The Pomp Podcast - #420: Anna Irrera on PayPal Entering the Crypto Industry

Episode Date: November 2, 2020

Anna Irrera is a Chief Correspondent at Reuters in London where she covers the financial technology sector and technology related developments at some of the world's largest financial institutions. In this conversation, we discuss PayPal’s entrance into the crypto industry, central bank digital currencies, macro fintech trends, and how COVID-19 has accelerated the digitization of finance. ======================= Choice is a new self-directed IRA product that I'm really excited about. If you are listening to this, you are likely part of the 7.1 million bitcoin owners who have retirement accounts with dollars in them, but not bitcoin. I was in that situation too. Now you can actually buy real Bitcoin in your retirement account. I'm talking about owning your private keys and using tax-advantaged dollars to do it too. Absolute game changer. https://www.retirewithchoice.com/pomp ======================= Pomp writes a daily letter to over 80,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Anna Herrera is a chief correspondent at Reuters in London, where she covers the financial technology sector and technology-related developments at some of the world's largest financial institutions. In this conversation, we discuss PayPal's interest into the crypto industry, central bank digital currencies macro fintech trends and how covid19 has accelerated the digitization of finance i really enjoy this conversation with anna and i hope you do as well before we get into this episode though i want to quickly talk about our sponsors

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If you use the slash Pomp URL, retirewithchoice.com slash Pomp, you get a skip the entire waitlist. So go to retirewithchoice.com slash Pomp and get a Choice account today. Lastly, don't forget that I write a daily letter to over 80,000 investors about business technology and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry. You can subscribe at pompletter.com. Again, pompletter.com. All right, let's get into this episode with Anna. I hope you guys enjoy this one. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital

Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Anna here. Thank you so much for doing this. Thank you for having me. Absolutely. Let's jump right into your background. You're a reporter at Reuters today, but kind of what did you do before you started writing about fintech? Actually, I started writing about fintech seven years ago, So it's been kind of mostly what I've done. I used to work at a paper called Financial News here in London, and it's owned by Down

Jones. So it was part of the journal franchise. And when I got hired there, I started on the online beat, which meant I didn't have a really have a beat. And it was early fintech days. So that was up for grabs. The sort of beat reporters didn't think it was much because the deals were small. And I thought it made sense to cover.

I thought it was going to be bigger in finance because like every other industry, you know, digital was was coming in so I started writing about that um then we changed editor the editor really believed in in that area and so we started writing more about it and then it sort of exploded and then I moved to Reuters um I'd previously interned at Reuters in Brazil for a bit where I was covering markets um so it was good because I had the sort of finance background which I think was a good differentiator at the start often you have like fintech reporters who have tech backgrounds and I think it's important to have the the finance understanding to cover this in the right way absolutely and explain a little bit just like when people hear that you cover fintech

what exactly does that cover kind of where are the boundaries uh because it's so kind of pervasive yeah when i started i was only doing wholesale fintech so like capital markets technology that sort of thing uh whereas now it's like really everything it ranges from you know uh from crypto but also from peer-to-peer lending or even just you know the tech side of banks and you know the tech operations or trading applications, you know, the whole of like, if you think of finance and technology, like, really all of it. So it's kind of incredibly broad. And my remit is now global. So it's even broader. But it's fun, because you can, you know, write about, you know, central bank digital currencies, or then you can move on and write about like, fintech apps for

children. It's just like the whole the whole space. Absolutely. And so I wanted to get you to jump on real quick because uh you broke the news last week that paypal is jumping into uh cryptocurrencies maybe talk a little bit just about you know when you started to hear about this and kind of how you got the confirmation this was actually happening so i got the confirmation because he spoke to me it was it wasn't very i've had more more hard to get stories in this case um so you know i i frankly i know there'd been there'd been a story i think a couple months ago from Coindesk about it, right? So it wasn't completely shocking to me, but I was still surprised because, you know, they're a big company. I've been covering them for a while

because I was, I mean, I just moved back to London, but I was in the US. I would cover their earnings frequently. And I remember in 2016 or seven, I think 2017, early 2017, I interviewed Dan Schulman. It was like a sort of, he came into Reuters and it was lots of reporters and editors And he said, you know, crypto doesn't have much utility yet. So I really didn't think that they were looking at this. Obviously, it's been many years since, but it was still surprising. Although, you know, once I heard more about it, what they were doing, and I thought about it some more, I spoke to people, it kind of made more sense for them to do something like this. Yeah. And explain kind of what exactly are they doing?

So they're going to, for starters, they're going to allow people to buy and sell crypto. crypto and it's four right it's bitcoin litecoin bitcoin cash and ether um but i think what maybe was lost on some people is that they're not going to let you buy bitcoin and you're actually holding your bitcoin and you can sort of move it and do whatever you want you're buying bitcoin but you can't move it away from their wallet you'll be able to spend um within the paypal network which is a massive network but still you won't be able to just buy a bitcoin with paypal and then send it to your friend who has a Coinbase account, you know, so it's slightly different than what you might expect. But you know, the massive thing, as I said, is that from start of early next year,

or like by mid next year, you'll be able to shop with their merchants. So that could add a lot of utility to Bitcoin. Absolutely. And what I didn't understand, kind of when I saw the news break is how big PayPal is, right? So the numbers I read is like 340 million users, it's got 25 plus million merchants um and then uh it looks like they're either the 20th or 30 30th largest quote-unquote bank by the number of deposits and so this thing is um everyone knows the paypal brand but it's just massive when you look at those numbers i think that the thing about paypal is you know they've been around for a fintech company they've been around for a long time so i think people just think oh paypal it's there i mean but but they've ever since they spun out of ebay they've been

really growing a lot and they have a very interesting strategy of just partnering with everyone um and so they have partnerships with all the bank the credit card providers and and you know so so it's not surprising that they would find another you know way to fund the accounts it's part of who they are now like this idea of partnering with more companies with more companies and different forms of payments and yeah they're massive i think i remember when i was writing the story i wrote that they had done i think i don't want to make a mistake but i think it was like around 200 billion in payment volumes in one quarter. And I kept going back to check because I was like, billion? That's a lot. Per quarter, are we sure that it's not like per year? But yeah,

they're gigantic and they're everywhere. So that's another big differentiator, right? They're absolutely everywhere. Absolutely. And then talk a little bit about Venmo as a part of this, right? I think Venmo may be kind of the younger generation, kind of the newer brand, but it sounds like they also have some crypto plans for Venmo as well. Yeah. So they're going to add this capability to Venmo again I think by mid by mid-year or something like that but in 2021 I don't remember the dates exactly and I hadn't thought about this very carefully immediately as I wrote the story but they've been trying so they bought Venmo when they bought Braintree I think Venmo came with it again I hope I'm not making too many mistakes but it wasn't created

by them it was acquired so and Venmo is free and it's been really popular with everyone like it's just everyone has it in the U.S. but it doesn't make a lot of money right so they've been trying to make it generate some revenue at the same time they've seen like increased competition from cash up and cash up has been allowing bitcoin purchases for a while so it kind of makes sense they've been seeing how cash up has been making quite a lot of money from bitcoin so it makes sense that they might see this as a way to help them more generate some revenue and become a bit more self-sustainable so you know it makes sense and then you have a younger sort of type of profile of people in memo. So, you know, it's smart. For sure. It makes complete sense. And what was interesting

to me is kind of you wrote the original article, right? Saying, hey, this is happening. Everyone goes wild in kind of the Bitcoin and crypto world, which has got to be a unique experience. I'm sure most of your articles don't have these rabid fan bases. No. So it's very funny. Like when you write a positive, like a story that's not even like, I mean, it's positive for Bitcoin, but I wasn't saying Bitcoin's going to hit the moon, like, it gets so much new followers. And then if you do spend like six months working on an investigation about a crypto project, you just get haters and like your followers decrease. So I think every now and again, I'm just supposed to tweet out a very positive story. Just tweet the word Bitcoin and you'll be a fan favorite for sure. In terms of

the reaction from the market, so not kind of the Twitterverse, if you will, but the actual kind of financial players uh it looked like you got kind of a mixed response right because there was articles where people were saying hey look this is a big deal and this is something to pay attention to but then you also had an article where there were some experts saying like and you know it's interesting but it's not really going to have that material of an impact maybe talk a little bit about that balance yeah so obviously the first reaction was like this is great for bitcoin and i and i imagined that it would send the price higher up because in effect like there's been many big companies that have tried to give utility to bitcoin so you know

dell was one that i'd spoken to in 2017 and they'd quietly rolled it back and then you know there have been ways to pay with bitcoin but there's this big tension between you know bitcoin as a way to invest in bitcoin as a way to spend um so originally like the price went up but then i was speaking to sort of experts in digital payments and many of them were saying you know what it's not clear that this will be great for bitcoin um or it or more not really great for bitcoin but great for bitcoin as a form of payment right because it could still be that first of all first of all there's that closed loop thing that we talked about before right where you're not really able to take it out of the paypal network so it has a limited effect on the whole market

and then also like people might not want to spend it anyways because if you think that the price is going to go up why are you going to buy something with it right you're going to keep it but what they were saying is that it might actually have more impact for sort of digital currencies in general and that's what also paypal was telling me that they're doing it because they want to get and give more utility to cryptocurrencies but they also want to prepare for when there are central bank digital currencies and that's sort of what the experts were some experts were telling me saying you know this is pretty smart because they're positioning themselves ahead of everyone else um if this starts to happen if if you know you see the euro the sort of crypto dollar the

virtual euro or you know then they've already have that integrated within their system um so So yeah, so it might not have seen, it might not be have that huge impact as you think, but I think it's sort of undeniable that it's brought it more, you know, it's making it more mainstream because now people who have a PayPal account, they might not have really paid attention to Bitcoin, but it just shows up, right? So it is, you know, even just image wise, it's a big deal. Absolutely. And talk a little bit about central bank digital currencies, right?

You have kind of this unique position in the market where your job is literally to go talk to as many people as possible and kind of always know what's happening. What are you hearing on the central bank digital currency side, either from market participants or maybe even central bankers themselves? So I think they're, everyone's really busy and there are many projects going on, but I have sort of this existential doubt. I don't know if it's, if it's like the blockchain enterprise blockchain projects in early days. I'm trying to figure that out. Is it just, you know, everyone's saying we're doing something out of like a knee jerk reaction from Libra, right? it freaked out libra do we want a private social network who maybe had a hand in like messing up

elections to sort of now decide like to have power over like the global currency so they all said they were doing stuff and there are some projects that are live but i don't know i think it's crucial to see like will they be used and you know even like the bigger currencies how long will it take and like will they have will they look at all like crypto or not really will they just be something different but there's definitely more people talking about it yeah for sure and it feels like um one perspective of the world and you're kind of alluding to this earlier is like somebody like a paypal uh eventually gets everyone a digital wallet inside their system so whether you're a user a merchant whatever uh today that's for cryptocurrencies uh bitcoin etc but eventually

if central bank digital currencies become real you already have the infrastructure there and it almost feels like the switching cost between going from Bitcoin to a central bank digital currency and back, that friction will be so low, and they can use the same infrastructure for everything? Yeah, I think that's the point. But I think the central bank digital currencies are a work in progress. So I don't know how much they can work ahead to know what infrastructure they'll need. There was a story from, I think, Bloomberg towards the end of Friday or or maybe Thursday about PayPal buying BitGo or talking to buy. So that's very different, right? Because then they would be, like the idea, I suppose, is that they want to be able

to custody these things. So then it would be slightly different from, you know, what they've set up now. But they've said that it's sort of a work in progress and they want to have like interoperability between wallets. So I think it all remains to be seen. And also, like, as I mentioned, you know, I mentioned Libra, sort of PayPal was an early, was a founding member and they were the first ones to leave. So I wonder how much of this is sort of a reaction to that, right? They believed in the idea of digital currencies, but they didn't like the way that was going. So they've still decided to go ahead in their own way. Yeah. One of the things I don't know the answer to, but it's interesting to think through is Facebook kind of very courageously

came out and they were the first company to really spearhead this idea of like a private currency, but still centralized in nature in terms of there was a company where you could call in the CEO or call in somebody that was running the project. And it was a brand that was recognizable. I wonder because of the government response, both in the United States and elsewhere, if that kind of scared a lot of these companies away. And they basically are now saying, we probably can't do the private currency thing. So we might as well just use the existing kind of decentralized versions. Yeah. And speaking to sort of Dan Shulman from PayPal, he was very much talking about how they've been speaking to regulators.

We've been working with regulators, like he said, regulators very many times. And like and to me to be fair I was quite surprised that there were like I think it was MasterCard Visa and PayPal were the big financial companies in that because considering how the project was announced there was very little clarity on you know if they've gotten if they've gotten go ahead from regulators which in the end they hadn't so I was surprised that companies that are already like big financial companies and are aware of like the sort of massive you know input from regulators that you need to have that they just jumped in without like checking with anyone before and so in the end you know they left so you know I think now they probably yes as you say they're probably

thinking we're gonna go ahead but you know we're gonna do it with governments and you know they're a lot more cautious absolutely you um you don't just write about crypto bitcoin um you write about fintech in general what are some of the other fintech trends that you're seeing kind of play out as COVID and all of that impact plays? So obviously there's this sort of digital payment side of things, which is partly crypto, but like more broad, you know, there's been a massive upsurge in digital payments and digital banking in general because of lockdowns globally. So we're seeing more activity there and more companies sort of growing and also reaching big valuations. And it's generally one of the, I guess, biggest trends. And then also like online

trading is also growing you know we've seen like robin hood and the like uh have an explosive year so that's something else that we're watching uh and then in general you know from the bank perspective also you know they were all in the process of transforming digitally but now because they've had to shut down their branches they had to and also like their offices if you think about the whole states wholesale side of the business they've obviously they're telling us that they've had to accelerate the pace of digital transformation um and it you know things that would have taken them a month or two months they did in like two days um so overall it's like i guess it's been great for fintech generally obviously there have been areas that are not doing great with like

lending uh clearly it's a bit of a rough moment for lending because you know lots of people are having a very tough time so you know people are expecting more loan losses absolutely and it feels almost like uh kind of the financialization of everything is upon us right you're getting kind any company that touches money, which is almost every company, somehow they're starting to play in this like fintech type world. And then the fintech companies are also becoming much more pervasive in terms of it used to just be, hey, we want to have a neobank, right? But now we're seeing brokerage, we're seeing cards, we're seeing kind of the software companies trying to almost eat the traditional financial system. How do you kind of balance this in your head? Is it going to

be where people are going to come from different perspectives, but everyone's going to end up in just this digital finance world so it doesn't matter if you're a wall street incumbent a technology company a crypto company like we're all headed to the same place i think so i think inevitably slowly it's going to end up being more like that i think obviously there's always going to need you will always need a little bit of a physical presence because i mean for for consumers you think less about it but if you're a small business and you take cash i mean unless cash disappears but for for a while you'll still need to have a little bit of an out physical outpost right but yeah it's I find it interesting that you have like big tech finance tech firms coming

in and doing finance things you know like Apple doing the Apple card with Goldman and then you have like the fintechs that were like as you say you had Robinhood saying we're just a brokerage and then they started launching an account or you know Wealthfront doing the same or SoFi doing trading you know it's it's just everybody doing everything and it's funny because early days of fintech was unbundling and now I guess they figured out people don't want to have 50 apps on their phone for their financial life. And so we have a big rebundling of fintech. And I guess the winners will be who wins the rebundling, I suppose. And some banks, the bigger ones in the US who have all the money they need to become more digital, they'll probably still remain winners. I don't

see them disappearing in the short term, but the smaller fintechs, some of them might not be able to remain sustainable, right? Yeah. It's really interesting too, I think, to think through kind of the geographic boundaries that were really prevalent in kind of the legacy financial world, those seem to be going away a little bit as well. Because in the digital world, yes, you start to pay attention to the regulations. But when you don't have to have a physical location, it makes it much easier to kind of go other places, right? And kind of have this like cloud based solution. Yeah, it definitely is only I think the regulation is sort of like undeniable and something that stops you more than anything right because you know you need a license

to be somewhere else right and you need to have and that license maybe comes with rules about having people there so whereas you know like other types of tech like tiktok can like take over the world and like i sweat six i don't even know when they were launched but you know you robin hood was supposed to come to the uk but decided not to because i think the step of expanding in another country when you're a financial company when you're in another country when you're a financial company is just that much harder right so um so it's it's going to happen but i think slowly i think probably what's happening is that globally we're all becoming more similar in the types of services we use like everybody's becoming more like and i guess it depends like developed and

developing markets but you know we're all using the same types of services but they're more still a bit more localized right there's the equivalent of robin hood somewhere else and and so forth right absolutely yeah and i think that jack dorsey kind of highlighted this the best right i heard him one time say uh what really excites him about bitcoin specifically is this idea of with uh square and cash app if he wants to go into a new country he has to do all sorts of things around uh banking regulations getting people onboarded kyc aml like you know really really in-depth kind of legacy type stuff he's like with bitcoin it's immediately available in that new country, right? And now, yes, there's probably going to be more regulation over time

around it. But I think that was a really unique perspective from somebody who's kind of playing in both worlds, right? He's a big proponent of Bitcoin, but he also understands kind of the bureaucracy and pain of moving a legacy company kind of country by country for expansion. Yeah, I mean, I'm kind of like pretty, you know, having covered finance also broadly for so long, I just think the regulatory part is inevitable. And like, if the more like, you know, widespread you get, the more you're going to have like controls around it. If you see in the UK, they've now like, you can't, I think it's with derivatives, you

can't, retail investors can't touch crypto derivatives. So it's just the way of things, right? Because you need to protect some consumers and not others. So I think it's true. I think maybe crypto has sort of given people the impulse to realize that stuff needs to be a bit more swift and quick and you need to have better ways of doing things whether that translates in the existing cryptos taking over the world or just new forms of like payments improving then you know that that remains to be seen i guess absolutely before i let you go i ask

everybody the same two questions uh and then you'll get to ask me one to finish up uh the first one is what is the most important book that you've ever read oh no this is very hard um oh i don't know i can i can say which ones i liked that i keep thinking okay i don't know um even two or three of them just ones that come to the top i i i'm so bad with questions like this it's when they ask me like what are you working on i don't remember um i love i mean these are not like business books though it's fine okay i'm gonna be like really banal but I loved Americana like still one of my favorite books um why did you like that one I just loved it I just thought it was like so smart and like it touched on like really

important topics but it was just like love it was just a lovely read also on top of everything yeah very well written yeah yeah um god I loved um oh I don't remember the name it was the one about a journalist and he started working in Silicon Valley for a bit and he was doing content I think it was Disrupted maybe it was called I don't remember the name I don't remember no it's really bad book recommendation and I'm so bad with remembering things but it was great because it was just like I think being a journalist it was like looking inside a sort of the startup world from within as a journalist so it makes me think will I ever want to work in a startup I don't know because look at this guy what happened like it was just I just loved

it was very funny obviously if i remember the name it was better i remember the cover but not the name and then i think i also liked um one of in just general michael lewis books i think the early ones fantastic yeah yeah i just i just like those they're they're fun but they're also about finance so you learn things yeah yeah he's one of the best for sure uh second question is a little bit more fun which is aliens are you a believer or non-believer i don't know i am a believer i'm a believer i'm a non-believer until i see evidence to say that i haven't seen sufficient evidence to believe i also don't really think about it very much i'm like too worried about everything going on in the world other worlds that that's probably the best reason to not be worried about what's

going on off earth right as we got enough problems here yeah yeah I love it uh you could ask me one question to finish up what do you got for me what would be your dream guest like the one you'd like love to have but it's almost impossible oh it will obviously it had to be somebody who's dead um I would say one of the people I've been fascinated with my whole life and I don't know where this fascination came from uh is john rockefeller i think that would be a really interesting conversation especially in uh if we had all of the hindsight clarity that we have now about what he did how he did it what he built how important oil became kind of you know all of that

and then to be able to ask him like hey man tell us all this stuff like why did you do this how did it work you know would you go back and change anything those types of questions i think would be really fascinating for somebody who you know one amassed a great fortune but two did it in a in a very kind of um uh it did it in a way that i think today a lot of people try to emulate in terms of like standardizing industries and kind of building these very powerful uh almost monopolistic type uh type companies do you think you'd be a bitcoin believer yeah i tend to think that a lot of those early people weren't uh weren't the biggest fans of uh of kind of centralized planned type of currency so yeah i or maybe that's my bias just telling me that they would be but uh

but yeah him jp morgan etc i think uh you know they tend to be a little bit more uh disruptive and innovative than uh yeah where um where can we send people to find you uh on the internet or find some of your work so you can follow me at on twitter at at and my last name and then my stories are all on Reuters.com but I'll post I post everything so the Twitter is the easiest Twitter's the best one all right listen Anna thank you so much for doing this I think that people are really fascinated with the PayPal news and obviously you got the story out first which is always fun as well so thanks for doing this and we'll have to do it again thank you