout every month and throughout every single quarter. With that said, I know that I cover a lot of information, and I'm open to going back to any specific of them, but I do wanna open it up as typically there's plenty of questions on lots of what I just presented.
This is great, Pablo. Really appreciate it, and I do want to jump in with some questions. I'll just remind the audience that if you have questions, you can submit them through the video platform, and I can ask those on your behalf. I guess where I wanted to start, it's very clear that Socure is solving a very distinct problem, right? This isn't one of those, you know, private companies sometimes you see it's a, you know, a solution looking for a problem. The problem's very clear, right? You guys have a robust solution. Given that that's the case, presumably there's other competitors that have kind of recognized some of the same needs.
We'd love to just get your take on what does the competitive landscape look like here, and how do you feel that Socure is differentiated in this market?
Yeah, great question. There's lots of competition.
Mm-hmm.
There's I actually like to joke around here internally that there's actually a new company coming up every two weeks. The key differentiator here for us at Socure, one is the advantage and the head start that we've have with all of the data, with all of the technologies that we've been able to build. That's number one. Number two, we actually are heavy within the problem-solving space. Our clients actually trust us tremendously, and they typically are tied to the hip on any sort of new solution or any sort of design partnership. Hence is why we're continuously to innovate. The company was founded just as a fraud company building machine learning models.
You're able to see that as I presented every single category of the products, those products actually were created just by understanding the actual problem from the customer, sitting down, and then being open to actually providing those initial data sets, given that they trust us on being able to solve their problems. For me, what's gonna keep us ahead of any sort of the competitors is how do we continue to innovate as fast as possible? How do we track and stay focused on what is most important to the company? There's two things that I continue to remind the team that is most important. One is, how can we continue to benchmark and improve our products on a continuous basis?
Two, ourselves really coming in. Everything else will take care of itself. We're just super laser focused. Even with our mission being very metric driven, that's just us at Socure. We're heavy problem solvers nerds. We love taking challenges.
How are your contracts structured in terms of duration? What's the actual underlying pricing model that we typically see, or are there multiple pricing models out there depending on the customer?
Yeah. The contract is typically structured by volume base and then by usage of the various different products. Something that is quite unique for us here at Socure, which actually also ties back to your prior question, is customers actually don't want to be able to, you know, buy so many point solution and put them together. Like, we've already solved for that. A lot of our pricing models comes in in bundles, right? If you're looking to bundle several solutions within our fraud capability, we're able to offer that. If you're looking to be able to bundle the fraud and the compliance solutions and the document verification so that you only have a one-stop shop where you're getting your full onboarding solutions and services, we're able to offer that.
Depends on the solution or the product, and it depends on the bundling and the overall volume that we're gonna be receiving in production.
Okay. I think you mentioned you had a revenue CAGR of about 70% over the last four years, can you give us a sense of the size of the business in terms of its revenue or?
Yeah. We're certainly north of $100 million. We're shooting to grow at a 70% again this year. We'll see with the state of the economy, but that gives you a sense as to where we are.
Okay. Okay. Yep. Understood. You ran through some of the key categories of customers that you have. I guess at a high level, if we put them in a few buckets, you've got financial institutions, you've got merchants, I guess you have government agencies. I guess, how would you encourage us to kind of break it down by kind of customer category? Are any of those categories growing particularly faster than others for you?
Yes. Also great question. Typically, the way that we break them up is by the banks, we have issuing, we have fintechs is a category, we have payroll services and provider and other category. We categorize gaming to be its own completely different category given all of the actual laws around it. We do bucket public sector on its own. For us, as it relates to growth, we've seen actually tremendous growth in speaking for the last four years within fintechs. We all know with the state of the economy that is actually quite slowing down.
I can tell you, and I can share that, even with the Silicon Valley challenges that took place within the last couple of weeks here, we actually are seeing a transition of a lot of volume moving from fintechs to the larger banks. We're fortunate enough that we're not selling only within one particular vertical, we're able to see all of those statistics, and we're able to see where we're seeing growth. Tremendous growth from the gaming side as well. We're seeing tremendous growth within the banks, especially DDA for the past 10 days. We're seeing that with the digital transformation, you know, states and the public sector are actually trying to catch up.
There's actually tremendous growth to be able to digitize all of those processes there.
You have a direct sales model organized by vertical or?
We do have a direct sales model. We do have partners that are also selling. Ideally, there is a better distribution there, but today it is primarily direct sales.
Okay. I know you had mentioned a four and a half billion dollar valuation during your presentation. Where are you kind of in front of... How many rounds have you had? When was the last round and the size of it?
The last round was actually quite large. The last round, we did close $450 out of $4.5 billion valuation. Today, in terms of, in terms of how our balance looks like, we do have run rate on to all the way into 2024. Our goal would be to drive to profitability, and then we can decide there. We've had many rounds of funding thus far, led by a $4.5 billion valuation at the end of 2021.
The last round was the end of 2021?
Yes.
Okay. That's helpful. What about product priorities for 2023 specifically?
Yeah. Great question. We're actually focusing. There's actually two major priorities for us here at Socure. We hit our 10-year mark, but as everyone probably is aware, that's actually when you start revamping a lot of your internal technologies for your next stage of growth. Today we're balancing revamping a lot of our internal technologies. We're also actually quite focused at around delivering new solutions for the first party fraud problem. In the presentation, or I went back to the slides here, we primarily have been focused on the identity and synthetic problem.
We have now taken the first party fraud problem, from our realm, our priorities is internally we're gonna revamp all of our technologies, but as I look towards where we're gonna go next, we're gonna continue to invest and ensure that our core products continue to be the best in the market. We're looking to heavily invest within the first party fraud side. Plenty of our clients have been asking and begging for us to have similar solutions to our Sigma's identity and synthetic. We're looking to also invest further into the payment risk side of the house. Our focus for the rest of the year will be payment risk and first party fraud as it relates to new products. There's some pieces on the international expansion to the U.K. and Canada.
Yeah, I was gonna ask you about that. I think there was an announcement back in October, if I'm not mistaken-
Yeah
... about, building out the international footprint. Has that actually begun or is this just kind of?
Yeah
a road map?
That has actually begun, especially from... We've actually selected two products to launch our international expansion. The first one was the document verification. We see that outside the U.S., onboarding is document first, and then followed by our eKYC solutions. Our global watch list is already a global solution, and so when I look through where really, where are we going to be investing for the rest of the year internationally is around boosting that coverage for the eKYC or the ability to verify addresses as it relates to outside of the U.S. In 2024 is when we're gonna have a chance to be able to pick up some of the internationalization of our fraud products and solutions.
I see. Within the client organization, which kind of decision maker or who specifically is Socure typically selling into?
Today, we are actually selling into various different verticals. We did create a new public sector business unit because we do believe that public sector or the selling within public sector is slightly different than the private sector. When I look into the private sector in particular, we're selling today very aggressively into banks. We're selling into buy now, pay later. We're selling into the gaming. We're selling into all of these verticals. The one vertical that we actually have in, we're actually now selling prior that we started selling that I would like to call out is e-commerce.
Within the e-commerce, we've been probably way too busy within the banking and the fintech side that we just have not actually packaged our solution for the e-commerce. That should be getting done very soon.
Okay. Within these client organizations, maybe let's just talk about, you know, a bank, for example. Are you selling into the risk and compliance organization? Are you selling into the CFO's organization?
Yeah
is that... Yeah.
That's a great question. I'll tell you that that's a great question because at times we're selling into one or multiple organizations. Within the executives, of course, care today about growth and about burn. From a risk and compliance perspective, the fraud team actually cares about how do we minimize fraud, while the acquisition teams actually cares about how do we increase those consumer being led through the door. We're typically actually finding the balance between the fraud, the compliance officers, and then providing an actual recommendation to the executives who make the decision.
I know we're just about out of time, I'm gonna ask you just one more question, which is, return on investment. You know, how do you pitch that to customers? I mean, what kind of ROI, if you will, can they expect from adopting Socure's solution? Is that part of the, you know, the selling process here?
Oh, yeah.
Yeah.
Yeah. Our selling process, starts with a proof of concept. As part of proof of concept.
I see.
... we'll typically get a file that will be representative of production. We'll run all of our solutions, we'll optimize, and at the end of the day, the logic and the solutions that we optimize, we bundle it and show the ROI. Typically, we're anywhere between north of 7x or even 10x on the actual ROI of using Socure.
Hmm. Big numbers.
Yeah.
Well, this is great. We really appreciate the overview, Pablo. Thank you for taking the time with us. Thanks to everyone for participating. Our next session for the symposium will start at 2:15 P.M. Eastern, which will be a regulatory panel/fireside chat with the Electronic Transactions Association. Thank you, everyone.
Thank you for having me.
Okay. Bye-bye.
Ladies and gentlemen, the program is about to begin. Reminder, this webcast presentation is for Bank of America clients only. If you are a member or representative of the media or press, please disconnect now. Thank you. At this time, it is my pleasure to turn the program over to your host, Jason Kupferberg. You may begin.
Thank you very much. Appreciate you all joining us for the next session in our virtual Electronic Payments Symposium. I'm Jason Kupferberg, the payments processors and IT services analyst here at Bank of America. We are very pleased to have with us today, Scott Talbott. He is the Senior Vice President of Government Affairs at the Electronic Transactions Association, otherwise known as ETA. Scott and I have known each other for a long time.
Always has some really good insights into what's happening on the ground as it relates to important regulatory and legislative issues that could impact the payment space. This has always been a topic of interest for investors, so we're fortunate to have a bit of Scott's time again today. Thank you for joining us, Scott. We appreciate it.
Sure, Jason. Glad to be here. Thanks for having me.
Just for those, yeah, no, our pleasure. I, just for those who might be less familiar, quick overview of ETA, its mission, your role within the organization. I know you've been there for a while, but just, you know, some of those level-setting details would be great.
Sure, no worries. ETA is a Washington D.C.-based trade association that represents the breadth of the payments industry mostly in the U.S. We operate in Canada. We have some activities in London. As our tagline is that we represent the companies that process about $44 trillion in digital payments around the globe, and my standard joke is, "You're welcome." We have acquiring banks, networks, processors, fintechs, and then the entire sort of industry that goes along with that. My role, I wear many hats. I am head of advocacy in D.C., the States, as well as Canada. I also head up our policy, our business policy committees, and I work with the media, et cetera, et cetera.
Lots of things going on.
Okay, cool. No, that's great. I would say, you know, in the last, I guess it's going on 12 months, it was last summer, when Senator Durbin introduced the Credit Card Competition Act, CCCA, here in the U.S. This is probably the item that's gotten the most attention in recent quarters. Maybe just for those in the audience who might be less familiar with the bill, give us an overview of what's actually in the CCCA, and then we'll go a bit deeper.
Sure. The CCCA, the Credit Card Competition Act of 2002, was a bill that Senator Durbin, Majority Whip Durbin, introduced in the last session of Congress, back when Democrats had both the House and the Senate. Here's a copy of the bill if you're interested. S-4674. What the bill would try to do is take the routing provisions in Durbin Amendment that is now part of Dodd-Frank and Regulation II and apply those routing requirements to credit. In short, what his bill would have done is taken issuing banks over $100 billion, so just the very top. If you remember, Durbin Amendment focused on banks of $10 billion or more for the interchange restrictions. On Durbin Amendment, the routing provisions apply to all banks.
Here with Durbin credit, he just wants to take the very largest banks, over $100 billion, I think there's about 14 or 15 of them, and essentially say, "When you issue a credit card, you have to have two credit networks on there. One of them can be Visa, but the other cannot be Mastercard. One can be Mastercard, but the other cannot be Visa." In essence, he essentially said, "You can have Visa and one other, or Mastercard and one other, but not Visa and Mastercard on the same card." The bill did not move forward. We can talk about that in a minute. Essentially what he was trying to do is take the routing provisions in Durbin Amendment and apply it only to the largest credit card issuers in the U.S.
Right. Right. Okay, yeah, so let's dive into that a little bit. Let's flash back to, I think if I remember correctly, it was maybe July, if I remember correctly.
July. July twentieth.
Okay, yeah.
At 4 o'clock Eastern.
Right. What's happened since then? It's been, you know, call it eight months since then, and there's been a bunch of, you know, political maneuvering and maybe you can kind of catch us up in terms of where things stand today and what the incremental developments and some of the twists and turns along the way have been.
Sure, absolutely. What Senator Durbin did, and he had a Republican co-sponsor, which was new, Senator Marshall from Kansas. He's never had a Republican co-sponsor. He introduced the bill in July, nothing happened. He waited, nothing. He picked up no co-sponsors. He did get a companion bill in the House with Representative Welch and Representative Gooden, bipartisan bill. Welch is an independent, Representative Gooden is a Republican. We had bipartisan bills in the House and the Senate, which generally is a good start for a bill. However, as time passed in the last session of Congress last year, his bill did not move forward. I'll talk about why in a minute.
What he tried to do at the end of last year, at the end of the congressional session, was what he did with his Durbin debit provision, which was try and attach his bill, and this one was no exception, to another piece of legislation. In D.C., we call that a Christmas ornament, try to hang it on another tree in hopes that the bill will hitch a ride with that bill. He was unsuccessful in attaching his bill as an amendment to the National Defense Act or the omnibus bill, both of which are must-pass pieces of legislation. The reason that he was not successful in doing so is because this bill, as well as Durbin debit, is very politically controversial.
You generally can't attach pieces of legislation to other pieces of legislation unless your bill is not controversial. Senator Durbin's bill failed that test and is highly controversial. In short, what the bill does is pits two powerful moneyed interests against each other. You have banks and credit unions of all sizes on one side, and even though this is only $100 billion, it's all the banks opposed it because of the precedent it would set. Then on the other side are the retailers or the merchants. Obviously, the banks and credit unions were staunchly opposed, and the merchants were hiring bands and parades in celebration of the bill. They were very supportive of it.
Politically speaking, what this bill does is forces members of Congress on both parties to do something that they, I will jokingly say, hate to do, and that's make a choice, make a decision. There's an old adage in Washington that goes, "I have friends who are for the bill and I have friends who are against it, and I am for my friends." Many politicians found themselves caught between these two moneyed interest, and every single politician, every single member of the House and the Senate has both credit unions and banks as well as merchants or retailers in their state or district. Being forced to choose between one of those two, the best option from a policymaker standpoint is not to choose. The bill never moved forward.
He approached the chair and the ranking members of the two committees overseeing the must-pass his piece of legislation. They rejected him out of hand. He approached the leadership of the Senate. Remember, the Dems controlled the Senate then as they do now. Control is the wrong word, they're the majority. He's the majority whip. He's third in line, the majority leader and the assistant majority leader both said, "No, I'm not gonna put your amendment on the floor for a vote." That those two refusals demonstrate the political challenges that this issue presents. Even though we only have about, I think there's 17, 18 senators left who originally voted for Dodd-Frank, there's a handful of House members left, this issue, the politics of it still resonate in incoming members are...
can quickly assess the politics of this one, it's a very, again, very difficult situation. I think what we could take away from this, though, is that Senator Durbin, whose name is attached to it, to the legislation, we call it the Durbin Amendment, is every politician's dream to have a bill named after them. Glass-Steagall, Dodd-Frank, I mean, the list is long. He will never stop. He is devoted, committed to this issue, and will continue on. We've even seen some evidence of his passion in the States, which I can talk about in a little as well. He will never stop, the politics of this issue will probably never change, no matter how he tries to slice and dice it. He tried...
If we look at the subject of the bill, the substance of it, his bill was just routing. It wasn't pricing interchange. He was not trying to regulate credit pricing interchange like he did with Durbin-Debit.
Right.
He made his bill as small as possible, only for $100 billion or more issuing banks, that's about 15 or so, 14 or so. His bill is just this big, and it still failed.
Mm.
Anything bigger would surely suffer the same fate.
That took place around the end of the calendar year. Any incremental developments that have happened so far in 2023?
Yes. We have a brand new Congress, which means everything resets. Any bill that was not passed has to be reintroduced. In January of this year, his spokesperson says, Majority Whip, Senator Durbin, Chairman Durbin, has pledged to reintroduce his bill. That was in January. We are now in the middle of March. His bill has not been reintroduced. Conversations have been had with Senator Marshall. Conversations have been had with Senator Gooden. Mr. Welch, who was in the House last year and sponsored the House bill, is now over in the Senate, but he is still an independent. He is not a Republican. Senator Durbin, as you know, is a Democrat. We have not seen the bill be reintroduced. It is likely that if it is reintroduced, he might do it alone, without a bipartisan sponsor.
He could do it with a sponsor, it's not clear, a Republican sponsor, but at this point, the bill has not been introduced.
Mm.
I think that if it was difficult for Senator Durbin, Chairman Durbin, Majority Whip Durbin, to get his bill passed when Democrats had both the House and the Senate as well as the White House, now that we're in the 118th Congress, it's a new session, the Republicans obviously have the House. The odds of passing it were low last year, last session. They're even lower this year, this session. I don't know if that's incremental. I think that's actually huge, that the Republicans took the House, but that greatly even further reduces the odds of passage.
In theory, I mean, building on your point of, you know, he'll never stop, the next step he needs to take is that reintroduction of the bill, and I guess he has to just decide from a strategy perspective, is he gonna kind of be a lone ranger here, or is he gonna get co-sponsors and, you know, is he gonna, you know, find someone in the House to do a companion bill? Those are some of the things we should be.
That's right.
... looking for? Okay.
That's right. That's exactly right. The next step for him would be to actually formally introduce the bill.
Yep. Yeah. Okay.
He could offer it as an amendment to another piece of legislation, but, without actually introducing it, which is what happened with Durbin Amendment.
Right.
We will see it coming.
Yeah. Is there anything, I guess, like, on the horizon in terms of big much pass stuff?
Uh.
he could in theory attach to or?
I guess you could argue that with the collapse of the banks, the SVB and the First Republics, et cetera, that Congress is somewhat likely to issue a congressional response.
Mm.
maybe... I mean, the regulators for sure, I know that's off topic, the regulators for sure will hit them.
Yeah
... with more, capital, et cetera. Maybe we could see a legislative response to that bill, temporarily pushing up the deposit insurance limit is one idea. Holding CEOs personally accountable more so is another. If a piece of legislation addressing the bank issues moves forward.
Mm
... there's a possibility that he could try and capitalize on that.
Right.
As he did with Dodd-Frank back in 2008, which is exactly what he did back in 2008.
Yeah.
Watch those pieces of legislation carefully.
Right.
They'll be somewhat bipartisan. There's still a lot of confusion and disagreement about how best to proceed on those.
Right.
That would be the first opportunity. Then after that, you're looking at maybe something on China, which this bill would not work.
Wouldn't fit, yeah.
Yeah. We fast-forward maybe at the end of the year, calendar year, we could see something on crypto.
Right.
A piece of legislation on crypto. Those are the three main things that I see for this calendar year in the first half of the session.
Okay
... where you can try and attach it to. Debt ceiling will have to get done. There's no way in hell that he's gonna attach this piece to that.
Right.
Nothing is getting attached to that.
Yeah.
That'll be a clean debt ceiling increase if Congress goes that way, which I predict they will. That's a different topic.
Okay. Okay. If he does decide to introduce it as a standalone bill, I guess which committee would this? Is it, is this Banking?
Yes, it's Banking.
It's okay.
Yeah. He has, he doesn't sit on the Banking Committee. He's obviously chair of the Judiciary Committee, which does not have jurisdiction over the bill. Making at least the initial steps after introduction, you wanna have a hearing. Although Durbin Amendment did not have a hearing, making having a hearing more difficult, cause.
Mm-hmm
... the chair of the Senate Banking Committee, Senator Brown from the great state of Ohio, has not shown much interest in this bill, even though he was here, back in 2008 and voted for the amendment on the floor, the Durbin, Debit amendment on the floor of the Senate.
I see. Okay. Got it. Got it. I guess I'm curious to probe a little bit, you know, again, come back to what you said earlier, which history has definitely proven true, which is, you know, he will not stop. There's always something else that he's pushing on. I guess, what's his main motivation here? I mean, obviously, he's very friendly with the, you know, larger merchants. You know, he's from Illinois, and like you said, I mean, there's banks and other financial institutions in everyone's jurisdiction. Like, is this just because it sort of made him famous 10 years ago, or?
I think, you know, look, Who knows?
Yeah.
I've worked with him closely, but, you know, I think he. We can be cynical and say, you know, it's about his ego.
Yeah
... cynical and say it's about fundraising, at least from half.
Right.
You know, we can be, you know, sort of, philosophical in that he's doing this 'cause he believes it's the right thing to do.
Mm-hmm.
Any of those reasons, work.
Yeah
... you know, sometimes it's all three.
Yeah.
you know.
Yeah.
All those work for a policy in and of themselves as a standalone reason to work...
For sure.
... for policymakers.
It sounds like, I mean, the net of it is, you know, your assessment of the probability that this bill ultimately becomes law somehow, some way is pretty low.
Yeah. I would say under 1%.
Okay. Okay.
Last year it was 2%.
Right. Okay. It's down 50%, right?
That's right. That's right.
Okay. All right. Well, I guess let's just, like, play devil's advocate for a second, and hypothetically, somehow, some way, it does find its way into law. You know, as we've thought through it does seem like there could be some real practical issues around implementation. So just curious what you and, you know, other members of ETA are saying about that. Maybe talk through the mechanics of where some of those challenges in theory would arise.
Sure. The basic is that the issuing bank has to have two credit networks. There's really only four: Visa, Mastercard, Discover, American Express in the U.S. You could argue China UnionPay and JCB are on the table, but there's only four. If I'm bank X and I want to issue a card, I can have Visa, and then you know, Discover or Amex, or I can have Mastercard and Discover or Amex. The bill specifically excludes Discover and Amex from this calculation, so I guess you could have Amex and Discover. Amex is its own issuer and acquirer. It's a three-party model instead of the four.
While there are reciprocity kind of arrangements, you would have to have a formal deal with Amex to issue a card that had one of those logos plus Amex, and same with Discover. Obviously, Amex is a bank and Discover is a bank. If I'm a different bank and I've spent millions and billions on marketing, do I really want another bank's logo on, in the pocket of my, of my account holders? Just your marketing people will have a fit. I mean, I guess theoretically you could argue China UnionPay and JCB could work, but I don't see any U.S. bank issuing a card-
Right
... that says China UnionPay on it, especially after, A, it's China. There's a lot of xenophobia against China. China's working with Russian payment processor called Mir to continue to process transactions in Russia. We have sanctions there. While we don't have sanctions against China UnionPay, the optics on that one are not good by any stretch. So that also, another possibility is you have debit networks that could become credit capable. This is the SHAZAM and the Star of the world. I guess PULSE is under Discover. Theoretically, that could happen, but they're not ready yet. That would require, as I always like to say, in payments, with enough lawyers, guns, and money, you can make most things happen. You don't even need the guns.
Hmm.
They're not ready yet. Just from a practical standpoint, day one of implementation would be very difficult from a marketing standpoint. When you get behind the scenes, Jason, in the more sort of mundane, boring parts, the plumbing of payments, you know, you're gonna have to support multiple BINs. You're gonna have to support multiple card personalization validation, multiple authorization processes, support across and between the networks. Cause you could imagine Bank A has Visa and Discover. Bank B has Mastercard and Discover, and Bank C has Mastercard. I mean, just the permutations would create the need for a lot of plumbing behind the scenes. That, I suppose, theoretically doable, is gonna require time and a tremendous amount of resources to get there.
Mm-hmm. Right.
There's a lot of implementation issues.
I think the provisions in the bill itself also was just, I'm thinking timeframe-wise, right? What was it, something like 12 months where the Fed would have to actually promulgate the rules? Maybe you can just talk a little bit about that.
Section 2 says not later than one year after date of enactment, the Federal Reserve Board shall prescribe regulations providing for these rules. Similar to Regulation II, which implements Durbin Amendment, and which then they just updated for card-not-present, the Federal Reserve would have to write regulations. All of this has to be done in a year.
Mm-hmm
...subject to the regulations, which would come out, would be very difficult. Finally, the law would ask merchants when presented with a credit card with two different networks, the merchants make the choice. This is where Durbin gets the competition concept. You know, the large merchants can make this happen. They're doing it with debit and routing on the debit side. Smaller merchants will still have trouble with this. How does that work that you have to work with your processor to program your choices into the system? It's not impossible. It's certainly doable, but just one more step that has to occur. Just to make matters more interesting, throw in your people carrying credit cards on your mobile phones.
Hmm.
Is that gonna play into it? All of those devices have to be restructured properly to account for the plumbing issues. Huge. Besides the initial hurdle after that, if we got past picking another network, there's a lot of implementation issues that are very difficult to navigate.
For sure. For sure.
It's expensive anyway.
Just to circle back on, you mentioned that, obviously what is not included in CCCA is anything around credit interchange.
Right.
It looks different from the original Durbin Amendment in that regard. Is the reason that wasn't part of it. He's talked generically in the past about saying, you know, credit acceptance costs are too high in the U.S., and credit interchange is a lot higher here than it is other parts of the world. Did he leave that out just because he knew that would truly be a non-starter, or are there other kind of factors at play there?
I think he left it out because he thought it would just blow the bill up even more than it did.
Yeah.
It's, I mean, by doing it small, just routing, just large banks like that...
Right
made it as small as possible. If he had gone any bigger and added credit and interchange rates, the bill would've gone ballistic.
Right.
You know, way back when we started this whole process in 2006 or '07, you know, there was a general recognition that credit is different than debit. Credit as a loan or extension of credit from the issuing bank to the consumer is far different than transferring money out of your account to the merchant's account, the cardholder's account. There's a risk there, interchange accounts for the risk, the risk of non-payment. Yes, interest rates, the interest do too, by altering the credit interchange rates, you dramatically alter the economics of credit card transaction. I think he, Senator Durbin, at least my impression, after my conversations with him and his staff, he gets that particular piece from way back.
Hmm.
Just as an aside, in Canada, they are working on lowering the credit interchange rates as we speak. The government of Canada's gonna release a budget on the 27th, next week, late next week, and they may include language in there that would cap interchange rates for credit. They are hoping that the industry will come to a voluntary agreement to lower credit interchange rates before then, which they have done in the past. Just to be complete, Jason, just be aware of what's happening in Canada on that.
Where, what's the current credit interchange rate in Canada, and what are they proposing to take it to?
I'm not sure. I'd have to look up what the actual rate is. They're not actually proposing to, you know, don't lower it by 2 basis points or X%. They are just saying, "Industry, you should lower it." They are negotiating in the blind-
Oh
...in the hopes of gaining the best result possible. Rather let the industry self-regulate and determine what the lower amount is to avoid the threat of legislation doing it to them.
Okay. Got it.
We don't have numbers yet other than that threat, and that was, I assume that was strategic on the part of the government of Canada.
Right. Okay. Interesting. That's definitely something to keep an eye on as well. Maybe, just continuing with the Durbin theme, I guess, going back to Durbin Part One, and the language of the original Durbin Amendment was updated last year to more specifically encompass online debit routing. Obviously online wasn't as big a part of the market back in 2011 when Durbin Part One first passed and this updated language getting implemented, taking effect in July of this year, so a few months from now. Wanted to just get your take on, you know, what the implications may be for the industry.
Well, real quickly, what the Federal Reserve did, is updated Regulation II, which is the regulation that implements the Durbin Amendment and credit routing provisions. This focuses on the routing provisions on the Durbin Amendment. What the regulations say that each debit card transaction must be able to process on at least two unaffiliated payment card networks, as applies to this rule, this test, this requirement, applies to card-not-present, CNP, or online transactions. Okay. Essentially what that means is if I am a debit card issuer and, right now I only have to have one network that can handle card-not-present, and Visa, Mastercard handle the bulk of that volume.
By adding a second debit network, the practical implications are that the issuing bank has to go out and make a deal with another debit network to allow for card-not-present transactions to be routed over it. There are lots more debit networks than there are credit. In theory, other debit networks should be able to pick up some volume in the card-not-present space for debit cards. I haven't seen any final numbers, but what I'm hearing is not a huge amount of volume. It definitely picked up during the pandemic as people didn't want to go shopping in store. They turned to their phones or their laptops to do the transactions.
The sense I get from the industry is that this will have a marginal effect on volumes shift to other networks. Of note, just last month, the large issuing banks sent a letter to the Federal Reserve asking them to delay the implementation from July 1. Their argument was that we need more time, there's not a whole lot of debit networks out there that can handle card-not-present transactions. We wish that they wanted an 18-month extension. They said, "Look, there's been a lot of consolidation." In a nice argument, they argued that Director Chopra has been out there saying there isn't enough competition in the processing space.
They used his words to say, "See, we're having trouble finding other networks upon which to route card-not-present debit transactions." They sent that letter in last month, about just under a month ago. My prediction is that the Federal Reserve will not listen or not change the effective date from July 1, will not heed their request. I think at least one large processor said, "We are ready to go with Regulation II on card-not-present, so, we can handle the volume, and help you find another network." In the end, I think, Jason, we'll see some shifts in volume. Not hearing that'll be, I won't say material, but it won't be that big of a deal.
Dramatic. Yeah.
Yeah.
Yeah. Okay.
Thank you.
No, that's a good, that's a good summary. Maybe moving over to a little bit what the FTC has been up to. Near the end of last year, the FTC did disclose an investigation of Mastercard, its alleged use of tokens to block competing debit networks at the point of sale. Just wanted to see if there's any updates on that investigation that you may be aware of or what's behind that.
Yeah. Right before Christmas, you gotta love regulators, right?
Right.
Right, two days before Christmas, they announced that they had a consent order against Mastercard to address what the FTC saw as roadblocks, their words, that Mastercard was using to prohibit debit card transactions, online debit card transactions from being routed to competing networks. Essentially what the argument goes or what the substance of it was that Mastercard, as all networks do or should do, was tokenizing the transaction to devalue it so thieves couldn't go after it. You're sending a token instead of the actual PAN. By tokenizing it, that was more secure.
What was happening is they were not allowing competing networks to see the primary account number to decrypt it, to detokenize it, which would then allow the other networks, the other debit networks, to route the transaction over their network. The FTC said, "Well, you're required to have two debit networks, but in effect your security protocols, your tokenization service, is preventing, is forcing all transactions that you tokenize to be routed over your network. So we're going to require you to provide the PAN to the other networks." That's the consent order. Mastercard said, "Our security protocols are solid. We're not violating Durbin, but we will do what you say, FTC." This is, if you're looking for an industry jargon, it's called a call-out service.
Essentially Mastercard, as I understand it, maintains a database of the PANs as they map over to the tokens.
Mm-hmm.
The transaction comes in on the token, they find the right PAN, and then they reverse it and are able to process it. There's a library or a vault is another way I've heard it described. Okay. The next question you're gonna ask me, Jason, is, okay, great, Mastercard is number two, Visa is number one. Why didn't the FTC? Why did they go after the smaller potatoes, the smaller, not small by any stretch, but smaller fish rather than Visa? The answer is Visa already provides the PAN, is my understanding, and they do not engage in a similar type of approach that Mastercard does, therefore not needing to engage on this particular step. The FTC has announced that they are also looking at Visa.
you know, I think if you go back. I went back and typed them all up. Hang on a second. I've got them somewhere. If you go back and look at the history of all the regulatory actions, here it is, against Visa and Mastercard, it's pages and pages of issues going back to. I stopped going back, I think 1978. In 1998, I stopped. I was like, "Enough." If I went through, I wrote them all up, happy to share, but, you know, most of them kind of went away. Some of them resulted in actions. We saw Faneuf. We saw.
Right
[Global ID drop] antitrust issues. Maybe about 30% or 40% of them, of the investigations resulted in actions, while some just kind of went away.
Yep.
The fact that Visa or, I'm sorry, the DOJ or FTC are investigating a network is, at this point, sort of routine matter. It's impossible to predict what will happen or what they're looking at them for. I think these things are just kind of ongoing.
Okay.
Anyway.
Okay. Just to recap the situation with FTC, so Mastercard has agreed to comply with the consent order. They'll provide the PANs to the competing networks. In theory, that creates a little bit more of a balanced playing field, arguably. Visa was not part of that consent order because they already were providing the PANs. The FTC is looking at Visa for something. We're just not sure what it is exactly.
Yet again, yeah.
Okay. Okay. Okay.
Right. You got it.
Okay. Okay. All right. No, that's helpful, for sure. I mean, generally speaking, like, how do the FTC's powers work? I mean, let's just say hypothetically, Mastercard had said, you know- "We don't wanna just comply, you know, because we don't think we're in the wrong." What can the FTC do?
That's a great question. In the past, the FTC was able to issue fines, but a recent Supreme Court decision took that power away from them.
Hmm.
What they could have done was forced the FTC. I'm sorry, FTC could have forced Mastercard to make structural changes. If they refused to do that, they could have imposed not monetary sanctions, but other types of sanctions on them. I'm... They would've... That's a good question. I'll have to Jason, let me think about how they would have mostly-
Yeah
... gone down that path.
Yeah.
Think of it... I mean, obviously, they would have to claim it was unfair or deceptive...
Mm-hmm
... under their powers, and impose some sort of injunction on them.
Hmm.
They could've worked with other regulators to issue some kind of a rule. They could have gone back to the Fed and said, "Hey, we think there's a problem here." Let me just see. I think there was an administrative order to require them to do so. I guess they would've had to sue them in court ultimately to say, you know, "You must stop doing this. You are in violation of the law." Then we would've fought it out in court.
I see.
... as we've seen in the past.
Right
... Amex fought in the courts, for example...
Okay
the exclusivity rule. Anyway, ultimately it would've ended up in court.
Yep. Yep.
Your interim step, the interim step is a good question. If they hadn't agreed procedurally, what could they have done?
Right. Well, Right. Would've been in the next course of action. Yeah.
Yeah. I think issuing a consent order, which is what they did here.
Yeah
... and then trying to enforce it.
Right
... would've been un- within their purview for sure, but not a monetary fine.
Okay. That's interesting. Okay. Let's talk about CFPB a little bit. You mentioned Director Chopra before, and, you know, the CFPB had put out a pretty lengthy report on the buy now, pay later industry. That was September of last year. It seemed to us, I mean, just when we went through it was fairly balanced actually. It wasn't saying BNPL is 100% evil. It was saying that there are some real benefits to consumers. I just wanted to kind of get your overall take or what kind of was the ETA's stance on that report.
I agree with you, Jason, that the report that the CFPB put out on the 15th of September was balanced. Director Chopra actually spoke at our conference the next day.
Hmm
... and talked about it. Hopefully he can come back, but we'll see. I think I hate to call it a nothing burger, but it didn't really produce sort of a smoking gun or a roadmap. It actually praised buy now, pay later as being a lower cost alternative to other forms of credit, payday loans, even credit cards. It said, you know, many of these don't have interest or fees. It's kinda hard to criticize a product that has no fees and no interest.
Right.
That's, you know, that's a tough cookie. It's a tough I was gonna make some joke, but I won't. Anyway, if there are no fees, I mean, how... You gotta search long and hard to find a criticism.
Yeah.
What was interesting, if you read the report carefully, and I know you did, is he said, and in his press conference, he said, "I am looking to staff to give me suggestions for next ideas.
Hmm.
Generally, when you get to that point after doing a study, you have an idea of what you wanna do. You can see there's this problem...
Right
... this problem, Therefore I'm gonna do this, and this. Usually regulators will say, "I'm going to issue a regulation." Okay? He did not say that. He said, "I'm working with staff to develop ideas." Well, I mean, this report took him, took 10 months, right? this isn't anything novel in terms of the tools and the powers that they have.
Mm-hmm.
I think that the probability of the CFPB doing something regulatorily is low. One, we don't have a big problem. Two, they would've already identified it, and this report came out on September 15th. you know, Wednesday was March 15th. We don't have anything. I'm not goading them into doing anything by any stretch.
That's right. Yeah.
Like, "What's wrong?
Yeah.
Like, we would've probably seen some sort of regulatory action. Regulatory actions are expensive and time-consuming. The CFPB's only done a handful of them. They did credit card late fees. They're working on open banking. I don't see a whole lot of regulatory response at this point.
Mm.
They did a follow-up report, on March of this year and still didn't produce any smoking gun. A couple things, though. They're gonna keep looking at the space. They've asked non-bank buy now, pay later companies to voluntarily subject themselves to supervision. I don't think anyone has signed up for that that I'm aware of.
Yeah.
He did ask, "If you wanna come on in, we'll..." Remember, this is for non-banks who are not banks, "But come on in, we'll be glad to do it.
Right.
It's possible that he could issue what's called a larger participant rule. Dodd-Frank gave CFPB a very unique authority, and that is the authority to determine its own authority. Most regulators have their authority laid out for them. CFPB, as its job is to stay abreast of the market, is allowed to give itself authority. They have to issue a rulemaking, but it's called a larger participant rule. Essentially gives them supervisory authority over larger participants after a rulemaking. They always have enforcement authority. If you break the rules, you're still gonna get a speeding ticket, but the CFPB cannot come in and examine you. They can ask you for information, as they did in this case, but they can't come in and examine you or supervise you. That's where we sort of stand.
Real quickly on substance, the CFPB did focus on a couple of areas, just for discussion purposes or just to be aware of. Lack of disclosures, dispute resolution challenges. Regulation Z doesn't necessarily apply when there are less than five or more purchases, or payments, sorry. The mandatory use of auto-pay, late fees, or if you miss, you can have a late fee.
Hmm.
The CFPB was looking at, what's called data harvesting. One side of the house handles your payment. The data harvesters look at the data, and they go, "Oh, Jason bought a black vest, and he probably doesn't need shampoo, but...
Definitely not.
Yeah.
A collar.
... you know, Yeah, like harvesting the data. The CFPB was very interested on how those two play together. As an aside, they issued another order on the big tech order last 2021 as well. We're still waiting for that report. That data harvesting was part of that examination as well.
Okay.
Overextension, the stacking. Can you go to multiple different buy now, pay later companies and take out buy now, pay later products?
Mm-hmm.
The FTC got involved on this one as well. There's definitely some regulatory overhang. I would not put it at mission critical or DEFCON. I forget which way the DEFCONs go.
Right.
One means you're at war, so maybe DEFCON Four.
Right. Right.
It's not that big of a threat.
Right. In the scheme of everything the CFPB has on its plate, sounds like it's not the highest priority.
I think that's right.
We do have a question coming in from the audience about potential CFPB actions in the personal lending space...
Mm-hmm
... and kind of referencing Upstart's recent exit from their no-action agreement. Just any thoughts or observations on that you might have?
In terms of, I think if you look at, I think what you're talking about is payday loans. It's definitely, payday loans are definitely an area that the CFPB is looking at, has always been looking at. It's always sort of the poster child for, loans to consumers who are down on their luck, and therefore the least likely to be able to negotiate terms, et cetera, et cetera, most desperate. There's, it's always gonna be in the works. I'm just not hearing a whole lot in this space.
Hmm.
Now, For all of these things, I will throw in the what I call the X factor, that is something happens that forces policymakers to do something. SVB is a perfect example, right? Enron was a perfect example.
Right.
They're working on X, and the X factor happens, and suddenly they're over here, and they're forced to respond.
Yeah.
Something could happen in the payday lending space. Interest rates keep going up. The market, you know, employment suddenly plummets, and people can't pay their bills, and that gets policymakers' attention.
Hmm.
Is a very real X factor that could. While I'm not hearing a whole lot, that X factor still exists.
Okay
... in the payday space.
I know we only have a minute left, was there anything we missed? Anything we didn't touch on that you're tracking that could impact the payments or the fintech space as we go through 2023?
I was tracking crypto, but the mudslide that is SVB.
Yeah.
Put out the brush fire of crypto.
Yeah.
Crypto's taken a back seat.
Yeah.
Then, the CFPB is issuing a report around big tech at some point.
Okay.
Any day now, I would expect, so.
What do you think happens with... on the crypto front? Is that gonna start more with, you know, kind of with stable coins, or what are you hearing? I mean...
Yeah. We'll have a series of hearings, instead of just being about crypto, they'll be about how SVB and other banks used crypto. I think there's a sale of one of the banks to another bank, the purchasing bank doesn't want the failed bank's crypto business. I think that policymakers are gonna focus on that, and they will go slow on crypto. They'll let the SEC move forward with its procedure for defining crypto. When they get to it, yes, I think stable coins will be the starting point. We're talking next year easy before they get to it.
Okay. All right. Excellent. Well, Scott, it's always great to spend time with you. We really appreciate all the insights from down there in D.C. Thank you everyone who tuned in. Our next session will be at 4:15 P.M. with a privately held OPN. Thanks again, everybody, and we'll talk to you soon. Take care, Scott. See you soon.