Part distribution strategy, part product design, embedded finance is drawing the attention of investors who want to fund next-generation financial infrastructure.
Embedded finance includes lending, payments, open banking, banking-as-a-service, data aggregation and data transfer services.
The lower fintech multiples tumble, the harder VC funding is for founders to find. But savvy investors are betting on a less-flashy type of fintech that’s been overlooked in recent years: startups they believe will form the infrastructure for the next wave of financial services innovation.
And funders have coalesced around a label for these companies, one that startups are only now starting to adopt: embedded finance.
The picks and shovels on offer include lending, payments, open banking, banking-as-a-service, data aggregation and data transfer services. The offerings are typically API-driven and deeply integrated into another product rather than redirecting consumers to a third-party site.
Companies like Stripe and Plaid are considered early exemplars of embedded finance, joined by newer ventures like Apiture and Yapily. And embedded plays are emerging in both traditional fintech and crypto.
“The next phase is not going to be in the next consumer-facing digital bank or consumer-facing crypto wallet,” said Martin Tantow, a partner at Pegasus Tech Ventures. His firm’s portfolio shows how the tide is shifting, with Pegasus backing early consumer plays like Robinhood and SoFi, which both went public in 2021. But infrastructure is what appeals to him now: “Embedded finance — now, that’s what’s getting interesting for us.”
Tantow is not the only VC shifting focus. Bain Capital Ventures is one of the firms that set the trend, as partner Matt Harris has long encouraged companies to consider embedded finance as a strategy.
“It’s easier now, because of innovation in financial infrastructure, to get fintech products up and running faster and more easily. They take some of the legwork out of legal compliance, regulatory complexity that companies don’t want to take on,” said Christina Melas-Kyriazi, a partner at Bain. “I’m really interested in that.”
Melas-Kyriazi says companies that pitch her with a clear distribution strategy are best aligned with Bain’s investment thesis. “If you’re solving a consumer-facing problem, you want to go direct-to-consumer,” she explained. “But a better way to access that person, at times, can be via software, where they’re doing their work.”
Startups serving up software to financial services companies and other business customers are also earning more investor dollars than other fintech sectors, giving them some buoyancy amid sinking valuations. According to Dealroom, embedded finance investing roughly tripled between 2020 and 2021, and investment in payments startups — a key sector within embedded finance — appears to have held steady in the first three months of 2022.
Melas-Kyriazi said the best embedded-finance companies either leverage data collection or network effects so that “once someone starts using your product, they’re going to use it again and again, and it’s going to be harder for them to switch.”
Catherine Birkett, CFO at GoCardless, said integrating financial services, like putting payments and accounting together, simplifies business operations in obvious ways. The open-banking company secured $312 million in late-stage funding in February. “This is easy to explain to investors, and from there it’s logical that fintechs that offer convenience and ease of use to merchants are more likely to acquire customers than those that don’t,” she said.
That’s part of the embedded finance pitch: It’s a more efficient and consumer-friendly route to reach other companies’ loyal customers as opposed to branding and launching a new financial product into often-crowded markets. Like other business-to-business models, that makes it dependent on other companies as a channel for growth, but embedded finance’s supporters argue that’s a feature, not a bug.
It’s not enough to just declare yourself an embedded finance company and start pitching investors. Tantow emphasized that in the current environment, companies must have strong financials to back up their pitch — preferably enough revenue to survive a looming downturn. “I want to see what their distribution model is [and] which channels and strategic partnerships they are pursuing,” he added.
For investors now, the most exciting fintechs are ones with low overhead, a clearly defined strategy of marketing to businesses and a promise of infrastructure that will accelerate the transition to a fully digital financial ecosystem.
PitchBook recently warned of a “bifurcation of the market” in fintech: Those serving consumers and small businesses, the firm’s analysts wrote, “will be negatively impacted while enterprise and infrastructure companies will remain at strength.”
Or as “Saturday Night Live’s” trend forecasters might put it: Get embedded, or go to bed.
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Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.
The role of chief product officer is becoming more strategic than ever, and is now considered a vital leadership role. Could it be a pathway to CEO?
Amplify’s Rise of the Chief Product Officer panel was moderated by Protocol’s Aisha Counts. From left to right: Aisha Counts, Kumu’s Crystal Widjaja, Wish’s Tarun Jain, Okta’s Diya Jolly and Box’s Diego Dugatkin.
Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She’s based in Los Angeles and can be reached at acounts@protocol.com.
The product has always been an important part of any tech company’s success, but product leaders haven’t always had a seat at the executive table.
At Amplitude’s annual conference in Las Vegas last month, the chief product officers of Box, Kumu, Okta and Wish spoke with Protocol about how else the role of the chief product officer has changed, from becoming a more strategic part of organizational design to being a pathway to CEO.
Given the necessity of product management in today’s digital age, it’s easy to forget that the role is fairly new. “If you look around — sales, marketing, engineering — these have been around for a much longer time, and product management is probably the newest of the disciplines among all of that,” said Wish’s Tarun Jain.
It may seem like every tech company has a chief product officer now, but product leaders don’t necessarily think the number of CPOs has gone up. “We have the same number of people doing product work, but now there’s more eyes on them,” said Kumu’s Crystal Widjaja.
This role wasn’t always an executive role, either. “The CPO role now has a seat at the table, at the C-suite. But before, he might have been part of another organization — that also changed over the last few years,” said Box’s Diego Dugatkin.
As product development becomes more central to a tech company’s growth strategy, it’s forcing product leaders to think differently than they did in the past. That’s why today’s CPOs can be involved in everything from business development and marketing to engineering and data analytics, according to the panelists.
In the past, “the product leader used to take in requirements and help translate it for engineering to build a good product,” said Okta’s Diya Jolly. Now the job involves “driving the revenue, driving customer growth, ensuring that support can actually support your product [and] ensuring that marketing understands how to position it,” she said.
That’s why it’s vital for CPOs to have good relationships with CFOs, CMOs and chief customer officers, as well as other executives. “The congeniality and the partnership with other C-level executives, where you have to work in close coordination with sales and also with marketing and also with engineering” is essential, said Box’s Dugatkin.
The expanding remit of CPOs may also prime them for tech’s top roles. In the future, the CPO role could be a pathway to the top job. Bret Taylor, co-CEO of Salesforce, was formerly a CPO, as were Sundar Pichai at Google and Ryan Roslansky at LinkedIn.
“You do see more and more companies promote their CPOs to CEOs, so LinkedIn did it very successfully as an example,” said Jolly. She considers the role to be a great training ground for taking over the reins because “it gives you the most holistic view of the different functions and how to coordinate and drive plans across all the different functions.”
“It’s a role that can actually be groomed into a CEO,” said Wish’s Jain, because the employee has to think about the product, strategy and vision, and how to rally employees.
Dugatkin agreed that it’s possible, but the pathway isn’t always clear. “In order to be a good CEO, in addition to product, you have to manage finance, you need to understand sales, you need to work with investors … product is not sufficient, but it’s necessary.”
Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She’s based in Los Angeles and can be reached at acounts@protocol.com.
Joe Byrne is Vice President of Technology Strategy and Executive CTO at AppDynamics, a part of Cisco. His primary focus is on working with customers and prospects on APM strategy and helping with digital transformations. He also works closely with Sales, Marketing, Product and Engineering on product strategy. Prior to AppDynamics, Joe held technology leadership roles at Albertsons, EllieMae and Johnson and Johnson.
Over the last two years, technologists have come under unprecedented pressure to embrace digital transformation and innovation at record speeds. The pandemic accelerated the expansion of the digital economy at a rate that was previously unthinkable.
As a consequence, consistent availability and performance of the applications and digital services that customers and end users rely upon has never been more important. But at the same time, this has never been harder to achieve. To facilitate rapid innovation many technology leaders turbo-charged their move to the cloud and now preside over increasingly complex IT environments and sprawling cloud infrastructure.
Now the clock is ticking for IT teams to get control over their IT environments and achieve the level of visibility and insight needed to manage the next wave of digital change.
Full-stack observability is quickly emerging as a technology that can help solve some of these challenging and complex issues. The latest report from AppDynamics, The Journey to Observability, reveals a surge of organizations making serious moves to improve visibility within their IT environment with as many as 90% of organizations planning to be somewhere along the journey to full-stack observability during 2022.The next 12 months will be pivotal for many in this journey. Here we explore three important reasons why full-stack observability should be in every IT team’s toolkit as they prepare for the next wave of innovation.
Combat complexity, achieve real-time visibility
It’s no secret that there has been a massive increase in complexity for IT departments in the last few years as the world shifted online. The result is they were left to manage increasingly fragmented IT estates as they rushed to keep application and digital experiences running.
Technologists have been overwhelmed by data noise and have not had the tools readily available to identify which issues really matter and where to focus their efforts. But as we enter a new phase where immediate reactive response to the pandemic has evolved to proactive planning for the future, technologists need to find a way to tame complexity and manage data noise. Full-stack observability is enabling them to be more strategic in their approach.
This technology provides users with unified, real-time visibility into availability and performance up and down the IT stack for compute, storage, network and public internet, from the customer-facing application all the way into the back end. It enables IT teams to quickly and easily identify anomalies, understand dependencies and fix issues before they affect customers.
And the results are clear to see. Organizations that have already started the move to a full-stack observability approach are seeing results and clear return on investment (ROI). In the AppDynamics research, 86% of technologists reported greater visibility across their IT stack over the last 12 months when implementing full-stack observability.
Reduce costs with improved productivity and collaboration
When we look more deeply at the specific benefits that early adopters of full-stack observability are seeing, it’s clear that ROI and reduction in costs are achieved in a number of ways.
Half of IT teams say that a full-stack observability approach has led to improved productivity and 46% have reduced operational costs in the IT department as they now need to spend less time identifying anomalies and understanding dependencies in order to perform fixes. Others say they can also deploy team members to more strategic work that can better impact the business. 43% explain that they have seen better collaboration between IT operations, development and networking teams as they now have a single source of truth for data. No more working in silos with independent, disconnected monitoring tools.
Customers tell us they are removing themselves from the constant cycle of firefighting that has characterized most IT departments in recent years. Teams are becoming more productive and operational costs are falling because availability and performance issues are being addressed earlier and more quickly.
Against this backdrop of success, it perhaps shouldn’t be surprising that 80% of technologists believe that organizations that fail to make significant strides in their journey towards full-stack observability in 2022 will face competitive disadvantage versus their peers.
Impact business outcomes
But where full-stack observability really comes into its own is when technology performance is directly linked to the most important business metrics. In fact, 98% of technologists believe that it’s important to be able to directly correlate performance across the full IT stack with business outcomes.
Full-stack observability with business context enables companies to digest IT performance to easily identify where they can prioritize performance and tackle issues that strategically impact their bottom line. This correlation of technology and business data allows IT leaders to make smarter, strategic decisions based on actual business impact.
Making the shift is absolutely critical in order for businesses to successfully embed a sustainable digital-transformation-as-usual culture across their operations to thrive in the post-pandemic economy.
And critically, whereas before IT teams may have had to battle to get buy-in from senior leaders for procuring new technology solutions — such as full-stack observability — business leaders are now huge advocates. 93% of technologists report that the wider business has been supportive of their efforts to implement full-stack observability, in terms of providing the necessary budget and resources.
This is a hugely significant development in the evolution of full-stack observability, suggesting that technologists are now well positioned to ramp up their implementation programs with the sponsorship and investment they need to deliver success.
It’s clear that the implementation of full-stack observability will be mission-critical for technologists as they shift gears and ramp up transformation programs. A full-stack observability approach is central to technologists delivering their organization’s future objectives, enabling them to be more strategic, prioritize resources and influence vital and strategic decisions that drive the bottom line.
Joe Byrne is Vice President of Technology Strategy and Executive CTO at AppDynamics, a part of Cisco. His primary focus is on working with customers and prospects on APM strategy and helping with digital transformations. He also works closely with Sales, Marketing, Product and Engineering on product strategy. Prior to AppDynamics, Joe held technology leadership roles at Albertsons, EllieMae and Johnson and Johnson.
Standards could help bring down the cost of EV charging, but billions of dollars are still needed to build the Biden administration’s dream network.
The Biden administration is rolling out money and standards for EV charging. But it’s not enough.
Brian ( @blkahn) is Protocol’s climate editor. Previously, he was the managing editor and founding senior writer at Earther, Gizmodo’s climate site, where he covered everything from the weather to Big Oil’s influence on politics. He also reported for Climate Central and the Wall Street Journal. In the even more distant past, he led sleigh rides to visit a herd of 7,000 elk and boat tours on the deepest lake in the U.S.
The Biden administration’s electric vehicle charging standards are set to create a national charging network that’s reliable, accessible and, ideally, fast. The prospect of easing range anxiety could make the EV-curious take the plunge.
But for all the fanfare about the administration’s vision of a 500,000-strong network of fast chargers blanketing the country from coast to coast, the plan to make that a reality is running up against, well, reality. The administration has $7.5 billion set aside to build out a charging network courtesy of the bipartisan infrastructure bill.
“There are two ways to look at this $7.5 billion for EV charging,” Sara Baldwin, the director of Electrification Policy at Energy Innovation, told Protocol. “It is a historic investment in the EV charging network in America. We’ve never seen this amount of money dedicated [to charging].”
But Baldwin pointed to the paradox at play with this, as well as nearly every other climate investment and policy: It’s not enough. The $7.5 billion is great as a down payment, but a speedy, standardized charging network that spans the U.S. is going to cost a lot more.
An analysis by Energy Innovation along with researchers at GridLab and the University of California, Berkeley, that came out well before the charging standards were released this week found that the country needs to invest $6.5 billion in charging infrastructure annually for the next 30 years.
The scenario the team modeled had the U.S. on track for 100% light-duty EV sales by 2030, which is much more aggressive than the Biden administration’s target of 50% by that date. Still, modeling by Atlas Public Policy, an EV policy research group, found that public EV fast chargers would require $39 billion in funding over this decade to keep the U.S. on track to get to 100% EV sales by 2035. That’s still more aggressive than the Biden administration’s EV sales target, though it’s much closer to what most research indicates is needed to keep on a net zero emissions pathway.
Not all funding for charging needs to come from the federal government, of course. But it’s an important catalyst to leverage more private and state-level investments. (That’s something the bipartisan infrastructure law cash is supposed to do.)
If there’s one area where the charging standards could be a huge boon, it’s in helping bring costs for charging infrastructure down. Baldwin pointed out that standards for things like LED lights have helped make what was once a niche and expensive — and frankly not the best — technology affordable to the masses both upfront and over time. Ditto for other appliances and cars, which now get much better gas mileage and pollute far less to boot. If the charging standards follow a similar path, then it could help stretch investments further.
Ultimately, more widespread charging could make range anxiety a thing of the past. And having a network where you get the same thing from state to state, much like the current network of gas stations, could further allay any would-be EV owners’ concerns of waiting hours to get some juice.
But building out a charging network without also making EVs more accessible to everyone will be a huge missed opportunity. Baldwin said revamping EV tax credits to be both more generous than the current $7,500 and not phase out at 200,000 vehicles per manufacturer would be key to ensuring any charging network actually has users.
“It would be silly to wait for an EV incentive once infrastructure is in place, because you’re going to run into a situation where the infrastructure is all built out and there are not enough cars to use it,” she said. “So there’s this economic disincentive for both private investments as well as public investments. On the flip side to that, if you have a great incentive, and a bunch of people are buying EVs, and they don’t have a charging infrastructure to support their road trips and their daily use? Then that’s also going to hinder adoption. They really need to happen in parallel.”
The version of the Build Back Better Act passed by the House last year had both more money for charging and more generous EV incentives. It died in the Senate, however, thanks to Sen. Joe Manchin saying he couldn’t vote for it. (So did 50 Republican senators.) Manchin has said he’s open to working on a narrower version of the bill, but he’s explicitly said that more EV tax credits are “ludicrous.” So it may be that we end up with good standards for charging and more money to build out the network, but a policy that’s key to unlocking the EV future might still be missing.
Brian ( @blkahn) is Protocol’s climate editor. Previously, he was the managing editor and founding senior writer at Earther, Gizmodo’s climate site, where he covered everything from the weather to Big Oil’s influence on politics. He also reported for Climate Central and the Wall Street Journal. In the even more distant past, he led sleigh rides to visit a herd of 7,000 elk and boat tours on the deepest lake in the U.S.
The crypto investment company just hired veteran D.C. attorney Donald Verrilli to help its campaign to get approval from the SEC for its Grayscale Bitcoin Trust.
CEO Michael Sonnenshein told Protocol he’s assembled a “deep bench of in-house legal talent” to support Grayscale’s bid to convert its Grayscale Bitcoin Trust into an ETF.
Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Google Voice at (925) 307-9342.
Grayscale CEO Michael Sonnenshein has been focused on the crypto investment company’s bid to offer the first bitcoin spot exchange-traded fund in the market.
He hopes the SEC will approve its application to convert its Grayscale Bitcoin Trust into an ETF, even though the SEC hasn’t approved any bitcoin ETFs to date.
But Grayscale is prepared to go to court if the SEC gives it a thumbs-down. It’s bound to be a tough battle. And this week, Grayscale brought in more firepower.
Grayscale said Tuesday it had hired veteran attorney Donald Verrilli, who served as solicitor general during the Obama administration, as a legal strategist. Verrilli’s hire, Sonnenshein told Protocol, would “round out our legal bench.”
He elaborated on Grayscale’s preparations for a potential legal brawl in an interview with Protocol, in which he also talked about the push to regulate crypto and the recent volatility in the market.
This interview was edited for brevity and clarity.
You’ve said that it’s a matter of when, not if, the SEC will approve a bitcoin spot ETF. How close are we in seeing that?
I think it’s really tough to put an exact frame on when that’s going to transpire. That is really up to regulators to approve here in the U.S. In the case of GBTC — that’s the ticker symbol for our bitcoin product — it’s already out in the market, and it’s been trading every day since mid-2015. It’s emerged as the largest bitcoin fund in the world.
At this juncture, we asked the regulators to pull the product even closer into the regulatory perimeter and give it greater investor protection. The opportunity in front of regulators is to really give investors fair and safer and more familiar access to bitcoin as an investment by approving an ETF. They’re certainly not, you know, protecting anybody by not taking action.
You have been quoted that you may sue the SEC if they do not approve your proposal. Is that still the plan?
Our team has been preparing for all scenarios as we approach the July 6 deadline, at which point the SEC will either approve or disapprove the application. We are certainly operationally ready to convert GBTC to an ETF. But certainly, in the event of a disapproval order, one possible outcome is that we would file a lawsuit against the SEC.
Why did you hire Don Verrilli?
I think “preparedness” is exactly the word that I would use. When I think about the Grayscale legal team, we’ve built a deep bench of in-house legal talent. We’ve been working closely with our attorneys for many years to develop many of the arguments that have been put forward in front of the SEC. What better way to continue to round out our legal bench than to bring somebody like Don on as a legal strategist given his decades of experience both in the public sector, representing the government as a former solicitor general, as well as [his] work in the private sector. So we’re thrilled that he’s part of the game.
Can you elaborate on that? How do you expect him to help in conversation with regulators? What are you expecting?
Having been a public servant and having been on the government side of a variety of legal actions, Don certainly brings a unique perspective that perhaps the hundreds of members of our team have not had the same experience with professionally.
It’s been a year since Gary Gensler took over the SEC. What kinds of conversations have you had with him and his team about crypto?
If you take a big step back and look at the potential that the SEC was perceived to have under the chair’s leadership given that he entered his seat at the commission with much more than a simple working knowledge of the asset class, you continue to see progress throughout the last year. [That] has certainly been encouraging. But I do feel that Washington as a whole is getting impatient with the lack of progress being made at the SEC around issues like spot bitcoin ETFs and others.
If you look at where we are, you have the backdrop of the White House executive order that has certainly changed the narrative in D.C. with respect to engaging on crypto issues. You have bipartisan support for a brand-new bill that directly addresses regulation and regulatory frameworks around crypto assets.
So the temperature in D.C. has certainly changed. I certainly believe that this is an opportune moment for the SEC chair and the agency as a whole to further engage on these issues and to fulfill that White House executive order, demonstrating American competitiveness and its adoption of new and emerging technologies like bitcoin.
Speaking of temperature, there is also the view we are in another crypto winter. We’ve just had a major stablecoin crash. How have these developments impacted Grayscale?
Certainly the narrative around Terra’s collapse was taken notice of. But it was a cycle that petered out over a matter of days.
I feel that the U.S. continues to push for stablecoin regulation and ensuring that these protocols are functioning as they’re designed to do so.
In terms of a crypto winter, it would certainly be far too early to say that is in fact the case just because prices have sold off.
Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Google Voice at (925) 307-9342.
Consumers will soon be able to convert fiat money into crypto at MoneyGram locations worldwide, opening up access to people without bank accounts or credit cards.
Crypto on- and off-ramps have been a roadblock for the industry. A partnership between Stellar and MoneyGram aims to solve that.
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
The lack of solid crypto on- and off-ramps — rails for efficiently converting dollars, yen, euros and other currencies into tokens — is a bottleneck that has held back the industry’s growth.
While wealthier people in big markets such as the U.S. can move in and out of crypto easily, it’s much more difficult if you’re in an emerging market and don’t have a bank account or credit card.
Stellar Development Foundation, which supports the Stellar Network, has come up with a way to address the problem. Through a partnership with money-transfer company MoneyGram that’s launching Friday, people can bring fiat currency to a MoneyGram location, convert it to crypto and convert crypto back out to fiat. The service will use the USDC stablecoin on the Stellar network.
The service — initially available in the U.S., Canada, Kenya and the Philippines and expanding to seven more countries this month and other countries later — is an example of the ways that new crypto markets are converging with traditional finance. It also shows how crypto needs to integrate with existing financial systems to bring in mainstream users.
The partners plan to add crypto cash-outs in almost all MoneyGram countries, more than 200, by the end of June.
“It’s an interesting and tough problem,” said Anand Iyer, founder at venture firm Canonical Crypto, which hasn’t invested in Stellar but is actively watching the infrastructure market. “It makes a lot of sense to [have this deal], because that’s the only way you’re gonna get more crypto into the ecosystem.”
If Stellar and MoneyGram pull off the project and show they can attract new consumers to crypto, it could open up a much larger market for crypto and Web3, and serve as a model for other companies looking to increase access.
For Stellar, the deal is part of its goal of opening up access to crypto to underserved or unbanked populations. “From that standpoint, this really changes, potentially, a huge amount and really brings the cash-based world into the digital economy,” said Denelle Dixon, CEO at Stellar Development Foundation. “We’re actually really trying to target those users that have cash and really grow their opportunity.”
Since Stellar launched in 2014, its focus has been payments. Last year, the company added USDC to its network, enabling people to pay much less than on other systems like Ethereum, due to Stellar’s low fees, which are typically a small fraction of a penny.
Especially in today’s bear market, boosting accessibility is a way to address the misconception that crypto is just for trading, since this improves other uses such as payments, Dixon said.
For Stellar, that the new product uses USDC instead of its native XLM token highlights the organization’s recent focus on stablecoins. Dixon sees the future of crypto payments in stablecoins. “We don’t prefer XLM over anything else,” she said. “In fact, we prefer stablecoins. Stablecoins are a really nice way for payments to be leveraged.”
Bringing together a traditional financial company with a newfangled blockchain group was not simple. MoneyGram and Stellar began talking in 2019, and the companies then built an “adapter” that showed it was possible for Stellar’s and MoneyGram’s systems to connect.
The companies started talking about this current product March 2021. In one key meeting last summer, Dixon told MoneyGram CEO Alex Holmes that “the thing that had been missed in a lot of different spaces is how much blockchain and crypto needs MoneyGram.”
The product was built over the next several months, and a pilot began in November. MoneyGram has licenses and operations in 200 countries and territories, with more than 420,000 agent locations, which allowed for a relatively quick build. Mark Heynen, vice president of Business Development at Stellar Development Foundation, praised MoneyGram’s “ability to abstract out all the complexity.”
With this product, users can bring fiat currency to a MoneyGram location, convert it to crypto and convert crypto back out to fiat.Photo: MoneyGram
Stellar has seen payments grow more than 500% on its network over the past year, but it needs to increase access for retail users. In 2016, it launched its first anchors — a network of regulated financial institutions, money service businesses, stablecoin issuers and other providers of on-ramps and off-ramps. It now has about 50 anchors in places like Brazil, Nigeria, the Philippines and the U.S.
But most of the anchors on Stellar are regional players, and not all have physical cash-in or -out locations. MoneyGram will be a sort of super-anchor for Stellar.
This is how it will work: A customer initiates a transaction on a compatible wallet, then brings dollars or other fiat to a MoneyGram location. The agent verifies identity and loads the funds to the customer’s digital wallet as a MoneyGram transaction using the Stellar blockchain network.
Two self-custody wallets, Lobstr and Vibrant, will be live at launch, and the companies are working on supporting other custodial and noncustodial wallets. USDC creator Circle will help convert the funds, and United Bank Texas will handle settlement between Circle and Stellar.
MoneyGram said it is offering the service with no fees for the first 12 months to boost adoption. The price of transactions will eventually be competitive with buying and selling crypto or with sending remittances, said Holmes. The World Bank reports that average remittance fees paid on conventional money transfers in 2021 were a little more than 6%.
MoneyGram sees the Stellar deal bringing in new customers who want to get into or are already into crypto, as well as providing a new product for existing customers. Holmes notes overlap between immigrants who use MoneyGram to send money overseas and Latinx populations that show strong crypto interest. In addition, by integrating with Stellar, it enables any other wallet on that network to plug into MoneyGram, adding more potential customers.
Longer term, Holmes sees crypto as having potential not just in changing money transfers but also in helping redefine money. “If I had a U.S. dollar, and I put it into a stablecoin that was then accessible to someone in Argentina, that’s a little bit different than saying I have to convert it all today when I go to pick it up or when I put it into my bank account,” Holmes said. “There are some interesting future concepts around how money moves, and does it really need to be instantly translated into fiat?”
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
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