The Top 3 Trends in Payments – Mike Gallagher [Season 2 | Episode #32]

Jens Seidl 00:00:33 Welcome to another episode of The P.I.T. Exchange, Payments, Innovation and Technology. My name is Jens Seidl. I’m your host for today, and I’ve got a guest here in my apartment, actually today, who lives very close by here in Frankfurt. Mike Gallaher. Mike, nice to have you. Yeah. Excellent. Thanks for joining us. And, well, you’re going to talk a little bit about yourself in a minute, but as usual, I’m going to start with three semi personal questions about yourself. And because we both live in Frankfurt, I thought I’ll make those all Frankfurt themed. start with an easy one.

Jens Seidl 00:01:12 We prefer beer or the Frankfurt apple cider.

Mike Gallaher 00:01:15 Oh, that is an easy one. I thought you were going to say wine. Beer, beer. I’ve tried the cider. You know, I’ve given it a I gave it about a year. but it’s, It’s hard for me sometimes.

Jens Seidl 00:01:29 It is an acquired taste.

Mike Gallaher 00:01:31 And I like sour things, too, so. Okay.

Jens Seidl 00:01:34 Well, let’s stay with the consumption, then. what’s your favorite? It doesn’t have to be Frankfurt, but German food or food item?

Mike Gallaher 00:01:42 German food. I don’t like some of the the the kind of Frankfurt classics. Frankfurter. Bastian. You know, they’re like American hot dogs, but better, higher quality, I guess you could Say, I guess in green sauce we would say, okay, in English it’s not very appetizing. It sounds good. But also I love that I love this, especially I’m kind of into earthy things. Yeah. Very good. Very herbaceous. Yes.

Jens Seidl 00:02:14 And do you have a favorite spot in Frankfurt? A place that you really like to go to?

Mike Gallaher 00:02:20 Other than my apartment? my daughter is quite, quite young still, so we spend a lot of time at the park.

Mike Gallaher 00:02:29 I’m a big fan of Holzhausen Park. Okay. in the north end here. you know, we have a lot of parks, in the States and, in Ireland. My two kind of homes. But, not too many with kind of small castles in them. So that is kind of a cool, cool, cool location there. It’s nice that it’s just right in the neighborhood.

Jens Seidl 00:02:51 Very nice. By the way, this is not a paid promotion for Frankfurt. I just love my hometown. So with that, I’ll hand over to you. Mike, please tell us a little bit about yourself.

Mike Gallaher 00:03:02 Sure, sure. So I, Well, first of all, you’re already introducing. My name is Mike Gallaher. I live in Frankfurt, but I’ve kind of bounced around the world, throughout my career. and I have recently started, consulting as an independent consultant. after about ten years or so, on and off at visa, I found myself looking for a new challenge. And rather than kind of diving into a new thing, I, had a lot of conversations with people like yourself.

Mike Gallaher 00:03:35 A lot of a lot of coffees over the last year. And, yeah, rather than kind of, wanting to kind of just jump into the next full time, one company gig, I realized I wanted to kind of work with a lot of people that I picked up in payments over the years, I’ve worked in payments, for a long time now. I started really, in a very strange way. I used to work at the Brookings Institution, a prominent think tank in DC, and there was a project on the horizon there while I was there with the Gates Foundation on financial inclusion. And that was something like the vast majority of people that live in this world, had no idea that payments were so complicated and so interesting. and, it’s been love ever since, so.

Jens Seidl 00:04:27 Well, and I think you got your timing right. payment experts are so much in demand right now, right? There’s there’s a whole generation of payment experts about to retire or have started to retire already. There’s so many innovations that we’re going to talk about in a minute.

Jens Seidl 00:04:43 on the horizon. people who actually understand payments are. Well, they’re not easy to find Either they’re already in a job or they’re in retirement, or. So yeah, I think you’re onto something there for sure. And, well, I can say that already. Good luck with that new undertaking. I’m sure it’s going to be very successful.

Mike Gallaher 00:05:04 Yeah, it’s exciting, terrifying, all those things. But I mean, I think you’re right about about the payments industry in general and especially, I think, where I work, which is the intersection of, of payments and policy. Right. I remember this being kind of a very under the radar kind of boring area to a lot of regulators. and that has changed. And it’s been super exciting to see payments kind of explode over the years. But I think it also presents a number of challenges on the regulatory side is there’s a lot more attention there.

Jens Seidl 00:05:36 For sure. Well, let’s start with a well of both technology and policy issue then, and talk a little bit about AI.

Jens Seidl 00:05:44 Sure. I mean, there’s of course there’s a very broad AI policy consideration here that goes way beyond payments. But I think for this podcast, let’s let’s focus a bit more on the payment side. How how are you looking at what’s happening with AI at the moment? Is it all a big bubble as also the stock market is sometimes suggesting? Or are we on to something here? What’s happening?

Mike Gallaher 00:06:08 Well, I won’t give any stock tips. and I do think, look, I mean, I think it’s very difficult to say the industry as a whole where this is going. Right. is this all one big bubble? There’s definitely a lot of hype. I mean, we kind of all joke about this now that every company has some sort of, AI function that they potentially don’t need with their products. but I do think that we’re already seeing it transformed the way that people kind of do their work, the way that people plan trips, the way that that people kind of research things, cook things.

Mike Gallaher 00:06:46 I mean, there are endless applications here. So I do think, even if there is sort of a bubble or hype around this, I think it’s here with us to stay. And I think in payments, you know, I mean, one thing, I don’t think it’s just hype. I mean, one, there are kind of tried and true, AI or machine learning as we kind of talk about some of the things that have been around for, you know, 15 or 20 years in one way shape or another. I don’t think those are going away. And I also don’t think regulatory attention is going to go away on this.

Jens Seidl 00:07:20 Great. so for the payment sector specifically, then where do you see, these potentially game changing applications of AI?

Mike Gallaher 00:07:30 Well, I mean, I think, as I kind of alluded to there, fraud, right. Detection and authorization. I mean, this has something that big companies when I was at visa, I mean, this was something we were very proud and was a big focus of our investment in our infrastructure in the future.

Mike Gallaher 00:07:47 I think pretty much any large payment process provider has some kind of AI component to it now. and I think as that technology evolves, those technologies will get better. Right. The fraudsters, of course, will get better. The kind of race continues, right? but I think that’s a tried and true application. And it’s something that that will continue and get better, in the future. And I think there will be future investment in that. I think another area that that has had a lot of hype, I think well-deserved hype around this is, agenda commerce. Right? I think actually I was listening to a podcast from you guys recently that had sort of, you know, mused, oh, man, you know, I planned a trip with, with AI recently. And at the end, if there had been a checkout button, boy, I probably would have, would have pushed that that checkout button. Right. and I think that’s one of of many use cases that you’re hearing. Right.

Mike Gallaher 00:08:47 And some of it can be very kind of user driven, right, where you’re kind of saying, hey, imagine a scenario for me where I might be starting a new business, planning a trip. I’m doing really kind of a business as usual. Things like buying groceries and that sort of thing. Or there could be business applications, right? Where especially in the kind of procurement area where people are buying the same things over and over again, maybe have gotten a little complacent in price checking and these kinds of things, and maybe an AI assistant could really help out with with some of these things. I think when I, when I talk about, this with potential clients with, with friends, this is something that’s going on and on, right? And I think all of the big payment providers, have some stake in this at this point and have all made announcements, you know, within months of each other. Yeah. Around these things. you know, because a lot of my work is focused on on regulatory issues, I think the kind of automated screening, is a really interesting area and, especially given the past work and cross-border, you know, this continues to be a choke point, I think, for a lot of a lot of banks, a lot of payment providers.

Mike Gallaher 00:10:01 so if we’re talking about an AML, CFT, sanctions screening, I think there’s a huge potential there that’s just really barely scratching the surface right now.

Jens Seidl 00:10:11 Do you think also on the KYC side, is that going to make a difference?

Mike Gallaher 00:10:14 I think so. You know, I think similar to to fraud. Right. as, as as our, our, our checks and screens get better. so do the fraudsters and kind of unscrupulous actors in the payment system. but, yeah, I mean, I think we’re already starting to see that. I think a number of startups are starting to pioneer this, and I wouldn’t be surprised if some of the big players and some of the big banks, start adopting some of these or buying up some of these companies.

Jens Seidl 00:10:45 Absolutely. So I guess from everything you said so far, this is really focusing on the opportunities that AI can provide. Right. But there’s also the regulatory aspect of making sure that whatever we do with AI is not going to disadvantage consumers, is not going to destabilize our financial system.

Jens Seidl 00:11:04 So where do you see some of the biggest risks there, and the focus that regulators need to to actually take?

Mike Gallaher 00:11:11 Yeah, I mean, I think AI policy as a field is only a couple of years old, right? I remember having a couple of kind of very nascent conversations around this around 2018, 2019, when, you know, none of the kind of platforms that we all use now daily were just kind of dreams, right? So it was hard to kind of develop some of these regulations. But you’re starting to see that, right? I think, AI broadly is very focused on on consumer protection around things like transparency. but I think where the intersection with, with sort of broader AI policy and payments policy come together, it’s going to look a lot more like payments policy that we’re already seeing. Right? yes, there will be the consumer protection angle. And I think also from sort of a discriminatory lens, especially if we start talking about credit applications and KYC and some of these other things, making sure there aren’t, biases in some of these, these systems.

Mike Gallaher 00:12:12 But I do think when we talk about some of these really big picture AI things, right. you know, I’ve talked with a couple of clients about, you know, AI use cases for liquidity management or FX management or kind of treasury as a service. And they’re you’re really starting to touch the rails of the payment system, right? And I think, from a regular, regulator perspective. Right. They’re going to look at this from a financial stability perspective. And I wouldn’t be surprised if they’re really digging in there. Right. I mean, you’re already seeing a lot of central banks building up capacity around these issues doing education. Building this as part of their kind of regulatory, supervisory programs. but I think, there’s a ton of potential here. Right. But once you have sort of a robot managing, trillions of dollars around the globe, I think that typically puts up a red flag for a lot of red flags, and rightly so. Possibly. But I can’t I can’t speak on their behalf.

Mike Gallaher 00:13:16 Yes.

Jens Seidl 00:13:17 But I guess there’s also a challenge here with different regulators having different risk appetite and different approach to regulation. Right. I can never get the saying right about Europe regulates someone else innovates and yet another country or region copies or something. I can’t get it right, but there’s marked differences right between the risk appetite and the approach to regulation. How how do you see the world coming together around this? Because the AI, again, is a global proposition. How is it actually going to be managed?

Mike Gallaher 00:13:51 Yeah, I mean, I think this is part of the reason why regulators around the world are a lot of regulators around the world are taking a pretty slow approach, right? Part of it is it’s very nascent, as I mentioned. But I do think that there is this tension between, managing risk. Right. But there’s also sort of a lot of fear of missing out on on AI. Right? I think a lot of countries, maybe rightly so, see this as tied to a long term economic growth strategy around digitization.

Mike Gallaher 00:14:22 You see that definitely in the states and other parts of North America. sort of mixed messages here in Europe. But I think, even even the kind of conversation we’re seeing now, it’s a much more sort of wait and see approach than you would with other kinds of things that we would see regulating in Europe. And I think that’s why, while there are a couple of of regulatory and legislative initiatives, most countries are taking more of a framework approach to this. Right? Sort of, hey, here are some guidelines. You know, we’re having regular conversations with with the private sector. Or as I mentioned, we’re kind of incorporating this into broader regulatory programs like supervision, but there aren’t specific requirements or penalties yet for, for violations, which I think is makes sense given the kind of current economic climate. Right.

Jens Seidl 00:15:14 Yeah. And looking at different jurisdictions, do you already see that some take, an exemplary approach maybe on how to regulate others, maybe a more concerning one. do you have some highlights and lowlights there that you’d like to maybe more highlights and lowlights that you want to mention it.

Mike Gallaher 00:15:32 Well, I won’t throw anybody under the bus just yet. It’s not because I don’t like throwing people under the bus, but it’s maybe too early on. you know, unsurprisingly, you’re up. You know, where we’re sitting today? is leading, I think, the case on on regulation. It’s the only real comprehensive, regulation across, like, a large jurisdiction. but even that, I mean, we’re starting to see a lot of appetite for, for for delaying action, whether that’s sort of a moratorium, which is very likely at this point. for the AI act, which is the big piece of legislation there. and potentially even some kind of loosening of rules. I won’t go into all the details of the AI act, but, you know, it’s very broad. It’s a risk based approach. It’s about transparency. It’s also about sort of categorizing different AI use cases and trying to supervise and regulate accordingly. I think it’s very, you know, I here, I’ll give my $0.02. I I’ll keep it honest.

Mike Gallaher 00:16:36 You know, I do think it is, a very kind of common sense, safe approach to regulation. I think the sort of, European payments regulation analogy would be it’s the SD1, not the ST2 of AI regulation. for all of my, my regulatory nerds out there. but that is, you know, it’s taking a slow approach. And, you know, there has been, still an incredible amount of controversy around it, an incredible amount of lobbying, I think, particularly from from foreign firms, American companies sort of dominating in this space, particularly in Europe. But even there are a number of European companies that have kind of come out that aren’t, you know, what we think of as AI companies, right. But have a big AI use case and are saying, hey, maybe we should slow down a bit. I think we’re going to see that. I think we’re going to see a delay of, of implementation of a lot, of, a lot of the provisions in there.

Jens Seidl 00:17:33 That’s fair enough.

Jens Seidl 00:17:34 And maybe before we move off, AI I always like to ask that question, what, big outlook people have on AI. Do you think it is ultimately going to make our lives better? Is it going to be a positive influence in in people’s lives? Is it going to be Skynet and The Terminator kind of understand what what is are you more optimistic or more pessimistic about it?

Mike Gallaher 00:18:02 Boy oh boy, it depends on what day it is. And I was a big Terminator fan of the movie, not as a lifestyle, but, you know, it’s funny, when I, when I was at Brookings, I worked with this wonderful scholar, Darrell West, who kind of foresaw a lot of these things. Right. And he he was speaking about this, particularly in the Bay area with a lot of these companies that were doing just, you know what? Ten years ago seemed unimaginable at the time, right? And I remember him. You know, him and I were talking one day, and I pretty much asked him this, and he goes, well, I think it’s going to be great for productivity mixed for humanity.

Mike Gallaher 00:18:44 and I tend to tend to stick with that. Right. I think, like all technologies, I think there are going to be a lot of big and good changes. I think particularly on the productivity side. Right. and for people who are investing, I think, in the kind of investment side, although, you know, there is a lot of talk about a bubble. but look, I mean, I’ve used AI, I think most of my friends who have used AI, we kind of all have the same conclusion, which is, you know, this is something I used to do when I first left university. Right. And what are all the people going to do for for work, right. If you don’t have kind of people researching basic things, writing. and I do think that that is still important and that will continue on. People still want to hear a human voice, and the technology isn’t in a place yet where, we’re fully replaceable, right? Like, it really does well with experts, people who can kind of fact check the AI and people who can kind of recognize when something goes wrong.

Mike Gallaher 00:19:51 but it will disrupt work. And across all industries, I think. Yeah. Including horrors. Right.

Jens Seidl 00:19:57 For sure. Yeah. And look, my perspective is that it’s it’s not even a technology question. It’s a societal question. It’s it’s a very powerful technology. It depends on what we’re going to do with it. Yeah. We can use it for good purposes or we can abuse the technology. And realistically both is going to happen.

Mike Gallaher 00:20:16 How do we help people transition? Right. I think that’s that’s very important for sure.

Jens Seidl 00:20:20 All right. well, let’s change gears. Let’s talk a little bit about geopolitics. There’s a lot going on in geopolitics at the moment. there’s a clear trend going away from globalization back to, well, in some cases nationalism in other cases being a bit more taken, a more regional approach. What’s what’s your outlook on that? And how do you see that changing the the payments world and the payments landscape that we’re operating in?

Mike Gallaher 00:20:48 Yeah, I mean, I think I hinted a bit about this when I talked about American companies lobbying in Europe.

Mike Gallaher 00:20:54 But I do think that that geopolitics, I’m always a bit, amazed in when I talk with people, especially people who work strictly on the business side and not on the regulatory side of payments. And in my mind, I mean, I think the geopolitics around payments, the kind of things that we don’t talk about often in payment policy, often are the biggest drivers of payment policy. Right. and I think, you can see examples of this over the past 20 years, right, where you saw some of these kind of first, very nascent policy regulations, and even kind of boring things like pricing regulation. Right. you would very rarely see geopolitics mentioned in any sort of pricing regulation or discussion around pricing regulation. But I think anyone who has ever been intimately involved in those discussions, which which I have over the years, you know, there was a real concern that, certain countries, particularly I think China and the U.S. dominate, sort of fintech, dominate the payments industry. And and part of the implicit conversations around wanting to regulate prices, right, is that either this is sort of a almost like a trade policy, right? This is just being pure, pure exports.

Mike Gallaher 00:22:13 Right? that are coming into their countries. Or there’s sort of a, hey, we can’t compete in this. We need to find safeguards around this, right? That’s not to downplay anything around competition and consumers and all of that, but I think this is sort of the the third factor in there that people don’t want to say, but is always implicitly in the room. Right. and I think that’s, that’s never more present than in localization of payment systems. Right. Which is a trend that continues to happen around the world. And I think, is even accelerating in many ways. Right. so, you know, what do I mean by localization? You know, well, this is really having kind of these homegrown payment solutions, right, that are either implicitly or explicitly supported by regulators, right. Whether it’s some of the kind of, trade barriers that we’re talking about here. Right. or giving them special access to certain rails, kind of giving them the only license, you could name it, right? and I think this, this localization trend has been the biggest trend on the regulatory side in payments, for, you know, well over ten years now.

Mike Gallaher 00:23:27 And I think what will continue to be that way. you know, there are all the examples that that we know and love and talk about, you know, China UnionPay and Alipay, of course, the homegrown solutions, that really changed the, the, the nation’s payment system over, over just a few years. UPI in India. you know, the list goes on and on. you know, Russia, I think being a very important example, right, both with the 2014 invasion. Right. But also, the most recent right, in 2022, there was tremendous conversations around payment systems right there, policies around payment systems. And that had ripple effects well outside of Russia. conversations and influence conversations that we have here in Europe and throughout Asia. And I think, this is often underestimated. Right? and one of the, one of the I think the really interesting examples that came up in a lot of these geopolitical conversations, I’ll try and limit the Trump mentioned in, in this podcast, because we all get a lot of that on other media channels.

Mike Gallaher 00:24:40 but, you know, it was a pretty extraordinary thing when when the US was placing, you know, unprecedented 50% tariffs on the Brazilian Brazilian government. And one of the cited reasons was, was the Peixe payment instant payment system. Right. And I think people who work in payments, particularly instant payments, never would have thought that they would, they would get a call like that. Right. And that is not an accident. Right. And I think, you know, whether it’s warranted or not, American companies felt like pigs was getting an unfair advantage and they lobbied on behalf. Right. And you see this coming out in U.S. policy, right? so I don’t think that we can kind of say that. Well, you know, geopolitics happens. We all adapt. I think it deeply influences the way the payments regulatory landscape is.

Jens Seidl 00:25:31 Absolutely. and I guess what comes with that new geopolitical landscape now is obviously more fragmentation as well. Yeah. And especially looking at it from a cross-border perspective, you get more of these islands now that operate within their own, geographical region.

Jens Seidl 00:25:50 But they’re really well, they’re not attached to the rest of the world anymore in some cases. Right. and we’re going to talk about crypto assets and stablecoins and what kind of role they potentially will play in all of this. But putting that just to one side for now. Is there a big risk here that we also To lose not only visibility, but also some of the measures that previously could have been taken to enforce sanctions, etc., etc. if there is complete alternative payment systems. Is that still going to work, and is that maybe a necessary reaction for these regional systems to develop because of the pressure that that some areas have been put under? Rightly or wrongly, is not even the questioning for this podcast. I’ve got my opinions on that. But that’s that’s not the the big question. it’s how can we adapt to that new world?

Mike Gallaher 00:26:49 Yeah. No, I think it’s a it’s a great question. Right. And I think, I’ll answer it by not actually answering it, but saying, I think there is always this tension right between this sort of independence and sovereignty, right within within markets and interconnectedness.

Mike Gallaher 00:27:05 Right. And, sometimes they go together, but a lot of times it’s a one that’s at the cost of the other. Right? And I think as the, the, the state of the world that we live in, right, becomes more fragmented as politics become much more domestic focused. Right, and trying to tear down some of these kind of bridges of globalization that we’ve built, you know, over the last 30 or 40 years. I think it’s just natural that, that you’re going to have this fragmentation in other systems, right, including the payment systems. And, you know, I do think you see a lot of great initiatives, a lot of the G20 work, which, you know, the was a passion project of mine for for a decade or so, even before the the work had kind of kicked off, was about trying to bring all of these disparate systems together and trying to improve connectedness. but but at the end of the day, if you know, the best system is one system, right? Yeah.

Mike Gallaher 00:28:04 But that’s at the cost of, of of independence, at sovereignty. And so we have to make the best of the system that we have. Right, which is this kind of all of these different and disparate systems. I think where it’s important to still work together is to say, is to acknowledge this, right? First and foremost, independent sovereignty. These are these are important things. Let’s let’s put payments frictions aside. This is bigger than our little world, right. But let’s let’s take a smart approach to this. Right. Let’s try and find, regulatory standards that we can agree on. We won’t always agree on these things, but let’s hope that that there are sort of small changes between jurisdictions rather than entirely new rulebooks as it, as it is today in a lot of places. Right. and I think, look, if we can’t work together globally on certain issues, let’s at least work together regionally, I think you’ll see a lot of interesting things happening around the world. Southeast Asia is was a place I’ve spent a lot of time.

Mike Gallaher 00:29:06 There’s a lot of really interesting things happening there, but at the end of the day, they all still have their own independent systems, right? They’re not looking for a a pan regional system, one system to kind of rule them. All right. And I think I think you’ll continue to see those kinds of trends. Right.

Jens Seidl 00:29:23 Yeah. That’s true. But having said that, especially in Southeast Asia, you have the Project Nexus, which is now, formed its own entity connecting these faster payment systems in the region and again, creating a complete alternative payment infrastructure that wasn’t there before. And it’s so rapidly adopted as well. Yeah. Makes me wonder what’s going to happen next in Latin America, for instance. Now with pigs being so successful in Brazil, are we going to see a similar trend there?

Mike Gallaher 00:29:55 Yeah. And I think, you know, the the US has been a big leader in globalization, right? Whether they want to admit it or not. over, over the last, you know, century or so, and I think, there was a realization, or there will be a realization, right, that once you start pressuring people and you start building walls around these things, people will find other ways to connect.

Mike Gallaher 00:30:24 Right. And you’re starting to see this already on the trade space, right? but I think also on the kind of digital trade side, and with payments, you’re going to see a lot more new connections, outside of some of these barriers starting to form.

Jens Seidl 00:30:39 For sure. Which that’s a great segue, actually, to the third segment of this episode, which is about digital assets. and I think we should start with stablecoins, because stablecoins has been the topic of of the year almost when it comes to, to digital assets. we again, is it a hype? Or is it more than a hype? There’s definitely a doctrine. You can. We can see that in, the capitalization now of of the leading stablecoins. So what’s what’s your view on that. Is that going to be completely revolutionizing the payment landscape. Is it just another solution in the whole portfolio of things. What’s your your outlook.

Mike Gallaher 00:31:21 Yeah, I’m going to be a worse again and say I won’t make any stock tips here. but no, I mean, it continues to be an extremely hot topic.

Mike Gallaher 00:31:31 And I was almost hesitant to to bring it up on this call because it’s such a hot topic that I know we all talk about it a lot, but, I mean, look, I think, this is no longer sort of a thought experiment, right? Or something that kind of the cool crypto kids, were into. Right. you do see widespread adoption and transactions. I think the kinds of the kinds of volumes, right, that, people in the crypto community were we’re hoping for, for. For the last several decades, but never really saw that kind of transactional, volume. But it’s still pretty niche, right? at least when we’re talking about about use cases here, that could change. Right. And I do think that there is an important regulatory component there. I also think there’s an important geopolitical component there. Right. the US clearly wants to be the leader here. Right. And if we look at the companies involved, if we look at, US treasuries involved, they clearly are a leader here.

Mike Gallaher 00:32:32 Right. and I think movement around the genius act is, is hoping to solidify that. I mean, one of the things, that I spent a lot of time, talking with clients and talking with friends about, at least over the past five years has been regulation here in Europe. And I think especially with the micro regulation, there was a lot of doomsday scenarios that we were all talking about in the beginning and I think, you know, hate it or love it, I think it ended up being a much more balanced approach. And I think the one thing that it provided was a lot of regulatory certainty for companies. And even now, you know, I think all of the big stablecoin providers, you’ve seen that they’re working with central banks or they’ve worked through some kind of sandbox to get a license, through the Meeker regulation. And that was a good thing for Europe, right? and, you know, believe it or not, there, you know, that wasn’t the case in the U.S. and I think there was still, up until the genius act, this kind of fear that it could all be kind of ripped away or radically change in a way where suddenly the business models around stablecoin companies wouldn’t make sense if a new regulation came.

Mike Gallaher 00:33:48 I think that fear is is gone now. long gone, maybe even, So I think there’s, I think there’s that space has some, some, some, some room to grow for sure. I think there are some legs there.

Jens Seidl 00:34:01 Yeah, yeah. And that’s well again, my personal view is that from a consumer perspective, I don’t see that much appeal in a stablecoin. It depends probably where you are. Yeah. but if you’re in say, the, the global north, then there’s no real use case for consumer. I think for, for stablecoins you use your your car payments, your established payments. Why would you switch to stablecoin. Yeah. On a cross-border perspective though, that’s very different. And especially when you look at, possibility for consumers to replace very costly remittances with very fast and low cost stablecoin opportunities. I see that having that said that, though, there’s again, the regulatory aspect of how well regulated is that if they’re using a native wallet, you don’t even know who’s transferring money there.

Jens Seidl 00:34:52 So what’s your view on on that side of things?

Mike Gallaher 00:34:54 I mean, I think you hit the nail on the head there, right? And let’s not forget. I mean, I think probably the biggest payments regulatory moment, at least in my career, was, was the launch of Libra, right. and the reactions and sort of the, the shockwaves from that. We’re still feeling that, right? Whether we’re talking about the digital Euro project, which I would be happy to talk about, that, or the micro regulation or even kind of in the US pushing its own industry to, to build around this. I think, again, there’s this tension and I think regulatory, regulators are keenly aware of this, that there are these, these frictions still in cross-border, particularly in developing markets. Right. and smaller markets. And that there is huge potential in some of these new technologies. Right. And these new platforms for connecting people for for streamlining, whether it’s sending remittances or managing treasuries and liquidity around the world for smaller operations or companies that operate in a lot of, markets, you know, that might not benefit from some of the traditional rails around cross-border.

Mike Gallaher 00:36:10 but there are all of these other things that come along with it, especially if we’re talking about dollars here at the end of the day. Right? We’re transacting in dollars and potentially even making local purchases and dollars. And I think this gets at the very kind of, heart of, of, of currency sovereignty. Right. And, I won’t go too off rails with a story here, but I, you know, since I’m sitting here with you, I remember when Libra was, was launched and it was sort of a funny moment because I had, a hint that it was going to be launched, and but it happened a bit earlier than I was planning, and I was actually on a plane to go to one of your conferences, okay, in Berlin, and happened to sit next to someone else in the industry for a very long flight from, from San Francisco, to Germany. and talked about Libra the entire time and, at the central Bank payments Conference in Berlin, we talked about, Libra the entire time.

Mike Gallaher 00:37:11 And it was incredible to see in that room within three days where some of the conversations around crypto, blockchain, and particularly central bank digital currencies were really on the fringes, right. Of of central bank policy. And I remember the Reichsbank up there talking about their, their program, and they were kind of alone in the world on this. And I think before people would have kind of, no offense to the Reichsbank, but, you know, would have would have thought like, okay, that’s an interesting thought experiment. And I think when there was suddenly this idea that there could be a foreign currency and a massive global platform that could be used domestically and displace local currencies. I think a lot of alarm bells went off and regulators had and I think we’re not past that on, on, on, on stablecoins. I mean, the ECB has been very clear in their kind of view around this. They of course, are operating within the Mika, you know, regulation and existing regulations on supervising stablecoins.

Mike Gallaher 00:38:16 But that tension is there. There’s the geopolitical aspect to it. And that’s not going to go away.

Jens Seidl 00:38:22 Absolutely. fine. Let’s maybe again, let’s not focus too much only on stablecoins because there’s a lot of other things happening. I don’t want us to talk too much about what I still believe are the speculative crypto assets. So I don’t think we need to have a philosophical discussion around whether Bitcoin is going to replace all of the currencies in the world. But more, more importantly, maybe that there are way over a hundred central banks looking at CBDC programs and I guess they fall on different places on that timeline of of decision making process. What to do there? How do you see that playing out? Do you think there’s going to be a global trend? Is it going to fall into different baskets? What do you think is going to happen?

Mike Gallaher 00:39:11 well, I mean, you know, this is a favorite topic of mine, and it’s unlike stablecoins. I feel like it’s not as hot as it used to be.

Mike Gallaher 00:39:19 But I do think that this is, an area that’s really matured right on the central bank side. And I think you’re really starting to see central banks and jurisdictions falling into these kind of three camps, roughly. I think there’s sort of the anti CBDC camp, which is pretty small. I mean, there are a couple of central banks that have tried certain experiments, or maybe have given up on their retail program or made it clear that they’re pushing those off. But I think the US kind of stands alone in the current administration of being, you know, pushing for this really to be legal and, trying to to, to use its leverage around the world to kind of push back against central bank digital currency programs. I think the second category is the vast majority of central banks, which is maybe we can call it the CBDC curious area. and I think this takes lots of different shapes and forms. I mean, I forget where the count is, but it’s 130, 140, something like that globally that have some kind of program.

Mike Gallaher 00:40:26 And those all look a little different. But I think a big trend that we’re seeing in there is, less on the retail side, although still a lot of experimentation happening there. but a lot of interest on the wholesale side. Right. And a lot of coordination happening internationally now. Right. For for many years real money actually moving through. Through some of these systems though not at scale yet. Right. and, you know, I’m not the first one to make this observation. I think people have been watching this space, and it’s really starting to grow in Europe right now with some of the leadership of, of the ECB. But, I think that’s kind of where you see a lot of the countries, coalescing. the third camp, I would say, you know, maybe they’re the true believers in CBDC. and this is a smaller but but important camp, I think. you know, we have the launch countries, of course, you know, Bahamas, Jamaica. Zimbabwe, Nigeria. the China pilot, I think, continues to interest people.

Mike Gallaher 00:41:32 but, you know, I think the the digital Euro project is still kind of the biggest game in town, for obvious reasons, the size of the eurozone, right? and also, you know, we’re entering roughly the fifth year of this project, right? And it has some real legs. It was an important announcement last month on this. And, you know, I think there are a lot of skeptics out there on this project. And, you know, I don’t want to discredit their concerns or skepticism around this project. But, you know, from my my viewpoint, I think there is a growing consensus, especially in the banking and payments community, that this project will happen in one way, shape or form. and that’s going to be big, right? and I think a lot of this has to do with the EU’s unique landscape. Right? We talked about localization before, and that’s not so easy when you’re not actually a country. Right. And there’s a lot of localization in Europe.

Mike Gallaher 00:42:37 Right. but a lot of the local payment solutions aren’t able to, to to transact across the eurozone. and I think that’s a problem. Right. And I think particularly from a geopolitical lens, right. When we’re talking about U.S. companies dominating the market, when it comes to cross-border, right between between eurozone countries and that geopolitical situation doesn’t seem to be getting better. Right. so I think that’s that’s a real, tailwind for this, this project.

Jens Seidl 00:43:11 and I guess the Christine Lagarde has always been very transparent about that. Right. She said that Europe needs its own payment rails. It needs its own payment system to maintain its sovereignty and to not be completely dependent on foreign nations payment systems. So there’s, from my point of view, and I’m speaking as a European citizen now as well. I think she’s always been playing with open cards and saying, this is why we’re doing this.

Mike Gallaher 00:43:36 I think that’s right. And I think, I think it was an important message and something that resonated with a lot of people, even those who were skeptics of the project.

Mike Gallaher 00:43:45 I do think that you saw a big change with the change in the U.S. administration this year. I mean, I can tell you from the conversations that I’ve had and some of these kind of closed door meetings where a lot of people in the banking community in Europe went from saying, well, yes, maybe this is sort of a fringe situation or yes, we agree. But, you know, let’s slow down to, maybe begrudgingly saying, okay, what do we have to do to get ready? and that’s not to say that that this project, will be a huge success or widely adopted or displace a lot of existing payment systems. but it does feel like it has real momentum there. and I think I think there’s a real opportunity with this project within the ECB to to make this about local champions. Right. And not just make this about a sort of a singular system. I mean, I think it goes back to the conversation we were having around, wanting independence and sovereignty, but finding solutions that connect all of these kind of disparate systems.

Mike Gallaher 00:44:51 Right. And there are already a lot of domestic, very successful. Right? I mean, I think of places like zoom or companies like Zoom in Spain. Right. and, you know, a half dozen other very successful local solutions. Right. And I think if the digital euro can, can find a way to build on that momentum, whether it’s, it’s, you know, there’s been a ton of work on the kind of scheme rules, work, which I think is incredibly important. If you can create a scheme in which different players can kind of participate in this, where, you know, if I lived in Spain and had visas and wanted to travel to Germany, and I saw a marker that I understood that I could pay with with my account, and why wouldn’t I use that instead of something else if that was sort of my typical way of, of of paying. But but we’re a long way from there. Right. and, you know, I think the merchants are there already.

Mike Gallaher 00:45:47 They’re always looking to cut costs, and they’ve been promised this. but I think one thing that a lot of people are also, missing is that, you know, the ECB continues to to say that it will cover the costs of the infrastructure, which are massive here. Right. And there won’t be scheme fees around this. Right. And that could be a potential cost saving for all players, right, in the market. And, you know, if you have that acceptance point, if you have mandatory issuing and if even there’s a marginal cost saving on it, you know, why wouldn’t players want to push for for that solution?

Jens Seidl 00:46:21 Absolutely.

Mike Gallaher 00:46:22 But we’ll have to wait another five years or so to say.

Jens Seidl 00:46:26 Well, that’s where allow me a brief rent, if I may. And you don’t have to wave right away and you don’t have to comment on that. but I was really disappointed when I saw the latest communication from the European Parliament saying, oh, now we want to take another six months to look at this, because do we really need it? Couldn’t the private sector come up with its own solution? And you think, as you said, they’ve been working on this for five years.

Jens Seidl 00:46:53 So we had a lot of discussions already on this. You just mentioned the Spanish solution and is of course the solution that Germany, Belgium and a few others who are working on. EP has been going on for so many years, and we’re still only at the point where there’s P2P, a person to person payments for some banks, not even all of the banks in those those countries. So I don’t think in the next six months this is suddenly going to be all resolved and the private sector has got all figured out. So why this delay now? I don’t understand that. And if you don’t want to comment on that, I get it. But we do have a view on why. Why now?

Mike Gallaher 00:47:35 I think I think it’s a justifiable frustration. Right. And I think that that when the enabling legislation for the digital euro was, was, was, was first drafted. I think people really thought that there would be quick movement on this. Right. And there hasn’t been. And it continues to be a drag.

Mike Gallaher 00:47:58 And I think part of it is they see the long run of this, this program. Right? So they say, hey, we have we have another year to to tinker with draft legislation. but I do think that there are a lot of things happening behind the scene, and there are immense lobbying campaigns happening behind there. And there’s a big tension here. Right. I think you have on one side the solutions that we talk about. Right. Some of these kind of Emerging pan-European systems that haven’t quite gotten there. but maybe there’s a big fear that the digital euro would, would somehow crowd this out. I think there’s also this fear around the domestic solutions that I talked about and, and, you know, look, I mean, I think the ECB, doesn’t, doesn’t get as much credit as it has for reaching out to stakeholders and for working on this. But at the end of the day, they’re they’re a central bank, right? they’re one of the more isolated central banks, and that they are sort of a central bank of central banks.

Mike Gallaher 00:48:59 Right. And, it can feel a bit insular and difficult to kind of, I think, work between them and the Parliament. But I do think there are these entrenched interests, both European and, and American interests within, within sort of Brussels politics that that makes this a difficult solution, you would think. And this is my personal rant, but you would think, I think given the state of the world, right, and kind of geopolitics that there would be the same kind of momentum to, to push this legislation through. But I don’t think you’ve seen that yet. Yeah.

Jens Seidl 00:49:34 No, that’s fair enough. Mike, I’m conscious of time. maybe we we wrap this up. I mean, we talked about AI. We talked about geopolitics. We talked about digital assets, digital currencies. Now. take a couple of steps back now looking overall at where the payments industry is going. again, we you don’t have a crystal ball. I know that, but how do you look at the next, say, 3 to 5 years? What, are you worried that it might get worse? Are you optimistic things will get better? A bit of both.

Jens Seidl 00:50:09 What’s. What’s your view?

Mike Gallaher 00:50:11 I’ve been both. Honestly, I try and keep my my glass half full most of the time, even when it’s difficult. you know, I, you know, this is not the first sort of tumultuous time that we’ve seen in payments. this does feel bigger, I think than than some of the other times. Particularly, I think, on the political and geopolitical side. But I do think there will be some, some real winners out of this. Right. And I do think a lot of the initiatives that we’ve talked about are favoring a lot of sort of small players right now. And so I think you’re going to see a lot of kind of fresh innovation happening. And I think a lot more competition. And I think that will be a good thing for the ecosystem overall. Of course, for every winner that there will be some losers. I think a lot of incumbents recognize this. I, you know, there might be a few with their heads in the sand, but I honestly don’t see that.

Mike Gallaher 00:51:06 And I don’t see that with a lot of clients that, that I talk with. I think most recognize the potential for growth in new areas and also the disruption that will it will bring and are taking sort of a very risk based approach, but also feeling a bit bold, you know, on some of these things. And I think that’s a good thing. We should all be bold sometimes.

Jens Seidl 00:51:29 Here, here. That’s, I think, no better way to wrap up this episode. Mike, thank you so much for joining us today. This was a great conversation. I really enjoyed it. So hopefully our listeners will too. Thanks very much.

Mike Gallaher 00:51:43 Likewise. Hey, and I’m glad I only had to travel down the street.

Jens Seidl 00:51:46 So perfect. All right. Well that concludes today’s episode. Please do like follow. Do whatever you need to do on your podcast platform to make sure you don’t miss the next episode. Thank you and have a good one.