Every time I tried to pay with my Visa or Mastercard, I was told that I was going to have to pay 5 to 8% extra on top of the transaction. So, I don't think that stablecoins are going to be what kills the card network. I think it forces them to evolve. It's not just about whether the end user wants it or whether the merchant wants it. You have to find these use cases where it makes sense both for the end user and for the merchant. And that might not be in all payments, but it makes sense for me when I travel to Africa and I get charged 10%. It also makes sense if I'm in a nightclub in New York and my card fails because I'm spending too much money on bottles of wine.
Hey everyone, welcome to another episode of Wrap Up Podcast. Today I have Jess from WalletConnect. Jess, welcome to the show.
Hi Sam. Thank you very much for having me. Super excited.
Likewise, Jess. For the people who are unfamiliar with WalletConnect Pay, could you briefly introduce yourself and tell us what you guys are building and what problems you're solving?
So, WalletConnect is a network that has been around since 2018 to connect apps and wallets. On one side of the network, we have about 700 different wallets which collectively give us access to about 800 million end users. So most people who've got crypto in a wallet are able to use the WalletConnect network. And on the other hand, we have applications. We have about 80,000 applications. They include games, NFT marketplaces, payments companies, and many others. And last year, the network moved about $400 billion of value. The other thing that happened last year was we noticed a lot of payments companies starting to use our technology to enable people to make payments. But some of them were really struggling. They maybe didn't have the crypto expertise to be able to do that. So, we started to build a product called WalletConnect Pay on top of our network, which is a full-service offering for payments companies. So, they can accept crypto payments, but they don't have to think about the crypto element of it. They just get dollars, euros, whatever fiat currency they want out there on the back end. It's a cheaper offering for merchants, has a ton of benefits, and it also gives a really nice end-user experience that feels much more like a payment than a crypto transaction, and we think that that's really important, too.
I see. So, basically, you have two products. I thought WalletConnect and WalletConnect Pay were the same thing, but those are two different things, right?
So we actually we have a whole host of different products at WalletConnect. So we have the core network which is what I mentioned about these wallets. On top of that we have WalletConnect Pay. We also have a product for developers called Reown. We have some data products for wallets so that they can understand their users. So it's really thinking of us as a network and then we can build different things on top of it. The one I'm really excited about right now is definitely WalletConnect Pay. Obviously, stablecoin payments are very much the zeitgeist right now that everyone's talking about and I think where we're going to see a lot of growth over the next couple years.
Just, you know, I see so many options for merchants at the moment like cards, now stablecoin payment rails, bank-to-bank, and if you talk about local payment there are tons of them, especially in Europe. So when choosing the payment provider or the rail, what should merchants pay attention to since they have so many options?
So I think this is really about meeting both merchant requirements and end-user requirements. And I'll give you an example there. You have something like the UK open banking rails which are really great for merchants. They are very low cost, very easy, but the adoption rate is really, really low because there's very little incentive for an end user to start to use that as a payment method when they're so used to their card payment method, for example. Right? So, this is why we've really focused on thinking about both the end-user incentives as well as the merchant incentives. So, WalletConnect Pay as a payment method is cheaper for merchants. It provides much faster settlement. We can do same-hour, same-day settlement to merchants, which is really great for their working capital. It's global. At the same time though, we really try to think about the end user. What makes the end user decide to pay with crypto instead of decide to pay with their Visa, their Mastercard, or any other payment method? And here we think the incentives are really important. So, WalletConnect Pay is designed with cash back for end users. We have a bunch of partners who provide additional incentives. So, if you pay on a specific chain, you get some extra cash back or you get extra discounts, extra loyalty points. So, we've really tried to think about this as a global payment method, but with incentives deeply built into it because changing consumer behavior is just really hard.
Right? No, you gave a good example of open banking in the UK and you said for merchants there is no incentive. But don't you think the incentive is that they don't have to pay for the card networks like
No, no, no. I said that for the merchant there's loads of incentive but for the end user there's...
Right, yeah, okay, okay, I see. You also mentioned stablecoins. If we talk about stablecoins, what are the incentives for both merchants and the end user? What do you think?
So, for the merchant, stablecoins or crypto provide lower cost payment methods, much, much cheaper than accepting a card. We can provide same-day, same-hour settlement. So you're not waiting T+1, T+2, T+30 if you're in Brazil to get your funds. This has a big impact on your working capital and therefore your costs. It's very global. So, one of the interesting use cases that we've seen for crypto payments is in airports where there's a lot of international travelers. People arrive, they don't have the local payment method. And people with any crypto wallet can then make a payment. And that was done in Japan recently in Hokkaido. So there's all these different use cases about opening up to different buyer groups. Sometimes people like crypto payments because of much better approval rates, much lower fraud because the payment is being cryptographically signed by the wallet. The incidence of fraud is much lower. So these typically tend to be the main reasons that merchants are interested. For the end user, it can be a range of things. Ease, because I know that I can use my crypto anywhere. The second thing is that many users, as they're traveling, they get hit also by bad FX rates from their cards, for example, whereas using USDC anywhere in the world is not going to hit you with a big FX rate. And then this is where the important thing with WalletConnect Pay as a crypto payment method rather than just paying with any crypto is important. We give you a lot of security because of the way that we designed the system. All of the transactions are screened. We've onboarded the merchants so you get this feeling of trust when you see the WalletConnect Pay sign. You know that you can use any wallet. You're not connecting your wallet into somewhere that is not safe. And then secondly, we build in all of these incentives. So I know if I'm using WalletConnect Pay, I'm going to get 2% cash back. I might get some extra discounts. I might get extra cash back if I pay on a particular chain or with a particular stablecoin. So we've also built in real user incentives that make it interesting for them to start to pay with WalletConnect Pay.
Right. Well, there are so many incentives as you mentioned for both merchants and let's say end users to use stablecoins. But I recently read an article by McKinsey and they say the volume of stablecoin payments is growing. Yes, it's like $360 billion and it doubled in the last year, but it still is a very tiny bit of overall global transactions. Why is this the use case? Why don't we see the scale yet?
I think there's been a few things. Firstly, I think that the regulatory landscape has put a bit of a hold on some people adopting this. We've seen a big change since the Genius Act came in. People are more excited, more comfortable, ready to launch things into production, which two years ago just wasn't the case. Everybody was very worried about the regulatory landscape. The second thing is that from an end-user experience, I think crypto payments still aren't where they need to be. If you think about it, we're competing with existing payment methods, whether those are cards or APMs, and the user experience for crypto is still not great and it's better than it was before. And that's a lot of the work that we've been doing with WalletConnect Pay, is transforming the user experience to be great with payments. I just saw a wonderful demo from our research team on NFC. So I can just tap my phone to pay with crypto. We have changed the crypto signing experience. So you don't have to connect your wallet and then sign a transaction. You can just click pay. You can select the assets. We can sponsor the gas for you so you don't end up needing to have two different kinds of token in your wallet. So, there's all of these incremental user experience things that we've been working on over the last couple of years that I think are bringing Web3 payments experience much closer to Web2. And once the user experience is kind of the same, then it's easier to start moving people into using those payment methods, which two years ago just wasn't possible.
So basically, if I understand correctly, there are two things. One is regulation, it was not in place, now we see that changing with the Genius Act, for example. And the second thing is user experience is still behind a more traditional rail, right? And I often hear that basically stablecoins are like tubes or rails, and I just want to understand where do they stand against let's say already existing rails. And what I mean by this is that instant rails, including for example Faster Payments in the UK or RTP in the US and a few others in other regions of the world, PIX for example, so why shouldn't merchants use those rails and why should they switch to, for example, stablecoins?
So I think there's two things. One, stablecoins are global, so I don't have to have a new payment method every country that I travel to, or when I make cross-border payments, I don't get hit with really big fees. The second thing is that I don't really think of it as an either-or. Yes, as a merchant, you don't want to offer probably every type of payment method, but if you want to be able to attract the most consumers, give them the best experience, adding stablecoins as an addition to all of those local payment methods and to a card network may make sense for you depending on who your end consumers are. It may not. But in a lot of places or a lot of segments, we see a real pull from merchants. So some of those segments include luxury and high-end where the average transaction value can be really high even for a card payment. We see it in some segments where the card approval rates might be a bit lower, like in gaming, for example. Crypto approval rates are very high because of the cryptographic mechanism that the wallet can use to sign that transaction. And so that would be another motivation. And in other places of the world where people are holding a lot of stablecoins, maybe because the local currency is very volatile, so they're holding USDC or USDT as a hedge against their local currency. They want to be able to pay with that, and so there's big demand for the merchant to be able to accept that. So it kind of depends on these different pockets around the world and different segments as to why the merchant may want to add this as a payment method. But the beauty of WalletConnect Pay, the way that it's built and delivered to payments companies, is that if you work with a payments company that uses WalletConnect Pay, as a merchant, you should just be able to enable this alongside all of the other payment methods. You get all of the reconciliation in the same way. You can get settled in the same way. But you're just opening up to a broader audience potentially.
