Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-suite and executive boardrooms worldwide. Today, we’re exploring the future of money, and I’m happy to be joined by Nish Dharmaratne, Managing Director, Global Head of Product (Payments, Liquidity, and Digital Solutions) for GTS Westpac. She also is a board member for the Australian Payments Network and an advisory board member for Women in Payments. I’m pleased to hand off interviewing duties today to my Protiviti colleagues, Director Ruby Chen and Senior Director Rupesh Mahto. Rupesh, I’ll turn it over to you to begin.

Rupesh Mahto: Nish, so good to meet you again. It’s always a pleasure to talk to you about what’s happening in the payments world. Thanks for doing this for us.

Nish Dharmaratne: Thank you, Rupesh. Thanks for the opportunity to join you and Ruby today.

Mahto: So, Nish, as you are at the center of payments, there has been so much impactful changes in the payments landscape over the past few years in Australia. I can name a few. Like real-time payments, using NPP, Osko, and now PayTo. There have been strong advancements of mobile app payments. There have been great developments in open banking and how to make payments frictionless using the infrastructures that we have developed over the years in Australia. My question to you is, what’s next? What’s going to change in the next three to five years?

Dharmaratne: That’s really a good question. I’ll break that into a couple of parts. In terms of trends, clearly, there are trend-setters and trend-setting, and opportunities that’s plenty. What is really interesting, Rupesh, is in general the payment volumes have been growing. As we all know, the way in which the Australians are making payments have changed, but the most important point is the way in which consumers, particularly individuals, the way they have started adopting into the new payment solutions. What is most interesting is also younger consumers, between, say, age 18 to 29, are the highest adopters of mobile devices. So, the demographic and the flavors are changing, which is also, obviously, helping to set the trend.

I think we are also picking up a number of global trends. Obviously, the wallet usage of mobile wallets has picked up. It’s part of a very tech savvy consumer who wants to make the payments. Whether you make a payment here in the Australian market or overseas. What is also interesting to see is the decline in cash. So, there has been a 90% plus decline in the cash usage in the last—again, in the last decade also and very small population of institutions using cash for various very specific payments now. So, if you will think about it, the overall trend is people are becoming more and more savvy with payments, which wasn’t the case in the past, because average consumer would walk into a bank branch most likely and discuss their payment methods. If they are making a payment overseas or if they are making a payment to buy a house, there are very specific requirements to meet. Now things have become extremely merged into a very, very digital experience. So, the Australian Banking Association, they prepared a report around digital wallets. One of the points that came up in that is about 746 million was the usage of digital wallet total usage in 2018. It has gone to a staggering 93 billion by 2022. So, a lot of these were based on people are registering their cards into the digital wallet which is now standing to be about 15.3 million registrations of mobile wallets. So, that’s clearly one trend which is—I feel that the consumer choice and consumers are making decisions.

The second one is payments going real-time really, really, really fast. We make about 650 billion worth of payments every day. Most of you, and Rupesh, you mentioned, is that the Australian real-time payment system, which is also called New Payments Platform, NPP, it has grown since its launch back in 2018. Today, this payment process is about 1.3 billion transactions and $1.5 trillion worth of transactions. It is still not at the 100% usage. If you compare with the 650 billion we make, it’s still—only a fraction of it has moved to NPP. As you rightly called out, the new functionalities or overlay service that are getting built on top of real-time payments. Things like PayTo, which is equivalent of a request to pay service in other markets, is actually going to change the game really, really quickly next year. We feel that there are not only banks at play anymore because usually we have four major banks and about 20 other tier two, tier three banks, and then there’s about hundreds of credit unions and smaller agencies that provide banking services. But when you look at the NPP there are a hundred payment providers connected with NPP. They vary between fintechs, new ventures, up and upcoming companies that are providing different parts of the payment value chain. So, the reach is higher because it reaches about 90 million customer accounts, and the depth is getting better because of the different types of solutions. All these hundred providers are wanting to provide to the market. So, I feel that the second trend, as I mentioned, is how fast can real-time go, it’s going to go really, really fast.

Mahto: I totally agree. The payments which was quite invisible in the ecosystem has started becoming quite visible to our end user. My question to you is, from you, wearing a Westpac hat, how are you taking care of end user experience as a key differentiator in your role?

Dharmaratne: There are literally two camps as far as the Australian market is concerned. The larger institutions, banks like ourselves, and then there are institutions that are—that have been investing through various investments into fintechs, financial technology. Now, there’s a lot of collaborations going around, but at the same time, we are all used to batch-based payment systems. What it means is we accept the file from a customer and we process two times a day and we are done by the end of the day if possible. The customer then gets the money in day two or day three. Now, that really has changed in the last few years anyway because of the introduction of APIs and host-to-host systems being in a mature stage anyway. What is really interesting about the technology is if you look at the way in which the banks themselves, put together just the banks, invested 28.5 billion from 2005 to 2022, and this is also ABS statistics I’m sharing with you. What that means is, banks have invested eight times over to their technology. So, that clearly says that if you are an institution which is not cloud native, not on cloud, has legacy infrastructure, you got to move and you have a plan to move to cloud. If you haven’t started using latest technologies like APIs and now AI, et cetera, you’re going to be lagging behind.

So, all of that investment is really going to make the customer experience better, because the customer is looking at a lifestyle choice when it comes to payments. They don’t want to make a different decision when it comes to a payment like—a good example we all know, ride-hailing through an Uber or through any other service provider. You do not want to be able to think about their payments. You just want to get to—from point A to point B. Get out from the taxi. Someone else is going to take care of the payments. What is really important for the consumer is, what does that mean from a loyalty and rewards perspective? So, consumer experience on one side. The more digital it is, the better off we will all be. But also, how that’s going to get connected to something that’s going to monetize for the consumer? It’s going to be really interesting because not everyone will be able and has the economics to be able to provide a reward or a loyalty every time you use a service. But consumers, and especially the demographics I mentioned earlier, the 18-to-29-year-olds that are entering the workforce and spending, will expect that user friendliness, will expect that reward, and will expect to be loyal to the brand if everything works fine.

The other part of your question, Rupesh, was around—I want to share an experience and an example with the new feature we are building on a New Payments Platform called PayTo. PayTo for payers is already live. That’s a request to pay service for those who are not familiar with the market. That’s going to be end-to-end digital. What it means is you literally walking into a merchant or let’s say your gym. You request—the gym wants you to pay $50.00 a month. There will be an electronically or digitally created mandate that gets accepted right across from the merchant’s bank to your bank, and then you will accept through the banking app or through the banking channels. That’s going to happen within two to three seconds. True, it hasn’t come into the market fully yet. We are all launching that in the coming year. It will reach some maturing because we are working with a number of institutions, particularly the biller organizations to help them to understand this is going to be the new way of collecting your receivables. This is going to be the new way of collecting—faster collection. So, let’s work together. That’s going to be a really, really interesting customer experience, end-to-end digital.

Ruby Chen: Hi, Nish. It’s so great to be able to interview you. You talked about emerging trends, somewhat the user experience. I was so mesmerized by the new PayTo, which sounds so fascinating. Now, we’re moving on to risk and governance, a topic which is equally as important, I think. So, as we move into new and enhanced digital experiences around payments and the transfer of money, what type of risk, governance, and regulatory standards do you think is necessary?

Dharmaratne: Good question, Ruby. I will take the question in reverse order because I think it’s important to set the context in terms of regulatory, then governance, and then I’ll talk a little bit about the risk. So, regulatory standards. The Australian system or legislation has not been reviewed for the last 15, 20 years. The Check Act goes back to the 1980s, 1990s. The Payment Systems Regulatory Act, which talks about payment systems regulation was back to 1998. There hasn’t been any revision of these legislations for a very long time. Now, this really links back to the announcement and the strategic payment modernization plan that the government and the treasury is keen to implement in Australia. What we’ve actually done is we already started consultancy on the payment systems regulatory act, and there are a couple of discussions happening in terms of feedback of how to go about this change.

What does that mean? As you know, with the plan, we are looking at phasing out checks in 2030 and also looking at a way to reduce the batch-based system called BECS which is a batch-based exchange system for low value transactions. We’re thinking of looking at an organized way of phasing that out as well into the future, quite similar to the checks timeline as well. So, I feel 2023 and 2024 is going to be a very, very exciting time for us with the changes that are proposed through these legislative reviews that are taking place now.

The second part of the governance and regulatory standards is, we will expect also some level of payment standards body to be set up and that will then take care of some of the work we are doing today on enriching messages, ISO 20022 standards, and the things we need to do even around fraud, et cetera, is all going to be part of the standards that we expect through a standards body. That’s going to be a piece of work that the industry is going to work towards.

The last part about the governance is licensing. Australia has been a very free market led by demand and supply of consumer choice, consumer rights prevail over many things. But we’ve never had—other than the standard banking licensing regime, we’ve never had a payment service provider licensing. So, you do find a lot of the global brands and global providers who are in this market doing extremely well providing the services, but there’s not much of governance going around it. So, the second part of that really, Ruby, we expect that the governance is going to get better, obviously, for the betterment of the consumer.

Now, let’s talk about risks, because I think the biggest risk at the center of all of the risk categories is fraud and scams. This is really a huge, huge area that the banks, all of the participants, including the government, is really keen to look at some solutions or enhance the existing capabilities that we built. So, the Australians put together—lost about 3.1 billion from scams last year. Mind you, that’s just the reported number. So, the common types of romance scheme scams, lottery scams, money transfer scams, even grandparent scams, who would think, right? So, consumer protection therefore is top of mind for the regulator, government, and ourselves as banks. So, the government through the federal budget, they backed a package of $86.5 million to be able to combat scams and online fraud. On top of that, major banks already established means of fraud checking, payment verifying, and we ourselves at Westpac we have payment verification service offered to the customer when they set up payers in the online banking channel. So, this risk area is a huge area for us. There’s also word that the industry bodies are looking to implement a common confirmation of payee solution that will get discussed in the coming months as well. So, there’s a lot of focus and attention. Everyone is doing their best but frauds and scams continue to be a challenge for many Australians.

The second risk, which I think is really important, is the cyber risk. That is not uncommon to any market anywhere in the world. Cybersecurity, an enhanced means of contingencies in the event of a cyber scenario, is something that the prudential regulator is very keen for all regulated entities to implement and make sure we have the contingency plans to support our customers.

Chen: Another area that is of very big interest to me is women in payments. So, you served on a few boards and you’re the advisory board member for the Women in Payments organization in Australia which reflects your passion around this area. What are you views towards the role women can play in driving the future of payments industry or ecosystem? Why do you think it is so important to have more women involved in shaping the future of the industry?

Dharmaratne: Yes. I think this is the hardest question of all of it. The others are pretty easy given—in the midst of building and delivering solutions to the market. This one I never thought as anything that is—differentiates a person as a female leader driving through changes. Actually, it’s a very good question, Ruby, because when I look back, and I’ve been in the banking for 30 years, and when I think about payments, payments were never in the forefront of banks. Banks were busy lending. Banks were busy taking deposits. I, myself, has been a balance sheet specialist for the early parts of my career. So, I became a payment nerd much later or mid-career. Maybe it’s a midlife crisis, but I moved over more towards payments on the last probably 10 years or 12 years of my career. As I said, when you look back in the banking, ages ago, payments was really—payments could be in the technology area who is just helping you with technical customer payment files or exchanges between banks, or managing when there’s a job failure on the technical side of things. Or, the other career path around payments was just in operations. Basically, there were many systems but all the systems did not talk to each other. There are a lot of manual operations. Therefore, lots of females tend to be more on the operation side as opposed to the technical side. You could almost see that a large part of the technical payment technology side was dominated by males, and I’m making a very general comparison here, but operations jobs were females.

Look around now and you could see that, if at all, equal or more participation from women in payments-related services. That’s really, really interesting because I think it’s a bit like women in technology, but women in payments itself is something that has—we have evolved over time. I think women have been much more learned, much more educated, much more willing to take risks in their career, chosen career paths. That helped to be where we are today. The other thing that is really important is the number of new ventures or financial technology company or startups that women do play a key role.

Now, I’m gender neutral around these things because all types of diversity is really, really important. Diversity brings the best of—diversity of thought, in particular, brings the best when people collaborate and it’s essential during—an area like payments which needs a lot of ideation and innovation, and people need to be working together. So, all perspectives are extremely important. If you’re passionate and you want to do something, now there are many more tools and organizations and support groups particularly for women. I do mentor a couple of female talent in the market. They are very, very excited of what payment services and payments combined with technology together is going to create even more, bigger opportunities. So, a whole lot more to see.

Chen: Thank you so much, Nish. That concludes our interview questions. It’s so great to have you with us today.

Dharmaratne: Thank you, Ruby. Thank you for having me. I really enjoyed this conversation.

Chen: Great. Thanks, Nish. Now, back to you, Joe.

Kornik: Thanks, Ruby and Rupesh, and thank you, Nish, for those insights. Thanks for watching the VISION by Protiviti interview. For Nish, Ruby, and Rupesh, I’m Joe Kornik. We’ll see you next time.

Dwolla CEO: Open banking, embedded finance to transform the user experience

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, a global content resource examining big themes that will impact the C-Suite and executive boardrooms worldwide. Today, we’re exploring the future of money, and I’m happy to welcome in Dave Glaser. Dave is CEO of Dwolla, a payment service provider that offers a modern API for businesses to seamlessly connect to the U.S. payment networks. Before becoming CEO in September, Dave was president and COO at Dwolla for the last two years. Previously, he was a senior vice president at Mastercard. And I’m happy to turnover the interviewing duties today to my Protiviti colleague, Nathan Hilt, managing director and Payments and Fintech Solutions Lead at Protiviti. Nathan, I’ll turn it over to you to begin.

Nathan Hilt: Thanks, Joe, so much, and thanks Dave for joining us here. It was great to see you at Money20/20. Hopefully, everything was good, but thanks for taking the time.

Dave Glaser: Yes, you’re welcome. It’s great to see you again. It’s been a while. I’m glad we got to catch up after so many years.

Hilt: Agree. Yes. Well, it’s an exciting time for you and I think we’ve chatted a little bit, but I’d love to hear more about — you’ve been at Dwolla for a little bit of time. Recently, congratulations on taking over the CEO role. As you think about what are the challenges that Dwolla has and sort of your messaging is being this ability to empower innovators with modern payments and you have this flexible, reliable, and easy to use platform, tell me a little bit more about, are you changing the mission? Are you enhancing the mission? Really, what is the first couple of months looked like, and how was that going to take the company forward?

Glaser: Yes. Thanks, Nathan. Happy to tell you a little bit more about Dwolla. I’ve been with the company for just over two and a half years. I joined as president and COO. Surely, after we were coming out of the pandemic times when people were starting to get back to work, I’ve been in the payments industry for a long time, almost 25 years. It almost pains me to say those words now. [Laughter] It makes me feel old, and I’ll make you feel old too. You and I met probably 15 years ago or so as part of the Visa CyberSource work that you were doing, that I was a part of. So, yes, I’ve been in the industry for a long time, and as you know, there’s been so many changes where I started out in the gateway and e-commerce, card acquiring side of the business and spent most of my career there, at least the first 10, 15 years in that part of the business. First, with CyberSource, then with Visa, then even with Worldpay in London. It was interesting, when I was based in Worldpay, it was the time when the EU regulators were starting to look at modernizing and introducing this open banking schemes in Europe to really start to create a more level playing field for merchants, and businesses, and banks to provide payment solutions similar to the ubiquity of a card solution but with bank accounts. So, they introduced PSD2 and some other rules changes in the EU.

Getting to watch that and be part of that in Europe, and then following that assignment, I came back to the U.S. with my family and joined Mastercard. Mastercard has a really important strategy. They called it their multi-rail strategy and we were embracing not just the card rails but other rails too. Things like crypto and what they call Mastercard Send, which is similar to Visa Direct. A way to move money in and out of bank accounts but using card rails. So, as I was there, I’m seeing not only were these open banking concepts happening in Europe but they’re also happening in other parts of the world with the onset of faster payments and access to accounts and the linking of accounts, and ultimately, the API enabling of account-to-account payments was really taking off, and even in the U.S.

One of the leaders in that space in the US has been Dwolla, over the past 10, 15 years. And Dwolla has gone through a number of iterations over those years in terms of the types of solutions it’s offered innovators. I was really intrigued to have the opportunity come in and join as president and COO and helped the business scale. We were growing in about 40% a year during the crazy times coming out of 2020, 2021, and 2022, like a lot of fintech and payments companies were. It was great that we had the opportunity to really grow the business fast and to work with some terrific startup innovators.

Now, startup innovators have been impacted by higher interest rates and lower evaluations and less investing. So, what we realized a couple of years ago as we started to see those changes happened was that we had the opportunity to also serve mid, large enterprise customers as well with a similar API-based payment platform that allows businesses of all kinds, not just startup fintechs but businesses of all kinds, to modernize their payment systems, especially those that are sort of in the B2B space that use the traditional U.S. banking system or the ACH system, or the newer and faster payment rails like RTP and FedNow too. That’s where we’re focused. We continue to focus on providing tremendous value via a common set of technology interfaces to the U.S. banking system for innovators, and not just for the small really sexy ones, but for some of the big lumbering ones that are ready to digitally disrupt themselves and move into the 21st century.

Nathan Hilt: When you think about the next five to 10 years around the industry, what are things that get you excited? Where are the opportunities and how optimistic are you about the future? If there’s any challenges or something that might make you concerned, what would that be?

Glaser: I am optimistic. Payments wasn’t always sort of a sexy business. [Laughter] It was a little bit lumbering for a long, long time, even when I started my career, let’s say in 2000, when we were just learning how to build payment and payment-related systems for online businesses and e-commerce businesses. It’s still a little bit old school even then but then somewhere around 2010, right around that time where the Visa CyberSource acquisition happened, we started to learn more about Stripe and Square, some of these really interesting disruptors disrupting what was happening at the physical point of sale when payments started to become really interesting, and then the onset of cloud-based computing and API enabled computing has brought payments to life. Again, not just in the U.S. but everywhere.

We’re seeing this concept of disappearing payments. Uber sort of made that famous where we don’t dance with the credit card anymore in and out of the car. We just get in the car and get out of the car. It’s that kind of experiences that we continue to have more and more of and that we, I think, will have even more of. We can imagine there’s lots of situations where — and we don’t have to imagine because we probably have already used our card today or yesterday, right? Where we hand the card or even tap the card. Physical card experiences are becoming more friction-free and we’re seeing better user interfaces with mobile apps and other ways that, sort of that payment mechanism is disappearing. We’re just going to see more and more of that. We’ll see a lot of it through some of these secured tokenization platforms that companies like Visa and Mastercard but also banks and others are starting to launch, and they’ll become more mature.

We’re seeing a lot more sort of friction-free checkout. We’ve seen the Amazon Go model where you can just walk in the store, grab what you need, and walk out and you don’t pay, you don’t talk to anyone. There’s cameras and other devices in the building or in the room that detect and make that shopping experience seamless. I think we’ll just see more and more of that. I think we’ll also see blockchain technology becoming more and more used. While crypto has become sort of a dirty word in the last few years. So, as we venture out of our third, I guess, crypto winter, I think those technologies will continue to mature and they’ll become more and more mainstream. It might not be digital currency necessarily that solves all of our problems over the next 10 years, but certainly the digital ledgering technology that allows systems, diverse systems to talk to each other better, more streamlined, again reducing these concepts of friction in payments throughout all this different experiences, whether it’s B2C or B2B experiences.

Hilt: Yes. Someone told me yesterday that it was the 15th anniversary of Bitcoin this week and I think, “Wow. It’s been a while.” I agree that it might not be what it was once thought of but it’s still around. Then I totally agree that the blockchain will be something that is going to transform things. I guess shifting to the technology platform, because certainly, APIs are things that are now powering new platforms, but if you look about the next five or 10 years, what are things that would influence your infrastructure and what would that look like as far as transforming the customer experience, et cetera? Is there anything that you’re seeing out there that’s getting you excited?

Glaser: Yes, there is. It’s really all around where we started this discussion. It’s the whole pay-by-bank experience. I’ve used a couple of analogies of using our cards to pay, whether we’re businesses or individuals, but we’re seeing more and more growth in this account-to-account payment world. Again, knowing that it’s 50 years old, but it continues to expand and the reason it’s expanding is because we’re getting more and more granular in enabling how these payment mechanisms could be accessed and be utilized.

What I mean by that, there’s a couple of concepts maybe we could define together. One is open banking. I’ve mentioned that a couple of times. Another concept is embedded finance. I think when we combine those two things, it allows us to create these really amazing experiences for users and businesses. As we think about open banking, that’s all about allowing consumers to access their bank accounts in easy ways. So, what’s happening is banks or service providers like Dwolla and others are enabling APIs to interface with these traditionally closed bank systems. While we talk about the ACH network being an amazing 50-year-old network that allows payments to happen, there’s lots of other data and information that banks store, right? My bank know lots about me. All the personal information that I shared with them like my address, my phone numbers, my email. They know my spending habits though too, right? I can login and see all of my accounts that I have with a particular bank or brokerage, for instance. I can move money between those accounts. I can categorize the transactions in those accounts, so we know what I’m spending on or trends of spending. I can even see the deposits. So, my bank knows how much I get paid and how often I get paid and who pays me. [Laughter] If I’m using Venmo on the side, they know that too. There’s a lot of information the banks have about us and that is accessible now that we’re adding in these APIs to access that kind of granular information. That’s what this whole concept of open banking is. It’s allowing for banks to open their data for new and ingenuous use cases.

Now, when we overlay the concept of embedded finance, the idea there is — or better payments even — the idea there is by accessing that open banking data and embedding that data and those related services inside larger applications that are purposely built usually for an industry, we now start to see these really rich experiences that enable new things to be done. For instance, what’s very common now is if we — let’s say we’re shopping around for insurance and we find a new insurance company. We’re doing that online. We’re probably using our phone. We sign up for an insurance and we download their app. It asks us for our name. It asks us which bank we currently bank with, and we can see the logos of the most common banks. I bank with Fidelity Investments so I click on the Fidelity icon and it pops up a screen that allows me to enter my username and password to that online bank, and then magically, appears a list of my accounts. It’ll ask me, “Well, for your insurance premium, which account from Fidelity would you like to pay with?” and then I can see my accounts and I confirm that. Then, that account information is then used to underwrite me as well as to set me up for insurance premiums.

It used to be that I’ll probably call somebody. They’d send me a letter. I’d have to fill out a form. I have to write a check. I have to send the check in the mail, right? So, this embedding of payments and financial activities inside these applications that is reducing — we talked about reducing friction before, right? It’s allowing us to reduce these frictions, making payments just part of the experience. We see this happening across every industry. I mentioned insurance use cases but there’s property management use cases, there’s restaurant use cases. You name the industry, we’re seeing payments being embedded.

Hilt: I agree. Well, I think the insurance piece is — because my son recently got insurance and he doesn’t understand. I don’t even think he has checks. This idea of like the transit routing number, it gave you access to the account through this paper manual process versus you’re talking about actually getting access to the accounts, like getting all the account information. I think that really is the value and the change of the user experience. It’s quite powerful.

Glaser: Yes, it is. It is quite powerful, and some are concerned about that power as well. There’s a lot of data changing hands and sometimes, especially as consumers, we don’t realize when we sign up for those services or maybe click at terms and conditions check box, most consumers don’t like reading three or four pages of scrolling words in front of them and they’ll just say…

Hilt: They have 13 seconds of attention span or something, right?

Glaser: That’s right.

Hilt: Exactly.

Glaser: So, inside of those terms and conditions, it actually explains how that data might be used, could be used, will be used, and each application provider that we as consumers are leveraging or the businesses are leveraging, are using that data in a different way. That is another opportunity we probably want to talk about today.

Hilt: If you think about — I know you talked a little bit about privacy, identity, I mean there is so much data out there, and even if we go into the whole ISO 20022, there’s even more data that’s carrying along with these messages. Where do you see fraud and crime and things in the future that we really should be concerned about, and how do you protect people from that?

Glaser: Well, we’re already seeing a major shift happen towards account-to-account payments. The fraudsters are turning their attention to that space. It’s been really interesting, even in the few years that I’ve been deeply in the space here at Dwolla. When I first got to Dwolla, we were proud to say that we never saw fraud. We didn’t have to say that we were great at protecting against fraud. We just never saw it. There was very little fraud in the network, in the system, very few attempts. There are good controls in the ACH network and that’s a powerful commitment that the banks and other service providers have provided, but the fraudsters were all focused on the card environment because for a long, long time, it was pretty easy to write programs and steal cards, then use stolen card information to try to steal goods and services online especially, but with the onset of PCI which allowed merchants — that data security standard allows merchants and businesses to better protect against breaches, that really slowed down the number of cards that were being stolen, the card numbers that were being stolen, and then the onset of the tokenization technology that the card brands and others have made ubiquitous, which basically turns card numbers into meaningless characters. So, even if they are stolen, they can’t be used anywhere. It’s a really interesting combination of securing the data but then also obfuscating and changing the data in real-time.

When we combine those things, it’s made it really hard for the fraudsters to commit crime now with stolen credit card data. What have they done? They paid attention to the trends that we’re talking about, Nathan, and they shifted their attention towards account-to-account, embedded finance, open banking, and so, yes, we are starting to see more and more trends and more fraud, and there’s two types. There’s this sort of stealing credentials and then using the credentials to commit fraud. It’s not just the payment credentials. It’s the identity credentials. I might be able to fool you telling you that I’m someone that you should trust and can trust, and you push money to me, say, via your PayPal or Venmo for instance, or another digital wallet platform. When you do that, as soon as you move the money, it comes to me or my wallet or whoever was acting like me and then that money is gone. It’s gone for good. You don’t have a way to get it back.

Hilt: So, if you think about — last question. Okay. Take your crystal ball. You head off of Dwolla and just think about the industry as a whole, 10 years from now, I know we just had Money20/20 and it’s 2023, and so if you think about Money20/35 at some point, are there any bold predictions, anything you see? Are we still going to be using cash at all? What do you think is going to be out there 12 years from now?

Glaser: Yes. Well, I’ll start with that. I think there’d be a very little cash. I carry no cash. I haven’t carried cash since, probably March of 2020. I stopped carrying cash. I’m a payments geek so we do things a little bit ahead of the rest of the non-payment geek world. I think that is a safe assumption. There would be very little cash changing hands certainly in developed markets, probably would be some sort of cash in non-developed markets. However, what we’ve already seen in emerging markets is the skipping of some of these technologies and platforms that we had to build to get to where we are today. The emerging markets are sort of building on the shoulders a giant and they’re going straight to the phone-based payments, digital payments, fast payments right from scratch, right from the beginning of their electronification of payments. I think we’re just going to see more and more of that convergence where cash disappears. There’s automatic routing technology inside these disappearing payment mechanisms where you and I, and even businesses, won’t think about our payment method necessarily. We’ll just say, “I need to pay Nathan. It needs to get there by tomorrow morning,” or, “I need to pay Nathan and it needs to get there today.” Nathan does a job for me. Is he willing to pay an extra 2% to get it as soon as the job is finished, or does he want to get that payment for free in his paycheck two weeks from now? All of that, what we call payment method, selection, the least cost routing, the speed of routing, that orchestration of payments will all become digitized as well as the access to information about the payments in the account. All of that would be digitized. We will have a completely API enabled world and payment system across almost every country and every region, and we won’t think about payments the same way we do today. That’s for sure.

Hilt: Well, Dave, I really, really thank you for your time. Like I said, great to catch up in person in Money20/20 and taking the time to give us a little bit of your vision for the future and what’s going on at Dwolla. I wish you all the best. Exciting. Congrats on your role. Yes, thanks for your time today.

Glaser: You’re welcome. Thanks, Nathan. Great to see you again.

Hilt: For sure. Okay. Over to you, Joe, for the wrap-up. Thank you so much.

Kornik: Thanks, Nathan, and Dave, we appreciate those insights, and thank you for watching the VISION by Protiviti interview. For Nathan and Dave, I’m Joe Kornik. We’ll see you next time.

Is your business ready for digital currencies? Dennis Chookaszian on what to do next

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-Suite and executive boardrooms worldwide. Today, we’re exploring the future of money, and I’m thrilled to be able to welcome in Dennis Chookaszian, Adjunct Professor of Strategic Management at the University of Chicago Booth School of Business. Dennis is the former chairman and CEO of CNA Insurance Companies, and he served as a director on the boards of 13 publicly traded companies and currently serves on the board of the Chicago Mercantile Exchange. He’s also served on the boards of 70 private companies and currently serves on the board of 20 private companies and seven not-for-profit organizations. It’s my pleasure to welcome in Dennis Chookaszian. Dennis, thank you so much for joining me today.

Dennis Chookaszian: Well, thank you, Joe. It’s a pleasure to be here and I look forward to discussion about crypto.

Kornik: Yes. Thank you, Dennis, for your time today. We really appreciate it. Wow, what a career. I just chronicled only a small portion of it there but you’ve spent so much time on so many boards offering so much advice to business leaders over the years, who I think are well aware of the significant changes that we’re sort of seeing across the global monetary system right now, including the emergence of crypto and digital assets and digital currencies. What sort of conversations do you think business leaders are having right now about cryptos, and what conversations should they be having?

Chookaszian: Crypto is a very interesting situation, and as you know, it’s going through its ups and downs, and then most recently, the conviction of SBF for the FTX collapse has put a bit of a pall over the whole market where people are questioning, is the market valid, is it legal, and so forth. I believe though that you really have to look at crypto in two ways. You have to look at the underlying technology, blockchain obviously. Blockchain has some real viability. It’s going to be extensively used. It’s being used more and more each day by companies developing blockchain-style solutions, and that has nothing to do with crypto. Then to the point of your show, the future money, the other side of it, of course, is the currencies itself. The token is created and whether that creates some new value of some form, that needs to be addressed, and the boards that I’ve been on have been discussing it.

Kornik: Yes, Dennis, I’m sure they have. Where should companies be on this curve along their journey? I’m sure it varies by company, by industry, by size of company, and whatnot, but what’s your view of when digital currencies will sort of be dominant and no longer be able to be ignored by boards?

Chookaszian: Yes. I think we’re at a very early stage, and I don’t think boards have to rush into anything with regard to crypto. There’s no compelling need why you have to do something today. A currency has two purposes. A currency is a store value and is a payment mechanism. The world doesn’t need another stored value. Well, crypto can be used in that fashion. It’s not a big need. It really is not an important need at the board level and I’m not aware of many boards are actually using it as a stored value or an investment technique. On the other side of it, the payments mechanism, at some point crypto has the ability to reduce payment cost, and if that happens, boards will need to address it but it’s a long time in coming before that’s going to actually be something the boards have to jump in into right away.

Kornik: Right, and it’s an incredibly complex space. There are more than, I think, 20,000 crypto currencies globally, and the space is moving at an incredibly rapid pace and there’s sort of new news every day. Who in your organization should be responsible for leading that effort? Is it the CFO? Do they have the capabilities at most organizations and can they be expected to be the one that sort of sort all this out?

Chookaszian: Actually, probably, the best thing an organization could do would be to turn to one of their 16 or 18-year-old sons or daughters who probably know more about it than they do, but as far as whose position is best within a company, it’s probably the CFO. The CFO has a better understanding, particularly with regard to payments. There are several things they need to look at. One of them that’s probably among the more important is the so-called CBDCs, central bank digital currencies, which are now becoming very actively looked at by governments around the world. U.S. is now considering that, and I think overtime, there is a reasonable likelihood that CBDCs would be created and then boards will need to deal with it, but again, it’s going to take a long time before the legislation gets enacted and before it becomes a material element. So, I don’t see this as something that’s a near-term need. I see it as a long-term need.

Kornik: Right, and as organizations are sort of thinking about those long-term needs, what else should they be considering? What else needs to happen across an organization to set themselves up for 2030 and beyond or whatnot? I’m imagining some of those steps in the infrastructure or technology, cyber, perhaps even capabilities and skillsets of employees. What should they be doing right now to prepare themselves for this inevitable future?

Chookaszian: I think mostly, it’s studying, observing, and understanding their own payments mechanisms. The payments mechanisms are a bit archaic, particularly in the U.S. compared to the rest of the world. The payment mechanisms have been slowly developed driven largely by the fact that it’s a credit card payment system by and large in the United States. Whereas as you go outside the United States, it’s more debit card driven, and the issue is the cost of that. The cost of buying on a credit card if you buy from PayPal, it’s 2.8% or 2.9%. If you buy from Mastercard, Visa, or Amex, it’s 2.3% more or less all in, and they vary quite a bit, obviously. If you use the debit card, the cost dropped way down to maybe a little over 1%, and then if you look at what’s out there like WeChat, for example, in China, you’re maybe at 0.8% or 0.9%, but crypto can do it at little over 1/10. Crypto is going to be a very inexpensive way. So, if you’re concerned about trying to capture that 1% to 2% of cost that’s going into the payment mechanism itself, then you could look at trying to establish something in order to do that, and the cryptocurrency itself would be a way to do that. But it’s complicated, it’s fraught with a lot of risks, and I don’t see a lot of companies doing that in the near-term.

Kornik: Right, and you mentioned earlier across savings, and you talked a little bit about some of the saving potential there. Does that what you see as sort of the main advantage of crypto, and what about the negative effects? I mean, this could go two ways, right? What could we get right and what could we get wrong? There are certainly some pitfalls up ahead, I would imagine.

Chookaszian: Yes. The biggest negative effect of crypto, other than for the CBDC, is that it’s not regulated, and you see the collapse of FTX. The number of people, some very smart people lost a lot of money investing in that because they didn’t really fully understand the risks, and there’s no regulation. Since there’s no regulation, it’s highly risky and from my perspective, I wouldn’t advise any of my boards to try to build any kind of a mechanism where you’d be holding any form of crypto for any period of time. If you’re going to have a crypto payments mechanism, what you would do is you’d accept crypto and then immediately covert all of it, and so the most you have is the risk of one day’s cash if you want to look at it like that. You could do something of that order of magnitude, but the CBDCs is another story, and that also is a way of trying to get something that really is regulated and is highly controlled. I think those would be good, and there’s a plus and a minus to this as you pointed out. One is that because it’s fully recorded, every transaction stored in the blockchain, we know how that all works. That means it’s permanent and it’s always there. That’s a plus and a minus, depending on the way you view it. We all are aware, of course, that the market within crypto has a downside to it for illicit activities that have developed as a result of being able to do things anonymously.

Kornik: Right. So, do you think companies will need to spend a lot more time on cybersecurity and data protection? Is that something that they’re going to have to ramp up as we sort of inevitably move towards this realistic future?

Chookaszian: I think that’s very, very important points that you’re making. I’ve served on a number of boards where the number of people dedicated to cybersecurity today overall, not just crypto, is 10X what it was four, five years ago. So, companies have no choice but to put a lot more resources into it, and crypto expands the risk because as you’re transacting, it puts you into another network, another chain, and there’s also risks attached to it. I think those things will tend to mitigate the pace at which companies go into it. Now, if the CBDCs are actually enacted over the next year or two, which is possible, if the U.S. decides to put together a CBDC, I think companies will shift to it because it will be a better payments mechanism for a legitimate purpose.

Kornik: My last question, Dennis, and you’ve referenced a timeframe a couple of different times. You mentioned a much shorter horizon on the potential for CBDCs, but I’m going to ask you to sort of look out a decade or more, maybe even to 2035, and ask you when you think this will be a reality and what do you see when you look to, say, 2035 or even 2040?

Chookaszian: Well, it’s very interesting. The technology is there today for us to have a much more efficient payments mechanism, like you see in Europe, as an example. But it’s not in the best interest, frankly, of Amex, Visa, Mastercard for them to convert to loses because they make a lot of money on credit card balances and the fees attached to using credit cards. They’re not the ones who are going to initiate it. It will have to be initiated in another way. And I think that it’s unlikely that anyone can establish a competitor to them that will displace them, and the credit card is so embedded in American culture today that I don’t think that’s going to change. What will change is the CBDCs, and if the U.S. government comes out with that, if it’s fully regulated, once people learn how to do it and you can see it anywhere from a 0.5% to maybe as much as 1% or 2% reduction in cost by using that payments mechanism, people will use it. But it will take something like that to precipitate a change, and the advent of cryptocurrency all by itself I think is unlikely to do that because the risks have not been controlled and don’t appear like they will be controlled in the near term, largely because no one country has the ability to do it. It’s a global market and you can’t control those risks around the world. So, it’s not, in my opinion, going to be driven by crypto. It’s going to be driven by CBDCs.

Kornik: It sounds like a much shorter horizon, time horizon, for the CBDCs, though. You think those will be way more prevalent in the next three to five years maybe?

Chookaszian: Yes. I believe that there’s enough pressure and there’s enough countries were looking at the creation of them and no one country is going to want to get left behind with the establishment. China already had one in effect for several years now and other countries are moving in that direction. So, I believe U.S. will likely have a functioning CBDC system in, say, the three-to-five-year timeframe. When you go out a lot further than that, I don’t think crypto displaces CBDC. I think the CBDC becomes the payment mechanism. They’ll start to displace the existing payment mechanisms.

Kornik: Right. Thanks, Dennis. So many changes coming. It’ll be interesting to sit back and watch. Thank you so much for your time today.

Chookaszian: Thank you. I appreciate it.

Kornik: And thank you for watching the VISION by Protiviti interview. I’m Joe Kornik. We’ll see you next time.

Navigating an uncertain future with longtime financial innovation expert Peter Davey

Joe Kornik: Welcome to the VISION by Protiviti interview. I'm Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-suite and executive boardrooms worldwide. Today, we're exploring the future of money, and we're very fortunate to have Peter Davey join us. Peter is a payments, banking, and financial services executive, strategist, innovator, influencer, and former Head of Product Innovation and Labs at The Clearing House. Currently, he is a venture partner at Alloy Labs where he's focused on building out platforms that help community banks and credit unions succeed. I am happy to turn over the interviewing duties today to my Protiviti colleague, Ryan Gullum, Associate Director, Payments Technology consulting for Protiviti. Ryan, I'll turn it over to you to begin.

Ryan Gullum: Great. Thanks, Joe. Really appreciate it. And Peter, thanks for being part of this today. Really appreciate your time.

Peter Davey: Thanks, Ryan.

Gullum: Peter, you have more than three decades in the payments and banking space in all sorts of innovation and strategic roles. Currently, you are the venture partner at Alloy Labs, focusing on building out platforms that help community banks and credit unions succeed in payments and banking. So, first question, what are the big issues that the executives at those financial institutions are facing, and what do you see in that space over the next three to five years?

Davey: Yes, absolutely, Ryan. Yes, we're in a very transformative time. We talked about this a decade or so ago, everybody was going through some type of digital transformation. Now, with financial institutions in general, both community size financial institutions and credit unions, they're really going through an entire banking transformation. A lot of that is spurred on by new technologies, financial technology firms coming into this space, but even more so, by some of the new payment rails that are existing, both with FedNow and RTP. So, as I think about it, and I work with executives at these financial institutions, some of the biggest things that are top of mind is how can they compete in a technology world when they're highly dependent on vendors that are delivering them their functionality? There's not a lot of technology independence within the community banking and credit union space, and even less so in the community banking space, because credit unions have had CUSOs and other types of organizations that have helped them expand on some of the technologies in the past, but what we're really finding is that the flexibility to be able to pivot quickly, to be able to add new capabilities and to be able to service a customer in a holistic way really is lacking at a lot of these financial institutions. They're trying to figure out how they can compete and continue to be relevant for their customer base, which is a really important customer base as we think about the entire banking franchise of the U.S.

Gullum: I mentioned your vast experience in this space, and obviously, I think you're uniquely qualified to talk about some of the big future money topics on the table. So, let's start with cash. Everybody talks about that within the industry. I mean, you and I were just at a conference recently and that's a topic there, right? So, how much longer will we be using it, in your opinion, and do you have any prediction or set of triggers for when cash is going to go away?

Davey: Yes, I don't think cash will ever go away completely. It's been around since the dawn of time as we look at how people have traded value exchange. As you think about cash in general, there are certain reasons people use cash, similar to the way they use credit cards. Everybody talks about credit card interchange arbitrage as well, I'm sure we can talk about that a little bit more deeply. But cash is kind of the same thing, right? Cash is one of those things that's almost a religion for some people, and it's really hard to move people away from there. There are people who are underbanked or there are people who don't want to be banked who deal primarily in cash. Those are the ones you're never really going to convert.

I do think that there is a good opportunity and a good hope that we will reduce our reliance on cash, physical cash, as we start to implement the RTP and FedNow rails, because you actually have a cash equivalent that's moving in real time, that's actually doing final settlement with financial institutions, and then making all the parties whole at the same time. So, I do think that we'll have an opportunity to move away from cash.

We've definitely seen a lot of industries try to bend away from cash as well. It's funny enough, in the Richmond Airport, when you walk into the Richmond Airport, you can actually convert all of your cash into a debit card that you can leverage throughout the terminal. A lot of sporting event places have moved to a cashless society. And I think that's getting people more comfortable, even folks who really want to deal in cash, it's getting them more comfortable with the opportunity that the electronic payments are not a bad thing. So, I do think that we have a good opportunity to continue to reduce cash, but I don't know that we'll ever get rid of it because unless there's some type of legislative capability that Congress holds to get rid of cash, I just don't think that constituency will ever let it go.

Gullum: So, as we move from cash to digital dollars, digital currencies, what does that mean for this space, this industry? Ultimately, how do digital assets fit into the future?

Davey: Yes. So, digital assets can be broken down into a number of different forms, right? I think most everyone loves to talk about the cryptocurrency aspect of things, and honestly, we've seen crypto take huge nose dives. We've seen it not really flourish in the way that it wants, and I think part of that is due to the fact that there are alternatives out there to crypto and other digital currencies. It's hard to get away from fiat money. So, when we talk about fiat money, which is the basis of any country's financial stability, fiat money is tending to move toward digital anyway, with real-time payments systems around the world, including in India, out in Europe, but now in the U.S. We really have moved toward a digital dollar that is exchangeable within seconds with final settlement between people. So, some of the same things that cryptocurrency and other types of digital currency we're trying to solve for, we can now do in the fiat economy.

It doesn't mean that those capabilities are passe though. I still think as we start to look at various different stablecoins, PayPal obviously released a stablecoin within their basis. Stablecoins probably do hold some merit for transactions, but you have to think about why people are employing it. PayPal is not employing a stablecoin in order to actually make that the new U.S. dollar, they're doing it so that they can reduce their reliance on bank accounts in other countries. You have to really look at why, and why and how you would use that capability.

The biggest issue against, I think, things like CBDCs, digital dollars, and other types of digital assets in that space really comes down to the regulatory capabilities within the U.S. We're strangle-held by a quad party system where we actually have both a U.S. Congress, state-level Congress, and then state-level legislation, even down to the county-level legislation. A lot of these capabilities aren't able to be used in some of the biggest opportunities. If you think about real estate, if you think about the ability to do title transfers on cars where digital assets could be extremely helpful. But the age-old legislation that exists in place, there's going to have to be somebody to change that. And then you have to think about all the intermediaries right now that make money on those processes. It's a long row to hoe, and I just don't think that we're going to see people generally move in that direction. But I think as you start to see some of these new real-time and instant payment capabilities adopted, including some of the capabilities like request for payment or request for information, there's a better ability for us to automate processes, which is really what the core of digital assets and other digital properties have been meant to do.

Gullum: Yes, you mentioned the industry and the battles we have in order to get things moving and passed, and let alone about 10,000 financial institutions at play, plus governments, all those things. And I always get asked, “Well, why does this take so long?”

Davey: Yes. I think on top of that, Ryan, just thinking about the reason why it takes so long for these things to happen, especially in the U.S. You look at other countries, and they've had regulatory mandates to move things forward. UPI in India wouldn't be where it is today if they hadn't had some regulatory mandate from the government for businesses to start using it and for more open frameworks. But in the U.S., we've actually had, unfortunately, the benefit and detriment of actually having really robust payments systems over the past couple of decades, most of which I've been part of, some of which were there before I was. But as you look at it, ACH was such a strong capability within the U.S., there wasn't necessarily the need to reinvent it at the time. It takes a lot of people to get away from 40 years of history on a particular payment system to actually get them to engage in the new economy. I do think that there are compelling reasons, but part of the reason why I went to Alloy in the first place is that we need people to actually develop those solutions for the economy, and to be able to help these banks migrate onto the new economy as opposed to just keeping things status quo.

Gullum: Couldn't agree more. So, talking about the disruption to the global monetary system and the impacts that we'll see over the next decade or even beyond that, what or which ones most concern you, and which ones most excite you?

Davey: Yes. So, kind of tying it back to the instant payment space and the fact that this is a trend around the entire globe, the beautiful thing about this is we now have, for the first time in history, multiple countries speaking the same language, if you will, which is the ISO 20022 language and framework. And while there's natural derivations between those things, we know that from a technology perspective, we can actually start to look at cross-border transactions. I think that's one part of it. Moving to a global real-time economy is actually quite exciting. The fact that we can now do it because we actually have a fighting chance at interoperation of some of those capabilities is important.

But I think in terms of some of the more stringent global money supply issues that we have, we have to actually realize that we're now operating in a global economy. I think there's a lot of folks who don't quite grasp that, and part of operating in a global economy is giving people access to being able to do payments in a global economy, to be able to invoice people in whatever native currency they have, and to be able to get paid in the native currency that you have. And as we talked about earlier, there's a lot of intermediaries involved in a lot of things within state and local governments. If you think about the intermediaries that exist within moving money between countries, all of them have had roles to play, and if you start to move money natively between two government agencies across the globe, you start to reduce the reliance on needing some of those intermediaries in there.

That's a good thing, but it's also a bad thing because in many cases, you're paying to take a lot of the risk out of the system. There still isn't a global federated identity capability, so it's really hard to understand that you are paying the person that you expect to be paying. There's also local differences between the way that those payment systems work that then create some conflict in terms of how and what does really final settlement mean, especially when the government might be able to come and get their hooks into the money before the person that you're trying to send the money gets to it.

So, there is a lot of governance issues that I think need to be figured out over time, but the good news is the technology is there. The technology is the easy part. It's going to be more about setting global policy in terms of how money can efficiently move between countries and between individuals in those countries.

Gullum: Excellent. So, we talked a little bit about digital dollar, digital currencies, and you talked a little bit about cash and the U.S. dollar, if you will. So, what about the future of the U.S. dollar? And it's really more kind of in that digital sense, I think. But how will the race for digital dominance impact its status as the world's reserve currency, and will it be relevant still in 10, 20 years, and if it isn't, what replaces it?

Davey: It's a great question. If I had that crystal ball and could really answer that question, I'd be investing a lot of money in where I thought that whole ball would run.

Gullum: Show us the money, right? [Laughter]

Davey: Exactly. I do think that we have been quite fortunate as an economy to have an established basis of pretty much the currency that's universally accepted across multiple geographies. How long that continues to last really is going to come down to policy. It's also going to come down to strength of others. The funny thing about what we just talked about within doing global transfers, that starts to unwind a little bit of the dependency on one currency over another. As you start to make some of those negotiations, as you start to figure out how countries settle with each other as opposed to moving gold bars across the ocean to each other, or out of one vault into another as it is at the Vatican or at the various different forts within the U.S. that hold gold currency, it comes down to the fact that what is the common basis? What is going to be out there? Kind of related back to your cash comment earlier, there's more U.S. currency out of circulation in other countries than there is in circulation in the U.S. today. That should tell you that there are a lot of people doing trading on the U.S. dollar that never actually comes back into this economy. If you look at real estate, the Chinese and other countries, Sauds et cetera, are holding more real estate within the U.S. than almost anybody else, but all of that was paid for in the basis of US dollars.

So, I still think that the US has some predominance in this space, but I think we would be foolish to think that we should always hold that predominance in this space. I do think that we need to look for a way to make it easier for people to operate in a global economy. That might not mean getting rid of the U.S. dollar, but it might mean creating some equivalents across the globe that actually operate in a very similar fashion. That's one of the things that hasn't existed up until this point, and certainly, I think what crypto and other types of digital currencies were pointed at, I don't know that that's the answer either. I think it will actually ultimately be in trying to drive a hybridized, at least fiat exchange, not a hybridized fiat currency.

Gullum: So, finally, last question. Finally, if I asked you to look out 10, 20 years, what do you envision in terms of payments and money?

Davey: Yes. I would say one, and one of the reasons I got involved in this real-time payments journey in the first place, when I went over to The Clearing House, even before that on Project Compass, to actually look at what we should be doing from this country's perspective and the faster payments task force, it has to do with the fact that we have not had a monetary system or a payments system that actually supported a 21st century economy up until the advent of RTP, and then now subsequently, the release of FedNow.

I think that the future of the economy is digital and embedded and automated. In order to do that, we have to adopt the tools that exist within these new payment systems to be able to make that happen. I do believe that truthfully, we can contribute a couple of trillion dollars back to businesses by opening up the aperture of these new payment systems and figuring out how we can actually give the tools to businesses so that they can fully automate their supply chain, their accounts receivable and accounts payable management. And think about the amount of resources that you can then redeploy back into the economy to actually do meaningful work as opposed to post-work, which is what happens today in the majority of payment systems.

So, I still am very, very bullish over the next five years that we will be able to, as an economy, start to figure out how to create those inroads. And then, within the next 10 years, you're going to see people move away from payment types not because they want to, but because their business processes support the automation of those capabilities. It's not to say that any of the payment systems that exist today are bad, ACH or wire or anything else, they're going to continue to exist. Hopefully, we get rid of checks. But I do think that you're going to start to see a good bulk of payments move over into these real-time rails because of the nature and the efficiency that you can get from them.

Gullum: Really appreciate your time, Peter. Always fabulous to see you and chat with you and look forward to future fun with you as we hit the conference circuits and all those fun things. So, really appreciate your time today.

Davey: Thanks so much, Ryan. I appreciate it.

Gullum: You're welcome. And Joe, back to you.

Kornik: Thanks, Ryan. And Peter, we appreciate the time today. And thank you for watching the VISION by Protiviti interview. For Peter and Ryan, I'm Joe Kornik. We'll see you next time.

The past, present and future of the U.S. dollar with David Cowen, President and CEO of MOAF

Joe Kornik: Welcome to the VISION by Protiviti interview. I’m Joe Kornik, Editor-in-Chief of VISION by Protiviti, our global content resource examining big themes that will impact the C-suite and executive boardrooms worldwide. Today, we’re exploring the future money and I’m thrilled to have David Cowen, the president and CEO of the Museum of American Finance, join me today. David is going to walk us through a brief history of money in the United States, or what would become the United States way before we even had the U.S. dollar. The museum has amazing historical collections from those days, and David will be sharing those in just a moment. The Museum of American Finance, by the way, was a big source of historical reference for Lin-Manuel Miranda when he was writing Hamilton. Following David’s presentation, I’m going to ask him a few questions about a very uncertain financial future. So, David, thank you so much for being here, and let me turn it over to you to begin.

David Cowen: Joe, what a pleasure to be back here with our friends at Protiviti. We’re going to be talking a little bit about money, as you know. As the museum, if you don’t know where you’ve been, how do you know where you’re going? So, we want to turn the clock back just a little bit to set the stage for a flavor of what money was at the beginning of our country, trace it very quickly to today, and then maybe we will do that little Q&A you mentioned about.

The first thing to talk about is the Revolutionary War. We’re not a country yet, but under the Articles of Confederation, the 13 states are banded together, and take a look at this note. By the way, all of these are from the museum’s collection. We have literally, thousands of documents. This is paper, this is money, and it’s dated the 10th of May 1775. This is the first day of the Second Continental Congress. The fighting started a few weeks earlier, April 19th, Lexington and Concord. But what does your Continental Congress do on the very first day? They turn on the printing presses.

This is very elaborate. Let’s take a quick look at this. It’s got some marbling, which is attributed to Ben Franklin, who was a printer, of course, and its anti-counterfeiting. And there’s always these Latin words of encouragement. This one means “energy,” and then this is in Spanish milled dollars. We don’t have U.S. dollar at this point, but you could potentially turn this in for some Spanish coins. By the way, foreign coins are going to be legal tender in the United States until 1857. It’s not until those gold rushes where we get enough of domestic source of gold, and then eventually, silver, that we have our own currency backed by our own gold and silver. On the back, it’s quite elaborate. I like this where it anticipates the fighting. That’s a Latin for “homes will cease to be quiet.”

But it’s not just the Continental Congress that’s issuing money. This is a note from Georgia. And in Georgia, you can take a look here, that it’s backed not by gold or silver or something like that, silver in the case of the Continental, but by money arising from the grabbing of the states that were loyal to the crown. You needed to have something backing your currency. Well, that’s all well and good, but unfortunately, we lose Savannah, and so what was backing this currency isn’t going to be there. So, it’s states as well as our nation, which is issuing currency. The problem with this is there’s hyperinflation at that time. It’s not just Germany. When I went to school, we learned about the textbooks and the wheelbarrow’s worth of money to buy a loaf of bread. It’s happening right here in the United States. That Continental currency I showed you, is going to depreciate and sell like a penny or two pennies on a dollar, giving Americans a terrible aversion to paper money. By the way, this inflation is so bad, George Washington writes a letter in the middle of the war saying, “A wagonful worth of money won’t buy a wagonful worth of provisions.” So, who is going to straighten all of this out? Well, we become a nation officially, April 30, 1789. George Washington takes the oath of office in New York City, and then he brings on Alexander Hamilton to be the secretary of the treasury. He’ll be in the office for six years. He’s going to write three monumental state papers. He’s going to write others, but let’s focus on three really quickly.

The first is the report on public credit. That is going to straighten out and untangle all the leftover debt from the Revolutionary War. It’s the first-grade bailout, because we’re going to assume not just the Continental Congress’s debt, but all the state debt, and reassure a new U.S. debt, U.S. securities, of which there was a direct line to today’s national debt. The second one is to create a quasi-central bank, a central regulating monitory authority, and that is accomplished for 20 years. The third is to establish the U.S. dollar, and at that time, set it against certain levels of gold and silver. All of these have to get through Congress. Some of them have big fights, the room where it happened, the rap from the musical Hamilton, is about that whole assumption of the debts, but they all do pass.

But because we have this aversion to government-issued paper at that time, who’s issuing it? Most people don’t realize that it’s banks initially, from the start of our country, all the way through the depression, and then the government will get back involved a little bit later during the Civil War, but initially, it’s the banks that are issuing the currency. We have several notes here, a $1.00, a $2.00, and a $3.00 from the Bank of New York, which by the way, today, is still in existence as BNY Mellon. You can see that it was individual banks throughout the country issuing. Now, that was fine if you were in New York with your note, but what if you were traveling outside of New York, the Philly or Charleston? These notes will depreciate, and there would be registers and books, and they can also be counterfeited. A very messy situation, because you wouldn’t get a full dollar on a dollar if you were in another town. The next one though shows you that that first Bank of the United States—by the way, in its day, called the Bank of the United States, but looking back, because there was a second Bank of the United States, the second quasi-central bank, issued notes as well. This was the main circulating medium, because they had branches, eight of them, eventually, throughout the country. So, you could bring notes of that bank and they wouldn’t necessarily be depreciated if you brought a Boston note, let’s say, to New York or to Philadelphia. But that was also a government-owned only 20%, 80% by the public, so again, a quasi-bank that acted as a central bank.

Moving forward quickly to currency in the Civil War, this is where the government gets back into the business of printing currency. If you see the back, it’s all green, and that’s where the phrase “greenbacks” come from. Now, this particular note was not backed by gold or silver, but you’re going to see quickly that we do get back on the gold standard, but for the issues and problems of the war we have to get off gold. Here is a bank from Kansas issuing a $2.00 note. This is called the lazy deuce because the $2.00 is on its side. All the banks could still issue after the Civil War, but they had to hold 90% reserves at the Treasury Department.

Moving along. So, when the government also starts issuing, you can get Goldback or Silverback notes. Here’s an example where you could go back to the treasury, gold and silver are set at certain amounts, and you could turn your note in for specific amounts of gold or silver. But that’s all going to change once the depression hits. Now, remember, Franklin Delano Roosevelt comes into office, the Great Depression’s in full swing, there’s the initial bank holiday. Most people don’t realize that banks, all of them, closed for 100 days. There was a lack of money around, very difficult time, but there were so many bank failures that was in extreme measure that was taken. The second extreme measure most people don’t realize is all your gold was confiscated. This is for individuals who would have to line up then and turn your gold into the treasury, because if you didn’t, there were very severe fines for that. By the way, this is going to be rescinded in the mid ’70s under the Ford administration, and that’s why we all now can own gold. The other thing to know about those that the banks now are stopped out, they can’t issue their own currency, it’s all going to be by the government. One of the things to note was there were high-denomination bills back then. These are $500.00 and $1.000.00 bills. These were all stopped in particular because of the black market, the drug trade, to make it much harder to move cash around.

So, that’s your rolling tour, Joe, of how we get to today and our current currency. I’m happy to field your questions now about any of these topics.

Kornik: Thanks, David, for that walkthrough of historical America and the origins of money and the origins of the U.S. dollar, the treasury. Fascinating stuff. I know the museum does a great work. It has all kinds of great information, a lot more than even what you shared here with us in that presentation.

Cowen: Yes. Joe, that was one of the quickest, if not, the quickest tour of all currency I’ve ever done.

Kornik: Yes. I’ve seen you do it and it’s much longer, but I appreciate you scaling it back for us here. David, I just wanted to ask you. I mean, you talked about the past, I wanted to push this forward a little bit and talk about the future. But first, I’d like to just know, what do you think Alexander Hamilton would think of the state of our national debt right now?

Cowen: Hamilton, as we’ve mentioned, created this national debt, and he actually said the phrase, “A national debt, if it is not excessive, will be a national blessing.” By the way, his detractors often take out that middle line, “if it’s not excessive,” just to blame him for the debt. But in my opinion, he’d be spinning in his grave at this massive $33-odd trillion worth of debt.

Kornik: Right. What about the deficits that we’ve grown and accustomed to? I mean, it’s the highest ever outside of war time that we’re running right now. What do you think the Founding Fathers would think about that?

Cowen: Let’s contextualize a little about how much this really is. If we could bring up our debt clock, you can see that we’re currently at some $33-odd trillion dollars’ worth of debt, closing in on a $100,000.00 per citizen, and $258,000 per taxpayer. This is an incredible load of debt. So, the question is really, though, okay, can we service this debt? What are the ways to lower this debt? We’re at really extreme levels, 120%, roughly. It’s 123% of the federal debt. There’s several ways—the least appealing, of course, and that we don’t want to talk about is you could default on the debt, right? That’s a disaster and just a horrible scenario. You can raise taxes. That’s one way to get it down, but that’s a political hot potato. You can lower spending, equally a political hot potato, or the ideal one is to potentially grow your way out of it. That is the preferred scenario that maybe we get the economy cooking or chugging along at such a great pace that we’re able to help do that. The problem now is we’re in a rising interest rate environment. The highest level since roughly 2007. So, when the nation’s debt becomes due, we’re refunding it, refinancing it at a much higher level. We’re at 1%-1.5%, and now we’re closing in on 4.75%-5%. That spells trouble down the road.

Kornik: Right. And I should mention, we’re recording this in early October 2023. By the time some folks watch this, that debt unfortunately will be higher. [Laughter] Most likely, it will not be going down. It’ll only be getting larger.

Cowen: Joe, right. What we’ve witnessed in Washington lately is not a forum for getting together on ideas and moving forward.

Kornik: Right. So, David, how concerned shall we be, I mean, that could potentially, you mentioned, default. How concerned shall we be about the downgrading of the U.S. credit rating? Because we’ve seen that a few times.

Cowen: We have, most recently by Fitch, but they were just catching up to a dozen years ago when S&P made the original downgrade, and Fitch cited the two concerns you and I just talked about. They said governance and then they also said the rising interest rate environment. At the level it is, it’s still AA+, roughly, but it is scary if we start to go through more downgrades, but everything is relative, and therefore, what are your other options? By the way, the states are also awash in debt. They are equally profligate in what they have issued. Some states are a little better than others. As far as just saying though, default, just because we are mentioning it. Most people don’t realize that states had defaulted in the nation’s history in the 1840s. Several states with a bad economy defaulted. We certainly know municipalities and cities have. The United States, though, never has, never missed an interest payment, hasn’t done that, and we certainly pray that that never happens.

Kornik: David, what impact do you think the things that you’ve been discussing, that deficits and credit ratings could have on the future of the U.S. dollar status as the world’s reserve currency, and where do things stand, and what could theoretically happen if the dollar does lose some of its dominance?

Cowen: Let’s take a look a bit of a last part first, in a sense that some people will say, “Well, the U.S. dollar has lost some of its preeminence. It’s been devalued.” Why? Well, if you take a look from Alexander Hamilton’s day, $1.00 is worth $20.00 of gold. Now, $1.00, it’s $1800.00 worth of gold. So, you had a 90 times devaluation. People like Jim Grant of Jim Grant’s Interest Rate Observer say, “Hey, back in 1933 when we went off the gold standard, that’s actually a default.” But to really dig into this, you’ve got to say, are there other relative options? And certainly, nations that aren’t friendly to us would certainly like to replace the dollar. But remember, it’s so intertwined also with the international banking system, free capital flows, and if you look at what potentially could replace it, the Chinese renminbi? They don’t have free capital flows. Are you going to get involved with a country like that? Crypto has all sorts of its own problems. Gold, as we know, is just not elastic enough for this type of modern economy. So, while there all sorts of pressures on the U.S. dollar, I don’t see a viable alternative in the near future here.

Kornik: Yes, interesting. And I’m sure that there are business leaders who are watching this will be happy to know that, because certainly, they are rooting for stability and not chaos in global monetary systems.

So, David, you’ve taken us back a few hundred years today and we appreciate that, but I’d like to look forward. I won’t ask you to go out 200 years, [Laughter] but how about a decade or even a little further? Any thoughts on where we’ll be as a country, as a financial system in the year 2035 or maybe even 2040? Any thoughts?

Cowen: Well, I don’t have a crystal ball other than a look at history. The British, the pound, was supreme for about 150 years, with an inflection point roughly around World War I or so. If we use that as our guide, add a 150 years-ish on to the U.S. dollar, what does that give us? Roughly, another 30, 40 years or so of U.S. dollar. So, my best guess, and that’s all it is, is that old Mark Twain quote, “The reports of my death are greatly exaggerated.” So, let’s all hope that’s the case for several decades to come.

Kornik: David, thank you so much for that look back and that look forward. I really enjoyed our conversation today. Fascinating stuff.

Cowen: Thanks a lot.

Kornik: And thank you for watching the VISION by Protiviti interview. For David Cowen, I’m Joe Kornik. We’ll see you next time.