Innovation Frontier: Financial Inclusion & Digital Currencies

June 1, 2023  • Institute Staff

How can we better understand the evolution digital currencies as potential drivers for both innovation and inclusion? That was the question the Aspen Institute’s Kara Gustafson explored as she joined PayPal to moderate a discussion with finance, tech, and social impact leaders in November.

In this excerpt of their session, industry leaders Jose Fernandez da Ponte of PayPal’s Blockchain, Crypto and Digital Currencies business unit and Neha Narula of the MIT Media Lab’s Digital Currency Initiative engage with the challenges and enduring opportunities of technological innovation in payments and the monetary system.  They discuss the power of solving hard, specific problems on the path to concrete change.


Read the full transcript below:

Kara Gustafson (00:00):

Welcome to everyone. It’s really wonderful to come together tonight to discuss this topic of the innovation frontier, how digital currencies can drive financial inclusion. I’m genuinely pleased to be here and have this conversation with Neha and Jose to talk about blockchain, innovation in the digital currency space, but also how this room of leaders and entrepreneurs can think about how to use tech in finance as a greater force for social good. If we could zoom out to understand original motivations and original intent in 2019 you were one of the founders of PayPal’s BCDC group, Blockchain, Crypto and Digital Currencies. What brought you into crypto? And what brought PayPal into this space as well?

Jose Fernandez da Ponte (00:57):

The history of BCDC- I was lucky to be at the beginning- the founders of the effort are very much Dan Schulman, our CEO, and many of the folks who are here today. They came to the space because we’re a commerce and payments company. We’re saying, we can do something with this technology that will impact commerce and payments. And we had Wences Casares a very well-known person in crypto, was telling folks, “You’re going to be missing the boat if you don’t look at this technology.” And that was a really good wake up call that helped us rally resources against it. I’ve been in this space since 2015, give or take, and it was always in a payments capacity. And when we got there, the thesis was and continues to be that a significant amount of commerce and payments would move to digital currencies. And there’s a reason why we have blockchain and crypto and digital currencies. Because in a way we are agnostic about the technology, we care about crypto and we offer the opportunity for people to buy a few tokens from the PayPal and Venmo apps. But we care a lot about stablecoins, we care a lot about central bank digital currencies. In the end, this is about digital representations of value. And we always go back to our 4.0 hypothesis. If you think about it, the cost of a payment transaction, the unit cost is about, give or take, 10 cents. When you use this technology—in lab conditions I’m sure it’s not going be the same thing when we do it at production—but you get to $0.001 dollars per transaction. So, if we can reduce the cost of payments by 1000 times, and I’m sure it’s not going be 1000 times, but I’ll take 10 times. If we can make payments 10 times cheaper, then this technology work for us.

Kara (02:37):

How about you Neha? What brought you into this space? I was listening to your TED talk before this and, I think for people who are not deeply embedded in the digital currency space, I loved your explanation on how to mentally think about digital currencies and assets in the same way that we think about physical currencies and assets. But how did you come into this space? Why, and what personally moves you?

Neha Narula (03:09):

So I actually came into it around the same time as Jose, in 2015. And my story was a little bit different. I wasn’t coming at it from a payments perspective, I was coming at it from a technologist perspective. And so I had just finished my PhD and I had done a lot of work in distributed systems and databases which, you know, sounds very boring, but they form the core of everything that you use on the internet, all the apps, all the services. They’re an important part of it. But I was a bit disenchanted, actually. I, you know, I think 2015 was an interesting time. I was looking around at sort of what was going on with the internet and I was, you know, really, I didn’t want to work on making advertising work faster for a large tech company. And that was kind of what was really happening then. It was- it was all about ads, it was all about driving user impressions and mining user data. And, you know, algorithmic feeds. And I was just wondering, what have we really built with this technology, you know, what are we doing? And I had the opportunity to take a step back and to look around and that’s when I’d heard about, you know, I’d heard of Bitcoin before, obviously.  And, I, what happened in 2015, I heard it was having trouble scaling. So it was these types of problems that I really love working on. I love working on scalability problems. And it just took me down, I went down the crypto rabbit hole, as it’s called. And, I started learning about money, I started learning about banking and fractional reserve banking and interest rates and all of these things, about payment systems, about mobile money, about financial inclusion. And I was just floored. Because as a technologist, I had always believed that software was the best lever we had to change the world. And what I was starting to realize was that, actually, incentives and economics are also incredibly important levels to change the world. And we, what we had in this new area was the opportunity to combine them, and that was just so extraordinarily interesting and powerful to me.

Kara (05:21):

Jose, I know this is, something that you’re personally passionate about and it’s nice when you see, finance intersect with a way to benefit society. Why are you so passionate about this? And can you share some of your vision on what crypto and digital currencies can offer for inclusion?

Jose (05:46):

Absolutely. So paraphrasing from one of Neha’s colleagues at MIT, Abhijit Banerjee, who’s an economist at the school, he runs a fantastic course on global poverty. And one of the first ideas that he had is, look, global poverty is not one big hairy problem. It’s 200 different smaller problems that have specific solutions. And I live in Silicon Valley. Silicon Valley there is a lot of goodism and oversimplification about…like the title of the book, “To Solve Everything, Press Here.” There is a lot of simplification, oh, digital currencies are going solve financial inclusion because remittances are going be super easy to make. I disagree. I think this is going have an impact in remittances. But the problem with remittances is the last mile, its not sending… if I’m sending money from New York to my family in Guatemala, the difficult thing is not to move the money from New York to Guatemala. The difficult thing is to convert that in fiat on the Guatemala side and something that people can use without bringing it back to cash. Because if I need to pay 5 to 10 percent to a cash agent in Guatemala to get that back into Quetzales, then all the savings went away. That’s why I think that it is important to bring a layer of specificity into these problems.

When we look at how do we help in financial inclusion with what we are doing it goes back to that principle of we lower the cost of payments…at some point in time I’m going print t-shirts, “We’re lowering the cost of payments.” Because it impacts them when you’re doing cross border commerce. I’ve been in payments for 20 years and the initial part of it that we were doing was helping merchants in South America that were selling to American tourists going there and they couldn’t accept payments, and they were using PayPal. And they were trying to figure out, when people tell me that PayPal is expensive in the US, well, when you go to Costa Rica, it’s three times cheaper than getting a point of sale terminal from a local bank and if we can do that, if we can use digital currencies for B2B payments, we can use it for cross border commerce, we can use it for things that are more pedestrian, if you want,  less exotic or less about, hey, just let’s solve global poverty by enabling a remittance corridor. It requires to go and do the hard, boring things. It requires the technology but it requires the regulation and we spend a ton of time… we have a couple of hundred people fully dedicated to crypto on the PayPal side. Half of them are product managers and engineers, 40% of them are compliance and risk. And we need every one of them because this is half technology and half risk, compliance & regulation. So you need to really pick one problem, go deep into it, and don’t shy away from doing the hard, boring things. Because in the end, you’re trying to fix that problem, whether it is someone wanting to buy cross border without having an international credit card or between payments or verticals like gaming and others that are really, really very well-positioned to be disrupted by this type of technology.

Kara (08:45):

If we could stay on the financial inclusion piece and the potential for digital currencies to drive financial inclusion, Neha, in your work you- you spend a lot of time with central banks and finance ministers, and I know that you have some interesting research that’s coming out. How do you- how do you think about the potential for financial inclusion? And maybe you could just share with us a couple of highlights of what you’re seeing through your research.

Neha (09:15):

Yeah, so we’ve been working with the Gates Foundation on this question of how digital currency might or might not promote financial inclusion. And I think, you know, there’s been a lot of conversation like it’s a done deal. Like digital currency is the answer to financial inclusion. And unfortunately, I don’t think that’s the case at all. There’s- there’s actually a lot to unpack here. So, first of all, there’s even the term financial inclusion itself, which sort of has traditionally implied onboarding users into the banking system, into the traditional banking system. But I think, you know, really what we want to think about are providing users with the financial tools and services they need to flourish. And that might involve a bank account, but it might not.

It might mean they have better access to things like cash. And so, really examining what financial inclusion is and looking at the tools that people traditionally use, looking at financial services, seeing where they have met users where they need to be but also where they’re failing them. And, you know, unfortunately digital currency is not just going be a one size fits all answer. Because a lot of the reason that people sort of have issues is because of things like UX or having access to strong connectivity to the internet, which is kind of required to use digital currencies, or having you know, access to complex mobile phones. These things are not just going go away. We really need to think about meeting people where they are and providing them with the right tools. And so we’ve been looking at how we can think about designing digital currencies to better suit the needs of users. And I think the one thing that has really come across to me is access. We have to make sure they’re accessible and that people trust them. Those are two really important features.