On The Brink with Castle Island - Chris Duffus (Fonbnk) on Airtime as Digital Money (EP.545)

Episode Date: July 15, 2024

Chris Duffus, Founder & CEO of Fonbnk joins Wyatt in this episode. We cover:  Stablecoin and crypto usage in emerging markets Popular and high-potential platforms in these markets Alternative forms of onramping and moving money Airtime as a form of digital value storage More on Fonbnk

On today's podcast, I was joined by Chris Duffis, founder of PhoneBank. Phone Bank provides solutions for unbanked and underbanked populations in emerging markets to access stable coins and other crypto assets. I hope you enjoy our conversation. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guest and host may maintain positions in the assets discussed in this podcast.

You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's

ailing economy with a new round of quantitative easing. And if print a couple trillion and all of a sudden, people started to worry. So out of this worry, we have something called a Bitcoin. Chris, it's great to have you on. Thanks for joining us on the podcast today. We've been friends for probably a couple of years, and I've followed you guys in ecosystem, so really appreciate it. I think to get kicked off, you've done a lot across tech and other ventures before crypto. So maybe if you could give a quick overview on that and then a quick story on how you got into crypto and what brought you in, that would be great. Sure. And I appreciate the time wide.

love what you guys are doing in a Castle Island. So thanks for having me on. I do have a long career in fintech and wireless telecommunications. And in a matter of respects, it's the combination of those two things that got me really interested in crypto. My first company, we enabled the US Treasury Department to accept payments from citizens. And I learned about the payment networks and rails having built essentially one of the first SaaS payment solutions that we sold through banks and various channeled partners targeting regulated clients in the U.S. and even built one of the first neobanks in a specialized way, a company called Leaf, where the original concept, there was a gift card that could be redeemed in any college savings plan. And in order to do that, we had to partner with the bank

and utilize the rails and we had to set up one of the first bank program manager agreements in the U.S. And we ended up starting selling in the B2B space and ultimately ended up selling the company to SOFI. Now it's their SOFI at work platform. They do all types of college savings student loan repayment programs. And then when I wasn't doing fintech, I was in wireless spectrum acquisition. I was involved in one of the first novel programs where we look to roll out a nationwide network on a new spectrum band. And then I also worked with a company in the TV white spaces area where I don't know if you remember when the rabbit ears on your TV went away because they digitized it. Well, they repacked that spectrum into a new band called TV White Space, which is thinking about

it as like a managed free offering where the way spectrum is allocated, it's done on circles across the U.S. around geographic areas. And most people don't realize this, but the incumbent users of TV White Space in that particular set of channels are wireless microphones. So every time you set up any type of public event, you have to register that microphone. Well, the way that this FCC order was set up was a number of licensed database providers would have to allocate this channel map and sync up with one another daily in a distributed sort of architecture. And this was back in 2007 to 2011 timeframe.

Well, like many things in the FCC, that band took a long time. time to develop, but those plans, essentially went into what's now CBRS, which is a managed type Wi-Fi solution using that same type of architecture. This is actually something that Google is big in, and federated wireless, and even helium now participates in. That's a big part of the network. But along that same time period, I got in, I read about the Bitcoin white paper, and I had this epiphany like, oh, how come the FCC couldn't re-architect or at least use this type of architecture in their spectrum allocation plan. But specifically with PhoneBank, I was an early investor in Ethereum, as well as Bitcoin, because I look back at my prior tech companies and

tech stacks and search for a way in which we could potentially re-architect that, at least intellectually, on a public blockchain. So that got me into the space. But specifically, phone bank, I'd been a student of M-Pesa, which is the big mobile money service in East Africa, and in many respects a precursor for a mobile money globally. And this is sort of the specialized limited bank accounts that are on people's mobile phones where people are in unbanked regions. My brother will actually went to Kenya a couple years ago, came back with a safaricom sim. Like you and many of us listening, I'm a fintech tech geek. And I was like, dude, come on over.

I want to see this thing because he said he was using M-Pesa to pay his bar tabs, he could coals. Pretty much it was so ubiquitous to pay almost anything with it. And then when he ran out of money on his M-Pesa account, he used his prepaid airtime. He said he had his driver take him around and he ran out of money on an impasse. So he's like, hey, man, can I just give you a couple bucks of airtime? And the guy was fine with it. And then he also told me how people still trade airtime and use it as a type of currency to this day. But anyway, so he comes over, we're sitting in my kitchen table. We plug in the SIM into my phone. It registers on

T-Mobile. And I was like, oh, wow, it actually could potentially work here. Well, it registers. It shows that there's a $10 balance remaining. And after further discussion, bet me that I couldn't resell this balance back to someone on the ground in Kenya. And I devise this hack and also I don't want them to make fun of me at the Thanksgiving table in front of my in-laws. But I devise this hack where I took out Facebook ads targeting people that liked M-Pesa and Safarcom. And that was it. And I actually forgot about it. But then I get a bill from Facebook a few days later saying that my goal had been reached. And I'm like, what did I get myself into? Turn this thing off. And I noticed a couple of people had responded. And I invited them into a WhatsApp group. And after a quick negotiation,

use the SafariCom SIM and M-PACE account and I sold transaction to the airtime. And that's the Genesis of Phone Bank today where we've created a type of bridge to Web 3, targeting these mobile first cash-based economies using prepaid airtime, but also we've evolved into other prepaid mobile generated payment methods, whether it's mobile money, bank transfers, everything where the sources of truth originate from that carrier communications protocol. I want to talk more about that. But first off, it's really cool how you can have

these forms of real world the digital store of value that people probably wouldn't think about otherwise. And the airtime piece is really interesting. You can go and acquire this asset somewhere and that it is quite literally redeemable, representable digitally. And that makes it perfect for something that being transacted without the requirement of deep banking infrastructure, which obviously more of the world's becoming banked on a year-over-year basis. But the quality of the infrastructure we have in different places and the interoperability is still obviously hit or miss depending on where you are. What are the other opportunities or segments that you guys? have gotten into. You mentioned mobile money, but how are people using phone bank and how are you

using other sorts of assets or maybe call them non-traditional on ramps and off-ramps? I would actually just start there. I look at it as a type of alternative on-off-ramp solution where our foundation is in this, again, as I described, mobile generated payment methods and types using prepayered time. Mobile money, which is probably the predominant way people pay for things in that part of the world and extends generally to the global south, as well as even real-time bank transfers in Nigeria. This could extend to PICs in Brazil or UPI in India. And we do it in a way where it's really a lot of P-to-P type transactions. And one of the big epiphanies that we had in this region is even though we might be in sub-Saharan Africa, you might be in Nigeria, I'm in Kenya,

and there are cross markets for those pairs, but we might say, hey, you know what, let's settle this transaction in dollars. And that actually extrapolates not just across sub-Southern Africa, but other parts of the global south, where the dollars, the settlement currency of choice. And that also extends down to consumer goods services. And where historically, you might go to the currency bureau at your local bank in these respective countries, well, those guys don't have dollars. And entrepreneurially, what has occurred is there could be two folks like us that are like, hey, I know this crypto stuff. I know how to work it. How about we just trade in crypto dollars and we both have bank accounts. We can get the respective licensing locally

and we can get started in business and you don't even need to be that sophisticated. You can just use WhatsApp, which is a preferred communications channel or even now telegram. And we can start trading. So for us, that's been a big unlock. So where we now aggregate that capacity across the continent, we're probably one of the leading providers, at least what I would describe in the micro payments for digital goods and services, and I loosely define micro payments of like sub-100, but we aggregate liquidity to support those types of transactions in our key markets like Nigeria and Kenya, Uganda, South Africa, Ghana. We're actually looking to open up Tanzania and looking at Francophone Africa later this year as well, but a lot of

it just driven by our partner demand. But yeah, this is something that's now ingrained in many people's many consumers everyday lives. And another way to maybe potentially look at this is think about those little microservices that show up on your bank statement every month that you plugged in your debit card to. Well, many people around the world want access to those as well. The problem is it's dollarized. And even to the extent that it's available in a lot of these countries, it's not necessarily available for mass market consumers the way it is here because they don't necessarily have the right rails billing systems, et cetera. Well, with services like phone bank, we can enable immutable dollarized payments providing access to these streaming media digital goods services that many

young consumers seek, not just in the U.S. or Europe, but globally. I heard a statistic the other day that something like 70% of the $100 bills in existence are outside the United States. So it speaks to just the demand for really any way you can represent value like that, because obviously that's just saying how outsized the demand for cold, hard, USD is. And I think if you can get a digital equivalent that's not with a bank that you might not have access to, then there's immense demand for that. You spoke about some of the markets you guys are in. I wanted to touch a bit more on that piece. How are people using phone bank right now? What does the day-to-day look like? Is it everyday users for the most point? Is it once a week

sending a payment on Friday, something like that? Or what do the everyday behaviors look like, both when you talk to people and from what you see in the data? So what we are in respects is, and someone broke it down to me a couple years ago about the global payment space. You have remittance companies, you have off-ramps or card issuers, and then you have on-ramps. On-ramps are the hard part. And in many respects, because we support dollarized payments, effectively, we're doing a type of reverse remittance. Most dollars or funds go from the U.S. or Europe to these markets. Well, we're actually doing the exact opposite. And in effect, performing a type of cross-water swaps, way more sophisticated than our consumers

need to know about. We just make it dumb, dumb, simple like an Apple Pay. type of thing. But as a result, they can now use it in support of these micro payments that they use. And it could be everything from savings. Hey, I got paid. I want to put a couple bucks into my wallet in stable coins. Or it could be payment for some of these services. Or it could be just general trading. What I'm surprised at, and to a certain degree, while I don't necessarily, this is gaming in general, which I'm probably a little bit outside of that general age group. But I'm surprised that more mean, point adoption hasn't occurred across the continent because of the types of applications like sports betting is really big. So I would think that this would be correlated with that. But again,

it goes down to accessibility. Those types of things aren't accessible or to the extent that they're on very expensive chains like Ethereum, which don't map well to purchase behaviors in these markets. Again, we describe them as micropayments, but in many respects, because of the GDP per capita, in many cases, like 5 to 10x lower in these countries than it is here in the state. States, it's really just payments. These are the modal payment amounts that they make for stuff. And there are a lot of good alignment between rails and how much actually people transact. And that's one of the things why mobile money has been so successful there relative to card networks. You mentioned about the reverse remittance is really interesting. And you touched on gaming.

I don't spend as much time on gaming as I used to. But I remember in 2021, you had this explosion of crypto-focused gaming, but gaming more generally in Southeast Asia. And in some ways, made a lot of sense, especially almost pre-broad stable coin adoption, because in these games, you have assets that are valuable to both people in those markets and people that might be in North America or what you might call more affluent markets. So in a way, you're providing a store of value that can be universal for people like that, where you can trade with intermediaries that you might not otherwise be or be facing counterparties that are outside of your local market, which can provide deeper value in a way. I did want to touch on the point. You may

mentioned, where do you see this going more broadly, I guess? Do you think that some of these local currencies are going to struggle in the face of being able to carry value in airtime, let's say, not just digital dollars? But I think once other assets become spendable, if we're looking deeply in the future, then does that put stress on sovereign currencies? And obviously, I think one of the things that we really like about crypto is that it provides access to assets, dollars being one example that people in certain markets otherwise wouldn't have access to. But like you said, there are alternative on ramps and off ramps and alternative stores of value, which I inevitably think will be tapped into in these markets. What do you think that does to sovereign currencies?

So I don't know that it's a new phenomenon. I remember growing up as a kid, I'm from Jamaica originally, I was born there, and I remember going back with my dad. And when I was old enough, we'd go to a restaurant or a hotel, and the waiter or a waitress would always say, are you paying in U.S. dollars or Jamaican dollars? And it was perplexing to me. It's like, why wouldn't they just take their local currency? And then my dad's like, well, you can get everything at a discount if you use dollars. So this was a long time ago. And this is something, as I've learned more about this, that it's a phenomenon that's been taking place for decades. I think the real innovation now is that this digital transformation with stable coins, cryptocurrencies,

has now made this dollars more accessible to the average people globally or any number of medium-of-chain store-value-type transactions. And then as you think about other digital stores of value, and that was actually the real innovation of M-Pesa was as a marketplace for prepaid airtime that people were using it to hedge their local currency. And there's only so many bags of rice or liquor or other food stuffs that you can store or even affordable like real estate or what have you. And to the extent that it's interoperable, immutable, Open architecture enables that people can go do P2P transaction without restrictions. I think that's, to me, the key successful criteria for this new technology.

And because another thing, too, that we don't fully comprehend here is the lack of trust in institutions and people in a lot of these countries, which, again, it's not new. So as a result, their alternative was, I'm going to put my money in a mattress, figuratively, literally, or I'm going to buy gold. Well, in times of crisis, it's tough to move around with that. It's risky. And as we know now, there are other measures that governments can take to devalue the money you have on your mattress. So the advent of cryptocurrency, Bitcoin, and now stablecoins has been a huge development for the security of people across these emerging markets. And at the end of the day, self-sovereignty,

self-safety, these are important considerations as to why people look at this. It is more different types of assets, whether it's crypto-kitties or other NFTs, which I do think those sorts of digital rights, frameworks and technologies and assets are going to become way more prevalent.

People talk about the financialization of everything. Well, I'm a believer. If it's going to be digital and you have to pay into it, the blockchain is going to be how you go about that process. I think the point you made, it's not easy to move around with however much money you might have under your mattress makes sense. There's also, I'd call it almost the practical devaluing,

which is that cash is just not as usable as it used to be. Especially if you're talking to a younger generation, they would say, well, I can't use cash on a greets. I can't use cash at the card-only copy shop down the street. So it becomes almost less effective, which is frustrating for a lot of people at times, I think, but it is the direction that we're heading largely. I wanted to ask in catalyzing the adoption you were talking about

where you have people who are potentially using airtime, using alternative assets as an on-ramp. What is the difficult part of building that out? Is it the tech side? Is it actually awareness and getting people on board as users? Is it retention? What's difficult? That's a great question. Part of it, and as we've evolved in our journey, a lot of it's been education. And we just take for granted how frigging complicated these current and prior generations of crypto wallets and protocols are. I look at Frentec as an example. I heard about this new social Phi project and I'm like, oh, let me check it out. Well, I didn't have ETH on base. I had to figure out how to bridge that and they needed a minimum of $20 to do that. And this was just to get access to

the debt. And then I was using my Coinbase wallet and I got locked out for some reason. It took me about six weeks to actually get into it. And I think about who I am, where I am, etc. Well, for that type of project to work globally, it has to be super simple to use like a Facebook. And it's not. So for us, what we did early on to overcome this, and we actually work with a number of protocols, but we started out with Stellar. We got a grant from them. And we essentially took out Facebook ads giving people free top-ups if they registered with our app. And essentially, we'd airdropped them, some USDC on Stellar and provide them this pathways to off ramp it further. Most people chose airtime. But essentially, the call to action

was get 20 cents of prepaid credits for registering with us. And it worked really well. And I think one of the big takeaways that I got from our customer discussions was, and this is in understanding, contextually, how they understand crypto, was that, oh, this ethereal thing. And you got it, but the problem with it is, and what we realized early on is you can give someone in some part of the world a billion dollars in Bitcoin. It's meaningless to them, unless there's a counterparty to make it real somehow. But when we gave away this USDC token and allowed someone to top up their phone with it in real time, they were able to get that immediate gratification and understanding, and the light bulbs went off in a lot of people's head. They were like, oh, wow,

this is real. With that program, we actually drove nearly a third of all stellar USC wallets globally between 2022 and 2023, but just in our intended regions across sub-Saharan Africa. So we've been utilizing that type of program, and it's been so successful that we do it as a service for many of our partners now in helping them drive adoption and use of their wallets, as well as discovery of new protocols or projects within their region. You talked about the ways that you hook people in, give them a bit of USDC on Stellar. Do you think that once you create a simplified user experience, for people, let's say, in the Nigerian market, for example, do you think they'll be solely USC users eventually? If this becomes an all-encompassing personal finance app, do you think

that there's demand for a Bitcoin for an ETH or maybe it's an on-chain real estate asset or something like that? My argument is always, if you're someone living in the U.S., I think it makes sense to have a slivery portfolio in Bitcoin because it's something different and it hedges a certain reality. But I'm curious what you think the perception is, let's say Nigeria, some of your guys target markets, if you had this incredibly easy experience, which you hopefully will have soon. So I look at this way. I remember setting up my first bank account 20-something years ago at what was like Nations Bank in Florida. I went to Florida, ANM University in Tallahassee, and went in with my dad one day when he dropped me off at college. Well, I still have that same bank account. Now it was

acquired by B of A, and I've upgraded from the student account. Yeah, they really get you in. Talk about switching costs. Exactly. With mortgages, with other financial services, et cetera. Well, I see crypto and crypto wallets and adoption in a very similar vein, and especially across emerging markets, where if you don't have any type of financial service. Well, that crypto wallet might be that future equivalent of your bank account. And bank accounts are just sticky. The average person in the U.S. has somewhere between seven and 12 financial accounts from bank accounts, credit cards, brokerage accounts, PayPal, Venmo, etc. Well, because of many emerging markets, they don't have that bank centric capability.

They might have a mobile money account. They might have a limited bank account, but not too much more. Well, I think what you're starting to see is in many of these emerging markets, because a lot of the reasons, the risk factors, the lack of trust in these central institutions, people are seeing a crypto wallet as a life preserver in their financial life. And whether it's, I want to get my uncle or aunt in the U.S. or U.S. or U.K. to send me money, I found that it's easier to do it this way because the bank's not open when I need the money or the banker doesn't like me and not going to give me dollars or convert my dollars at a favorable rate. So this puts that power back. into the hands of the consumers, but I still think it's really, really early. And as we all get really old in 20, 30 years from now, you're going to see a lot of these folks in emerging markets using crypto wallets as their primary financial service. And just like banks, this is where you lock them in. And to the extent that it's easy to use, if they can use it to buy food, water, shelter, they're not going to turn it off. And if they can be done in a cost-effective, consumer-friendly way, hey, I have $5 and there's no fees to hold this money. I can hold it indefinitely.

then I'm going to keep it here indefinitely. I think that makes a lot of sense. There's real groundwork being laid. We're seeing it in front of us in those places. In that vein, from what you're seeing, where do you think we are in the growth or adoption cycle? Do you think we're at an inflection point? Personally, from my side, I've seen a lot of really exciting data from some of the

emerging markets you mentioned. But do you think that we are midway through? We're steadily growing. Do you think we're going to have a big inflection point maybe in the next year or two? Do you think we actually slowed where you see us is falling right now? I always like to take this historical perspective. And I found some chart a couple years ago when I first got in the space. It's 10,000 years, the history of money.

And it showed this curve in terms of adoption and an understanding and so forth. And then it had this focus area on cryptocurrency. And it was just this little area. And it showed this pickup work. Well, I do think many people have heard of Bitcoin or cryptocurrency and stable coins in these markets. and there have been a fair amount of trial adoption and maybe on a GDP per capita basis or some basis, but not on an absolute basis. You can probably see more use there than here in the West, but I still think it's super early. And one of the things that really excites me about the markets

we're in and then where we even plan to be over the next few years is just that. And there isn't the same type of infrastructure, which means that they're in the same type of inertia that there is here in the States for this new technology. You can't go to someone in New York or Florida or D.C. and say, hey, I have a new bank account. You want to try, come on, man. I already have three or four bank accounts. What's going to make you're so special? How much money you're going to give me to move. And the need isn't there. Exactly. Yeah, I completely agree. I think the willingness to switch comes with where people actually have needs. Naturally, people don't want to move their money around.

I understand it. It's nice to have an account where it's been sitting safely for years. Well, Chris, thanks for coming on. I really enjoyed the conversation. We talked through a lot of things I was hoping to. Thank you. I thought it was really exciting opportunity to share with you. We're really excited about PhoneBank.

And one of the things I'd say that really differentiates us in where we're going in the market is I really look at us as a commerce enablement for Web 3. We work with pretty much all the leading non-custodial markets that want to go to that region. And what we've realized is they're just software. These are small teams. But in the same way, you talk about inflection point and where we see some the opportunity is that in the same way that a browser was to Web 1.0, I see the wallet to Web 3. To the extent that there is no traditional commerce rails that exist in many of these markets or people

don't have access to them. But here's a way, and you talk about the flat settlement with a piece of software, now people can get access to the digital economy globally from wherever they are, whoever they are. So we're really excited to bring that to as many people as possible. And I think that's really how you drive financial inclusion. Couldn't agree more. We're seeing something really exciting happening in front of us. Well, thanks again. We'll chat again soon, hopefully. Thank you, why. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island.V.C. To listen to all of our podcast episodes,

please go to On the Brink-Podcast.com or just click on the tab in our website. Thanks for listening.