1 00:00:00,500 --> 00:00:01,461 [SQUEAKING] 2 00:00:01,461 --> 00:00:03,896 [RUSTLING] 3 00:00:03,896 --> 00:00:05,844 [CLICKING] 4 00:00:10,898 --> 00:00:13,440 GARY GENSLER: We're going to go through payment systems, what 5 00:00:13,440 --> 00:00:16,890 is a payment system, in fact, some trends around the payment 6 00:00:16,890 --> 00:00:19,920 system, which is a little bit of a statistical review, 7 00:00:19,920 --> 00:00:23,970 and then critically think about the pain points, a list 8 00:00:23,970 --> 00:00:26,850 that I've been keeping as I teach FinTech 9 00:00:26,850 --> 00:00:29,340 and also as I think about cryptocurrencies 10 00:00:29,340 --> 00:00:32,910 and how they might insert themselves in this space. 11 00:00:32,910 --> 00:00:35,910 Some trends around the globe with nations 12 00:00:35,910 --> 00:00:39,030 trying to move forward with real-time gross settlement, 13 00:00:39,030 --> 00:00:43,200 the idea that you could settle payment transactions 14 00:00:43,200 --> 00:00:47,710 instantaneously, 24 hours a day, 7 days a week, 15 00:00:47,710 --> 00:00:49,650 which many nations don't do yet. 16 00:00:49,650 --> 00:00:50,280 Some do. 17 00:00:50,280 --> 00:00:51,910 We'll get into that. 18 00:00:51,910 --> 00:00:53,300 And then the landscape itself. 19 00:00:53,300 --> 00:00:56,980 What are the companies doing and so forth? 20 00:00:56,980 --> 00:01:00,140 Harkening back to last discussion, 21 00:01:00,140 --> 00:01:03,790 what are we seeing in the crypto projects and tokenization? 22 00:01:03,790 --> 00:01:06,370 And then close out on Facebook Libra 23 00:01:06,370 --> 00:01:10,510 and China's Digital Currency Electronic Payment project. 24 00:01:10,510 --> 00:01:11,590 So a lot to cover. 25 00:01:11,590 --> 00:01:15,820 But please, as I had said, video's on. 26 00:01:15,820 --> 00:01:19,160 So we can keep this sense of community and audio off. 27 00:01:19,160 --> 00:01:21,800 But anytime you have a question, raise the blue hand 28 00:01:21,800 --> 00:01:23,650 in the participant area. 29 00:01:23,650 --> 00:01:27,130 Engage in the chat room amongst yourselves, 30 00:01:27,130 --> 00:01:29,590 or Romain would be good enough just 31 00:01:29,590 --> 00:01:31,270 to interrupt me when he sees something 32 00:01:31,270 --> 00:01:33,250 interesting in the chat. 33 00:01:33,250 --> 00:01:35,695 Or for that matter, even if you're a student 34 00:01:35,695 --> 00:01:37,570 and you see something interesting in the chat 35 00:01:37,570 --> 00:01:40,610 that Romain's not raising, you can raise your hand and say, 36 00:01:40,610 --> 00:01:42,430 I see three things in the chat room, 37 00:01:42,430 --> 00:01:48,290 and I want to capture that for the class and so forth. 38 00:01:48,290 --> 00:01:50,950 So the readings today, I thought it 39 00:01:50,950 --> 00:01:54,310 was interesting to take a speech by Lael Brainard. 40 00:01:54,310 --> 00:01:58,210 Lael is on the US Federal Reserve Board. 41 00:01:58,210 --> 00:02:04,620 And as they do in many commissions and boards 42 00:02:04,620 --> 00:02:07,040 of central banks around the globe, 43 00:02:07,040 --> 00:02:08,600 they allocate different projects. 44 00:02:08,600 --> 00:02:15,040 Now, Lael is part of the Federal Open Market Committee 45 00:02:15,040 --> 00:02:17,080 and helps set interest rates, but she also 46 00:02:17,080 --> 00:02:22,570 is that key player on the Reserve Board around payments. 47 00:02:22,570 --> 00:02:24,880 So she gave a speech about the updating 48 00:02:24,880 --> 00:02:29,920 and where we stand, and I hope you found that helpful. 49 00:02:29,920 --> 00:02:35,200 Along with Neha Narula, we did a cryptocurrency online course 50 00:02:35,200 --> 00:02:36,270 last summer. 51 00:02:36,270 --> 00:02:38,170 And the payment system space was something 52 00:02:38,170 --> 00:02:42,340 we wrote just as a background, as a primer in this area, 53 00:02:42,340 --> 00:02:45,370 and then some payment innovations in the FinTech 54 00:02:45,370 --> 00:02:50,230 space, and a little map about nine payment track. 55 00:02:50,230 --> 00:02:52,160 So I hope that was helpful. 56 00:02:52,160 --> 00:02:55,480 If you haven't dug into it, I do think that Lael's speech is 57 00:02:55,480 --> 00:03:00,430 a good update as to where we are and particularly as the US 58 00:03:00,430 --> 00:03:03,160 Federal Reserve is thinking about things like Facebook's 59 00:03:03,160 --> 00:03:08,050 Libra, thinking about going to real-time gross settlement 60 00:03:08,050 --> 00:03:11,530 in something called FedNow that won't be rolled out now 61 00:03:11,530 --> 00:03:13,420 for three or four years. 62 00:03:13,420 --> 00:03:16,240 But I think Lael gives a good sense of where things are. 63 00:03:19,300 --> 00:03:23,380 So just if we can have a little bit of conversation here, 64 00:03:23,380 --> 00:03:25,480 and Romain will help facilitate. 65 00:03:25,480 --> 00:03:28,090 But what are the key challenges and opportunities 66 00:03:28,090 --> 00:03:31,750 in the current system, just from your own perspective? 67 00:03:31,750 --> 00:03:34,330 In essence, what do you think I will later 68 00:03:34,330 --> 00:03:36,040 have on that list of pain points, 69 00:03:36,040 --> 00:03:40,380 if you've not yet downloaded the slides? 70 00:03:40,380 --> 00:03:42,586 But Romain. 71 00:03:42,586 --> 00:03:46,572 ROMAIN: Let's see who will be the first volunteer for today. 72 00:03:46,572 --> 00:03:51,322 GARY GENSLER: Just to get it a little bit interesting. 73 00:03:51,322 --> 00:03:53,350 ROMAIN: Still waiting for a blue hand. 74 00:03:58,718 --> 00:03:59,218 Hassan. 75 00:03:59,218 --> 00:04:00,510 GARY GENSLER: [INAUDIBLE] page. 76 00:04:00,510 --> 00:04:01,820 You might have to get one. 77 00:04:01,820 --> 00:04:02,950 What did you have, Romain? 78 00:04:02,950 --> 00:04:05,200 ROMAIN: Hassan, the floor is yours. 79 00:04:05,200 --> 00:04:06,320 AUDIENCE: Thank you. 80 00:04:06,320 --> 00:04:08,990 Yeah, about the payment system, I've 81 00:04:08,990 --> 00:04:14,030 noticed that there is kind of a monopoly, especially here 82 00:04:14,030 --> 00:04:14,930 in the Middle East. 83 00:04:14,930 --> 00:04:17,690 All the payments are, or I would say 84 00:04:17,690 --> 00:04:23,450 almost all payments are through Visa, and Mastercard, and AMEX. 85 00:04:23,450 --> 00:04:26,120 And if you can see that, these companies 86 00:04:26,120 --> 00:04:29,670 take a percentage of the merchants. 87 00:04:29,670 --> 00:04:31,670 And I don't if you guys have this in the States, 88 00:04:31,670 --> 00:04:36,500 but sometimes, for instance, in my country in Bahrain, 89 00:04:36,500 --> 00:04:40,730 if I would go and buy something, if I know the owner person, 90 00:04:40,730 --> 00:04:44,270 he would say, hey, listen, if you would pay me in cash, 91 00:04:44,270 --> 00:04:46,560 I could give you a discount. 92 00:04:46,560 --> 00:04:50,840 So I think that there are many opportunities for companies 93 00:04:50,840 --> 00:05:00,570 that could maybe take less money and exploit this opportunity. 94 00:05:00,570 --> 00:05:03,090 GARY GENSLER: So this captured two themes 95 00:05:03,090 --> 00:05:05,890 that you picked up there, and there were many others. 96 00:05:05,890 --> 00:05:07,540 And I see Andrea's hand up. 97 00:05:07,540 --> 00:05:09,630 So we'll have some other good discussions. 98 00:05:09,630 --> 00:05:13,530 Cost, you're saying that the current payment rails-- 99 00:05:13,530 --> 00:05:15,750 my word-- that the current payment rails 100 00:05:15,750 --> 00:05:17,700 have a significant cost. 101 00:05:17,700 --> 00:05:21,030 And you also mentioned the concentration. 102 00:05:21,030 --> 00:05:22,860 You said monopoly. 103 00:05:22,860 --> 00:05:26,490 Some might say oligopolies, but there's a concentration 104 00:05:26,490 --> 00:05:28,380 usually in the payment systems. 105 00:05:28,380 --> 00:05:31,740 And this comes by and large not only 106 00:05:31,740 --> 00:05:33,270 because of the history of payments 107 00:05:33,270 --> 00:05:36,420 but also the significant network effects, 108 00:05:36,420 --> 00:05:40,500 that if you have one central payment mechanism, whether it's 109 00:05:40,500 --> 00:05:45,260 a clearing house in days of old or, in the last 40 years, 110 00:05:45,260 --> 00:05:50,250 the credit card companies became very significant in the payment 111 00:05:50,250 --> 00:05:51,180 space. 112 00:05:51,180 --> 00:05:53,910 They had network effects, scale, bringing 113 00:05:53,910 --> 00:05:57,810 merchants on the one side, the store owners on the one side, 114 00:05:57,810 --> 00:06:00,400 and the consumers on the other side together. 115 00:06:00,400 --> 00:06:03,930 And the platform economics create a significant network 116 00:06:03,930 --> 00:06:04,450 effect. 117 00:06:04,450 --> 00:06:06,360 So there's a lot of concentration. 118 00:06:06,360 --> 00:06:08,275 But Andrea or others? 119 00:06:08,275 --> 00:06:09,766 ROMAIN: Andrea? 120 00:06:09,766 --> 00:06:10,830 AUDIENCE: Yeah. 121 00:06:10,830 --> 00:06:13,980 So I'm not fully sure if this is related 122 00:06:13,980 --> 00:06:15,650 or if you count it also as payment. 123 00:06:15,650 --> 00:06:17,890 But I think one of the biggest opportunities 124 00:06:17,890 --> 00:06:19,860 and also challenges is still to resolve 125 00:06:19,860 --> 00:06:22,410 the international payments, so basically 126 00:06:22,410 --> 00:06:24,540 how you send the money across the borders. 127 00:06:24,540 --> 00:06:28,080 There are many startups, like everyone knows TransferWise 128 00:06:28,080 --> 00:06:29,820 who are doing a great job. 129 00:06:29,820 --> 00:06:31,800 But when you think about it, it's still-- 130 00:06:31,800 --> 00:06:34,690 the way their business model or how it works, 131 00:06:34,690 --> 00:06:38,290 it's still not basically instant sending of money, 132 00:06:38,290 --> 00:06:40,150 and there are a couple of limitations. 133 00:06:40,150 --> 00:06:43,720 For example, you also need to do it-- 134 00:06:43,720 --> 00:06:45,840 you also need to or you're allowed 135 00:06:45,840 --> 00:06:47,550 to send the money internationally 136 00:06:47,550 --> 00:06:49,060 if you have a bank account. 137 00:06:49,060 --> 00:06:52,240 But I, for example, know I was working in the Middle East 138 00:06:52,240 --> 00:06:55,470 where, for example, there is a lot of people, 139 00:06:55,470 --> 00:06:59,280 a lot of international people coming and working there. 140 00:06:59,280 --> 00:07:02,250 And they are sending a lot of money 141 00:07:02,250 --> 00:07:05,040 back to their families home. 142 00:07:05,040 --> 00:07:07,860 And, for example, a lot of them don't have a banking account. 143 00:07:07,860 --> 00:07:10,715 So they're using services such as Western Union. 144 00:07:10,715 --> 00:07:12,090 GARY GENSLER: So let's-- 145 00:07:12,090 --> 00:07:13,230 AUDIENCE: And [INAUDIBLE]. 146 00:07:13,230 --> 00:07:14,813 GARY GENSLER: I think Andrea was good. 147 00:07:14,813 --> 00:07:16,770 She raised three points in there. 148 00:07:16,770 --> 00:07:18,730 I see Ivy's hand, and then we'll close. 149 00:07:18,730 --> 00:07:22,440 But the three points I heard, cross-border, sending payments 150 00:07:22,440 --> 00:07:25,090 from one nation to another. 151 00:07:25,090 --> 00:07:29,340 Now that could be because it's moving from one currency 152 00:07:29,340 --> 00:07:32,670 to another, or even if it's in the same currency, 153 00:07:32,670 --> 00:07:35,410 if you're using US dollars and sending it cross-border 154 00:07:35,410 --> 00:07:39,230 or using Euro or yen and sending it cross-border, 155 00:07:39,230 --> 00:07:42,510 you're jumping between two different payment systems, two 156 00:07:42,510 --> 00:07:44,740 different banking systems. 157 00:07:44,740 --> 00:07:48,360 And so cross-border same currency or cross-border 158 00:07:48,360 --> 00:07:50,970 cross currency, there's a significant amount 159 00:07:50,970 --> 00:07:54,160 of cost embedded in that. 160 00:07:54,160 --> 00:07:58,380 There is time delays that Andrea mentioned until you 161 00:07:58,380 --> 00:08:01,380 can have settled money. 162 00:08:01,380 --> 00:08:04,920 Final settled money means that you can actually use it 163 00:08:04,920 --> 00:08:08,610 in your commercial daily lives. 164 00:08:08,610 --> 00:08:11,490 And then thirdly, I think Andrea raised inclusion, 165 00:08:11,490 --> 00:08:14,680 whether everybody has access to that system. 166 00:08:14,680 --> 00:08:15,570 So I thank you. 167 00:08:15,570 --> 00:08:18,152 And then Ivy, and then we'll move on. 168 00:08:18,152 --> 00:08:18,892 AUDIENCE: Sorry. 169 00:08:18,892 --> 00:08:20,350 I actually had some earlier points. 170 00:08:20,350 --> 00:08:25,160 But I think just building up off of that, things like Plaid, 171 00:08:25,160 --> 00:08:29,460 I think, are quite interesting because you really need this-- 172 00:08:29,460 --> 00:08:34,470 I guess I think about it as the plumbing of the payment system, 173 00:08:34,470 --> 00:08:36,440 if you will, because they really need 174 00:08:36,440 --> 00:08:40,700 to plug into so many different types, the payment systems, all 175 00:08:40,700 --> 00:08:42,530 these different financial institutions. 176 00:08:42,530 --> 00:08:47,270 And just even thinking about inclusion and consumer-- 177 00:08:47,270 --> 00:08:50,120 customer behavior and consumer credit behavior 178 00:08:50,120 --> 00:08:52,820 or cross-countries, it's entirely different. 179 00:08:52,820 --> 00:08:56,520 Like people in the UK don't, or in Europe in general, 180 00:08:56,520 --> 00:09:01,340 I don't think, use credit cards as much as Americans do. 181 00:09:01,340 --> 00:09:04,820 People in Asia are really used to using Alipay, WeChat. 182 00:09:04,820 --> 00:09:08,270 QR codes have become a big thing. 183 00:09:08,270 --> 00:09:12,650 And in Canada, people pay down their debt 184 00:09:12,650 --> 00:09:14,425 much faster than we do. 185 00:09:14,425 --> 00:09:15,800 So just trying to think about how 186 00:09:15,800 --> 00:09:18,950 all these different players, both on the consumer side 187 00:09:18,950 --> 00:09:23,030 as well as on the supply side, if you will, 188 00:09:23,030 --> 00:09:25,320 will fit into the entire system in the future. 189 00:09:25,320 --> 00:09:27,680 GARY GENSLER: So Ivy's mentioned a bunch 190 00:09:27,680 --> 00:09:31,380 of cultural and geographic differences. 191 00:09:31,380 --> 00:09:33,290 Country by country, we have differences 192 00:09:33,290 --> 00:09:35,180 in our payment systems. 193 00:09:35,180 --> 00:09:37,520 We have different cultural behaviors about paying down 194 00:09:37,520 --> 00:09:39,410 our debt and so forth. 195 00:09:39,410 --> 00:09:43,520 And you mentioned one company, Plaid, that helps the plumbing. 196 00:09:43,520 --> 00:09:48,650 And what's interesting is that the word "plumbing" 197 00:09:48,650 --> 00:09:54,170 in banking or plumbing and payment is an age old thought. 198 00:09:54,170 --> 00:09:56,510 Actually, when Alexander Hamilton, 199 00:09:56,510 --> 00:10:00,590 our nation's first Secretary of the Treasury, 200 00:10:00,590 --> 00:10:03,860 helped found one of the first banks in the nation, 201 00:10:03,860 --> 00:10:07,160 the Bank of New York-- it still is part of the Bank of New York 202 00:10:07,160 --> 00:10:12,110 Mellon-- this was in the 1780s, they took as their logo-- 203 00:10:12,110 --> 00:10:13,640 logo is a modern word. 204 00:10:13,640 --> 00:10:16,370 But they took as their symbol something 205 00:10:16,370 --> 00:10:19,160 that looked like plumbing, literally 206 00:10:19,160 --> 00:10:22,620 that they thought of banking as like waterworks 207 00:10:22,620 --> 00:10:26,810 or a central utility, sending money around rather than 208 00:10:26,810 --> 00:10:29,090 sending water around. 209 00:10:29,090 --> 00:10:30,340 So I thank you for that. 210 00:10:30,340 --> 00:10:32,570 But yes, Plaid is part of that plumbing. 211 00:10:32,570 --> 00:10:34,580 And as Andrea said, TransferWise is 212 00:10:34,580 --> 00:10:37,490 trying to find a gap in the cross-border. 213 00:10:37,490 --> 00:10:38,440 They're not alone. 214 00:10:38,440 --> 00:10:43,610 There's Remitly and WorldRemit, and many other companies also. 215 00:10:43,610 --> 00:10:45,950 And so this is a long question. 216 00:10:45,950 --> 00:10:48,230 But just anybody want to say, what lessons can you 217 00:10:48,230 --> 00:10:52,160 take from Big Tech in this space, Alipay, 218 00:10:52,160 --> 00:10:55,670 WeChat Pay, M-Pesa, et cetera, just Big Tech? 219 00:10:55,670 --> 00:10:59,790 And secondly, any lessons from all the startups. 220 00:10:59,790 --> 00:11:03,320 So it's two buckets, but it's what can you 221 00:11:03,320 --> 00:11:05,780 take from the competitive landscape, either Big 222 00:11:05,780 --> 00:11:07,460 Tech or the disruptors? 223 00:11:12,564 --> 00:11:13,510 ROMAIN: Anyone? 224 00:11:17,956 --> 00:11:20,890 GARY GENSLER: I'm sure that some of you use these companies, 225 00:11:20,890 --> 00:11:24,480 whether you're from Asia, and you use many of the Big Tech 226 00:11:24,480 --> 00:11:26,490 ones, or even in the US if you do, 227 00:11:26,490 --> 00:11:32,640 or you're bound to use Venmo, which is owned by PayPal, 228 00:11:32,640 --> 00:11:33,940 or something. 229 00:11:33,940 --> 00:11:37,740 ROMAIN: So we have Luke and then Yi. 230 00:11:37,740 --> 00:11:39,040 AUDIENCE: So one of the-- 231 00:11:39,040 --> 00:11:40,957 GARY GENSLER: Which side are you [INAUDIBLE],, 232 00:11:40,957 --> 00:11:42,465 Big Tech or disruptors? 233 00:11:42,465 --> 00:11:43,315 AUDIENCE: I'm sorry. 234 00:11:43,315 --> 00:11:43,940 Say that again. 235 00:11:43,940 --> 00:11:44,732 Say that again now. 236 00:11:44,732 --> 00:11:49,336 GARY GENSLER: Are you addressing Big Tech or the disruptors? 237 00:11:49,336 --> 00:11:51,410 AUDIENCE: So let's go with Big Tech, 238 00:11:51,410 --> 00:11:53,910 but I guess it's not to easy when I talk about, 239 00:11:53,910 --> 00:11:58,310 for example, KakaoPay, which is the payment platform made 240 00:11:58,310 --> 00:12:01,850 by Kakao Group, which is the largest-- 241 00:12:01,850 --> 00:12:04,730 the tech company in Korea. 242 00:12:04,730 --> 00:12:07,680 And basically, it's WhatsApp of Korea. 243 00:12:07,680 --> 00:12:12,200 So whether it be KakaoPay, or WeChat Pay, Alipay, Apple Pay, 244 00:12:12,200 --> 00:12:17,210 the key thing is it's very, very easy compared to the bank. 245 00:12:17,210 --> 00:12:19,610 Now, the banks are trying to catch up with the API Open 246 00:12:19,610 --> 00:12:21,320 Banking system and all that. 247 00:12:21,320 --> 00:12:24,250 But basically, the UI user interface 248 00:12:24,250 --> 00:12:27,030 is pretty easy to use. 249 00:12:27,030 --> 00:12:29,750 And if you have a problem, if you contact customer service, 250 00:12:29,750 --> 00:12:34,140 they'll contact you right away, versus banks 251 00:12:34,140 --> 00:12:36,140 make you wait 20 minutes, blah, blah, blah. 252 00:12:36,140 --> 00:12:39,040 Sad to say it as a banker, but it is what it is. 253 00:12:39,040 --> 00:12:41,457 GARY GENSLER: So I think that the key lesson you're saying 254 00:12:41,457 --> 00:12:44,240 is it's easier, it's got a user interface 255 00:12:44,240 --> 00:12:45,720 that's quite convenient. 256 00:12:45,720 --> 00:12:48,350 And while you didn't use the word, it's also ubiquitous. 257 00:12:48,350 --> 00:12:56,800 And so KakaoPay in Korea, LINE Pay in Japan and Taiwan, 258 00:12:56,800 --> 00:12:59,990 WeChat Pay, Alipay, M-Pesa really 259 00:12:59,990 --> 00:13:01,850 leapfrog the banking system. 260 00:13:01,850 --> 00:13:04,730 But there is a very established banking system in Korea. 261 00:13:04,730 --> 00:13:08,960 And yet still, KakaoPay leaped over. 262 00:13:08,960 --> 00:13:11,090 Not as much so in the US. 263 00:13:11,090 --> 00:13:12,860 I mean, yes, Google Wallet is there. 264 00:13:12,860 --> 00:13:15,650 Yes, Apple Pay is there, and they're significant. 265 00:13:15,650 --> 00:13:17,452 Less so for Facebook actually. 266 00:13:17,452 --> 00:13:19,160 AUDIENCE: I think that's because of the-- 267 00:13:19,160 --> 00:13:21,050 GARY GENSLER: [INAUDIBLE] we're weaker, 268 00:13:21,050 --> 00:13:26,210 in a sense, adoption, Google, Apple, Facebook in the US, 269 00:13:26,210 --> 00:13:30,595 than we find in Korea or China. 270 00:13:30,595 --> 00:13:31,970 AUDIENCE: But I think that's more 271 00:13:31,970 --> 00:13:33,820 because of-- not because of overbanking 272 00:13:33,820 --> 00:13:36,080 or the power of bank. 273 00:13:36,080 --> 00:13:39,200 It's more because of the telecom services, 274 00:13:39,200 --> 00:13:41,950 how reachable, approachable you are 275 00:13:41,950 --> 00:13:45,870 with the LTE speed or 3G speed you have here 276 00:13:45,870 --> 00:13:47,725 in big land of America. 277 00:13:47,725 --> 00:13:49,790 GARY GENSLER: So what Luke's raising 278 00:13:49,790 --> 00:13:53,600 is there's also facts on the ground about how developed 279 00:13:53,600 --> 00:13:56,780 the technology is, whether it was already at 3G or 4G 280 00:13:56,780 --> 00:14:00,660 or how developed the technology was on the ground. 281 00:14:00,660 --> 00:14:02,810 So it's not just about how developed the banking 282 00:14:02,810 --> 00:14:05,050 system is but also technology. 283 00:14:05,050 --> 00:14:07,010 Romain, we had somebody else that 284 00:14:07,010 --> 00:14:08,780 might take the disrupter side. 285 00:14:08,780 --> 00:14:09,480 Thank you, Luke. 286 00:14:09,480 --> 00:14:09,880 ROMAIN: Yes. 287 00:14:09,880 --> 00:14:10,672 GARY GENSLER: Good. 288 00:14:10,672 --> 00:14:11,594 ROMAIN: Yi, go ahead. 289 00:14:11,594 --> 00:14:12,520 AUDIENCE: Yeah. 290 00:14:12,520 --> 00:14:16,370 I just want to raise a trend, the loss of the payments 291 00:14:16,370 --> 00:14:16,900 this time. 292 00:14:16,900 --> 00:14:19,960 GARY GENSLER: And then, Yi, do we have a video? 293 00:14:19,960 --> 00:14:21,275 Do we have your face? 294 00:14:21,275 --> 00:14:22,170 AUDIENCE: Yeah. 295 00:14:22,170 --> 00:14:24,370 I'm just very ugly this morning, but-- 296 00:14:24,370 --> 00:14:26,731 GARY GENSLER: Oh, I'm sure you look fine. 297 00:14:26,731 --> 00:14:27,356 You look great. 298 00:14:27,356 --> 00:14:28,420 AUDIENCE: Yeah. 299 00:14:28,420 --> 00:14:34,240 So I just feel like there's a key trend between the-- 300 00:14:34,240 --> 00:14:38,390 even including the Big Tech payment firms as well as like 301 00:14:38,390 --> 00:14:41,530 the FinTech firm is social media. 302 00:14:41,530 --> 00:14:44,620 People want to pay via the social media. 303 00:14:44,620 --> 00:14:47,220 This happened between the Alipay, WeChat Pay, 304 00:14:47,220 --> 00:14:49,990 the KakaoPay, and also the Venmo. 305 00:14:49,990 --> 00:14:51,470 You can connect with friends. 306 00:14:51,470 --> 00:14:53,800 You can send stickers. 307 00:14:53,800 --> 00:14:56,320 You can send-- express your emotions. 308 00:14:56,320 --> 00:14:59,230 You can make your transactions available 309 00:14:59,230 --> 00:15:00,820 to your social network. 310 00:15:00,820 --> 00:15:04,700 And I think there's also similar to M-Pesa in Kenya. 311 00:15:04,700 --> 00:15:06,460 So I feel like this is a huge trend 312 00:15:06,460 --> 00:15:11,030 that people don't want to only make 313 00:15:11,030 --> 00:15:14,050 the transaction with banks, which is 314 00:15:14,050 --> 00:15:16,880 very separate and individual. 315 00:15:16,880 --> 00:15:21,110 They want to make transactions with their social network. 316 00:15:21,110 --> 00:15:22,030 GARY GENSLER: Yeah. 317 00:15:22,030 --> 00:15:22,960 I think that's right. 318 00:15:22,960 --> 00:15:26,860 I think that's probably a larger factor with regard 319 00:15:26,860 --> 00:15:29,650 to the Big Tech companies, but it is also true 320 00:15:29,650 --> 00:15:34,390 that it's a factor with the startups. 321 00:15:34,390 --> 00:15:38,800 And then lastly, a question is, do you 322 00:15:38,800 --> 00:15:41,740 think stable value coins, tokenized assets, 323 00:15:41,740 --> 00:15:46,030 even the initiative of Libra-- 324 00:15:46,030 --> 00:15:49,360 what will that do on this payment space? 325 00:15:49,360 --> 00:15:51,835 In essence, are they hype or a passing fad, 326 00:15:51,835 --> 00:15:53,460 or are they going to do something here? 327 00:15:58,410 --> 00:15:58,910 Romain? 328 00:15:58,910 --> 00:16:00,270 ROMAIN: Any opinions on this? 329 00:16:04,680 --> 00:16:05,750 I'm still waiting. 330 00:16:05,750 --> 00:16:06,590 GARY GENSLER: We're going to help out. 331 00:16:06,590 --> 00:16:07,590 We're going to help out. 332 00:16:07,590 --> 00:16:08,280 We have a poll. 333 00:16:08,280 --> 00:16:12,750 This is exactly when we can ask a poll to tease this out. 334 00:16:12,750 --> 00:16:16,160 You've done terrific, but no one answer, because now, Romain's 335 00:16:16,160 --> 00:16:18,190 going to pull up a poll. 336 00:16:18,190 --> 00:16:21,430 And this is more broadly-- this is about blockchain technology, 337 00:16:21,430 --> 00:16:25,430 but curious what everyone thinks here. 338 00:16:25,430 --> 00:16:27,243 ROMAIN: So you should now see a poll 339 00:16:27,243 --> 00:16:29,160 with three different questions on your screen. 340 00:16:32,088 --> 00:16:34,610 GARY GENSLER: This is a little bit more broadly as 341 00:16:34,610 --> 00:16:37,160 to whether financial firms will incorporate 342 00:16:37,160 --> 00:16:40,730 blockchain technology into their business models. 343 00:16:40,730 --> 00:16:44,780 As they've already incorporated AI and machine learning, 344 00:16:44,780 --> 00:16:47,810 as they've been incorporating open API, 345 00:16:47,810 --> 00:16:51,380 will this be a fundamental feature in the next 2, 346 00:16:51,380 --> 00:16:53,480 5, or 10 years, or not at all? 347 00:16:57,304 --> 00:17:00,220 ROMAIN: 20% of the class voted so far. 348 00:17:00,220 --> 00:17:01,810 Please check the window and vote. 349 00:17:07,390 --> 00:17:10,319 GARY GENSLER: Romain, I like your ability 350 00:17:10,319 --> 00:17:11,609 to pull in the votes. 351 00:17:11,609 --> 00:17:16,500 You might have a job to do come November 352 00:17:16,500 --> 00:17:18,780 in our next general election here. 353 00:17:23,091 --> 00:17:26,160 ROMAIN: Are you confident it's going to take place? 354 00:17:26,160 --> 00:17:27,030 GARY GENSLER: Yes. 355 00:17:27,030 --> 00:17:30,210 I am confident under our constitutional system 356 00:17:30,210 --> 00:17:31,815 that we will have an election. 357 00:17:31,815 --> 00:17:34,010 ROMAIN: Excellent. 358 00:17:34,010 --> 00:17:34,530 OK. 359 00:17:34,530 --> 00:17:37,170 We have 70% of the class that has voted. 360 00:17:37,170 --> 00:17:39,810 I'm going to let 5 more seconds-- 361 00:17:39,810 --> 00:17:41,520 GARY GENSLER: [INAUDIBLE] 10 seconds. 362 00:17:41,520 --> 00:17:42,460 ROMAIN: Yeah. 363 00:17:47,640 --> 00:17:49,680 And we reached 80%. 364 00:17:49,680 --> 00:17:52,205 Thank you, everyone, for sharing your thoughts. 365 00:17:52,205 --> 00:17:53,580 I'm sharing the results with you. 366 00:17:53,580 --> 00:17:55,790 You should now be able to see them. 367 00:17:55,790 --> 00:17:59,120 GARY GENSLER: So let's see, that the class tends 368 00:17:59,120 --> 00:18:04,150 to be optimistic that blockchain technology will be incorporated 369 00:18:04,150 --> 00:18:07,310 in, even though it might take 5 to 10 years. 370 00:18:07,310 --> 00:18:15,250 It looks like the mode is 5 years or 5 or 10 years. 371 00:18:15,250 --> 00:18:20,810 In terms of, what will it have will be-- 372 00:18:20,810 --> 00:18:24,560 beyond speculative digital store valuable Bitcoin 373 00:18:24,560 --> 00:18:28,716 become the currency of choice in some part of the economy, 374 00:18:28,716 --> 00:18:33,140 that generally 60-some% say no. 375 00:18:33,140 --> 00:18:35,270 And then, who is Satoshi Nakamoto? 376 00:18:35,270 --> 00:18:39,440 Well, that was just my one little question 377 00:18:39,440 --> 00:18:42,860 because, of course, we don't know who Satoshi Nakamoto is, 378 00:18:42,860 --> 00:18:47,900 this woman or man who wrote the eight-page white paper 379 00:18:47,900 --> 00:18:49,890 and put it out on the internet 12 years ago. 380 00:18:49,890 --> 00:18:51,530 But it looks like a third of you said 381 00:18:51,530 --> 00:18:53,900 maybe it was a foreign state actor, 382 00:18:53,900 --> 00:18:56,210 or 20% said US intelligence. 383 00:18:59,550 --> 00:19:00,050 OK. 384 00:19:00,050 --> 00:19:05,090 So let's get back to payments, I like this thought there. 385 00:19:05,090 --> 00:19:08,000 If you want to take that window, you have to, I think, 386 00:19:08,000 --> 00:19:10,410 get rid of the poll individually, 387 00:19:10,410 --> 00:19:12,130 which I'm about to do now-- 388 00:19:12,130 --> 00:19:13,690 ROMAIN: Yes, thank you. 389 00:19:13,690 --> 00:19:16,530 GARY GENSLER: --as well. 390 00:19:16,530 --> 00:19:20,040 So what is a payment system? 391 00:19:20,040 --> 00:19:23,450 Let's just dive in and talk about what it is. 392 00:19:23,450 --> 00:19:26,760 And it's been around a century. 393 00:19:26,760 --> 00:19:28,830 So it's not a new thing. 394 00:19:28,830 --> 00:19:32,760 But in a digital world, in a ledger-based world, 395 00:19:32,760 --> 00:19:37,170 it's a method to change a ledger. 396 00:19:37,170 --> 00:19:38,670 Now, this isn't an accounting class. 397 00:19:38,670 --> 00:19:40,420 I'm not going to bore you with accounting. 398 00:19:40,420 --> 00:19:42,480 But basically, if I'm moving money to you, 399 00:19:42,480 --> 00:19:47,910 somebody has to lower my account, credit my account. 400 00:19:47,910 --> 00:19:50,680 Remember assets or debits. 401 00:19:50,680 --> 00:19:53,970 So credit means it's going down, a little bit 402 00:19:53,970 --> 00:19:55,680 of accounting here. 403 00:19:55,680 --> 00:19:59,040 And then somebody else's account has to be debited. 404 00:19:59,040 --> 00:20:01,350 So one debit, one credit. 405 00:20:01,350 --> 00:20:04,590 One account goes down, one account goes up. 406 00:20:04,590 --> 00:20:09,630 It's also about authorizing those movements and then 407 00:20:09,630 --> 00:20:12,270 what's called clearing and final settlement. 408 00:20:12,270 --> 00:20:14,050 And earlier we discussed that-- 409 00:20:14,050 --> 00:20:15,960 and sometimes final settlement doesn't 410 00:20:15,960 --> 00:20:18,080 happen for a couple of days. 411 00:20:18,080 --> 00:20:21,660 And a long time ago, if you wrote a physical check, 412 00:20:21,660 --> 00:20:23,610 you might not have it settled, meaning 413 00:20:23,610 --> 00:20:29,310 having money in your account for five days or longer even. 414 00:20:29,310 --> 00:20:32,270 Now it's closer to two days. 415 00:20:32,270 --> 00:20:36,000 But it's basically amending and recording those ledgers. 416 00:20:36,000 --> 00:20:38,920 That's what it is in an accounting system. 417 00:20:38,920 --> 00:20:40,780 And so how did we do this? 418 00:20:40,780 --> 00:20:43,550 This is just some fun background, 419 00:20:43,550 --> 00:20:46,230 but Thomas Jefferson, the writer of the Declaration 420 00:20:46,230 --> 00:20:49,680 of Independence, actually you can find online a check 421 00:20:49,680 --> 00:20:50,890 he wrote to himself. 422 00:20:50,890 --> 00:20:53,370 I'm not quite sure why he did. 423 00:20:53,370 --> 00:20:56,420 This would have been the year after he was president, 424 00:20:56,420 --> 00:20:58,230 but he wrote a check to himself. 425 00:20:58,230 --> 00:21:02,020 So physical personal checks have been around a long time, 426 00:21:02,020 --> 00:21:04,540 but they are basically an instruction 427 00:21:04,540 --> 00:21:06,930 called negotiable orders of withdrawal, 428 00:21:06,930 --> 00:21:10,180 but an instruction to a bank to amend the ledger. 429 00:21:10,180 --> 00:21:13,590 Lower my ledger, and give me maybe paper cash, 430 00:21:13,590 --> 00:21:16,320 or lower my ledger, raise somebody else's. 431 00:21:18,925 --> 00:21:20,800 All of the sudden, the telegraph comes along. 432 00:21:20,800 --> 00:21:23,710 And a company, Western Union, which still exists-- 433 00:21:23,710 --> 00:21:28,210 Western Union comes along, and it's a telegram company. 434 00:21:28,210 --> 00:21:32,260 But they figure out how to send money by telegraph, 435 00:21:32,260 --> 00:21:34,450 the FinTech of its time. 436 00:21:34,450 --> 00:21:36,970 And yes, there were machines that looked 437 00:21:36,970 --> 00:21:38,710 like this, telex machines. 438 00:21:38,710 --> 00:21:43,000 These were ubiquitous across financial firms in the 1950s 439 00:21:43,000 --> 00:21:44,590 to the 1970s. 440 00:21:44,590 --> 00:21:47,830 I will admit I saw one or two of these when I was on Wall Street 441 00:21:47,830 --> 00:21:50,020 still in the 1980s. 442 00:21:50,020 --> 00:21:53,710 But a telex machine existed basically 443 00:21:53,710 --> 00:21:59,212 to send instructions on payments around to another bank. 444 00:21:59,212 --> 00:22:01,680 But what's it look like today? 445 00:22:01,680 --> 00:22:04,170 Well, first, the important thing is 446 00:22:04,170 --> 00:22:08,010 central banks sit in the middle of payment systems. 447 00:22:08,010 --> 00:22:12,180 This was not as true in terms of the-- 448 00:22:12,180 --> 00:22:15,900 I'm just trying to move a window out of the way. 449 00:22:15,900 --> 00:22:21,270 This was not as true in the physical coin and currency 450 00:22:21,270 --> 00:22:22,170 world. 451 00:22:22,170 --> 00:22:25,830 But here, this little chart puts the central bank at the top. 452 00:22:25,830 --> 00:22:29,370 And we have central banks around the globe, 180 different Fiat 453 00:22:29,370 --> 00:22:30,780 currencies. 454 00:22:30,780 --> 00:22:35,730 The central banks are central to commercial banks. 455 00:22:35,730 --> 00:22:41,490 And what's important to remember is our money system 456 00:22:41,490 --> 00:22:47,670 has moved on from being paper money to basically 457 00:22:47,670 --> 00:22:49,050 digital money. 458 00:22:49,050 --> 00:22:51,360 And so today in the US, if you think 459 00:22:51,360 --> 00:22:54,450 about the total stock of currency, 460 00:22:54,450 --> 00:22:57,690 the total stock of paper currency 461 00:22:57,690 --> 00:23:02,100 prior to this coronavirus crisis was about $1.8 trillion. 462 00:23:02,100 --> 00:23:05,610 It's actually gone up in the last month. 463 00:23:05,610 --> 00:23:08,310 It seems that there are people that want to take cash out 464 00:23:08,310 --> 00:23:13,300 of the bank, out of the ATM as a store of value 465 00:23:13,300 --> 00:23:14,200 around the globe. 466 00:23:14,200 --> 00:23:15,640 We're not using it. 467 00:23:15,640 --> 00:23:19,440 It's a disease vector, but it seems that the growth-- 468 00:23:19,440 --> 00:23:22,460 and it might be now $1.9 trillion. 469 00:23:22,460 --> 00:23:27,070 So it's gone up $100 billion or approximately. 470 00:23:27,070 --> 00:23:30,850 But the digital money, all the people's bank accounts, bank 471 00:23:30,850 --> 00:23:34,990 deposits, money market funds is multiples of that, $15 472 00:23:34,990 --> 00:23:37,300 or so trillion. 473 00:23:37,300 --> 00:23:41,350 So about 90% of the money in the US, 474 00:23:41,350 --> 00:23:44,680 depending upon your definition of money, is digital. 475 00:23:44,680 --> 00:23:47,950 And most of that digital money is commercial bank money. 476 00:23:47,950 --> 00:23:49,870 You and I, when we go into Starbucks, 477 00:23:49,870 --> 00:23:55,270 we're basically spending Bank America dollars, or Citibank 478 00:23:55,270 --> 00:23:58,660 dollars, or Wells Fargo dollars, or SunTrust dollars, 479 00:23:58,660 --> 00:24:00,580 or Community Bank dollar. 480 00:24:00,580 --> 00:24:03,740 That's what we're spending when we walk into Starbucks. 481 00:24:03,740 --> 00:24:07,010 It might have some implicit or explicit guarantee 482 00:24:07,010 --> 00:24:11,440 of a government here in the US, deposit insurance and the like. 483 00:24:11,440 --> 00:24:14,140 But we're in essence saying to Bank of America, please 484 00:24:14,140 --> 00:24:17,110 change my ledger balance and move 485 00:24:17,110 --> 00:24:19,570 something to somebody else's ledger balance, 486 00:24:19,570 --> 00:24:24,460 maybe a Community Bank for that local Starbucks. 487 00:24:24,460 --> 00:24:27,550 So in between has to be some electronic means, 488 00:24:27,550 --> 00:24:31,210 some payments system, a deferred net settlement system. 489 00:24:31,210 --> 00:24:34,390 And this chart lists the number of them. 490 00:24:34,390 --> 00:24:40,830 These payment systems are the domain of central banks. 491 00:24:40,830 --> 00:24:43,200 Some central banks actually run them, 492 00:24:43,200 --> 00:24:47,640 like the US Federal Reserve runs something called the Fedwire. 493 00:24:47,640 --> 00:24:55,180 But some are run by a consortium of the commercial banks. 494 00:24:55,180 --> 00:24:57,090 Some are private. 495 00:24:57,090 --> 00:24:59,920 And in some countries, they can even be for-profit. 496 00:24:59,920 --> 00:25:03,040 But all of them have some regulation 497 00:25:03,040 --> 00:25:04,160 from the central bank. 498 00:25:04,160 --> 00:25:07,150 So either the central bank owns them or the central bank 499 00:25:07,150 --> 00:25:08,900 oversees them. 500 00:25:08,900 --> 00:25:10,540 And usually then the commercial banks 501 00:25:10,540 --> 00:25:14,650 might run these single purpose payment 502 00:25:14,650 --> 00:25:16,210 systems around the globe. 503 00:25:16,210 --> 00:25:18,100 Some countries have multiple systems. 504 00:25:18,100 --> 00:25:21,340 The US, we have the Fed system, and we also 505 00:25:21,340 --> 00:25:24,410 have something called the automated clearing house. 506 00:25:24,410 --> 00:25:27,820 The clearing house was founded in the 1850s 507 00:25:27,820 --> 00:25:31,450 to give you a sense of its history, a long history. 508 00:25:31,450 --> 00:25:34,668 Questions, Romain, any? 509 00:25:34,668 --> 00:25:35,970 ROMAIN: None so far, Gary. 510 00:25:35,970 --> 00:25:36,310 GARY GENSLER: All right. 511 00:25:36,310 --> 00:25:38,030 So you'll see how this fits together. 512 00:25:38,030 --> 00:25:44,300 But let me say what the modern payment system looks like when 513 00:25:44,300 --> 00:25:49,250 I think of it in terms of you go into Starbucks, 514 00:25:49,250 --> 00:25:52,280 and you want to make a payment. 515 00:25:52,280 --> 00:25:53,700 You're the consumer. 516 00:25:53,700 --> 00:25:54,920 We're going to go across. 517 00:25:54,920 --> 00:25:56,240 You have an issuing bank. 518 00:25:56,240 --> 00:25:58,710 Let's use Bank of America just to say. 519 00:25:58,710 --> 00:26:01,340 And you're giving that bank, Bank of America, 520 00:26:01,340 --> 00:26:04,150 a payment instruction. 521 00:26:04,150 --> 00:26:06,700 Now, in an earlier day, you could write a physical check, 522 00:26:06,700 --> 00:26:08,430 like Thomas Jefferson's check. 523 00:26:08,430 --> 00:26:13,780 You could use a credit card, a debit card, some prepaid card. 524 00:26:13,780 --> 00:26:17,020 But you have to give some payment instruction. 525 00:26:17,020 --> 00:26:19,285 Even that QR code that you pass-- 526 00:26:19,285 --> 00:26:23,860 and we'll get to Alipay and WeChat Pay in a moment-- 527 00:26:23,860 --> 00:26:26,290 there is a payment instruction somewhere, 528 00:26:26,290 --> 00:26:28,710 digital payment instruction. 529 00:26:28,710 --> 00:26:31,840 And then at the heart in the middle is a network. 530 00:26:31,840 --> 00:26:35,290 Now, these payment service providers, PSPs, 531 00:26:35,290 --> 00:26:38,890 in the middle or networks could be associated with a credit 532 00:26:38,890 --> 00:26:42,370 card company, the Visa credit card network 533 00:26:42,370 --> 00:26:45,865 founded in the late 1950s by Bank of America, 534 00:26:45,865 --> 00:26:47,800 a California bank at the time. 535 00:26:47,800 --> 00:26:51,700 And it became ubiquitous by the late 1960s. 536 00:26:51,700 --> 00:26:56,920 Visa, Mastercard, UnionPay in China 537 00:26:56,920 --> 00:27:00,310 can both be credit cards and networks, 538 00:27:00,310 --> 00:27:03,610 or there could be a network that services the credit cards. 539 00:27:03,610 --> 00:27:07,250 But you need something in the middle 540 00:27:07,250 --> 00:27:09,890 because on the other side, there's tens of thousands 541 00:27:09,890 --> 00:27:14,900 of merchants or millions of merchants if you go to China. 542 00:27:14,900 --> 00:27:18,130 And on their side, they have another bank. 543 00:27:18,130 --> 00:27:22,870 But they need some way to access this network, a point of sale-- 544 00:27:22,870 --> 00:27:24,850 POS is point of sale-- 545 00:27:24,850 --> 00:27:28,570 or by phone or by some modern mechanism to access 546 00:27:28,570 --> 00:27:30,350 that network. 547 00:27:30,350 --> 00:27:34,430 And then the merchant on the other side. 548 00:27:34,430 --> 00:27:38,830 So you have consumer all the way to merchant. 549 00:27:38,830 --> 00:27:41,740 You have banks, the issuing bank. 550 00:27:41,740 --> 00:27:44,880 The issuing bank is that party that says, all right, 551 00:27:44,880 --> 00:27:48,250 I'm going to take a payment instruction. 552 00:27:48,250 --> 00:27:50,650 And you have the merchant bank on the other side 553 00:27:50,650 --> 00:27:53,310 or acquire a bank, sometimes it's called. 554 00:27:53,310 --> 00:27:56,860 But in the middle, there's some network. 555 00:27:56,860 --> 00:27:59,830 And it leads to a lot of concentration 556 00:27:59,830 --> 00:28:02,710 because there's such significant economic and network 557 00:28:02,710 --> 00:28:07,850 effects in a modern digital payment system. 558 00:28:07,850 --> 00:28:08,350 Questions. 559 00:28:08,350 --> 00:28:08,800 ROMAIN: Yes. 560 00:28:08,800 --> 00:28:10,633 We have questions from Carlos and then Jose. 561 00:28:10,633 --> 00:28:12,540 GARY GENSLER: Please. 562 00:28:12,540 --> 00:28:13,460 AUDIENCE: Hi. 563 00:28:13,460 --> 00:28:17,100 So I wanted to ask, I know in a lot of developing markets 564 00:28:17,100 --> 00:28:20,010 now making the-- since you mentioned the ACH, 565 00:28:20,010 --> 00:28:22,620 making it real-time is a big focus 566 00:28:22,620 --> 00:28:24,780 and using different technologies, right? 567 00:28:24,780 --> 00:28:29,160 So could you explain, I guess, the magnitude of difference 568 00:28:29,160 --> 00:28:33,120 that having a real-time ACH system versus not makes? 569 00:28:33,120 --> 00:28:36,900 GARY GENSLER: We're going to dive into this in about a half 570 00:28:36,900 --> 00:28:39,240 an hour, but let me try it very quickly, Carlos. 571 00:28:39,240 --> 00:28:41,577 And then remind me as we get back to it. 572 00:28:44,440 --> 00:28:49,000 As a merchant, there's a value to getting 573 00:28:49,000 --> 00:28:53,830 final settlement when you sell your coffee 574 00:28:53,830 --> 00:28:57,520 or sell your produce or a big machine, whatever 575 00:28:57,520 --> 00:28:59,660 you're selling. 576 00:28:59,660 --> 00:29:03,320 And there's the value because there's certainty, 577 00:29:03,320 --> 00:29:04,790 and there's also timing. 578 00:29:04,790 --> 00:29:07,640 So if you can get your cash on Monday rather than Wednesday, 579 00:29:07,640 --> 00:29:09,140 there's a value to it. 580 00:29:09,140 --> 00:29:12,830 Payment systems around the globe historically 581 00:29:12,830 --> 00:29:16,670 could give you final settlement if you used physical cash. 582 00:29:16,670 --> 00:29:20,720 And physical cash under the laws of the developed world 583 00:29:20,720 --> 00:29:24,980 became final settlement from the earliest days. 584 00:29:24,980 --> 00:29:27,740 There's a famous lawsuit from the Crawford case, 585 00:29:27,740 --> 00:29:30,770 if you ever want to look it up, about final settlement using 586 00:29:30,770 --> 00:29:31,670 physical cash. 587 00:29:31,670 --> 00:29:36,800 It's from the days of King George II, I think. 588 00:29:36,800 --> 00:29:41,690 But digitally, it was harder to get final settlement, 589 00:29:41,690 --> 00:29:43,830 and we still have delays. 590 00:29:43,830 --> 00:29:46,760 So what's happened in the last 25 591 00:29:46,760 --> 00:29:49,100 years is many nations have said, can we 592 00:29:49,100 --> 00:29:52,790 get to real-time settlement rather 593 00:29:52,790 --> 00:29:55,760 than delayed settlement of one day, two days, 594 00:29:55,760 --> 00:29:57,830 or, in the old days, five days? 595 00:29:57,830 --> 00:30:00,110 And trying to get to that real-time settlement 596 00:30:00,110 --> 00:30:01,130 has been a challenge. 597 00:30:01,130 --> 00:30:03,660 And we'll go through different countries in about a half 598 00:30:03,660 --> 00:30:04,160 an hour. 599 00:30:04,160 --> 00:30:05,450 Let me hold that. 600 00:30:05,450 --> 00:30:07,940 But a lot of countries, central banks around the globe 601 00:30:07,940 --> 00:30:10,130 are trying to get to real-time settlement. 602 00:30:10,130 --> 00:30:14,810 But the value is to the merchant that they have finality, 603 00:30:14,810 --> 00:30:18,120 that they can then use those funds in some way. 604 00:30:18,120 --> 00:30:21,210 And I can tell you, even when I was the chief financial officer 605 00:30:21,210 --> 00:30:24,530 of the Hillary Clinton campaign in 2016, 606 00:30:24,530 --> 00:30:25,490 we had to deal with it. 607 00:30:25,490 --> 00:30:28,760 We were the merchant on the right-hand side. 608 00:30:28,760 --> 00:30:30,680 We might get a donation. 609 00:30:30,680 --> 00:30:34,690 But until that donation actually settled, 610 00:30:34,690 --> 00:30:37,840 sometimes several days later, sometimes a day later-- 611 00:30:37,840 --> 00:30:40,120 it was different settlement cycles-- 612 00:30:40,120 --> 00:30:42,490 but until that settled, we couldn't actually 613 00:30:42,490 --> 00:30:46,630 use it to buy advertisements on, let's say, 614 00:30:46,630 --> 00:30:48,850 Facebook or Google Ads. 615 00:30:48,850 --> 00:30:51,790 So we needed-- even in that instance, 616 00:30:51,790 --> 00:30:54,580 particularly when you get down to the last six or 10 days 617 00:30:54,580 --> 00:30:58,150 before election time, those days matter. 618 00:30:58,150 --> 00:31:00,580 So I lived this as a-- 619 00:31:00,580 --> 00:31:02,296 other questions? 620 00:31:02,296 --> 00:31:04,895 ROMAIN: Yes, Jose? 621 00:31:04,895 --> 00:31:05,770 AUDIENCE: Yeah. 622 00:31:05,770 --> 00:31:08,400 So I'm not sure if this is a bit out of the scope of the class, 623 00:31:08,400 --> 00:31:10,560 but I've always been very curious on, 624 00:31:10,560 --> 00:31:14,540 why are checks so prevalent in the US? 625 00:31:14,540 --> 00:31:17,805 So, for example, in Spain, I've never used a check in my life. 626 00:31:17,805 --> 00:31:19,680 And I think it doesn't seem to be 627 00:31:19,680 --> 00:31:21,180 a very efficient way of transferring 628 00:31:21,180 --> 00:31:23,360 money versus, for example, a wire transfer. 629 00:31:23,360 --> 00:31:25,830 But in the US, it seems like banks sometimes charge more 630 00:31:25,830 --> 00:31:29,515 for wire transfers, and they require more security, 631 00:31:29,515 --> 00:31:31,890 passwords and things for a wire transfer than for checks. 632 00:31:31,890 --> 00:31:32,220 GARY GENSLER: So it's-- 633 00:31:32,220 --> 00:31:33,420 AUDIENCE: And I don't really understand why. 634 00:31:33,420 --> 00:31:36,060 GARY GENSLER: --very much part-- it's part of the pain points, 635 00:31:36,060 --> 00:31:40,770 and each country has a little bit different heritage. 636 00:31:40,770 --> 00:31:43,710 Of course, through the 1960s, physical checks 637 00:31:43,710 --> 00:31:48,240 were very a important dominant part of many payment systems. 638 00:31:48,240 --> 00:31:52,260 It was only in the 1990s that the US government 639 00:31:52,260 --> 00:31:56,910 said by an Act of Congress that the US government should 640 00:31:56,910 --> 00:32:02,400 move to electronic payment of social security 641 00:32:02,400 --> 00:32:06,190 and other important parts that government pays money. 642 00:32:06,190 --> 00:32:08,550 But even then, the adoption was supposed 643 00:32:08,550 --> 00:32:12,390 to be by the late 1990s, and there was various exemptions 644 00:32:12,390 --> 00:32:14,280 and so forth installed. 645 00:32:14,280 --> 00:32:16,080 And so we even see now, in the middle 646 00:32:16,080 --> 00:32:20,430 of the corona crisis, that you can read in today's newspapers 647 00:32:20,430 --> 00:32:23,400 that the $1,200 that's moving out 648 00:32:23,400 --> 00:32:28,980 of our tax authority, the IRS, to individuals, while the bulk 649 00:32:28,980 --> 00:32:30,270 of that's electronic-- 650 00:32:30,270 --> 00:32:32,070 80 or 90 million of those will be 651 00:32:32,070 --> 00:32:34,050 electronic-- it's estimated that there's still 652 00:32:34,050 --> 00:32:39,150 millions of people that will get physical checks in the US. 653 00:32:39,150 --> 00:32:42,240 So we still have this legacy that's probably 654 00:32:42,240 --> 00:32:43,500 a little bit more dominant. 655 00:32:43,500 --> 00:32:44,890 I'm going to show some statistics 656 00:32:44,890 --> 00:32:48,330 on check uses in a moment. 657 00:32:48,330 --> 00:32:49,770 Some of it's cultural. 658 00:32:49,770 --> 00:32:52,320 Some of it's actually commercial. 659 00:32:52,320 --> 00:32:54,890 At the middle of all this are banks. 660 00:32:54,890 --> 00:32:58,890 And in the middle is these networks in the middle. 661 00:32:58,890 --> 00:33:01,260 So it's not only cultural, but it's 662 00:33:01,260 --> 00:33:05,790 also sometimes hard for a merchant to say, 663 00:33:05,790 --> 00:33:07,290 I want to pay-- 664 00:33:07,290 --> 00:33:11,440 the merchant, remember, has to pay the 2 and 1/2% 665 00:33:11,440 --> 00:33:14,430 cost if you're going to be accepting Visa. 666 00:33:14,430 --> 00:33:19,110 So the cost of interchange fees, the cost the credit card 667 00:33:19,110 --> 00:33:24,504 companies are taking here in the US average around 2 and 3/4%, 668 00:33:24,504 --> 00:33:26,580 2.75%. 669 00:33:26,580 --> 00:33:28,710 So a lot of merchants still would prefer 670 00:33:28,710 --> 00:33:32,500 to take a check than that 2.75. 671 00:33:32,500 --> 00:33:34,770 You go over to China, and you say, well, 672 00:33:34,770 --> 00:33:37,290 within the Alipay, WeChat Pay systems, 673 00:33:37,290 --> 00:33:40,540 the costs are significantly lower. 674 00:33:40,540 --> 00:33:45,150 In fact, if you're all within service, within system, 675 00:33:45,150 --> 00:33:46,950 it's 0%. 676 00:33:46,950 --> 00:33:49,690 In India, I think it's around 10 basis points. 677 00:33:49,690 --> 00:33:52,800 So there's a lot of reasons a merchant might 678 00:33:52,800 --> 00:33:55,380 say, all right, I might prefer if you can give me 679 00:33:55,380 --> 00:33:57,850 an ACH or a check. 680 00:33:57,850 --> 00:34:00,630 So gives you a little background. 681 00:34:00,630 --> 00:34:03,300 But layered on top of this system 682 00:34:03,300 --> 00:34:06,480 is all these digital wallets, an invention really 683 00:34:06,480 --> 00:34:07,920 just of the last 20 years. 684 00:34:10,929 --> 00:34:15,130 And whether it's here in the US or overseas, a lot of these 685 00:34:15,130 --> 00:34:17,770 are related to Big Tech, not only, 686 00:34:17,770 --> 00:34:19,719 but a lot are related to Big Tech. 687 00:34:19,719 --> 00:34:24,550 And then the question is, will cryptocurrency play some role? 688 00:34:24,550 --> 00:34:31,179 Can crypto skip some of these inefficiencies and play a role? 689 00:34:31,179 --> 00:34:34,840 And so with that, some of the trends, just a quick look. 690 00:34:34,840 --> 00:34:37,630 And this goes to the-- this is from a report. 691 00:34:37,630 --> 00:34:40,929 Worldpay, which is a big payment company, 692 00:34:40,929 --> 00:34:43,690 puts out an annual report each year. 693 00:34:43,690 --> 00:34:46,570 And this is their most recent report that 694 00:34:46,570 --> 00:34:49,960 came out in February of 2020. 695 00:34:49,960 --> 00:34:52,330 But around the globe, mobile wallets 696 00:34:52,330 --> 00:34:56,622 are estimated to already be 42% of global e-commerce. 697 00:34:56,622 --> 00:34:57,580 Now, this is important. 698 00:34:57,580 --> 00:34:59,080 This is e-commerce. 699 00:34:59,080 --> 00:35:01,450 If you go off to the big wholesale payments 700 00:35:01,450 --> 00:35:04,220 or large value payments, different story. 701 00:35:04,220 --> 00:35:08,410 But this is electronic payments in the e-commerce space 702 00:35:08,410 --> 00:35:10,960 and then point of sale payments. 703 00:35:10,960 --> 00:35:15,370 Cash is still a pretty big piece of the worldwide global 704 00:35:15,370 --> 00:35:19,240 environment for point of sale, whereas e-commerce, 705 00:35:19,240 --> 00:35:23,170 basically online using your mobile phone or your laptop-- 706 00:35:23,170 --> 00:35:25,330 can't really use cash much-- 707 00:35:25,330 --> 00:35:29,560 cash on delivery is still 4 and 1/2%, though, interestingly. 708 00:35:29,560 --> 00:35:32,440 That's Worldpay's overall view, but they 709 00:35:32,440 --> 00:35:36,510 say credit card will decline, debit cards 710 00:35:36,510 --> 00:35:40,980 decline, bank transfers about even. 711 00:35:40,980 --> 00:35:42,570 And so what's increasing? 712 00:35:42,570 --> 00:35:44,070 Digital mobile wallets. 713 00:35:44,070 --> 00:35:47,340 And then, of course, at point of sale, cash declining. 714 00:35:47,340 --> 00:35:51,450 And there you will see increases in their estimation. 715 00:35:51,450 --> 00:35:53,650 But the US is a little different. 716 00:35:53,650 --> 00:35:57,210 The US or North America, which is the best statistics 717 00:35:57,210 --> 00:36:00,060 I can grab off the Worldpay, we still 718 00:36:00,060 --> 00:36:02,670 have a significant amount of credit card. 719 00:36:02,670 --> 00:36:03,690 Look at that. 720 00:36:03,690 --> 00:36:06,030 Credit card's still a third. 721 00:36:06,030 --> 00:36:09,040 Digital mobile wallet's 23%. 722 00:36:09,040 --> 00:36:10,690 And from a merchant's point of view, 723 00:36:10,690 --> 00:36:13,560 they would prefer actually to have something that 724 00:36:13,560 --> 00:36:16,170 takes the less bite out of it. 725 00:36:16,170 --> 00:36:19,410 Here in the US, debit cards by an Act 726 00:36:19,410 --> 00:36:23,980 of Congress after the 2008 crisis-- 727 00:36:23,980 --> 00:36:25,960 Carl Levin, a Senator from Illinois, 728 00:36:25,960 --> 00:36:30,010 said, we should make sure that debit cards do not-- 729 00:36:30,010 --> 00:36:35,230 and banks issuing debit cards can't charge more than the cost 730 00:36:35,230 --> 00:36:37,090 of actually issuing that debit card. 731 00:36:37,090 --> 00:36:39,070 And after a series of rule makings 732 00:36:39,070 --> 00:36:42,340 by the central bank, the Federal Reserve, that settled out. 733 00:36:42,340 --> 00:36:44,680 But debit cards are a little less costly 734 00:36:44,680 --> 00:36:49,450 than credit cards for the banks. 735 00:36:49,450 --> 00:36:52,780 And in terms of trends just in the US specifically, 736 00:36:52,780 --> 00:36:56,530 this is from the Federal Reserve in December of this past year. 737 00:36:56,530 --> 00:37:01,550 But this just gives you a sense, 20 year history. 738 00:37:01,550 --> 00:37:03,610 And this is overall payment trends. 739 00:37:03,610 --> 00:37:05,090 This is not just e-commerce. 740 00:37:05,090 --> 00:37:08,160 Checks were 45% 20 years ago. 741 00:37:08,160 --> 00:37:10,730 And you can see that line just decline, decline, decline. 742 00:37:10,730 --> 00:37:13,250 So to Jose's point, we're not quite there yet. 743 00:37:13,250 --> 00:37:17,330 Spain might be down to 5% on checks or something, 744 00:37:17,330 --> 00:37:19,740 but you can see where we are. 745 00:37:19,740 --> 00:37:23,690 And this is the number of payment instructions. 746 00:37:23,690 --> 00:37:25,770 This is dollar amounts. 747 00:37:25,770 --> 00:37:29,150 So in terms of dollars, checks only went-- 748 00:37:31,690 --> 00:37:36,640 lost this parade eight years ago. 749 00:37:36,640 --> 00:37:38,280 So one is volume of payments. 750 00:37:38,280 --> 00:37:41,610 One is the actual checks and so forth. 751 00:37:41,610 --> 00:37:44,490 And large value payments are included here. 752 00:37:44,490 --> 00:37:47,010 The other charts did not. 753 00:37:47,010 --> 00:37:50,580 And just one last thing in terms of the e-commerce side of it 754 00:37:50,580 --> 00:37:52,860 and card payments, this just gives you 755 00:37:52,860 --> 00:37:57,120 a sense of remote and in-person, that I 756 00:37:57,120 --> 00:37:59,580 like this right-hand chart. 757 00:37:59,580 --> 00:38:02,160 But the trillions of dollars we move, 758 00:38:02,160 --> 00:38:05,520 we are moving on our physical cards 759 00:38:05,520 --> 00:38:09,030 more remote than we are in person. 760 00:38:09,030 --> 00:38:11,030 This gives an opportunity to startups. 761 00:38:11,030 --> 00:38:17,180 Startups can say, wait, Visa, Mastercard in many countries 762 00:38:17,180 --> 00:38:20,055 has this 2 and 3/4%. 763 00:38:20,055 --> 00:38:22,740 Maybe we can get inside that pricing. 764 00:38:22,740 --> 00:38:25,020 Maybe we can get inside especially 765 00:38:25,020 --> 00:38:28,290 as we move from in-person to remote payments 766 00:38:28,290 --> 00:38:31,480 as an opportunity. 767 00:38:31,480 --> 00:38:35,233 So that brings us to a list of pain points. 768 00:38:35,233 --> 00:38:35,900 What point are-- 769 00:38:35,900 --> 00:38:36,250 ROMAIN: Gary? 770 00:38:36,250 --> 00:38:37,667 GARY GENSLER: --these pain points? 771 00:38:37,667 --> 00:38:38,421 ROMAIN: Perhaps-- 772 00:38:38,421 --> 00:38:39,630 GARY GENSLER: Please, Romain. 773 00:38:39,630 --> 00:38:41,070 ROMAIN: Actually, before we move there, 774 00:38:41,070 --> 00:38:42,210 I think Hassan had a question. 775 00:38:42,210 --> 00:38:43,470 GARY GENSLER: Please, Hassan. 776 00:38:48,640 --> 00:38:51,472 Hassan, you might need to take your mute off. 777 00:38:51,472 --> 00:38:54,100 AUDIENCE: Yeah. 778 00:38:54,100 --> 00:38:56,810 About payments, so, for instance, 779 00:38:56,810 --> 00:39:01,750 you could see we have the bank transfers and e-wallets. 780 00:39:01,750 --> 00:39:05,200 So my question is, for instance, I 781 00:39:05,200 --> 00:39:08,860 was trying to pay my landlord while I was in Bahrain, 782 00:39:08,860 --> 00:39:12,250 because I still have my apartment in Cambridge. 783 00:39:12,250 --> 00:39:16,390 And if the amount exceeds a certain number, 784 00:39:16,390 --> 00:39:21,050 they have to send me a message, which can be annoying 785 00:39:21,050 --> 00:39:24,740 because if my mobile isn't working, 786 00:39:24,740 --> 00:39:26,870 they would not send me an email. 787 00:39:26,870 --> 00:39:31,400 So is it like the system, the whole system, 788 00:39:31,400 --> 00:39:35,660 the whole payment system supports bank transfers 789 00:39:35,660 --> 00:39:39,050 when it comes to big payments and small transfers 790 00:39:39,050 --> 00:39:44,656 when it comes to e-wallets and mobile payments? 791 00:39:44,656 --> 00:39:48,600 GARY GENSLER: Well, I'm not sure of your question. 792 00:39:48,600 --> 00:39:54,240 It is true that ultimately sitting in the midst of this, 793 00:39:54,240 --> 00:39:57,000 with the risk of going back a bunch of slides, 794 00:39:57,000 --> 00:39:59,370 there has to be something-- 795 00:39:59,370 --> 00:40:01,140 well, I'll just stay here. 796 00:40:01,140 --> 00:40:06,480 There has to be an instruction that moves it from an issuing 797 00:40:06,480 --> 00:40:08,170 bank to an acquiring bank. 798 00:40:08,170 --> 00:40:11,430 So your landlord would be the merchant here. 799 00:40:11,430 --> 00:40:16,080 Your landlord's bank has to get an instruction somehow. 800 00:40:16,080 --> 00:40:19,375 So even if it's in this orange box, the digital wallets 801 00:40:19,375 --> 00:40:24,440 at the top, you have to send an instruction somewhere 802 00:40:24,440 --> 00:40:29,090 that takes funds from your bank, which is called an issuing 803 00:40:29,090 --> 00:40:35,060 bank, and somehow moves those funds to the landlord's bank. 804 00:40:35,060 --> 00:40:41,030 And what you're finding is that your merchant 805 00:40:41,030 --> 00:40:44,900 bank, the acquiring bank on behalf of your landlord, 806 00:40:44,900 --> 00:40:47,540 is saying, listen, if it's greater than a certain dollar 807 00:40:47,540 --> 00:40:51,500 amount, we need a second security check. 808 00:40:51,500 --> 00:40:58,170 And the mobile wallet companies basically inserted that check, 809 00:40:58,170 --> 00:41:00,305 I think is what you're telling me. 810 00:41:00,305 --> 00:41:01,930 You could have that same similar thing. 811 00:41:01,930 --> 00:41:03,120 Venmo has a limit. 812 00:41:03,120 --> 00:41:06,330 I don't think you could move $1 million on Venmo, for instance. 813 00:41:06,330 --> 00:41:11,640 Venmo is a PayPal subsidiary, and Venmo is actually-- 814 00:41:11,640 --> 00:41:13,620 avoids those credit card fees. 815 00:41:13,620 --> 00:41:16,530 Venmo is a form of account to account 816 00:41:16,530 --> 00:41:19,800 transfer, your account at your bank 817 00:41:19,800 --> 00:41:21,150 to somebody else's account. 818 00:41:21,150 --> 00:41:25,170 And account to account transfers are a very important feature 819 00:41:25,170 --> 00:41:26,730 of the competition. 820 00:41:26,730 --> 00:41:28,980 But still, Venmo is not going to move $1 million 821 00:41:28,980 --> 00:41:33,070 without having additional security checks. 822 00:41:33,070 --> 00:41:37,655 So that's probably what's happening here, I fear to say. 823 00:41:37,655 --> 00:41:38,430 AUDIENCE: Yeah. 824 00:41:38,430 --> 00:41:43,620 I, mean my point is it's a bit annoying because I would-- 825 00:41:43,620 --> 00:41:47,580 for instance, because my mobile is a prepaid mobile. 826 00:41:47,580 --> 00:41:50,310 So I could not receive a message from my bank. 827 00:41:50,310 --> 00:41:54,360 GARY GENSLER: Oh, well, I can't solve that for you here, 828 00:41:54,360 --> 00:41:57,030 but I think that's part of what you're saying. 829 00:41:57,030 --> 00:42:02,850 That's part of these pain points is that fraud. 830 00:42:02,850 --> 00:42:07,260 Basically, when you think of all the pain points, 831 00:42:07,260 --> 00:42:14,250 you and I, as users, we want something that's easy to use, 832 00:42:14,250 --> 00:42:15,540 nearly costless. 833 00:42:15,540 --> 00:42:17,250 We're willing to spend something, 834 00:42:17,250 --> 00:42:20,670 but we'd prefer not to spend 2% to 3% of our purchases 835 00:42:20,670 --> 00:42:22,650 on the payment system. 836 00:42:22,650 --> 00:42:26,310 And we want it not to have complexity, 837 00:42:26,310 --> 00:42:30,210 the cross-border payments that we talked about earlier. 838 00:42:30,210 --> 00:42:32,880 We kind of know that they're tracking us, 839 00:42:32,880 --> 00:42:35,130 they're getting our data, but we're a little concerned 840 00:42:35,130 --> 00:42:36,940 about data privacy. 841 00:42:36,940 --> 00:42:41,370 And so you're capturing one of the pain points around fraud. 842 00:42:41,370 --> 00:42:43,510 And that's from the merchant side. 843 00:42:43,510 --> 00:42:45,150 The merchant doesn't want the fraud, 844 00:42:45,150 --> 00:42:46,500 but also you don't want it. 845 00:42:46,500 --> 00:42:50,460 You don't want somebody to be able to tap into your account 846 00:42:50,460 --> 00:42:52,110 and move your money out. 847 00:42:52,110 --> 00:42:55,080 And the pain point sounds like the fraud detection 848 00:42:55,080 --> 00:42:59,070 system that your bank is using is requiring your mobile phone 849 00:42:59,070 --> 00:43:02,220 in a way that's friction. 850 00:43:02,220 --> 00:43:04,650 It's frankly friction. 851 00:43:04,650 --> 00:43:06,570 It's similar to a pain point-- 852 00:43:06,570 --> 00:43:09,810 it used to be until very recently, 853 00:43:09,810 --> 00:43:15,780 if you traveled overseas, you were better to tell your bank 854 00:43:15,780 --> 00:43:19,620 that you were going to be using your credit card in Spain, 855 00:43:19,620 --> 00:43:23,790 or France, or Asia, or Bahrain. 856 00:43:23,790 --> 00:43:27,890 But now no longer because now they have-- 857 00:43:27,890 --> 00:43:30,270 they use our mobile phones to say-- 858 00:43:30,270 --> 00:43:31,500 they track us. 859 00:43:31,500 --> 00:43:35,340 They know that we're in Spain, or France, or Asia, or Bahrain. 860 00:43:35,340 --> 00:43:39,400 That's part of the reason we don't need to call any longer, 861 00:43:39,400 --> 00:43:42,720 but that's part of their fraud detection programs. 862 00:43:42,720 --> 00:43:46,710 Let me keep moving on if I can. 863 00:43:46,710 --> 00:43:48,630 So there's a series of pain points. 864 00:43:48,630 --> 00:43:51,990 And I don't necessarily have all of them, but these are also-- 865 00:43:51,990 --> 00:43:55,270 you can think of them as opportunities. 866 00:43:55,270 --> 00:43:58,350 These are opportunities for disruptors to say, 867 00:43:58,350 --> 00:44:01,230 maybe we can provide a better service. 868 00:44:01,230 --> 00:44:06,480 Maybe we can provide something at a lower 869 00:44:06,480 --> 00:44:11,370 cost and more inclusive. 870 00:44:11,370 --> 00:44:16,090 These are the possibilities for any startup in a sense. 871 00:44:16,090 --> 00:44:19,810 So I talked a little about the cost. 872 00:44:19,810 --> 00:44:23,790 This is a couple of years ago, but this Bloomberg article 873 00:44:23,790 --> 00:44:27,970 broke down the cost, and I find it very helpful. 874 00:44:27,970 --> 00:44:30,250 Often in the US and in Europe, we think, 875 00:44:30,250 --> 00:44:33,880 all right, I pay $100 for something. 876 00:44:33,880 --> 00:44:35,710 You think you paid $100 for it. 877 00:44:35,710 --> 00:44:39,850 Well, actually you paid $97 roughly for it, 878 00:44:39,850 --> 00:44:43,660 and $2.75 went to the payment system. 879 00:44:43,660 --> 00:44:47,350 And that $2.75 that went to the payment system, most of it 880 00:44:47,350 --> 00:44:49,670 goes to what's called the issuing bank. 881 00:44:49,670 --> 00:44:54,100 And again, the issuing bank is the purchaser. 882 00:44:54,100 --> 00:44:57,390 The acquiring bank is the merchant. 883 00:44:57,390 --> 00:45:01,970 So that merchant bank is only getting $0.19 on average 884 00:45:01,970 --> 00:45:06,880 two years ago, the acquiring bank, Bank of America, 885 00:45:06,880 --> 00:45:09,550 or whomever issued the credit card. 886 00:45:09,550 --> 00:45:12,100 So the dominant part of the economics 887 00:45:12,100 --> 00:45:14,660 here is on the credit card side. 888 00:45:14,660 --> 00:45:19,090 There's seven big companies in America being the big four 889 00:45:19,090 --> 00:45:23,140 banks of Bank of America, and Wells Fargo, and Citi, 890 00:45:23,140 --> 00:45:25,180 and Chase. 891 00:45:25,180 --> 00:45:29,140 But then Cap One is a very big credit card bank. 892 00:45:29,140 --> 00:45:32,140 And then, of course, American Express and Discover 893 00:45:32,140 --> 00:45:33,670 and the like. 894 00:45:33,670 --> 00:45:37,210 Those seven big banks are the big issuing banks. 895 00:45:37,210 --> 00:45:42,670 But community banks, even smaller banks across the land, 896 00:45:42,670 --> 00:45:47,440 will issue credit cards, and they get that roughly $2 897 00:45:47,440 --> 00:45:50,542 out of $100 purchase. 898 00:45:50,542 --> 00:45:51,750 Now, what do they do with it? 899 00:45:51,750 --> 00:45:54,680 Part of it is the rewards program. 900 00:45:54,680 --> 00:45:58,670 And wrapped up inside of all this is an incentive system 901 00:45:58,670 --> 00:46:04,430 that issuing banks are using part of that $2.20 on average, 902 00:46:04,430 --> 00:46:07,160 on average about $1-- 903 00:46:07,160 --> 00:46:10,490 I think the national average recently was $1.06. 904 00:46:10,490 --> 00:46:13,550 If you take all the different rewards programs, 905 00:46:13,550 --> 00:46:15,430 they come back. 906 00:46:15,430 --> 00:46:17,510 So you buy something for $100. 907 00:46:17,510 --> 00:46:21,120 $2.20 goes to your issuing bank. 908 00:46:21,120 --> 00:46:25,370 $1 might come back to you as a reward. 909 00:46:25,370 --> 00:46:27,940 And it makes behavioral sciences important 910 00:46:27,940 --> 00:46:30,010 and makes this stuff sticky. 911 00:46:30,010 --> 00:46:35,540 It makes us loyal to our cards in a way that pure economics, 912 00:46:35,540 --> 00:46:37,510 you would think, that it would be easier 913 00:46:37,510 --> 00:46:39,460 to disrupt this space. 914 00:46:39,460 --> 00:46:42,120 So I wouldn't put aside some of these reward programs 915 00:46:42,120 --> 00:46:43,870 when you're thinking about, all right, I'm 916 00:46:43,870 --> 00:46:44,920 going to be a disrupter. 917 00:46:44,920 --> 00:46:47,860 I'm going to break into the payment space. 918 00:46:47,860 --> 00:46:52,640 The credit card companies, they have a point of view on this, 919 00:46:52,640 --> 00:46:53,140 too. 920 00:46:53,140 --> 00:46:56,770 And they're going to want to protect their market share. 921 00:46:56,770 --> 00:46:58,635 Questions, Romain? 922 00:46:58,635 --> 00:46:59,260 Anything there? 923 00:46:59,260 --> 00:47:00,882 ROMAIN: Let's give it a few seconds 924 00:47:00,882 --> 00:47:02,840 just in case someone wants to raise their hand. 925 00:47:05,440 --> 00:47:05,940 Yeah. 926 00:47:05,940 --> 00:47:06,230 GARY GENSLER: I'm going to-- 927 00:47:06,230 --> 00:47:07,500 ROMAIN: We have Luno. 928 00:47:07,500 --> 00:47:08,770 Luno has a question. 929 00:47:08,770 --> 00:47:09,950 GARY GENSLER: Sure. 930 00:47:09,950 --> 00:47:12,935 And then I'm going to do an overview of the cost. 931 00:47:12,935 --> 00:47:13,435 Luno? 932 00:47:13,435 --> 00:47:15,980 AUDIENCE: It's actually not a question. 933 00:47:15,980 --> 00:47:19,010 It's just in Europe, it's a bit different. 934 00:47:19,010 --> 00:47:21,950 The interchange fee is actually capped 935 00:47:21,950 --> 00:47:27,290 to 0.3% if it's a credit card and 0.2% if it's a debit card. 936 00:47:27,290 --> 00:47:29,520 I'm not sure about the numbers. 937 00:47:29,520 --> 00:47:32,480 And so I think this has interesting spillovers in terms 938 00:47:32,480 --> 00:47:36,170 of rewards programs in Europe are definitely not 939 00:47:36,170 --> 00:47:37,880 as good as in the US. 940 00:47:37,880 --> 00:47:40,420 And then you can also see that the credit card 941 00:47:40,420 --> 00:47:43,550 usage is much smaller. 942 00:47:43,550 --> 00:47:45,510 And that might be one of the reasons why. 943 00:47:45,510 --> 00:47:46,218 GARY GENSLER: No. 944 00:47:46,218 --> 00:47:50,470 It's a very good point because around the globe, 945 00:47:50,470 --> 00:47:54,010 the official sector inserts them self from time to time. 946 00:47:54,010 --> 00:47:58,600 And because of the natural network effects-- 947 00:47:58,600 --> 00:48:00,640 remember that chart-- right in the middle, 948 00:48:00,640 --> 00:48:02,860 there's powerful, powerful economics 949 00:48:02,860 --> 00:48:04,620 around network effects. 950 00:48:04,620 --> 00:48:05,800 Think of plumbing again. 951 00:48:05,800 --> 00:48:08,350 We only have one-- 952 00:48:08,350 --> 00:48:10,630 we usually only have one electric company, 953 00:48:10,630 --> 00:48:13,870 one waterworks company per city because 954 00:48:13,870 --> 00:48:16,630 of that incredible network effect of the plumbing. 955 00:48:16,630 --> 00:48:18,350 Similar here. 956 00:48:18,350 --> 00:48:20,440 And so what some official sectors have said 957 00:48:20,440 --> 00:48:24,460 is, so now we have to put a limit on what can be charged. 958 00:48:24,460 --> 00:48:26,770 In the US we did do that. 959 00:48:26,770 --> 00:48:31,700 Senator-- did I say Levin? 960 00:48:31,700 --> 00:48:34,100 It was Senator Durbin actually of Illinois. 961 00:48:34,100 --> 00:48:35,120 I'm sorry. 962 00:48:35,120 --> 00:48:38,990 But Senator Durbin, the Durbin Amendment, we 963 00:48:38,990 --> 00:48:40,460 did that in debit cards. 964 00:48:40,460 --> 00:48:43,520 But credit cards, not the case. 965 00:48:43,520 --> 00:48:45,140 And then in other countries, like 966 00:48:45,140 --> 00:48:49,880 in Asia, which really Alipay and WeChat Pay and others 967 00:48:49,880 --> 00:48:50,720 leapfrogged. 968 00:48:50,720 --> 00:48:53,520 And then the official sector is involved in a different way. 969 00:48:53,520 --> 00:48:55,250 So you're absolutely right. 970 00:48:55,250 --> 00:48:57,380 So rewards programs would be lower. 971 00:48:57,380 --> 00:48:59,930 Credit card users might be lower. 972 00:48:59,930 --> 00:49:02,210 If you're going to be starting something, 973 00:49:02,210 --> 00:49:05,480 you have to think of those separate dynamics country 974 00:49:05,480 --> 00:49:08,450 by country, very much so. 975 00:49:08,450 --> 00:49:13,250 The worldwide-- an interesting report, and this 976 00:49:13,250 --> 00:49:18,410 is from a McKinsey report from September of last year. 977 00:49:18,410 --> 00:49:23,570 McKinsey puts out an annual report of payments. 978 00:49:23,570 --> 00:49:25,190 If you're interested in the area, 979 00:49:25,190 --> 00:49:26,540 I didn't assign it as a reading. 980 00:49:26,540 --> 00:49:29,420 It's a remarkable report once a year. 981 00:49:29,420 --> 00:49:32,780 But this is one chart that I pulled from this McKinsey 982 00:49:32,780 --> 00:49:33,740 report. 983 00:49:33,740 --> 00:49:36,950 The worldwide revenues in the payment system 984 00:49:36,950 --> 00:49:41,825 add up to about $1.8 trillion, $1.9 trillion. 985 00:49:41,825 --> 00:49:46,130 Now, I should caution, McKinsey includes what they 986 00:49:46,130 --> 00:49:49,040 call account-related liquidity. 987 00:49:49,040 --> 00:49:53,270 And this quote, "account-related liquidity," 988 00:49:53,270 --> 00:49:59,010 is earning interest for the banks on your credit card 989 00:49:59,010 --> 00:50:00,300 balances. 990 00:50:00,300 --> 00:50:04,020 Earlier World Bank statistics would say the payment system 991 00:50:04,020 --> 00:50:06,300 around the globe takes about a 1/2 a percent 992 00:50:06,300 --> 00:50:08,280 to 1% of the economy. 993 00:50:08,280 --> 00:50:11,310 The worldwide economy before the corona crisis 994 00:50:11,310 --> 00:50:13,620 was hovering just short of $100 trillion, 995 00:50:13,620 --> 00:50:16,770 the US economy about $22 trillion, 996 00:50:16,770 --> 00:50:20,260 the world economy about $95 trillion. 997 00:50:20,260 --> 00:50:24,750 But of that $95 trillion, we've probably been spending, 998 00:50:24,750 --> 00:50:30,370 McKinsey would say, nearly 2% on our payment system. 999 00:50:30,370 --> 00:50:31,830 World Bank would say this-- 1000 00:50:31,830 --> 00:50:34,930 the figure is more like a quarter to a half of that 1001 00:50:34,930 --> 00:50:38,410 because McKinsey includes all the interest that we're 1002 00:50:38,410 --> 00:50:40,250 paying on our balances. 1003 00:50:40,250 --> 00:50:42,140 So this is the opportunity. 1004 00:50:42,140 --> 00:50:43,270 This is the opportunity. 1005 00:50:43,270 --> 00:50:46,600 If you're saying, aha, what did Stripe, what did TransferWise, 1006 00:50:46,600 --> 00:50:48,910 what did Plaid see? 1007 00:50:48,910 --> 00:50:53,170 This is anywhere from a half a trillion dollars at the low end 1008 00:50:53,170 --> 00:50:56,190 to $2 trillion at the high end. 1009 00:50:56,190 --> 00:50:59,530 1/2% to 2% of the world economy relates 1010 00:50:59,530 --> 00:51:04,240 to just moving these digital payments back and forth 1011 00:51:04,240 --> 00:51:07,030 plus the account-related activity 1012 00:51:07,030 --> 00:51:10,630 liquidity, the starting, the lending 1013 00:51:10,630 --> 00:51:13,440 balances on top of that. 1014 00:51:13,440 --> 00:51:15,610 Romain, I see the chat room seems 1015 00:51:15,610 --> 00:51:17,940 to be lighting up quite a bit. 1016 00:51:17,940 --> 00:51:20,215 Are there questions there, or do I keep going? 1017 00:51:20,215 --> 00:51:21,340 ROMAIN: You can keep going. 1018 00:51:21,340 --> 00:51:24,100 It's mainly students sharing additional resources. 1019 00:51:24,100 --> 00:51:26,230 GARY GENSLER: All right, great. 1020 00:51:26,230 --> 00:51:28,460 So I was asked earlier-- 1021 00:51:28,460 --> 00:51:32,320 I'm sorry, I can't remember now who asked it. 1022 00:51:32,320 --> 00:51:33,160 Was it Carlos? 1023 00:51:33,160 --> 00:51:37,690 But I apologize-- about real-time gross settlements. 1024 00:51:37,690 --> 00:51:41,890 Real-time gross settlements is this conceptual framework 1025 00:51:41,890 --> 00:51:44,400 that we are all familiar with in one way or the other. 1026 00:51:44,400 --> 00:51:53,180 Can I move a digital instruction to move money 1027 00:51:53,180 --> 00:51:58,400 and to have the settlement be relatively fast, 1028 00:51:58,400 --> 00:52:01,730 real-time gross settlement? 1029 00:52:01,730 --> 00:52:03,090 What's the word "gross" mean? 1030 00:52:03,090 --> 00:52:05,750 It means that we're not net settling. 1031 00:52:05,750 --> 00:52:09,290 If you run a settlement system with millions of checks coming 1032 00:52:09,290 --> 00:52:13,670 into a warehouse-- and that's literally how the system 1033 00:52:13,670 --> 00:52:18,080 of check clearing used to work in New York and elsewhere 1034 00:52:18,080 --> 00:52:20,840 in this country-- 1035 00:52:20,840 --> 00:52:22,650 you can actually net settle. 1036 00:52:22,650 --> 00:52:25,940 You can say, well, there's these checks coming in 1037 00:52:25,940 --> 00:52:29,540 from Bank of America to Wells Fargo and these checks 1038 00:52:29,540 --> 00:52:31,640 from Wells Fargo to Bank of America. 1039 00:52:31,640 --> 00:52:35,690 Let's net these settlements off against each other. 1040 00:52:35,690 --> 00:52:37,700 But if you do something in real-time, 1041 00:52:37,700 --> 00:52:39,680 if you do it almost instantaneous, 1042 00:52:39,680 --> 00:52:40,670 it has to be gross. 1043 00:52:40,670 --> 00:52:43,310 You can't net the payment instructions 1044 00:52:43,310 --> 00:52:45,470 between the various banks. 1045 00:52:45,470 --> 00:52:49,430 Real-time gross settlement is used for large value payments 1046 00:52:49,430 --> 00:52:51,080 and has been used for large value 1047 00:52:51,080 --> 00:52:52,780 payments for quite some time. 1048 00:52:52,780 --> 00:52:58,700 In fact, the early large value model is the Fedwire, 1970. 1049 00:52:58,700 --> 00:53:01,820 That's 50 years of technology that we've 1050 00:53:01,820 --> 00:53:04,580 had the Fedwire, meaning I can do 1051 00:53:04,580 --> 00:53:06,760 what's called a wire instruction. 1052 00:53:06,760 --> 00:53:09,950 But in the United Kingdom, we had CHAPS. 1053 00:53:09,950 --> 00:53:13,700 And in China-- 1054 00:53:13,700 --> 00:53:19,700 I'm going to mispronounce it, but C-N-A-P-S high-value 1055 00:53:19,700 --> 00:53:22,250 payment system, the Eurozone TARGET. 1056 00:53:22,250 --> 00:53:26,300 2002 is actually when the Eurozone was created. 1057 00:53:26,300 --> 00:53:29,120 So we've had large value models. 1058 00:53:29,120 --> 00:53:31,730 Coupled with that is something called SWIFT. 1059 00:53:31,730 --> 00:53:34,400 SWIFT is just a messaging company. 1060 00:53:34,400 --> 00:53:38,210 SWIFT, the Society for Worldwide Interbank Financial 1061 00:53:38,210 --> 00:53:41,630 Telecommunications, I think, it's 1062 00:53:41,630 --> 00:53:46,730 basically to send messages to facilitate these interbank. 1063 00:53:46,730 --> 00:53:49,310 The question in the last 10 to 15 years 1064 00:53:49,310 --> 00:53:53,045 is, can we move from large value to just 1065 00:53:53,045 --> 00:53:58,640 you and me, in essence, what we think we're doing with Venmo? 1066 00:53:58,640 --> 00:54:03,320 Can I move you money rapidly instantaneously? 1067 00:54:03,320 --> 00:54:05,975 And some countries have actually moved forward. 1068 00:54:08,660 --> 00:54:11,010 It's called real-time retail. 1069 00:54:11,010 --> 00:54:14,450 And the important thing is it's retail instant payments. 1070 00:54:14,450 --> 00:54:18,610 Now, a lot of people don't call it real-time retail instant. 1071 00:54:18,610 --> 00:54:21,150 A lot of people would just call it 24 hours a day, 1072 00:54:21,150 --> 00:54:25,430 7 days a week, or some people might call it RTGS. 1073 00:54:25,430 --> 00:54:27,740 But fundamentally, the question is, can we 1074 00:54:27,740 --> 00:54:34,660 do what the Fed the Reserve of the US did 50 years ago 1075 00:54:34,660 --> 00:54:39,040 and the United Kingdom did nearly 40 years ago? 1076 00:54:39,040 --> 00:54:41,900 Can we do that for the retail public, 1077 00:54:41,900 --> 00:54:44,530 and can we do it 24 hours a day, 7 days 1078 00:54:44,530 --> 00:54:46,940 a week, every day of the year? 1079 00:54:46,940 --> 00:54:49,720 And the answer is yes, the technology exists. 1080 00:54:49,720 --> 00:54:52,450 I'm listing here seven or eight countries 1081 00:54:52,450 --> 00:54:56,110 that either have instantaneous payment 1082 00:54:56,110 --> 00:54:59,000 systems or near instantaneous. 1083 00:54:59,000 --> 00:55:01,840 Some of these are not literally instantaneous. 1084 00:55:01,840 --> 00:55:05,960 A couple of them are three cycles a day 1085 00:55:05,960 --> 00:55:08,500 where they do this three times a day. 1086 00:55:08,500 --> 00:55:10,600 And I can't remember each country, 1087 00:55:10,600 --> 00:55:13,420 but you can see it's relatively recent. 1088 00:55:13,420 --> 00:55:15,290 And then the US. 1089 00:55:15,290 --> 00:55:19,210 With the US projects, we have this split system. 1090 00:55:19,210 --> 00:55:24,340 The clearing house is owned by 24 major banks in the US, 1091 00:55:24,340 --> 00:55:28,380 and it's been around since the 1850s. 1092 00:55:28,380 --> 00:55:31,300 The clearing house by 2017 said, we 1093 00:55:31,300 --> 00:55:34,750 want to provide a real-time payment network. 1094 00:55:34,750 --> 00:55:38,560 But it's really buying amongst these 24 major banks, 1095 00:55:38,560 --> 00:55:41,560 all the big banks in the US. 1096 00:55:41,560 --> 00:55:46,270 The Federal Reserve at first seemed comfortable with that. 1097 00:55:46,270 --> 00:55:49,690 And then frankly, the rest of the banking community, 1098 00:55:49,690 --> 00:55:54,740 the banks that weren't the top 24 said, no, not really. 1099 00:55:54,740 --> 00:55:56,170 And they went to Congress. 1100 00:55:56,170 --> 00:56:00,190 They went to the US Congress, and many members of Congress 1101 00:56:00,190 --> 00:56:03,490 got involved on behalf of community banks. 1102 00:56:03,490 --> 00:56:05,440 There's 5,000 or 6,000 banks that 1103 00:56:05,440 --> 00:56:08,800 are not direct members of the clearinghouse. 1104 00:56:08,800 --> 00:56:13,570 And so now the Federal Reserve is standing up FedNow service. 1105 00:56:13,570 --> 00:56:16,070 And you can see this in Lael Brainard's speech. 1106 00:56:16,070 --> 00:56:19,830 Now, FedNow service is also meant 1107 00:56:19,830 --> 00:56:22,560 to be like a public utility rather than 1108 00:56:22,560 --> 00:56:25,050 controlled by these 24 banks. 1109 00:56:25,050 --> 00:56:27,810 And so there's some interesting dynamics back and forth 1110 00:56:27,810 --> 00:56:29,140 in the competition. 1111 00:56:29,140 --> 00:56:31,860 The clearinghouse real-time payment network probably 1112 00:56:31,860 --> 00:56:36,420 will up its game, and FedNow will come along as well. 1113 00:56:36,420 --> 00:56:39,420 Some said that the announcement last year by the Federal 1114 00:56:39,420 --> 00:56:41,970 Reserve was in reaction to Facebook Libra, 1115 00:56:41,970 --> 00:56:45,120 and maybe that spurred this a little bit, 1116 00:56:45,120 --> 00:56:46,590 that the official sector was then 1117 00:56:46,590 --> 00:56:49,560 competing with Facebook because the announcement came 1118 00:56:49,560 --> 00:56:51,150 just weeks after. 1119 00:56:51,150 --> 00:56:54,480 Now, I would imagine the Federal Reserve was working on it 1120 00:56:54,480 --> 00:56:56,310 a long time beforehand. 1121 00:56:56,310 --> 00:56:58,270 And we'll close out this lecture today 1122 00:56:58,270 --> 00:57:03,780 on when China's digital currency electronic payments program. 1123 00:57:03,780 --> 00:57:06,120 China and the Federal Reserve in the US 1124 00:57:06,120 --> 00:57:10,350 both had major announcements right after Facebook Libra. 1125 00:57:10,350 --> 00:57:14,940 This project, FedNow, and China's, both had been-- 1126 00:57:14,940 --> 00:57:18,330 work had been done, but it feels like the announcements 1127 00:57:18,330 --> 00:57:22,140 were accelerated and in reaction a bit. 1128 00:57:22,140 --> 00:57:25,290 We don't know for sure, of course. 1129 00:57:25,290 --> 00:57:27,486 Questions, Romain? 1130 00:57:27,486 --> 00:57:28,885 ROMAIN: None so far, Gary. 1131 00:57:28,885 --> 00:57:30,040 GARY GENSLER: All right. 1132 00:57:30,040 --> 00:57:31,810 So what's the payment landscape? 1133 00:57:31,810 --> 00:57:33,010 Who are the companies? 1134 00:57:33,010 --> 00:57:34,690 Well, we've talked about Big Tech. 1135 00:57:34,690 --> 00:57:38,670 And I'm glad, Luke, I think I have 1136 00:57:38,670 --> 00:57:41,920 KakaoPay on there thankfully. 1137 00:57:41,920 --> 00:57:44,320 I should have had LINE Pay as well. 1138 00:57:44,320 --> 00:57:48,490 But Big Tech, OK, we've chatted a little bit about that. 1139 00:57:48,490 --> 00:57:52,920 And then there's, of course, a bunch of unicorn startups. 1140 00:57:52,920 --> 00:57:55,560 I could have put another half dozen to a dozen, 1141 00:57:55,560 --> 00:58:00,250 unicorn being $1 billion of value or more. 1142 00:58:00,250 --> 00:58:03,490 But each of these startups have a little bit different way 1143 00:58:03,490 --> 00:58:06,220 that they've broken into this space. 1144 00:58:06,220 --> 00:58:10,280 Plaid, which we've chatted a little bit about, 1145 00:58:10,280 --> 00:58:14,860 Plaid is in this space because they came in through open APIs 1146 00:58:14,860 --> 00:58:18,670 and facilitating the software in the system. 1147 00:58:18,670 --> 00:58:23,360 Ripple is a cryptocurrency type company. 1148 00:58:23,360 --> 00:58:25,900 One97 is in India. 1149 00:58:25,900 --> 00:58:28,540 It's really-- I could even have put that in the Big Tech 1150 00:58:28,540 --> 00:58:31,210 because they started, I think, Paytm. 1151 00:58:31,210 --> 00:58:35,850 NewBank addressed it a little bit from being a challenger 1152 00:58:35,850 --> 00:58:37,800 bank, and we're going to be talking about that 1153 00:58:37,800 --> 00:58:38,800 in a couple of lectures. 1154 00:58:38,800 --> 00:58:42,370 Toast picks a sector, and they really 1155 00:58:42,370 --> 00:58:45,540 dominate the restaurant sector. 1156 00:58:45,540 --> 00:58:48,280 But they initially were getting into payments 1157 00:58:48,280 --> 00:58:49,660 because they were into tablets. 1158 00:58:49,660 --> 00:58:53,890 So each has a bit of a different story. 1159 00:58:53,890 --> 00:58:56,650 Brex was about startups and facilitating 1160 00:58:56,650 --> 00:58:57,820 credit for startups. 1161 00:58:57,820 --> 00:59:02,300 TransferWise was cross-border, as we talked about earlier. 1162 00:59:02,300 --> 00:59:06,040 So they each found a strategy to build themselves 1163 00:59:06,040 --> 00:59:07,560 into this place. 1164 00:59:07,560 --> 00:59:12,160 But let's just talk about Alipay and WeChat Pay for a moment. 1165 00:59:12,160 --> 00:59:15,070 This is even dated because this is nearly a year old, 1166 00:59:15,070 --> 00:59:19,060 but this is their user base in the last seven years, 1167 00:59:19,060 --> 00:59:23,200 this remarkable growth of usage between Alipay 1168 00:59:23,200 --> 00:59:27,400 and WeChat Pay in China, both with approximately 1169 00:59:27,400 --> 00:59:28,990 a billion users. 1170 00:59:28,990 --> 00:59:31,180 It's thought that WeChat Pay and Alipay now 1171 00:59:31,180 --> 00:59:37,310 have 92% of the retail payment space in China. 1172 00:59:37,310 --> 00:59:41,390 And one of their strategic approaches 1173 00:59:41,390 --> 00:59:46,100 is that if you have a store of value on an Alipay wallet 1174 00:59:46,100 --> 00:59:50,870 and you move it to somebody else within the Alipay system, 1175 00:59:50,870 --> 00:59:53,240 as I understand it, it's still 0 cost. 1176 00:59:53,240 --> 00:59:57,980 If you jump out of service, out of system, 10 basis points. 1177 00:59:57,980 --> 01:00:01,580 But this conceptual framework-- and their pricing model 1178 01:00:01,580 --> 01:00:04,700 could change at any time, but their pricing model 1179 01:00:04,700 --> 01:00:08,300 has been historically, if you stay within the Alipay wallet 1180 01:00:08,300 --> 01:00:12,690 system, heck of a benefit in cost. 1181 01:00:12,690 --> 01:00:16,570 So merchants then start to want to pay their vendors. 1182 01:00:16,570 --> 01:00:20,620 And merchants and customers want to stay within those wallet 1183 01:00:20,620 --> 01:00:23,920 systems to keep those costs down, 1184 01:00:23,920 --> 01:00:26,560 significant network effects. 1185 01:00:26,560 --> 01:00:27,345 Romain? 1186 01:00:27,345 --> 01:00:29,840 ROMAIN: Sijin has her hand up. 1187 01:00:29,840 --> 01:00:30,855 GARY GENSLER: Please. 1188 01:00:30,855 --> 01:00:31,770 AUDIENCE: Yeah. 1189 01:00:31,770 --> 01:00:32,620 Hi. 1190 01:00:32,620 --> 01:00:34,750 Just want to add one point. 1191 01:00:34,750 --> 01:00:38,120 I think the social platform base is really important, 1192 01:00:38,120 --> 01:00:41,530 but another thing that Alipay is so successful 1193 01:00:41,530 --> 01:00:44,260 because it's working closely with the government. 1194 01:00:44,260 --> 01:00:50,170 For example, right now in China, we can use a QR code in Alipay 1195 01:00:50,170 --> 01:00:53,910 when we try to get on the shuttle bus 1196 01:00:53,910 --> 01:00:55,990 or we want to get a phone. 1197 01:00:55,990 --> 01:00:58,690 We can use the Alipay to pay that bill. 1198 01:00:58,690 --> 01:01:02,470 So actually, the government is encouraging all of the citizens 1199 01:01:02,470 --> 01:01:05,758 to use this Alipay and WeChat Pay. 1200 01:01:05,758 --> 01:01:06,550 GARY GENSLER: Yeah. 1201 01:01:06,550 --> 01:01:09,730 So there's incredible collaboration, 1202 01:01:09,730 --> 01:01:13,450 what you're talking about, between government 1203 01:01:13,450 --> 01:01:16,060 and these payments systems. 1204 01:01:16,060 --> 01:01:18,140 And we've seen this in India as well. 1205 01:01:18,140 --> 01:01:21,040 India really encouraged the uptake. 1206 01:01:21,040 --> 01:01:24,700 And I could have put various statistics in for India. 1207 01:01:24,700 --> 01:01:26,590 They're a couple or few years behind. 1208 01:01:26,590 --> 01:01:31,450 They're not as robust and developed in India. 1209 01:01:31,450 --> 01:01:36,010 But this encouragement by the official sector or the banking 1210 01:01:36,010 --> 01:01:36,670 sector-- 1211 01:01:36,670 --> 01:01:39,880 sometimes in other countries, it can be by the banking sector. 1212 01:01:39,880 --> 01:01:43,330 But what's interesting in China, and we'll close out on this, 1213 01:01:43,330 --> 01:01:47,300 is now the Chinese government is offering 1214 01:01:47,300 --> 01:01:50,770 what one might say is a complement or a competitor 1215 01:01:50,770 --> 01:01:54,730 to WeChat and Alipay through the Chinese digital currency 1216 01:01:54,730 --> 01:01:57,700 electronic payment project or DCEP. 1217 01:01:57,700 --> 01:02:02,230 And so they've facilitated the ramp up of Alipay and WeChat 1218 01:02:02,230 --> 01:02:07,280 Pay, but now they're going to have an alternative as well. 1219 01:02:07,280 --> 01:02:08,500 So it's very interesting. 1220 01:02:08,500 --> 01:02:11,230 And I think in part, this is to facilitate 1221 01:02:11,230 --> 01:02:14,560 the commercial banks were losing a significant market 1222 01:02:14,560 --> 01:02:18,070 share to Alipay and WeChat Pay, that the Chinese government 1223 01:02:18,070 --> 01:02:22,450 may well have been encouraged to build their own-- 1224 01:02:22,450 --> 01:02:24,850 they call it the central bank digital currency-- 1225 01:02:24,850 --> 01:02:29,110 but their own wallet system, digital wallet, 1226 01:02:29,110 --> 01:02:36,250 digital yuan that will look a lot like Alipay and WeChat 1227 01:02:36,250 --> 01:02:37,060 wallets. 1228 01:02:37,060 --> 01:02:40,750 And in fact, this is all being rolled out in 2020. 1229 01:02:40,750 --> 01:02:44,560 But in fact, the initial pronouncements 1230 01:02:44,560 --> 01:02:48,370 say that it must be accepted, so just 1231 01:02:48,370 --> 01:02:51,970 as we have had multiple centuries of laws that 1232 01:02:51,970 --> 01:02:53,800 are called legal tender laws. 1233 01:02:53,800 --> 01:02:56,590 And the legal tender laws go all the way 1234 01:02:56,590 --> 01:03:00,040 back to Genghis Khan in China, where 1235 01:03:00,040 --> 01:03:03,350 under the coercive power of the state, 1236 01:03:03,350 --> 01:03:07,060 you must accept in those days the paper bark 1237 01:03:07,060 --> 01:03:10,060 currency of Genghis Khan, or in the US, 1238 01:03:10,060 --> 01:03:13,070 you must accept the US dollar for all debts 1239 01:03:13,070 --> 01:03:14,440 public and private. 1240 01:03:14,440 --> 01:03:16,360 Those are called legal tender laws. 1241 01:03:16,360 --> 01:03:18,970 Something similar is happening right now in China 1242 01:03:18,970 --> 01:03:22,480 that this DCEP will have to be accepted, 1243 01:03:22,480 --> 01:03:24,050 at first in certain cities. 1244 01:03:24,050 --> 01:03:26,878 They're going to start, I think, in two cities, 1245 01:03:26,878 --> 01:03:28,420 and then they're going to roll it out 1246 01:03:28,420 --> 01:03:31,880 over time in other places. 1247 01:03:31,880 --> 01:03:34,270 So now let's look here in the US. 1248 01:03:34,270 --> 01:03:36,670 And I picked Facebook because they 1249 01:03:36,670 --> 01:03:38,710 haven't been as successful. 1250 01:03:38,710 --> 01:03:44,770 This remarkable platform, Facebook is so ubiquitous, 1251 01:03:44,770 --> 01:03:47,470 over 2 billion members around the globe. 1252 01:03:47,470 --> 01:03:50,130 They've tried multiple times to get into payments 1253 01:03:50,130 --> 01:03:52,630 starting 11 years ago. 1254 01:03:52,630 --> 01:03:54,850 Virtual currency in 15 currencies 1255 01:03:54,850 --> 01:03:58,330 terminated in four years, Facebook credit. 1256 01:03:58,330 --> 01:04:02,290 They came about in 2015 Facebook Messenger. 1257 01:04:02,290 --> 01:04:04,780 They started in the US, UK, and France. 1258 01:04:04,780 --> 01:04:09,230 By 2019, they rolled out of France and the UK. 1259 01:04:09,230 --> 01:04:13,400 They, in India, had a pilot that for the longest time 1260 01:04:13,400 --> 01:04:19,700 was in pilot purgatory, in a sense. 1261 01:04:19,700 --> 01:04:21,560 Facebook could not get the approval 1262 01:04:21,560 --> 01:04:24,500 of the Indian government to go beyond one million accounts. 1263 01:04:24,500 --> 01:04:30,050 They only recently in the early spring of 2020, late winter, 1264 01:04:30,050 --> 01:04:32,780 got approval that they could move up to 10 million 1265 01:04:32,780 --> 01:04:34,380 and so forth. 1266 01:04:34,380 --> 01:04:39,170 But it's pending further data standardization, 1267 01:04:39,170 --> 01:04:42,680 and it's conditional on data standardization. 1268 01:04:42,680 --> 01:04:45,740 And then last November, they announced Facebook Pay. 1269 01:04:45,740 --> 01:04:48,170 Now, that puts aside Facebook Libra. 1270 01:04:48,170 --> 01:04:51,740 I'm just saying their efforts to do Facebook Pay, 1271 01:04:51,740 --> 01:04:54,080 bringing together Facebook Messenger, 1272 01:04:54,080 --> 01:04:59,080 Instagram, WhatsApp is their new effort. 1273 01:04:59,080 --> 01:05:01,520 You can decide whether you think they'll be successful. 1274 01:05:01,520 --> 01:05:04,300 But it's interesting that in some circumstances, 1275 01:05:04,300 --> 01:05:06,940 Facebook has been very successful, but not so much 1276 01:05:06,940 --> 01:05:08,140 in the payment space. 1277 01:05:08,140 --> 01:05:13,180 And even Google Wallet and Google Pay has more adoption, 1278 01:05:13,180 --> 01:05:17,140 and Apple Pay has more adoption than we've seen in Facebook, 1279 01:05:17,140 --> 01:05:18,560 as I understand it. 1280 01:05:18,560 --> 01:05:21,560 It's hard to get all the statistics. 1281 01:05:21,560 --> 01:05:25,540 So it gives you a little bit of a sense of these challenges. 1282 01:05:25,540 --> 01:05:27,490 What's the landscape? 1283 01:05:27,490 --> 01:05:29,720 Going to do it a little quickly, but this 1284 01:05:29,720 --> 01:05:30,970 is to give you that landscape. 1285 01:05:30,970 --> 01:05:34,660 First, commercial banks and the bank-owned networks. 1286 01:05:34,660 --> 01:05:36,970 I put here thousands of banks. 1287 01:05:36,970 --> 01:05:38,770 They've been around since 1784. 1288 01:05:38,770 --> 01:05:40,660 I like taking 1784 because that's 1289 01:05:40,660 --> 01:05:44,890 the Bank of New York here in the US, Alexander Hamilton's bank. 1290 01:05:44,890 --> 01:05:47,290 But the clearinghouse literally has been around 1291 01:05:47,290 --> 01:05:48,820 since the 1850s. 1292 01:05:48,820 --> 01:05:51,880 It was a place where people took physical checks, 1293 01:05:51,880 --> 01:05:53,860 negotiable orders of withdraw, and had 1294 01:05:53,860 --> 01:05:57,290 to take them into a warehouse and clear them. 1295 01:05:57,290 --> 01:05:59,860 But even UnionPay in China, which 1296 01:05:59,860 --> 01:06:03,010 was formed amongst 85 banks initially-- 1297 01:06:03,010 --> 01:06:05,710 and some say maybe the People's Bank of China 1298 01:06:05,710 --> 01:06:09,460 owns something of it, too-- but UnionPay, these bank 1299 01:06:09,460 --> 01:06:12,120 consortium. 1300 01:06:12,120 --> 01:06:15,990 Next in this architecture of the payment landscape, 1301 01:06:15,990 --> 01:06:17,460 the card companies. 1302 01:06:17,460 --> 01:06:20,050 I would note that Visa was a consortium. 1303 01:06:20,050 --> 01:06:22,380 Bank of America was a California bank. 1304 01:06:22,380 --> 01:06:24,810 It was not a national bank at the time. 1305 01:06:24,810 --> 01:06:28,230 And Bank of America wanted to offer its California credit 1306 01:06:28,230 --> 01:06:31,710 card across the country and formed a consortium. 1307 01:06:31,710 --> 01:06:34,020 It later became an independent company. 1308 01:06:34,020 --> 01:06:35,700 It later went public. 1309 01:06:35,700 --> 01:06:41,320 And it's got a $373 billion market value as of last Friday. 1310 01:06:41,320 --> 01:06:45,870 Now, we sometimes talk about the Big Tech firms, the big four, 1311 01:06:45,870 --> 01:06:49,260 Microsoft, and Google, and Amazon, and Apple. 1312 01:06:49,260 --> 01:06:51,600 They all have market values above this. 1313 01:06:51,600 --> 01:06:54,930 But Visa is one of the 10 highest market cap 1314 01:06:54,930 --> 01:06:59,470 companies in the country, maybe in the world. 1315 01:06:59,470 --> 01:07:02,130 And then, of course, Mastercard and so forth, Discover 1316 01:07:02,130 --> 01:07:03,000 and the Dow. 1317 01:07:03,000 --> 01:07:05,850 So that's the base layer, but then there's 1318 01:07:05,850 --> 01:07:08,490 something that you and I don't think a lot about, 1319 01:07:08,490 --> 01:07:11,040 is payments service providers. 1320 01:07:11,040 --> 01:07:14,760 And these companies have gone through a significant wave 1321 01:07:14,760 --> 01:07:16,170 of consolidation. 1322 01:07:16,170 --> 01:07:18,270 These were data companies basically, 1323 01:07:18,270 --> 01:07:20,700 expounded around 20 years ago. 1324 01:07:20,700 --> 01:07:24,030 Fiserv is an agglomeration of three or four 1325 01:07:24,030 --> 01:07:26,100 different companies that have come together 1326 01:07:26,100 --> 01:07:27,330 over the last few years. 1327 01:07:27,330 --> 01:07:31,560 But these dominant companies here in the US 1328 01:07:31,560 --> 01:07:34,500 are the backbones of the payment network 1329 01:07:34,500 --> 01:07:37,110 right in the middle of that earlier chart that we 1330 01:07:37,110 --> 01:07:41,760 talked about, $45 billion to $80 billion market value each. 1331 01:07:41,760 --> 01:07:48,170 And now we get to the startups starting with PayPal 1332 01:07:48,170 --> 01:07:53,740 at $124 billion of value, and Square, and then some companies 1333 01:07:53,740 --> 01:07:55,960 you might not be as familiar with. 1334 01:07:55,960 --> 01:08:00,380 But each one of these companies founded usually in the 20-year 1335 01:08:00,380 --> 01:08:00,880 timeframe-- 1336 01:08:00,880 --> 01:08:03,100 I'll put Western Union to the side. 1337 01:08:03,100 --> 01:08:08,620 Western Union was that company that started in the 1850s. 1338 01:08:08,620 --> 01:08:12,590 These are publicly traded companies. 1339 01:08:12,590 --> 01:08:14,040 You can look at their financials. 1340 01:08:14,040 --> 01:08:17,500 If you were actually going to go and compete in this space, 1341 01:08:17,500 --> 01:08:20,080 I'd largely recommend you've got to pull these financials, 1342 01:08:20,080 --> 01:08:23,950 read their public statements, see how they make their money. 1343 01:08:23,950 --> 01:08:26,319 But then there's the private companies. 1344 01:08:26,319 --> 01:08:28,850 And all I could do to value these companies that 1345 01:08:28,850 --> 01:08:32,649 go to Forbes and Crunchbase and some other sources to say, 1346 01:08:32,649 --> 01:08:35,439 what was their last funding round? 1347 01:08:35,439 --> 01:08:38,069 Stripe has not gone public yet. 1348 01:08:38,069 --> 01:08:41,439 Paytm in India has not gone public yet, 1349 01:08:41,439 --> 01:08:43,210 but these are their last funding rounds. 1350 01:08:43,210 --> 01:08:49,880 Plaid was purchased for $5.3 billion by Visa. 1351 01:08:49,880 --> 01:08:53,120 But it gives you that sense, putting aside 1352 01:08:53,120 --> 01:08:55,790 whether these values will persist or not. 1353 01:08:55,790 --> 01:08:58,520 And there's hundreds, thousands of other companies 1354 01:08:58,520 --> 01:09:02,420 in this space competing. 1355 01:09:02,420 --> 01:09:05,479 As I said, there's a lot of consolidation. 1356 01:09:05,479 --> 01:09:08,960 And one of the consolidations is around payment service 1357 01:09:08,960 --> 01:09:09,830 providers. 1358 01:09:09,830 --> 01:09:13,310 Just in the last 18 months, four big mergers, 1359 01:09:13,310 --> 01:09:16,819 one in Europe, three in the US, basically 1360 01:09:16,819 --> 01:09:21,170 consolidation in the middle of this technology. 1361 01:09:21,170 --> 01:09:24,380 First Data, which was one of the biggest companies, that 1362 01:09:24,380 --> 01:09:27,830 basically was on the merchant side, 1363 01:09:27,830 --> 01:09:29,840 helping merchants with their point of sale, 1364 01:09:29,840 --> 01:09:34,240 Worldpay that does this annual report that I talked about, 1365 01:09:34,240 --> 01:09:38,479 and Total Systems Services all bought in the last 15 months. 1366 01:09:38,479 --> 01:09:43,160 And then in Europe, Worldline bought Ingenico, which 1367 01:09:43,160 --> 01:09:46,370 was like a cross-Europe merger. 1368 01:09:46,370 --> 01:09:47,810 But we're seeing a lot of mergers 1369 01:09:47,810 --> 01:09:50,359 also in the data aggregator side. 1370 01:09:50,359 --> 01:09:52,130 Visa bought Plaid, as we talked about. 1371 01:09:52,130 --> 01:09:56,300 And SoFi recently announced for over $1 billion buying Galileo. 1372 01:09:56,300 --> 01:09:59,350 Galileo is a smaller competitor of Plaid 1373 01:09:59,350 --> 01:10:02,890 that is in this API data aggregators 1374 01:10:02,890 --> 01:10:06,200 space, a really important space in payments. 1375 01:10:06,200 --> 01:10:09,890 SoFi, which we'll talk about in our next couple of classes, 1376 01:10:09,890 --> 01:10:15,810 started as a credit provider, not in the payment side. 1377 01:10:15,810 --> 01:10:19,100 But here it's interesting that SoFi is going back and saying, 1378 01:10:19,100 --> 01:10:20,930 we want to get to that payment side. 1379 01:10:20,930 --> 01:10:26,620 We want to acquire Galileo and the API side. 1380 01:10:26,620 --> 01:10:30,160 And so a little talk, and we've only got a few minutes left. 1381 01:10:30,160 --> 01:10:32,420 We already talked about crypto projects, 1382 01:10:32,420 --> 01:10:35,140 but the crypto land is here. 1383 01:10:35,140 --> 01:10:39,910 And they're saying maybe a digital token 1384 01:10:39,910 --> 01:10:42,710 backed by US dollars or backed by Euro 1385 01:10:42,710 --> 01:10:47,170 or yen would be the way to address these pain points. 1386 01:10:47,170 --> 01:10:49,240 Some are retail projects. 1387 01:10:49,240 --> 01:10:51,760 Mostly tether and others on the retail side 1388 01:10:51,760 --> 01:10:54,280 are about cryptocurrency exchanges. 1389 01:10:54,280 --> 01:10:56,740 But the wholesale projects are interesting. 1390 01:10:56,740 --> 01:10:59,080 14 large banks have come together 1391 01:10:59,080 --> 01:11:01,390 and formed this thing called Fnality 1392 01:11:01,390 --> 01:11:04,420 without an I. It's F-nality. 1393 01:11:04,420 --> 01:11:07,300 JP Morgan has said JP Morgan Coin. 1394 01:11:07,300 --> 01:11:13,550 These are trying to use digital tokens representing Fiat money 1395 01:11:13,550 --> 01:11:15,620 to smooth out pain points. 1396 01:11:15,620 --> 01:11:17,900 And then the messaging companies, Telegram, 1397 01:11:17,900 --> 01:11:22,160 the world's largest secure or encrypted messaging company 1398 01:11:22,160 --> 01:11:25,670 with 400 million members or customers, 1399 01:11:25,670 --> 01:11:28,490 they're trying to have a token called GRAM, even though it's 1400 01:11:28,490 --> 01:11:30,650 held up in the securities law case 1401 01:11:30,650 --> 01:11:32,690 that they have with the Securities and Exchange 1402 01:11:32,690 --> 01:11:34,910 Commission here in the US. 1403 01:11:34,910 --> 01:11:36,420 And that sets the stage-- 1404 01:11:36,420 --> 01:11:38,200 I'm going to skip over-- 1405 01:11:38,200 --> 01:11:42,230 that Bitcoin and all of these payment tokens are out there 1406 01:11:42,230 --> 01:11:44,360 and talk about the goals they're trying to do. 1407 01:11:44,360 --> 01:11:47,810 The goals they are trying to do are the same things-- 1408 01:11:47,810 --> 01:11:50,240 addressing pain points, extending settlement 1409 01:11:50,240 --> 01:11:54,890 to 24 hours a day, 7 days a week, and lowering costs. 1410 01:11:54,890 --> 01:11:59,000 That's why JP Morgan has JP Morgan Coin. 1411 01:11:59,000 --> 01:12:01,100 It might be a little bit of hype, 1412 01:12:01,100 --> 01:12:02,930 but there's some reality, too, that they 1413 01:12:02,930 --> 01:12:07,250 think that between their project and this competitive project 1414 01:12:07,250 --> 01:12:09,620 Fnality at the wholesale payment space, 1415 01:12:09,620 --> 01:12:14,270 they can lower cost in the cross-border space. 1416 01:12:14,270 --> 01:12:17,390 So Facebook comes along, and Facebook says, well, maybe we 1417 01:12:17,390 --> 01:12:18,830 can do it. 1418 01:12:18,830 --> 01:12:22,040 Maybe we can do it with a worldwide currency. 1419 01:12:22,040 --> 01:12:24,000 They announced it was-- 1420 01:12:24,000 --> 01:12:25,715 it didn't lack ambition. 1421 01:12:25,715 --> 01:12:30,860 Mark Zuckerberg and Facebook announced a new global currency 1422 01:12:30,860 --> 01:12:33,080 to meet the needs of billions of people. 1423 01:12:33,080 --> 01:12:35,270 They talked about financial inclusion. 1424 01:12:35,270 --> 01:12:37,910 They talked about cross-border pain points. 1425 01:12:37,910 --> 01:12:41,240 And they said, this is the wave of the future. 1426 01:12:41,240 --> 01:12:45,360 It's run into a lot of central bank concerns around the globe. 1427 01:12:45,360 --> 01:12:48,590 It's run into significant public sector 1428 01:12:48,590 --> 01:12:50,760 concerns around the globe. 1429 01:12:50,760 --> 01:12:53,900 It's still uncertain whether it will take off, 1430 01:12:53,900 --> 01:12:56,930 but it's a significant feature of this payment space 1431 01:12:56,930 --> 01:13:00,290 that one needs to understand, even if it's just 1432 01:13:00,290 --> 01:13:02,060 a catalyst for change. 1433 01:13:02,060 --> 01:13:06,500 Both China and the US reacted quickly with the FedNow project 1434 01:13:06,500 --> 01:13:10,490 here in the US and the central bank digital currency 1435 01:13:10,490 --> 01:13:12,740 project in China. 1436 01:13:12,740 --> 01:13:15,050 So I'm going to close on just a little chart that 1437 01:13:15,050 --> 01:13:18,005 shows Libra versus central bank digital currency 1438 01:13:18,005 --> 01:13:21,230 and just say something about China's project. 1439 01:13:21,230 --> 01:13:25,310 China's project, not yet lived, digital currency 1440 01:13:25,310 --> 01:13:28,910 electronic payment program, the issuer 1441 01:13:28,910 --> 01:13:30,650 is the People's Bank of China. 1442 01:13:30,650 --> 01:13:33,800 And this is a really important question that 1443 01:13:33,800 --> 01:13:36,410 is on a lot of people's mind. 1444 01:13:36,410 --> 01:13:40,520 If a central bank issues a digital representation of money 1445 01:13:40,520 --> 01:13:46,620 directly, what's the role of the commercial banks? 1446 01:13:46,620 --> 01:13:48,480 Commercial banks in most countries 1447 01:13:48,480 --> 01:13:51,300 are the issuer of digital money. 1448 01:13:51,300 --> 01:13:54,480 I know we think about central banks in the 180 countries 1449 01:13:54,480 --> 01:13:57,330 that have money, and they're really important. 1450 01:13:57,330 --> 01:14:00,360 But it's commercial banks that keep those ledgers. 1451 01:14:00,360 --> 01:14:04,080 The commercial banks with some backing of their governments, 1452 01:14:04,080 --> 01:14:07,740 either implicit or explicit with deposit insurance, 1453 01:14:07,740 --> 01:14:11,940 you and I have a liability to our banks, to Bank America, 1454 01:14:11,940 --> 01:14:15,650 to Barclays, to some bank in Asia. 1455 01:14:15,650 --> 01:14:17,550 The People's Bank of China is saying, 1456 01:14:17,550 --> 01:14:20,730 no, we will issue this directly, but we'll 1457 01:14:20,730 --> 01:14:23,880 have the commercial banks involved. 1458 01:14:23,880 --> 01:14:26,580 And the commercial banks, you'll get your digital wallet 1459 01:14:26,580 --> 01:14:27,780 from the commercial banks. 1460 01:14:27,780 --> 01:14:31,050 There were announcements as of early April 2020 1461 01:14:31,050 --> 01:14:36,330 that update us, but we don't yet have the full picture. 1462 01:14:36,330 --> 01:14:40,020 It looks like it's basically a centralized private network run 1463 01:14:40,020 --> 01:14:41,670 by the PBOC. 1464 01:14:41,670 --> 01:14:44,550 It does look like Alipay and WeChat Pay 1465 01:14:44,550 --> 01:14:46,840 will have to use this system. 1466 01:14:46,840 --> 01:14:50,730 So some question is, how different will it really be? 1467 01:14:50,730 --> 01:14:56,070 It looks like by government Fiat rolled out by city and region 1468 01:14:56,070 --> 01:14:59,250 that merchants will have to accept DCEP. 1469 01:14:59,250 --> 01:15:01,620 So the QR system on those buses will 1470 01:15:01,620 --> 01:15:06,240 have to have DCEP, Alipay, and WeChat Pay. 1471 01:15:06,240 --> 01:15:08,700 Alipay has taken out a bunch of patents 1472 01:15:08,700 --> 01:15:12,210 already on how to interface with DCEP. 1473 01:15:12,210 --> 01:15:14,370 So it's a work in progress, but it's 1474 01:15:14,370 --> 01:15:15,980 an important feature of this. 1475 01:15:15,980 --> 01:15:18,630 And if you're thinking about payments, 1476 01:15:18,630 --> 01:15:19,710 this is really important. 1477 01:15:19,710 --> 01:15:22,440 And what's fascinating is central banks around the globe 1478 01:15:22,440 --> 01:15:25,370 are then looking to see what China's done. 1479 01:15:25,370 --> 01:15:30,720 Sweden was already looking at an electronic digital central bank 1480 01:15:30,720 --> 01:15:33,300 currency, the E-krona. 1481 01:15:33,300 --> 01:15:35,520 And they were at the forefront. 1482 01:15:35,520 --> 01:15:38,190 But now you can go central bank around central bank. 1483 01:15:38,190 --> 01:15:39,780 France has made announcements. 1484 01:15:39,780 --> 01:15:43,020 The United Kingdom has made announcements in 2020, 1485 01:15:43,020 --> 01:15:48,180 all in this milieu of, how do we address pain points? 1486 01:15:48,180 --> 01:15:51,390 Do we as a central bank have a responsibility to our citizens 1487 01:15:51,390 --> 01:15:55,290 to continue to offer a digital currency when the paper 1488 01:15:55,290 --> 01:15:57,060 currency is going away? 1489 01:15:57,060 --> 01:15:59,130 And important public policy questions of, 1490 01:15:59,130 --> 01:16:00,090 what does this do? 1491 01:16:00,090 --> 01:16:02,950 Does it destabilize commercial banks? 1492 01:16:02,950 --> 01:16:07,230 So I think that's a bit of a wrap.