Circle CEO & Visa SVP, Global Head of Crypto & Fintech on digital asset venture partnership and crypto

Jeremy Allaire, Circle Co-Founder, Chairman, & CEO and Terry Angelos, SVP & Global Head of Crypto and Fintech at Visa, join Yahoo Finance’s Julie Hyman to discuss Circle and Visa’s partnership, the role of Stablecoin in crypto, and the future of fintech.

Video transcript

JULIE HYMAN: Fintech, I'm Julie Hyman, an anchor at Yahoo Finance. And we're going to continue this conversation right now with Terry Angelos. He's the Global Head of Visa's Crypto and Fintech teams and Jeremy Allaire, Co-Founder, Chairman and CEO of the fintech firm Circle. Gentlemen, thank you so much for being here.

And I want to start with the partnership between you two, which is why we have you both here. You have a partnership that's about nine months old. Among other things it includes the Circle Visa corporate card, which allows users to transact in the US dollar coin, which is a stablecoin. And first of all, just want to find out how the partnership has been going, what kind of flows you've seen, what kind of client interest you have seen and what people are getting out of it. Jeremy, why don't I start with you?

JEREMY ALLAIRE: Yeah, sure. I think a few things. We set up this relationship with Visa late last year, and I think there are multiple dimensions that are underway and are really exciting. I think the first is, and certainly, Terry is going to be able to comment a lot more on some of this than I can, is just there's been an incredible amount of growth in digital wallets that are allowing individuals and businesses to hold cryptocurrencies. And that includes things like Bitcoin, which a lot of people know. But increasingly, some of the most popular digital currencies are dollar-based digital currencies like USD coin or USDC, which we're the principal operator behind.

And so one of the major things we've seen is just a lot of growth in that and more and more of the firms that have these wanting to issue Visa cards and have a way to use the digital currency they have, the USDC they have to spend value everywhere where Visa has reach, which is, kind of, everywhere. And so we're seeing a lot of that and a lot of firms who are doing that. And that's definitely driving convergence between mainstream payment application experiences and fintech experiences and this new digital currency world.

I think the other is, and I think one of the key things in the partnership is really the incredible range of fintechs globally that work with Visa in different ways. And we're seeing, through our collaboration, more and more firms that Visa works with coming to Circle, taking advantage of some of the services that we offer to facilitate that.

And I think another piece that we touched on in the original partnership which we're working towards is really providing a seamless and automated way for businesses to be able to use USDC as a way to make payouts all around the world fast, cheap efficient, but to pay out into wallets that are connected to the Visa card network. And so I think we're making good progress against that and excited to see a lot more growth from that in the coming quarters and years.

JULIE HYMAN: Terry, what about from your perspective?

TERRY ANGELOS: Yeah, well, actually, this is a super interesting week for Visa in the sense that almost 63 years ago we had the first credit card drop in Fresno. And one of the pioneering efforts around Visa was to be the world's premier exchange of value. And so with crypto, we're embracing that and expanding it to new types of payment flows.

JULIE HYMAN: And let's talk about the impetus and beginning of the partnership between you two. You, sort of, alluded to it to some degree, Jeremy. But I'm also interested in as you think about crypto, fintech, startups et cetera, here you are partnering with a big established financial institution and there's this sort of disruptive force that comes with crypto. And so how do you think about the symbiosis, if you will, between your firm and the likes of a Visa or just more broadly, the sort of establishment financial world?

JEREMY ALLAIRE: It's a great question. I think it comes back to first principles and core vision for the company that we have been building for eight years now, which is we've always believed that there's the possibility to connect the existing financial system, connect dollars from the US Federal Reserve, connect to the existing infrastructure that settles transactions in the world and connect that up to digital currency and bring the benefits of an open public internet, of value exchange but to something that can integrate with in a really seamless way, the existing financial system.

And in fact, if you look at USDC itself, which by the way, celebrates our three-year anniversary of USDC tomorrow, but if you look at that, it's a reflection of that itself, which is to basically say, hey, you have existing commercial bank electronic money and lots of people have that around the world. What if you could essentially convert that into a digital currency form but still have integration, seamless integration with that existing financial system? And that's how it works.

And so a partnership with Visa makes a ton of sense, right. Visa has incredible reach. It touches you know, I believe, 70 million merchants or something like that around the world and probably over a billion individuals that have some kind of Visa credential in their pocket or on their phone. And there's going to need to be interoperability between these worlds. This is not a one thing replaces the other. I think there's going to be a huge amount of interoperability.

And so being able to partner with a firm such as Visa that has that incredible reach and make sure that this new kind of digital payment system that is internet native has that ability to be seamlessly connected to one of the most important payment ecosystems in the world.

JULIE HYMAN: So I guess we can say happy anniversary to the USDC and to the credit card, a little bit different length of anniversaries but that's OK. We'll leave that aside. So Terry, Jeremy gave his perspective on what Visa brings to them. When you think about not just Circle but the fintech world in general, what does that bring to Visa?

TERRY ANGELOS: Yeah, so if you think about Visa today, you know we have about 12 or 13 trillion dollars in payment volume. There's at least $18 trillion in cash. There's about $120 trillion in B2B payments. And so if you think about the journey that we're on, there are these new payment flows in which Visa is not participating.

We look at fintechs as a way to bring those opportunities onto our network. We are not the company that is in Latin America converting consumers into digital payment methods. That's the role of our fintechs. And so the way we think about fintech in general is how can we connect these pioneering companies to our network so more of these new innovative flows can run on Visa?

We're also increasingly looking at Visa as a network of networks. So if you think about the work that we're doing with Circle, Visa isn't actually moving funds over a public blockchain. But what we're doing is helping our clients enable that, and we're helping them initiate that fund transfer. So in many cases we initiate funds flow on Visa with all of the Visa guarantees around payments, but the actual money may move across a non-Visa network.

A good example of this is what we're doing with USDC as Jeremy mentioned. So Circle is the primary operator of USDC. It's managed by a consortium called Center. And earlier this year we announced that we are supporting USDC in a pilot program as a settlement currency on our network.

So that means that when you go and tap your card at anywhere of those 70 million merchants, the authorization is still running on Visa but the settlement, how the issuer of the card settles with Visa, can now occur on a public blockchain like Ethereum. Of course, we support Fedwire, which is the primary way that clients settle with us. But that's an example of how we're upgrading the network to enable these new types of payment flows.

JULIE HYMAN: It's definitely pretty exciting stuff. I do want to take a little bit of a step back, Jeremy, for those who might not be as familiar with stablecoins in general or the USDC in particular, because I think a lot of folks who are, especially those who are newer to crypto, they're familiar with Bitcoin, maybe they're familiar with Dogecoin and some of the others, maybe Ethereum.

But USDC is sizable, right? I think the value is approaching something like $30 billion if my numbers, my most recent numbers are correct. So what is the role that stablecoin plays and USDC specifically plays in the crypto universe?

JEREMY ALLAIRE: Yeah, so you're right. Yes, USDC is one of the largest digital currencies in the world and it's grown from December of last year until now here we are the third week of September, it's grown 1,000%. So just yesterday actually, USDC crossed $30 billion in circulation.

And so it's grown very fast and it supports a huge volume of transactions. Those transactions are conducted on blockchains themselves. So individuals or institutions are using USDC as a payment currency, as a settlement currency, and they're relying upon these public internet networks, these blockchain networks as the way to transmit and settle transactions.

In the first half of this year dollar stablecoins, of which USDC is one of the largest, I think they were approaching $3 trillion in transaction volume in dollar transaction volume happening with stablecoins. So these have become quite big quite fast. There's a lot of attention on this now from regulators.

But I think just more concretely, just to help the viewers understand it, the way we look at this is the internet itself is really built up on different types of standards. And a lot of those are standards that are not run by any single company or run by a single government. They're technologies that allow for interoperability and most of those standards have enabled things like the web, which is protocols for the exchange of information and content and data, or we're all familiar with things like SMS, which is a standard for exchanging short text messages. And there's protocols for email that allows anyone to plug in and then exchange emails with anyone else.

And those are all run on a decentralized infrastructure, which is a really key part of the internet itself. And our idea from really the founding of Circle, which is over eight years ago now, was that what if you could have a protocol for dollars on the internet? What if you could have building on a decentralized infrastructure like these blockchain networks? A way for any person with a piece of software, any business that are connected to these networks to directly exchange value with one another at the speed of the internet with the efficiency of the internet and ultimately very, very inexpensively.

And so stablecoins, at least in our case, we're created to provide that capability, provide a way for dollar transactions to happen directly over the internet fast, cheap, global et cetera. And we're still pretty early in the development of this. I think there's maybe tens of millions of people who use these kinds of digital currencies today. But clearly, the technology is evolving quite, quite rapidly and the scalability of the infrastructure itself is now coming to a place where it could support hundreds of millions or even a billion users.

And so I think that this kind of model, these digital currencies that run on the open internet just like content and information and messages and things like that, that's coming quite quickly over the next couple of years and it'll just become, I think in our view as pervasive as things like email and text messaging and browsing the web.

JULIE HYMAN: So that gives us a little bit of an idea, not just what's happening now but what you think could happen. Terry, in your view, this panel is called the future of fintech, what do you see as the future of these technologies for Visa specifically but also in the world? What percentage of payments five years from now, 10 years from now do you think will be in crypto, whether stablecoins or other types?

TERRY ANGELOS: Yeah, I think from a business standpoint, and it's really hard to predict where crypto will go. You're, sort of, guaranteed to be wrong and you're not quite sure in which direction. But our view is that from a Visa standpoint, we want to support the fintech ecosystem, including crypto companies.

And so our approach has been to create programs by which fintech and crypto companies can plug into our rails. We have about 400 companies now in a program called Fast Track, which means that those companies have a rapid way to engage with the traditional payment ecosystem. Maybe it's a fiat on-ramp through a payment gateway, maybe it's issuing a card like Circle is doing, maybe it's payouts over Visa Direct.

And our goal is to support the entire ecosystem because we know that among those 400 companies are going to be new large fintechs that emerge. Just focusing on crypto for a second, we've announced about 50 deals with wallets and regulated crypto exchanges who are issuing Visa credentials. And in the first six months of this year, we saw about a billion dollars of payment volume on those cards. And that's since increased quite significantly.

So our view is to be those rails, support our fintechs, support the crypto companies, which is about a third of those Fast Track companies in the US and make sure that when they want to integrate with the existing payment ecosystem, it's default Visa.

JULIE HYMAN: Yeah, I definitely think that Visa's involvement with this sector shows even though it is still early days, that we are at, sort of, more of a maturation point. Jeremy, you mentioned regulation and we have to talk about regulation, right?

There has been, I think, the latest kerfuffle, if you will, has been one or the other members of the Center consortium that backed the USDC Coinbase that scrapped its plans to introduce that interest-bearing lending product tied to USDC Lend, I believe is what it was called. What's the status of products like that? Was that a product that you guys were also considering? Are those products now off the table because of the potential for regulation?

JEREMY ALLAIRE: Yeah, so actually, we've already launched a product in this space. It's a USDC lending product that delivers high yield to institutions. And it's a really important product for us. It's a treasury account product that businesses can use. So we're not offering the product to individuals. We're exclusively offering the product to institutions. And we've taken, I think, a slightly different approach.

When we went to design the product a year ago, our analysis was that this was going to be a security and that we need to offer it as a security. And that meant only offering it to accredited investors, only offering it, in our case, to accredited businesses. And also we looked around and we saw that in the United States there really was not a regulatory framework for crypto lending.

And we've really tried to be out in front on regulatory standards really since we founded the company. And so we actually sought out regulation on this. And we work with the Bermuda Monetary Authority to create a supervisory model for that product. So not only is it a regulated and supervised product, it's offered as a security, which we think is, in our case, at least, I don't know the details of the Coinbase product, but in our case, we thought was the right way to offer this product, given that these businesses are effectively making an investment in anticipation of a return in the form of high yield interest income.

And so we've just taken a really different approach. And I think what I would say more generally is there is a huge opportunity for crypto-based lending globally. And you're seeing that. You're seeing huge growth in lending markets for USDC on centralized platforms and decentralized platforms. It's a very, very important area. We have an approach that we're taking to operate in that.

But I think it's a place where we do need more regulatory clarity. I think it would be great if there was a clear set of rules in the banking system in the United States around crypto asset lending that doesn't really exist yet. But that's our approach and we see this as a really important product area with a lot of growth.

JULIE HYMAN: And Terry, when it comes to Visa, obviously, you guys have long history of dealing with regulators as a regulated financial institution. So how are you viewing the regulation of products like that? And what do you think needs to happen on the federal level to perhaps unlock more potential within fintech and within crypto?

TERRY ANGELOS: Yeah, and I think-- first of all, we actually aren't a financial institution. We're actually a tech company effectively serving financial institutions. So we operate under a slightly different framework than companies like Circle. But, of course, we're very careful about working with companies that are properly regulated.

And I think from our perspective, we're just looking for clarity. There's clearly innovation happening, not just in crypto but in all of fintech. There are all different types of lending products, payroll products, B2B payment products that I think are innovative. Clearly, there's adoption and demand for these products by consumers and businesses.

And so we just hope that regulators can provide the clarity so that companies like Visa can successfully work with these entities. And one of the reasons why we partnered with Circle is a lot of the care that they took to ensure that what they're doing falls within the regulations as they are stipulated today and will continue to do so serving as this bridge between the crypto ecosystem and the traditional payments ecosystem.

An example of this is we announced a set of pilot APIs called the Visa Crypto APIs where we can enable our banks and fintechs to purchase and custody cryptos on behalf of their consumers. We do that with a partner called Anchorage Bank. They are a digital asset custodian. We're an investor in that company. And that's an example of us making sure that the regulations apply appropriately to our partner and then exposing that kind of functionality back to our banks and fintechs who want to offer some of these services to their consumers.

JULIE HYMAN: Apologies for not being clear on you guys not being a regulated financial institution in that way. Jeremy, finally, I want to ask you about USDC backing because that's something that's been the focus of some investor attention as of late. And as I understand it, the reserves now for USDC on Circle's part are in short term securities and cash, if I have that right. And that is a shift from where it used to be. Is that now status quo? Is that how the reserves are going to remain for USDC for you guys? And are there any disadvantages to that?

JEREMY ALLAIRE: Yeah, so just for background, the first just key thing to understand is that USDC is offered and operated under money transmission law. So we're a money transmitter and that's the framework that has applied. That's similar to a PayPal, a Stripe, a Square or many other firms in the payment ecosystem.

And the important thing about money transmitters is we are regulated. And we're regulated specifically around making sure that we can always meet at a one-for-one basis, the stored value obligations that he have with consumers. And so we have statutory requirements that tightly bound what is allowable under that.

So those are consumer protection laws that exist and are mandated throughout the United States. So one is just that's always been the boundary because we're required to by law, and we've always operated in that. We've always actually operated more conservative than it even allows. I don't know, for example, what PayPal does with its $35 billion of dollar balances. We don't know. They're not being asked to disclose that in detail.

But stablecoins are a little bit different. And I think the market throughout this year in particular has become focused on this because it's such a huge underpinning for so much activity. And I think there have been fears about offshore stablecoins and what backs them. And it's also drawn a lot more regulatory attention.

And so our view is that, going forward, and this is already the case, USDC is cash equivalents and short duration US treasuries, that is now 100% of the backing here. And I think the important thing here is this is going to become really an issue for federal regulators. I think in the end, our view is that a large potentially systemically-scaled dollar stablecoin like a USDC is going to come under federal banking supervision. We'll be interested to see what the presidential working group on stablecoins has to say about this in the coming weeks.

But we've actually signaled and/or announced our intention to file for a national commercial bank charter for a full reserve digital currency model, which is what we are today. And so in the future I think it's going to be the Fed, and Treasury, OCC, FDIC, all these agencies are going to need to weigh in on what is the appropriate reserve model for these very, very large dollar digital currencies? And we're going to work closely with regulators on that going forward.

JULIE HYMAN: It has been a fascinating area to watch certainly. Finally, Terry, just quickly, is there anything looking toward the future of fintech that you think people are not paying enough attention to right now?

TERRY ANGELOS: Yeah, I think in the last year there was $105-- excuse me, billion invested in fintech. And that outstrips the internal IT budgets of all the largest banks. So what we're seeing is this incredible innovation in areas that we haven't seen before. And so take something as simple as payroll. Payroll is this area where many, many fintechs are disrupting this old traditional two-week payment model.

In fact, we're actually seeing payments happening on USDC streamed over the internet. So between payroll, B2B spend, lending, buy now pay later, all of this innovation is effectively creating new types of payment flows. And I think we're only at the early stage of that, given the significant investments that we're seeing in the space. So we're excited to participate and play our role, which is to serve as the rails. But we think there's a lot more to come.

And ultimately, the big areas for growth we think are going to be in some of the B2B payment arenas, where you have $120 trillion today happening ostensibly over analog rails. If I want to pay someone, I receive an invoice and I wire some funds and I hope it arrives. All of those payments should be digital. A lot of them are on card rails. Some of them will be on crypto rails. And there's a whole software stack that's managing that. So I would say watch that space. I think that's incredibly exciting.

JULIE HYMAN: It is. And this has been a really interesting conversation. Thank you both so much. Terry Angelos is the Global Head of Visa's Crypto and Fintech teams and Jeremy Allaire is Co-Founder, Chairman, and CEO of Circle. Again, thank you so much and thank everyone who's watching for tuning in.

For more information about upcoming NYSE. Digital leaders, you can follow the link on your screen. And you can catch me on air weekdays on Yahoo Finance 9:00 to 11:00 AM Eastern. Thanks again. Have a great day, everybody.