When he spoke at the virtual Washington DC Fintech Week conference, PayPal CEO Dan Schulman shared an anecdote he heard when he first got into financial services: It is expensive to be poor. “Unfortunately, that couldn’t be more true.”
Developing innovation in fintech that can benefit the broader masses rather than select segments of the population may require more concerted consideration. There are transactions that more affluent individuals take for granted, he said, such as cashing checks, paying bills, getting credit, or sending money to loved ones. Such activity can be done rapidly, and the cost might be nonexistent for the affluent. That is not always true for people without comparable financial resources. “When you’re less affluent or outside of the system in some way, that can be extraordinarily expensive,” Schulman said.
DC Fintech Week founder Chris Brummer conducted the session with Schulman and asked how financial inclusion relates to PayPal’s business and larger issues such as financial health. Brummer, director of the Institute of International Economic Law at the Georgetown University Law Center, also asked how Silicon Valley industry and Washington, D.C., regulators assess the costs and risks of doing something on such fronts versus doing nothing. “When you look at both of them, what should you do?”
Schulman hinted that poring over available stats, such as 1.7 billion people around the world who are outside the financial system, only tells part of the story of how well the public is served and what more could be done. “In the US alone, there’s something like 185 million adults that struggle to make ends meet at the end of the month,” he said.
Such matters go beyond the health of economies and the functionality of communities, Schulman said. “The bedrock of democracy is people rising above their own self-interest. If people feel like the system is not working for them -- that there is no American dream and their kids aren’t going to do better than them -- then they rail against the system,” he said. “You see that in a lot of our politics today. People are very dissatisfied.”
From an industry ambition perspective, Schulman said the proverbial moonshot should go beyond basic financial inclusion, which can be interpreted as how many people have bank accounts, to drive financial health for more people. “Can they be part of a system that makes managing and moving transactions faster, easier, less expensive so people can create a modicum of savings, financial literacy budgeting tools to be able to sleep at night?” he asked. “To not have to tradeoff putting food on the table or getting health insurance?”
Schulman said such possibilities are within reach and the solution could be rooted in responsible technology where regulators and the private and public sector work together. “This is about working hand in hand with regulators,” he said. “It’s about understanding second- and third-order effects of innovation.”
There are other questions about new forms of digital currency that remain to be answered. For example, Schulman said cryptocurrency is a broad landscape with the potential to add utility to payments. “Stablecoins are a different beast,” he said, referring to a type of cryptocurrency backed by a gold, dollars, or other assets that fix their value. “You’ve got 80% of the world central banks working on CBDCs [central bank digital currency] and all the questions they’re wrestling with.”
Such questions can include whether to work directly with consumers, only through banks, or through responsible digital wallet or consumer platform companies. “There is a connection between digital currency and digital wallets,” Schulman said. There are also considerations to make, he said, about the underlying infrastructure associated with distributed ledger technology such as blockchain and how that creates efficiencies and lower costs to allow access to money in a more real-time basis.
Further investment in the development of the underlying technology is needed to support future endeavors in fintech to modernize the financial system, he said.
Looking several years ahead, Schulman said technology form factors continue to change and may further influence how fintech and digital currency evolve. “We’re not going to use plastic cards going forward,” he said. “Plastic cannot compete against software. Software is going to be embedded in an application or a digital wallet or a super app on your mobile phone and you will use that to pay or conduct basic financial transactions or commerce anywhere.”
That could include online or in stores on a cloud-based point-of-sale system that is not necessarily tied to current limits, allowing for more peer-to-peer payments. That might lead to the elimination of such things as cashing checks via smartphones or standing in lines to pay bills. “When I think about digital wallet to digital wallet, you can do things at a fraction of the cost of transactions today,” Schulman said.