Payments Ep #58

In this special Payments episode of the Solana Podcast, Austin Federa guest hosts a conversation between Jeremy Allaire (CEO, Circle) and Sheraz Shere (Head of Payments, Solana Labs). They discuss merchant payments, stablecoins and Solana Pay: the newly released, open, and free-to-use payments framework built on Solana.

00:45 - What is Circle?
03:35 -  The use case for stablecoins and the mechanisms to build them
09:34 - Solana Pay
13:42 - Integration of USDC and Stable Coins
18:45 - How could Solana Pay become mainstream? 
25:27 - The Solana Pay toolkit
27:39 - Can businesses operate without a bank account?
30:05 - Looking at Data Privacy in Solana Pay and Circle 
34:35 - Hopes for Solana hackathon outcomes

Austin: (00:09)

Hello and welcome to the Solana podcast. I’m Austin Federa guest hosting this week. Today we're going to be talking about stablecoins, USDC and Solana pay. So we're joined today by Sheraz Shere, the head of payments at Solana labs and Jeremy Allaire, the CEO of Circle. Welcome to the show.

Jeremy: (00:27)

Thank you.

Sheraz: (00:27)

Thanks Austin.

Austin: (00:28)

Great. Well, let's start off with Jeremy, talk a little bit about Circle. Can you tell us a little bit about what is Circle and what's its role in the US DC stablecoin?

Jeremy: (00:37)

Sure, absolutely. So Circle is a global financial technology firm. We operate a suite of services to help businesses take advantage of digital currency in payments and treasury applications on the internet, which is all really a mouthful. But specifically we have a couple of really critical things. The first is we operate a stablecoin market infrastructure as we call it called USDC, and we'll talk, I know more about that, but USDC is a dollar digital currency that is an asset backed or fully reserved digital currency that can be used for payments and settlement on the internet. And it's already used really, really widely in the crypto economy.

And so we run that infrastructure and provide that to businesses institutions, and through many, many of our partners out to tens or perhaps even hundreds of millions of end users that interact with USDC. And then we also operate a suite of services for companies to have payments and treasury management and other things that are needed to integrate this into the way that they operate. So almost like a crypto native bank account for businesses to store and transact, and then alongside that a broad set of API products.

So basically Circle APIs that connect the existing fiat system, credit cards, bank accounts, bank transfers with stablecoins, with the custody, security, blockchain management, and other things that are needed to use that and integrate that into your own application. So lots and lots of fintechs, startups, companies like building on those APIs to kind of integrate stablecoins and fiat in their applications. So hundreds of companies use those and those are the key things that we do. And we've been growing with other products in what we call to treasury services. So Circle yield, which is a stablecoin yield product, which has been growing really fast too.

Austin: (02:50)

Yeah. I want to get into that kind of in a minute. So stablecoins, they're foundational to a lot of how DeFi has been enabled over the years. So there's lots of different applications for that. Sometimes it's just as a common transacting layer between multiple currencies. There's lots of different applications for it, but as you mentioned, there's more and more sort of enterprises and traditional companies, as well as fintechs that are in that space that are looking to use stablecoins in their business operations. At the same time, you have a bunch of DeFi Degens who are sort of the original core audience for a stablecoin. What does that decision making process look like at Circle when you're trying to balance such a diverse user base?

Jeremy: (03:33)

Yeah, it's a great question. And sometimes I'm asked "What's the use case for USDC," and my answer is sort of "What's the use case for a dollar?" Well, the use cases are incredibly broad, and we see that actually today, we see people who are making personal point to point payments internationally. We see people making micropayments for digital IP through NFTs, and at the other end you see institutions that are using USDC to settle half a billion dollar bilateral trades. And that's a pretty broad range of use cases that are out there. I think more importantly, conceptually when we built USDC and you can go back and read the original white paper behind it. And the idea of fiat backed digital currencies, our ultimate belief is that what's needed is a sort of protocol layer for traditional money on the internet.

So you can have dollars and euros and pounds and yen and other currencies that just function on top of the internet, the same way that other protocols support the exchange of information and communications. And if we had that, and we could use those protocols at the speed of the internet with the cost efficiency of moving data, which is what I think blockchains hold that promise, Solana's executing really well on that, but hold that promise, that it could really unlock the storage of transmission of value to be a kind of commodity free service on the internet. And so ultimately our belief is that anything that any person or household or firm might need to do in the digital economy on the internet could be done with stablecoins.

And so we definitely expect that to grow. Now, when we got started, it was anchored in what I call crypto capital markets. So it's anchored in market participants that, for all the work that they do and all the assets that they might be interacting with, they're all digital assets, and they all move at the speed of blockchains, whatever that is and the efficiency of that. And so they need their dollars to work the same way, and so that kind of gave demand for payment and settlement mediums that could kind of work at the speed of those markets and those blockchains. So, that was a good bootstrap use case, and that's really what brought a lot of this into existence. But now the way I like to describe it is stablecoins are both protocols and money formats. It's a protocol that works on top of a blockchain with assurance and security and finality settle a transaction, but it's also a particular representation of value of a dollar or a Euro or whatever it is, and protocols and kind of formats our network affects businesses.

And so the more people who have that, the more valuable or more useful it becomes, and the more products and services that are plugged into a protocol, the more useful and in utility that exists. And so we're now seeing the spillover of the use cases go into everyday businesses more and more everyday businesses saying, "Wow, this is a very, very efficient medium. It's very inexpensive, it's very fast, it's secure. I know it's final and it works globally." So we're certainly seeing that pick up. And at Circle, as we think about use cases, we really believe that the acceptance of payments in a business context using digital currency like this is going to proliferate pretty significantly in the coming years, because it's got so many attributes that are superior to existing electronic payments methods.

Austin: (07:12)

Yeah. And so you touched on something that's really interesting, which I think everyone thinks of USDC as a protocol, but unlike most organizations that have launched a protocol, the underlying token of USDC is USDC. Its whole point is it does not fluctuate in value, it does not go up, not go down. It stays solid at an equivalent of one US dollar. But Circle, it obviously for-profit organization, what are the mechanisms there that actually allow you to run a business as an organization that has created USDC?

Jeremy: (07:48)

There are a lot of pieces. So the first is today USDC is approaching 50 billion in circulation, and Circle administers and reserves those assets. And so we generate income from that, from that $50 billion we generate income. And as that grows to be a hundred billion or 200 billion, we'll continue to generate income from that, and certainly in a rising rate environment, that's significant. The second is we run a whole set of, what we call transaction services and treasury services, and those are services that we charge fees for. So transaction services are taking traditional fiat payment methods, using our infrastructure to do blockchain, native, custody, and payments. And so those are kind of usage based and scale up kind of like a Stripe or equivalent type of transactional service.

And then we also provide treasury services. So people who want to lend their USDC can lend their USDC in a self-service way through our platform, and get fixed term fixed rate returns on capital on USDC, and we generate a spread income from that as well. So we're building out this sort of suite of commercial services that are globally available increasingly, and that provide a lot of incremental value. So those are several buckets as well, that are really helping us scale our business.

Austin: (09:14)

So we were talking about transactional services. Again Sheraz, You have been intricately involved in building and launching the Solana pay protocol. Can you give us an overview of what that is, and how stablecoins are an important part of that system?

Sheraz: (09:29)

Sure. Yeah. So Solana pay is basically a new blockchain based merchant payment system. It's open, permissionless, and decentralized, and it's premised on enabling merchants to connect directly with consumers in a peer-to-peer fashion with no intermediaries. And it's really premised on the notion that merchants would accept stablecoin like USDC. Most merchants, unfortunately for crypto natives, don't really care that much crypto per se, they care about running their business. And that's why having stablecoins, US dollar denominated stablecoins are critical, because what this affords us is the ability to move digital assets at speed and cost of the internet, as Jeremy mentioned.

So for Solana pay, what we're really trying to do is enable for merchants, things like instant settlement, near zero cost transaction processing, and something that's really important is the removal of intermediaries. If you think about it from a merchant perspective the most important thing a merchant does is collecting payments and engaging with their consumers with commerce, but there's a lot of friction tied to enabling payments of and commerce. And with friction comes intermediaries and with intermediaries come cost and the loss of control. So if there's one headline for Solana pay, it's really about giving power back to the merchant for the most important function, which they do.

Austin: (10:48)

So can you talk a little bit about that? Payments is obviously a many billion dollar industry globally. There's some big name that have reached some pretty astronomical valuations nowadays based off of providing credit card payment processing solutions and that sort of thing to e-commerce and non e-commerce business. What's the sort of difference of approach here? How would you compare something like Solana pay to a company maybe like Stripe?

Sheraz: (11:15)

Sure. Yeah. And Stripe, I would say that the removal of intermediaries doesn't mean that a lot of the traditional payments companies don't have a role to play. The actual act of moving a digital asset from a consumer to the end merchant, that's the piece where there isn't need to be a friction, right? So with the Solana blockchain and a stablecoin like USDC, the movement of digital currencies from a consumer's wallet to the merchant wallet should happen like an email going on the internet, it should happen instantly with no cost. However, once a merchant has accepted a USDC stablecoin or settled in a stablecoin, there's a lot of interesting services that are needed to be done that merchants typically don't want to necessarily do themselves. So setting up token accounts, doing treasury management, reconciliation, integrating into legacy bank accounts.

So there's a lot of work in the core stack of post settlement of payments that traditional payment companies can be involved in. The protocol itself is just trying to simplify one component of payment processing, which is the most critical one, which is that the transfer of value between the consumer and the merchant. One of the interesting things that we're building on the spec is the ability to also have a bidirectional communication. The benefit of having a true peer-to-peer connection between a merchant and a consumer and not having an intermediary is that this allows the merchant to, for example, send digital assets back to the consumer. So what this could look like is something like, let's say you buy a new shoe, using this protocol the merchant can send you back an NFT of that shoe into your wallet, which you can now take into the metaverse. Just an example, but illustrating why the notion of a peer-to-peer, a true peer-to-peer interaction between a merchant and a consumer can open up a whole new set of new things.

Austin: (13:09)

So Jeremy, Sheraz was talking there about one of the pieces of the stack that Solana pay is trying to solve, that payment from a consumer directly to a merchant. You in Circle work with companies that have extremely complicated payment flows that are trying to bring USDC into. What are some of the areas that integration has been easy and straightforward for these companies, and what are some of the areas that are still challenges for enterprise adoption of USDC and stablecoins?

Jeremy: (13:37)

First of all, just to say, as you know, we're really excited to be supporting Solana pay. And we believe that the problem space here is a really critical one, and solving this problem of how to build a better connection between an end user and a business and building beyond just the underlying digital asset transfer and solving some of these problems is really, really critical. The way I would kind of answer the question is there's sort of the base layer of you've got a blockchain and you've got addresses and wallets and you've got this settlement finality mechanism of moving an asset like USDC as well. And that part is kind of fairly low level.

Jeremy: (14:27)

And so businesses that want to use this as a substitute for say, a card payment, they can implement that out with Circle APIs, they can take Circle APIs and they can automatically generate new addresses automatically for each payment. They can then track that payment to a given payee. And then they can collect that and store it in USDC, or they can sweep it out to their bank account through an automated API that pushes a wire or other things. So there's like critical kind of behind the scenes treasury kind of infrastructure that's there. The problem is most end users, they don't really necessarily know what all these things are. And so I think being able to introduce things like having metadata associated with a payment, such as what the price is, what the product ID is, any other kind of merchant information that would be needed to kind of tie that payment to a commerce transaction, to be able to have of follow on interactions that are associated with that payment.

All these problems are I think really important and become things that people expect, whether it's through a traditional legacy payment mechanism, like handling something like "You sent me the wrong product I need a refund," is like the most common, or some loyalty mechanism that maybe is inducing me to want to use the payment instrument. And so how can I use a blockchain to provide that loyalty mechanism as an inducement as well, building a stronger connection between say the business and the user?

And so I think the pain points are more that there's incremental value that's needed for both the end user and the merchant to kind of bring this to a point where it's a superior payment, medium to legacy payment rails. And so those are the kinds of things that we see, but certainly the getting started piece is there. There's so much low hanging fruit. And I think so Solana pay is a really good start at hitting some of the low hanging fruit and creating a way for wallet creators. And then folks like Circle on the other end to make this a little bit more seamless for all the parties.

Sheraz: (16:41)

I would say that if you're a developer, a founder, or even a legacy payments company, there is a tremendous amount of interesting stuff to build. We just kicked off a hackathon and we have a payments track in that. And as Jeremy mentioned, the protocol itself is pretty low level, it's pretty basic if you look at it, right, it's just a very simple... The most native transaction on a blockchain is moving value from one token account to another token account.

And we've put some specifications around that to put in like transaction identifiers and things like that. The real innovation is really going to come thinking about what are the new features that can be built on top of this. Now some of this will look like traditional commerce things like offers and loyalty, but there's a whole new set of commerce related features and consumer value props that have yet to be discovered. And I think that's what's really interesting is that there are going to be new businesses built on top of these protocols that will leverage the power of the blockchain. Because this technology opens up, again a peer-to-peer connection between a merchant and a consumer, eliminates the need for intermediaries, and now it gives power back to the merchants. So both the customer relationship, the data, and power in terms of controlling costs.

Austin: (18:00)

Sort of to push on that little, payments has been the killer feature of blockchain since blockchain became a thing, but there's been no real successful blockchain payment systems that have really emerged. I think the closest is there are some exchanges where you can get a debit card that allows you to spend out of your exchange account, but that's still a custodial relationship with the exchanges holding your tokens. The places where USDC and other stablecoins have been really successful is not on the payments level as much as so far has been on that sort of collateralization level or within the DeFi space. So Sheraz what about both Solana pay or Solana is actually making this a useful place for payments to actually go mainstream?

Sheraz: (18:48)

So yeah, absolutely crypto payments have been tried before. I mean, it's been talked about ever since maybe the pizza example. The problem is the traditional approach to crypto payments have been settled with several problems. So the first of all is that merchants don't want to settle in volatile currencies, right? With some edge cases aside, most merchants say, "I want to settle in US dollars or something that is the equivalent of a US dollar." Second is that the blockchains in the past have taken minutes or longer to settle, and that just doesn't work when you're trying to complete a transaction right? On an e-commerce site every second, that delay is more card abandonment, so waiting minutes for a transaction to settle just doesn't work. And then blockchains, transaction fees that exceed the actual cost of the item that you're buying just doesn't work.

So to alleviate all this intermediaries came in and said, "Okay, great, look, I'll remove some of this friction for you. I'll exchange the Bitcoin and settle with you in US dollars. Oh, and by the way, I'll take on some of the risk of settlement taking 10 minutes. I'll give you an instant authorization and I'll just settle with you 24 hours later, and I'll eliminate some of the fluctuations in network fees. And for all that trouble, I'll charge you 100 basis points." And then it starts to feel and look a lot like traditional payment systems where you've got an intermediary, there's a lot of friction and a lot of cost and an intermediary is saying like, "I'll simplify all that for you, and I'll charge you a hundred basis points. And by the way, I'm the intermediary between you and your end customer."

And that's really, well from what I've seen, what the attempt at crypto payments have done. What's different now is a couple of things. So one is rise of stablecoins and specifically USDC as a US dollar backed stablecoin. And then the Solana blockchain technology that has the speed throughput and low cost that eliminates a lot of that friction. Right now you have instant settlement, you have costs measured infractions of a penny, and you have throughput. You're not dealing with congested blockchain networks.

And then the other thing is we now have a growing interest in crypto, there's tens of millions of wallets out there. People are more and more kind of normies as we call them, I guess, are dabbling into crypto. And I think you're going to see two kind of mental models, right? One is I buy crypto for speculation and investments, but I think more and more people are going to realize like, "Oh, I can use this for transactions. There are transactional currencies that I can use that provide me utility." So I think there's the combination of all of these factors coming into place with these new technologies are kind of going to give crypto payments a new shot in the arm.

Jeremy: (21:36)

Yeah. And I would just add to that just at a high level, I think one thing to note is stablecoins and public blockchains have achieved an astounding amount as payment system. I mean, these are decentralized infrastructure, running globally, supporting literally trillions of dollars of transaction throughput, and supporting pretty material volumes that have grown, and including in a wide variety of payment use cases. And we see that all the time, the number of businesses that are just signing up for Circle accounts, because they want to use USDC as just a payment medium outside of the markets themselves. And so it's a pretty amazing achievement, and that's happened in a very short period of time. I think there's many, many thousands of products and services that have integrated USDC.

It took like 50 years to get to like 10,000 issuers, which are people who have integrated the visa credentialing. And so the adoption of these standards is happening at a really fast rate, which ties into the other piece, which is there have been a number of things that have been really necessary. I think one has been regulatory clarity, people being comfortable that this form of dollar is as good as an ACH dollar or a credit card dollar in terms of its usefulness and its legal clarity. Businesses knowing that these are legitimate financial infrastructure that they can rely upon and build upon. The other's been, as we've talked about here already is just the reality of the economics, the unit cost of transaction, the speed of a transaction, and through platforms like Solana, we're seeing that be solved for.

And so I think what we're seeing is many more businesses, large merchants, traditional digital wallet companies who have large installed bases of consumers who want to wire up these protocols. And I think it's not just that they want to wire them up because this is a way to pay businesses. They want to wire them up, because these are interoperability standards that make it possible for digital wallets everywhere to kind of share value with each other, which is kind of moving outside of walled gardens and into the open internet of value. And so we're seeing all those kind of combined with each other and those are all mutually reinforcing factors that will then I think have more and more businesses saying, "Why don't I just add this as a payment method?"

Sheraz: (24:00)

As Jeremy said, I think in payments more broadly, tremendous traction and use cases and international remittances B2B. My view is a little thinking more about specifically about like retail, consumer emergent payments. And I think there's this open question that I keep hearing is like, "Well, we can't use USDC to buy milk." Well, we ran a physical point of sale transaction using so Solana pay and purchased a gallon of milk. So we're happy to share the video of that, but wanted to demonstrate how simple it is to use this currency and set up a small mom and pop with our in-store web app.

Jeremy: (24:40)

I mean, it reminds me of when the web was taking off and it was like, "Well, you can't use the internet to do this, this and this." And people are just wiring this stuff up and it's going to become something that's just so extraordinarily common and every business will be... they'd be idiots not to take digital currency payments as an alternative to the things that they do now, just like they would've been crazy not to set up email accounts or let customers contact them through the web, or through an online forum or through a Facebook page or whatever. It's just, these are just going to be, you have to do this if you just want to be a native internet business.

Austin: (25:15)

Look, the Internet's great, but all I can buy on amazon.com is books, and I can do that at my local bookstore.

Jeremy: (25:20)

Yeah. Right. Yeah. Yeah.

Sheraz: (25:22)

That's right.

Austin: (25:23)

So Sheraz, when you're talking about this tool kit for Solana pay, what is actually live now, if someone is interested in actually setting this up for their business and enabling people to buy a gallon of milk with USDC, what's that toolkit look like, and how could they get started?

Sheraz: (25:39)

Sure. Yeah. We have a physical point of sale client, which is a simple web app. It's a very dead simple onboarding experience as well. We have an e-commerce SDK as well, so if you have your own website, the tooling is there to support both QR code payments and browser plugin. And we have a great set of partners that are working with us to both distribute these tools and help us build the future of this protocol and specification.

We have integrations with a set of wallets, FTX, Phantom, and Slope and others on the way. You know, part of the goal of this is that this is the first at bat at the first inning. We've built some of these tools to provide some reference implementations and tooling for people to start building, but there's a whole roadmap of additional things that we want the community to build with us.

Jeremy: (26:53)

Yeah. And we're super excited at Circle to support this. And we see getting these kinds of standards adopted in more and more wallets, it's great to see. And I think we're hoping that standards and efforts like this can get adopted in many, many other kind of crypto native wallets and other digital wallets that are kind of coming online to support USDC payments.

Austin: (27:15)

So, Jeremy, with this sort of front end component where you can now receive payments and USDC via Solana pay there's a whole series of other tools you're talking about, whether it's deposit into accounts for merchants. How soon of a future do you think it's going to be possible for someone to run a business, and make payroll and accept payments without actually having a bank account?

Jeremy: (27:39)

I think we're getting really, really close to that. I think with a Circle account, we provide businesses with the ability to open an account, it's got multi-user support, and administration so you can have multiple employees or people in your finance department using it. It provides on chain payments across multiple blockchains, it provides legacy bank payments, so if you need to get money out into legacy bank accounts, you can do that. We have a pretty exciting roadmap for new things that we're going to build there, so that kind of interoperability with legacy payouts is important as well. And then you have the ability to take your working capital and put it into yield. And so as you collect payments and you have working capital, you can deploy that and generate high interest rates on your USDC.

And so those are things that are there today, and there's obviously a lot more that can be built out there. We have a pretty exciting roadmap for things that we're building. We want really any crypto native business clearly to sort of make this their global financial account for their startup or their growth company, but more and more traditional companies as well, who are getting into this who want to use this as payments infrastructure, but then will tie it into some of their working capital management and treasury management.

And then underneath that is like any developer that really has something they want to do custom, everything is just a platform. Everything's a set of APIs that you can build on. Developers can automate all the different rails. They can automate how they store and move funds. They can kind of control all of that in a very, very fine grain way. And so while there is like that self-service experience, but a lot of startups want to kind of do this unique to their business so they can automate more and more of it. So we think this year is going to be a year where these types of hybrid digital currency bank like products are really starting to take more and more hold.

Austin: (29:33)

Yeah. So, sort of along those similar lines, the existing payments rails and industry is one where a lot of it still runs on data collection and data marketing as a way to help subsidize the cost of running a lot of those rails, right? Whether it's American Express offers or whether it's something like a company that actually is tracking purchases that are made in-store and using that to do marketing through direct mail or other means. How does data privacy play in both with Solana pay and Circle, and how are those things part of your decision making framework?

Sheraz: (30:08)

I think one of the most important aspects of the whole notion of the peer-to-peer transaction and removal of intermediaries is that now when you're accepting as a merchant, accepting a payment through this per protocol you're not necessarily going through Google or Apple or MasterCard or Bank of America or some other intermediary, right? You have a direct connection with that consumer, and because of that you're not potentially losing data. You don't have third parties accumulating all of this data. And the beauty of this protocol is that it's open, so any merchant could take this. We're not pushing an end solution down anybody's throat, this is an open decentralized protocol. Any merchant could take this and build the equivalent of the Target Red Card system, which is a very popular solution that Target built or the Starbucks closed loop payment system.

So I think the most important thing is that if merchants have control over commerce and the protocol is open and they can kind of craft on top of it, it gives them much more control over their data. We also have under development APIs as part of our core token program that can provide additional layers of data privacy. So we have a confidential token API that's under development. And there's a lot of technological solutions that can be built in to give either the consumer or the merchant more privacy, or whatever level of privacy they're interested in, but the key is they have control, they're building it in the way that suits their business needs.

Jeremy: (31:41)

One of the principal benefits of digital currency and stablecoins and public blockchains is the higher degrees of privacy and security that they afford. And I think that's something that people value and it's inherent in the architecture of these cryptographic forms of money and that's really key. And so we merely provide ways to interact with that infrastructure, and so we don't really stand in any specific data around users in that way. And even new technologies that we're working on in digital identity are designed to use cryptographic proof of identity, not pass around a whole bunch of PII. And that's going to be really critical as you start to marry digital identity with payments, with merchant behaviors. How can I, as a consumer present myself and prove to a business that I'm a legitimate individual that's been compliance checked, and make a payment to you without bleeding all my PII to you, and for me as a business to say, "No, I know this is not a drug trafficker or a terrorist or what have you that I'm transacting with," and have those settlements be fast and secure and final and private?

So I think those are really, really important things. At the same time I think that the building blocks of crypto give us new tooling for incentivizing customer relationships in new ways. NFTs and commerce are really powerful, powerful phenomenon, which we're seeing early experiments in. But I think for businesses that want to entice customers to give them more information or have a more direct relationship and where that information exchange can be valued in some way, I think NFTs create a really interesting and powerful way to do that. And that's something that can be direct between the consumer and the business and not something that's, again, bleeding all that information and out to other networks that are repurposing that. And so I think there's a chance to rebuild customer loyalty, incentives, loyalty marketing, and secure privacy preserving payments in a way that's superior to what we have with existing electronic payment systems today.

Sheraz: (33:58)

Yeah. It's like being a founder or an entrepreneur in 2000, right? Think about all of the things that needed to be built then and were built. And we are just on the starting point of this. So I think it's an exciting time to be an innovator and a developer and a founder and an entrepreneur.

Austin: (34:20)

I love that vision for the future. So, one last question before I let both of you two go. Riptide, the Solana global hackathons going on right now, if there's one thing that you would love to see a team build coming out of this, what would it be? And Sheraz, we'll start with you.

Sheraz: (34:38)

Sure. I mean, there's a bunch. I think one thing that could be really interesting is what does buy now pay later on chain look like, right? So we have so many crypto users that are sitting on SOL, and other assets that they want to hold that right, they're hold all that. They don't want to use that for transactions. So how could we enable so someone to purchase from a merchant using Solana pay, over collateralize their SOL holding and just buy now pay never? Use your staking rewards to pay for the purchase, call it buy now pay never. That's one example, that one could be really interesting.

Jeremy: (35:18)

I think we're excited to be part of the hackathon and putting forward some of our APIs that can be worked in conjunction with Solana pay as well. And so, I mean, just generally, we'd be very interested in seeing people who are building wallet experiences that are geared towards payments, whether it's a P2P payment or a person-to-merchant payment in particular, but really building experiences that are optimized for that flow, as opposed to being a DeFi Degen, or trading. And so I think those kinds of products that combine person-to-business and person-to-person payment experiences that abstract away some of the complexity, and then do that around these standards, I think we're super, super excited about that. And we're obviously excited to see what comes out of the hackathon. We're investing in a lot of companies now, and so we'll be watching really closely, because this is a space that we'd love to be investing in as well.

Austin: (36:20)

Well, Jeremy Allaire CEO of Circle Sheraz Shere end of payments at Solana Labs, thanks for joining us today.

Sheraz: (36:26)

Thank you, Austin.

Jeremy: (36:27)

Thanks.

Austin: (36:32)

Hi. Welcome back to the Solana podcast. Today we're also joined by Bradley Riss, who's the chief commercial officer at Checkout.com, along with Sheraz Share, the head of payments at Solana Labs. Bradley, welcome.

Bradley: (36:44)

Thanks for having me.

Austin: (36:45)

Great. We'll start out with kind of a quick overview. What is Checkout.com, what's this role in the payment ecosystem, how'd the company get started, and what's your involvement?

Bradley: (36:54)

Sure. A bit of an ocean boiler potentially, but I'll try and keep this concise. In the traditional world of e-commerce, certainly up until recently, the way that a merchant, so a website that you were on would be accepting a payment was by interacting with multiple providers. They may not be aware of that, but if I say names like Visa, MasterCard, or your issuing bank who gives you your card, acquiring banks who acquire transactions, processing platforms, which is the technology layer, gateways, fraud platforms. There's a lot of actors involved there. In a nutshell, what Checkout did was collapse many of these, so the gateway, the processing, the fraud, and the acquiring into a single organization, a single platform, which customers, typically merchants, and that could be major fintechs in the traditional sense like Wise, like MoneyGram and people like Netflix, people like the DM Project.

We've had many, obviously people working with us globally over the years. The core value we provide is always the same. They connect into us and we connect them to their customers and who ever their customers want to pay them for goods or services. On the flip side of that coin we also help them with distributing funds out. So you can imagine that working well in remittance businesses, gig economies, and such like... Obviously as it relates to this conversation today, there's a lot of promise that blockchain technology brings and being able to either make minor steps forward or really paradigm shifts forward in how value is moved around the world, which is why we are looking very keenly at how we can engage better or for very fully in this promising new era. My journey is very much payments up to my neck. I tripped into Web 3.0, as I think a lot of people did around 2018 in a few different ways, but it's become a really concerted focus, both for myself and for Checkout as an organization over the last year or so.

Austin: (38:48)

I think I remember maybe a year or two ago I saw a chart of, I think it was Airbnb and they had maybe 10 ways they receive payments. And there was about 40 different outflows, which included things like a courier who brings cash to someone's house in some countries. How do you guys think about, what are the different both input and output systems that you're going to enable for customers?

Bradley: (39:11)

Yeah, it's a very inefficient world in many ways. If you think about payments and this now comes right into relevance of DeFi CeFi, centralization, decentralization. Centralization, normally ties in very closely with regulation, and regulation and legislation tends to be very much controlled on a nationwide or in places like the European Union, a group of nations. It doesn't mean that those nations in any way interact with each other of course. So if you're looking at the Airbnb example, if they didn't have a local entity local bank account in a given market where they needed to get funds to a host, they have to think of workarounds for that, which can be very asynchronous to be polite, or just incredibly expensive and inefficient if you're to talking about someone actually couriering cash directly to someone's address.

So putting that to one side, if you look at the promise, of course, that blockchain brings, and this I think was one of the earliest use cases that was touted around Bitcoin back in the day was, "Hey why do we need all these actors? Wouldn't it be easier if we were able just to send money outside of regulatory or technology platforms and complications?" And I think that's where if you're looking at the Airbnb example, one of my favorites to look at is kind of gig economy. There's a lot of freelancing work that's increasing. Obviously skill sets can be found all over the world and there're various platforms out there: Fiver, freelancer.com, Upwork.

Bradley: (40:39)

I always think of these guys when I think of these use cases, but if you are a US SME and you want to get cheaper web development work, you're probably not going to send that to Silicon Valley. They're quite expensive there these days, developers. But there maybe someone just as talented who's in Kenya or Bangladesh or an emerging market somewhere. Now they may only charge you $100 for that transaction, but if you don't have, again, that entity and bank account infrastructure locally in the destination market, it's really not easy to move those funds. And even if you do, you would still have to send them bank to bank, which is going to cost you.

Obviously the worst case scenario really is SWIFT, where it can take up to five days and cost you up to $35. So if you imagine, if we were able to run this on chain, now that person who's completed the work can be sent the full $100 instantaneously seven days a week on demand. So it's a paradigm shift forward, taking five days to zero and taking $35 to zero. It's a rare jump forward that you don't normally see in any sector. And that's where I look increasing at the promise of what we have here. It won't necessarily be everything will move on chain. And Visa and MasterCard out of business in five years. I don't think that's the future, but I do think convergence is going to be what we see increasingly over the coming few years.

Sheraz: (41:59)

I was just going to add one thing I think people often say, Well, hey look, blockchain and crypto has been around for 10 years, and all of these use cases you've talked about in many cases have not materialized. And I think a lot of that has to do with how nascent some of the technology is. And not to turn this into an ad for Solana, but what drew me to the Solana blockchain when I heard about it was the speed and scalability. So if you think about use cases that require high frequencies of transactions or low transaction values, those are the use cases of that struggle, because if you have long settlement times or network or gas fees that are higher than the actual transaction value, those use cases are just not on the table. And I think what's exciting now is with performing blockchains with speed and scalability like Solana is that it opens up a whole new set of use cases that weren't really thought before. And that's one of the reasons why we're looking at consumer merchant payments.

Bradley: (42:58)

100%. We've got to remember that we're still at the beginning. It may feel like we're much further along than that, just due to the adoption, the amount you can read about it on Twitter or anywhere else, but this is the Cambrian explosion to use that terminology. We are testing lots of things out. There will be many failed experiments, but there will be certain things that evolve and become mainstream. If we look at what the Bitcoin blockchain was way back when, I mean, when was it that even proof of stake became even apparent in the industry and obviously proof of history as it pertains to Solana, feels like, again, another step forward to your points around cost and scalability, and things like micro transactions just wouldn't be possible on a high GASB network. But obviously gaming use cases are potentially very attractive as we look at how we may see cryptocurrencies themselves actually move into more of the mainstream world.

So we're at the very beginning and I completely agree with Sheraz, there's going to be failed experiments, but the important thing is there's lots of experiments because there's clearly value that we are going to find it. And some of it now is being realized, where 2013 I don't think anyone really knew what Bitcoin was or what to do with it. It was a digital gold for millennials, it was an inflation hedge. Well, as we're seeing it doesn't seem to be an inflation hedge, but there's definitely value outside of it, outside of Bitcoin itself, and based on the underlying technology and where the technology is still to evolve to.

Austin: (44:20)

So Bradley you and Checkout.com recently raised about a billion dollars at $40 billion valuation. At least a lot of the coverage of this was that this was largely driven or driven in part by your work as a payment processor for a number of different exchanges, Coinbase, FTX, MoonPay. So two questions here. One is, what's sort of the difference in the way that you approached that market, that you've been able to sort of capture so much of that? And what's the interest now in moving from the traditional payment rails to your support of Solana pay?

Bradley: (44:55)

So payments definitely changes depending on who you are, as in, if you're a merchant selling t-shirts versus someone selling a gaming good or service. There are different ways that you'll approach things. You may be more cost sensitive, you may more fraud sensitive. Some of your customers may prefer different types of payment methods, but cornerstone of all of this is the same. If we can build the most efficient direct connections to each payment instrument around the world, that probably has value irrespective of what industry you're in and the same applies with crypto.

So a lot of what we've built out over the years for people like Wise, like Revolut, those connections for the world's largest fintechs worked just as well for the new generation of fintechs in the Web 3.0 world. They may be CeFi or not, but yes, likes of Coinbase, FTX, finance, others who you mentioned are all running on Checkouts rails today for many of the services I described at the beginning, predominantly helping with accepting fiat into their ecosystems and distributing it out.

And of course that's a key point because while the growth in crypto assets is pretty undeniably a one directional curve, we can obviously do a line of best fits over each cycle, but it's definitely going up and to the right. Most of the value in the world today still resides in fiat, so there is a need to be able to get fiat initially into that Web 3.0 ecosystem. And on the flip side of that coin, there's also a last mile problem as well in crypto today is that if I have Eth or if I have SOL, or if I have BTC, it's very hard for me to actually go and spend that anywhere. I have to go through this conversion to get it back into fiat, which the local 7-Eleven or whoever will accept, and that obviously adds friction.

That's not the fault of blockchain technology, it's just the fact that adoption takes time. And we have haven't yet seen that at the merchant level, by and large, although that is changing. So that dovetails nicely into the second part of the question, which is if I'm someone who has most of my net worth in crypto assets, or other, it's not very efficient for me to have to convert them to then use them. And I think that's something which bridging, we can call it what we want to the traditional world you do need to enable acceptance. And that starts with merchants being able to accept SOL natively. And that's obviously just the obvious use case of where Solana pay comes in.

I think we can look more broadly than that though, as well. Why are going through crypto exchanges or banks inefficient? Well, people don't realize this, I'm sure most people on this call, or listening in have done this conversion themselves numerous times. If you're checking what the rates are on any exchange, you're going to see that you're probably getting a pretty hefty markup. So it's not efficient. You're losing value when you're converting back into fiat by and large, but there's also other benefits. And I think this is where we should look more broadly at what the Solana blockchain can actually facilitate. And people, again, probably relatively familiar with this, but incredibly fast processing speeds. It has again, limited counterpart risk based on just how blockchain works to begin with, incredibly scalable. That's very important. Visa, MasterCard are very good payment networks, they really are. They can process a lot of transactions, but Solana can too. Cost can be almost zero.

Again, it's on chain, so you can actually trace historically transactions. So there's a lot of efficiencies that you see there. So it's not just a case of allowing people to use their preferred form of value, which I think is how we should view the world. I'm living in America, but as you can probably tell by the accent brought up in Britain, so my wealth is in GBP and USD let's just say. But hey, it's also in crypto assets these days as well. When I go to the UK I use GBP, when I'm in the US I use USD. So when I'm in the Web 3.0 world, or even the Web 2.0 world it's online, everything is very globalized I want to choose what I use. I want to be able to use my GBP card, my USD card, or I want to be able to use my SOL balance depending on what I feel is right for me at that moment.

So I just think there's a lot of opportunity for merchants here to unlock what is, let's face it, a very affluent consumer base and a very fast growing consumer base. So we're at the beginning, again, I don't think that if you turn on any crypto payment method, it's going to become the majority of your checkout overnight, but then merchants choose to offer PayPal and Amex, which are also very rarely the majority too. So it's about giving optionality to the end consumer and understanding that just as you have customers who want to use PayPal, others who want to use Amex, some who want to use Visa, we now live in a world where people are going to want to use Sol and Solana.

Sheraz: (49:14)

Just to add to that, I think part of what we are thinking about as we think about Solana pay is jumping a little bit ahead to maybe this utopian world that all of us in crypto believe in where digital dollars or crypto becomes a transactional currency, right? So whether it's USDC or some other stablecoin, the idea of a merchant being able to, not just accept that digital dollar, but being able to pay their invoices, being able to pay their payroll in this. Once it becomes a transactional currency, then it becomes less about crypto payments and the novelty of saying like, oh, "I want to pay with Bitcoin," and it becomes more of just kind of the oil in the engine. And then it's really about what are the interesting value propositions we could build? What does Web 3.0 enable that wasn't possible before?

So some of the value props may look similar to things that we've seen before, like offers and loyalty, but I think there's a whole new set of things that, again, as I mentioned in the previous segment, what does giving a merchant a direct peer-to-peer connection with their end consumer, what does that enable? So NFTs are all the rage right now, very simple example, I think I gave earlier is like the ability to throw back an NFT for every purchase or maybe for certain consumer packaged goods, or if you're a brand manufacturer, for example, right? And now you've got a whole community of users that have tokens that represent the purchase of your product you can create communities around this. So payments, as you know, Bradley and I can attest to is actually a pretty boring and uninteresting industry. It's really the commerce and commerce experiences that you can build on top of payment rails. That's where I think that will really drive adoption in the future.

Bradley: (51:09)

Yeah. I mean, the composability of the Solana blockchain, we're at the very beginning of that journey. Your point about loyalty is absolutely spot on, but it's also interesting to actually analyze the different transaction types, because you mentioned things like peer-to-peer, but then you also have business-to-business, and then you have more traditional merchant services businesses where merchants are accepting payments from individual customers. And each of those actually has different relevance or blockchain or Solana pay has different relevance to how those can be optimized. But I think that, again, we're at the very beginning of this journey and the fact that we will be able to build so many other features on top of this is going to allow amazing ways for merchants to better interact and build relationships with their end consumers.

Austin: (51:47)

So when Checkout.com looks at a new payment protocol like Solana pay, what do you see that as having the ability to deliver to merchants and users of the Checkout.com platform?

Bradley: (51:58)

So many of the things I just said is then if it's cheaper, faster, more efficient, more traceable, safer. I mean, all of these things sound like good things. And if you offer a merchant, a cheaper form of payment that is used by a very affluent customer base, and it's, by the way, what they prefer to use, it seems like a bit of a no brainer that they would want to offer that. To take a slightly more kind of philosophical view it's very easy when you've been very good at something for a long time to have a myopic focus. And by that, I mean, if we as Checkout viewed our job as moving US dollars on Visa or UN on Alipay, then we're probably doing ourselves a disservice. Yes, we've been very affected at that historically, but we live in an ever-changing world, and I think a broader definition of how we're approaching this is looking at value.

So if the definition of value is evolving, then of course we need to maintain our leadership or current status on that. And again, this goes back into the broader question of do we think that crypto assets, blockchains are here to stay? Do we think that the, whatever it is now, 11 billion TVL in Solana is going to only increase over time? Yes, I'm pretty bullish on that. Then this is an emerging form of value that clearly has wide global adoption already, and looks only set to grow. So it would behoove us to add that as part of the overall value transference stack, if customers are viewing value in a different way than just fiat currencies. And if merchants are viewing value as broader than just, again fiat, then of course, we as a service provider need to, not only keep up with that, we need to ideally be ahead of that.

And that's what we look to enable I think always in the products we build, but especially as we look at Web 3.0 more broadly is that there are clear benefits based on the underlying technology. And there's clear adoption and use, clear demand from the merchant side, and clear demand from the consumer side. I mean, all the horses in the front of the chariots are pulling in the same direction on this one.

Austin: (54:00)

So, when you talk about sort of that merchant demand, what does that kind of look like? What are the kinds of merchants you're hearing that are particularly excited about crypto payments and Web 3.0? Is it small stores that are looking to save a bit on processing fees for payments, or is this like larger merchants as well that are looking to solve maybe more complicated problems with the payments network?

Bradley: (54:22)

So we can break that down. We can look at the different types of payment. Again, we can look at peer-to-peer business, to business or consumer to business. Let's put that to side one second. We can also then look at it from a vertical perspective. If I'm an airline, why would I like cryptocurrencies? What do they offer to me that I may not get from a fiat currency today? If I'm a gaming merchant, again, the same question and apply to each different vertical. You really have to look at your customer demographic as an individual merchant, because it's not always going to be the case today that you have early adopters in the Web 3.0 world. For other businesses, of course, you will. Intuitively we may say, we would imagine gaming, for example, with a generally younger trending demographic, generally being very tech savvy are probably more likely to be early adopters, and therefore more likely to have much of their value today stored outside of centralized systems.

So of course you would say if you're a gaming merchant, maybe it makes more sense for you to try and pilot this and see if you are having adoption. But that's how we should always launch things, we should always measure. And I'm not going to name anyone on this one, but we've seen gaming merchants where they have both fiat and cryptocurrencies enabled. And in some cases they're seeing up to 30% of transactions take place on crypto. That's not the norm, it is definitely an early mover, quasi outlier, but I think it's the beginning of a trend. If they tried to do this five years ago, it would've been 1%. So everything's moving in that direction.

Austin: (55:50)

Do you have a sense of what some of those drivers are that are pushing crypto up to 30% in certain payment domains, but then are there broad characteristics about either those businesses or the kind of users they have that you think makes them more receptive to crypto payments?

Bradley: (56:08)

I think it depends on what they're trying to solve for as well. And it's hard to answer this without going into many examples. So I'll try [inaudible 00:56:13] you quickly. If I'm an airline, what's one of the biggest problems that airlines face is credit risk. If they have flights and lots of cancel, then they face these things on cards called chargebacks or on bank transfers called reversals. And guess what, with a crypto a currency transaction, and you could argue that this is actually a bug, not a feature it's very hard to reimburse someone or there's definitely no obligation to. So from an airline's perspective, they now have a way of taking transactions that are effectively for them much lower risk.

For a gaming company, they may have a user base where to touch on an earlier point, the majority of their customer's value is stored in a cryptocurrency. So allow them to use that in the most frictionless way possible, which is definitely not going to an exchange or a bank and trying to convert it back, and then loading it up onto a card and then using it.

Equally, if we start looking at those three different use cases, if I'm a merchant thinking, "Do I want to enable cryptocurrencies to my customer base," well look at your customer base. You can do pretty easy research on where adoption is taking place today and who is likely to hold cryptocurrencies or crypto assets. And if that overlays heavily with your customer base, maybe it's worth trialing these, and seeing if customers are actively choosing to use that. If you see success well, what are you rewarded as? Well you'll be rewarded in a payment method in a theory, you can settle to you seven days a week instantly, can be almost zero cost, and of course if your customers are choosing to use it, you're doing a good job by them in localizing your checkout page and giving them the methods they actually want to pay with.

If I'm talking about a business-to-business transaction, I could be talking about a large dollar of amounts with a lot of potential risk involved, that could be between two parties who don't have that much familiarity between each other. Again, running transactions on chain provides some level of security, but also a lot of efficiency. That money can move instantaneously without a lot of checks or balances needed to be arrived at by different regulatory environments on either side equation and the same again, peer-to-peer. We've seen this with some of the scaling networks on various other platforms as well, but if you have two individual parties, the easiest way for them to interact with each other is directly with a single network participant, as opposed to having to have a multifaceted approach where you have multiple parties involved, touching the funds along the way.

So there're efficiencies across the board, but really, you do have to look at it through the lens that pertains to your business. And that looks at both your customer demographic, your cost centers, your risk appetite, the locations, your base. So it's not easy to say as a blanket, "Here's when you should, and here's when you shouldn't." But it's that broader point is that if you believe that crypto currencies are relevant and are going to become more relevant, you have a choice at this juncture to be an earlier adopter you can be a fast follower. But I think at some point you're going to have to accept that this is going to form part of your overall commerce strategy.

Sheraz: (58:58)

Just to at a point here on the consumer to merchant side and with merchants, the larger the merchant you're talking about, it can actually vary depending on which part of the organization you're talking to. So a conversation with a CFO versus a CMO can be very different, and they could both have an interest in crypto, but for very different reasons. So for example, a CFO or a treasurer is like looking for operational efficiencies, low cost, and all the promise of cheap transactions. CMO might be thinking about some of the stuff Bradley was talking about is, how do I reach a different type of a customer base, what are new channels of engagement with these customers, and then some of the future looking stuff on what can Web 3.0 enable? So often it's a very different value proposition, even within the same organization, depending on who the stakeholder is that's advocating for it.

Austin: (59:49)

So Sheraz, looking at something like Solana pay, what about it makes it a good fit for e-commerce merchants, or those who are trying to do non in-person crypto payments?

Sheraz: (01:00:02)

I think there's the baseline efficiencies, right? So the speed and low cost. I think one of the things that we've talked about a lot is the removal of intermediaries. So because payments come with a lot of friction and with friction comes cost and intermediaries I think that's been one of the challenges, feeling like you as a merchant are losing control. For example, even of data, right? So I think for an e-commerce merchant, or even in-store payments, the ability to have that direct connection, the speed and efficiency of the payment. And then I think, as I mentioned before, some of the promise of what's possible on top of Web 3.0 and some of the use cases that you can enable when you do have that direct peer-to-peer connection between a merchant and consumer.

Austin: (01:00:54)

So Sheraz when you look to future innovations for merchant payments and consumer payments on blockchain and Web 3.0, what are you hopeful for or what do you think still needs to be built, and kind of where are we today in that process?

Sheraz: (01:01:06)

So I think what excites me the most is because our approach to this is at the protocol level, making it open and decentralized, my hope is that we can democratize a lot of the things that where traditionally only available for large merchants. So if you think about, for example, the Target Red Card or the Starbucks closed loop payment system, brands that have very loyal customer bases that are very interested in engaging with the brands, traditionally again, available to large merchants that have the resources to do this. So my vision is since this protocol is pretty basic and simple, and could we have developers, entrepreneurs, companies like Checkout build solutions that democratize this, so a small business could build solutions like this or medium size business, or even large merchants that want to have more of a direct connection with their consumer, and really take more control of the commerce experience?

Bradley: (01:02:03)

Yeah. I'll build off the back of that. I think democratization is a really good word to use it, because it's about financial inclusion in many ways. And I'm going to ask this in three ways, the thing I'm most excited about is some of the promise of DeFi being realized. And I'll give a quick example here. I mean, imagine if you have the ability to send money peer-to-peer around the world, great that's hugely important for example, immigrant families who are supporting members back home. This is going to help with their lives tangibly, but we can take this a few steps further. Perhaps you're in a market with aggressive, local inflation of your currency. You may prefer to assets outside of your native banking network. We can now facilitate that, even more so we can actually give access through synthetics and other vehicles like this i