How AI Is Transforming Merchant Portfolios

James: Hey, everybody. Welcome to another edition of the Merchant Sales Podcast. Today I've got Sebastian from Arkham on here. Fantastic guy, great business. Talking about AI and how it impacts attrition, new account, uh, generation, and all the cool things that Arkham is doing. We also get into an entrepreneurial conversation, which I think always resonates with my audience here. I know many of you are very entrepreneurial, starting businesses, and so Sebastian and I just kind of kick around some ideas about, uh, what that's really like and some of the things that we wish we would have known earlier on in our career. I think it's actually a really cool conversation. Uh, then we get into the. Today, uh, in payments, Patty gives us a bunch of interesting updates that actually include a wand that cash app has produced that you can now use and pay with your magic wand. So, uh, more about that as we get into it. Uh, today's episode, of course, is sponsored by Nativia. Head over to ccsalespro.com to check it out again. That's ccsalespro.com nativia to check that out. Let's dive into this edition of the Merchant Sales podcast. Welcome to the Merchant Sales Podcast. Hey, everybody. I'm here today with my good friend Sebastian, CEO at Arkham. How you doing today, sir?

Sebastian: Pretty good, James. Pretty good. It's been a while, man.

James: It has been a while. We haven't had you on the podcast in a bit. And so, uh, we are going to talk today about taking action with intelligence, insights on portfolios. And I love what Arkham is doing. And so before we dive into that, though, Sebastian, give me a little, uh, a little context, because last time we talked, I know the focus of Arkham was really zeroed in on retention, uh, you know, reducing attrition and churn, um, as kind of your, you know, your beachhead. And I know you've done a lot since then. So give us a little update on kind of the direction of Arkham and what you've been working on the last, uh, year or so.

Sebastian: Absolutely, man. So, James, what we realized that, you know, the more we started going upstream to larger and larger acquirers, we. We started to get asked questions around, um, do you guys do anything related to windbags? We, um, said no, but we have your information. It's probably something that we can spin up, right? And we would get more questions, say, hey, um, I have 30 of my accounts are non activated, right? I sell them, but out of my hundred accounts that I sell, 30 of them never get activated, right? Anything we can do to monitor and really pinpoint those accounts that we can activate better. Right? Sure. Absolutely. We can do something like that. Right. And then we started getting into this situation where even if our churn scores could potentially help save that merchant for that portfolio, the ISO then would say, well, those belong to my partners or my agents or my ISVs, I can't touch those accounts. Right. So then we started thinking, well, for these larger acquirers, technically the client is not the merchant. Right. You lose a merchant, you lose two grand, um, a, uh, year in net revenue. But you lose a partner, right. You're potentially losing millions of dollars from that particular partner leaving your book. Right. So we started really, almost felt like, you know, first days of building Arkham, it's like, well, how can we monitor a partner, an isv, an agent, the bank referral, a sub ISO to determine if they're going to be boarding deals somewhere else, if they're stalling in terms of the accounts or the quality accounts they're bringing. And the deeper we looked into it, there is zero visibility in terms of how my partner agent network is doing other than everybody knows who their top producers are, everybody knows who their bottom producers are, who are the rising stars, who are the guys that at one point were stars and no longer are boarding deals with me for whatever reason. Right. So, so we really started focusing a lot on really going back to the original premise. Can we leverage payments data, uh, to optimize a merchant portfolio? The answer is yes, but there's multiple levers outside of just retention that we can pull to maximize that revenue.

James: Well, the thing I love about it too is you're so action oriented with your data, which I think is really unique. There's a lot of companies that say we're going to give you all this data and good luck making the best decision you can with the data. Where I think what Arkham has done well, that's, that's attracted a lot of, um, a lot of clientele is, is that it's like we're gonna give you the action and we're also gonna define for you how to interpret this, this data into that, that action step that you need to take.

Sebastian: Right.

James: And so, um, let's do this. I think it'd be cool if we kind of start at the beginning of the life cycle. So let's, let's just kind of run through and talk about this. I know you guys have so many things going on now. So if I'm, um, an acquirer and I want to work with Arkham, and I am Having the problem that you mentioned earlier where I get 100amonth but only 70 or 80 are activating, what does your platform do give us some sense of like what's going on behind the scenes? And also what is that experience as the acquirer to help me activate those other 20 or 30 minutes?

Sebastian: Absolutely. And the first thing that you have to consider is maybe not everyone out of that 30% that hasn't activated, it's worth activating. Right. It takes efforts and monies and resources to go back and change that account. Hey, you sign your paperwork, James, we deploy a terminal, um, let's go in there and make sure we can install it, test that transaction so you can start taking payments. Right. Like that requires the acquirer to actually spend some funds, resources, time and efforts to get that merchant activated. Right. For the first thing we have to do is figure out is this merchant even worth activating? Right. And sure, many times we have merchant statements to determine how profitable this merchant potentially could be. Right. But at the same time we can have new businesses that, uh, maybe we don't have that information for. Right. So in the absence of that data, how can I tell my sales team who to prioritize? Right. Because what we're seeing on average is probably about 30% of all merchants that get sold never get activated. Right. And if we can provide or tie in how profitable this merchant could be if you activate them based on industry benchmark data, as we've seen, billions and billions of dollars on a monthly basis now. Right. We can pinpoint specifically, hey, you might want to prioritize this particular account because it's an MCC and a zip code that it's extremely profitable and has a tendency to be very lucrative for your book versus a merchant that maybe average volume is lower than the typical merchant in your book and maybe it's not worth chasing to actually go and activate. Right. Again, maybe this is one of those deals that one of your agents sent you that it's the trash deals that nobody else is willing to take. Right. Are you really going to take the efforts to try to activate one of those accounts? Right. So I think from the perspective of knowing who you need to activate or prioritize from an activation perspective, uh, is the key point. Right. And then having information, uh, or benchmarking information regarding how long does it typically take us to activate a 581-12-11357. Right. I can determine if I am falling below or above that benchmark to know I need to actually put more efforts to ensure that once we Pass the benchmark, it's probably going to be a lost deal at that point.

James: Yeah, that's such a good point. Um, I've seen that even in some of the businesses I own, where you're like, if we had a, let's say a CC storage merchant, right? Well, they take 90 days to activate because there's like a whole process to get their self storage stuff in, you know, imported. So some of these ISVs have a pretty long, you know, cycle, whereas others is like, well, if it's not activated in a week, we did something wrong, you know, and so I think having that visibility is huge. So, okay, so we get them activated, then we have a merchant account. And for years prior to Arkham and others, it was like, well, I guess we'll just hope that they stick around until they cancel. So what, what do we do in that middle term and what is Arkham doing to provide that intelligence? To say, no, no, hold on, you might want to reach out, like talk about that a little bit.

Sebastian: So that's where we get to. And it's interesting, right? I mean, now that we see sort of the scale of data that we see right now, we can do cool stuff like benchmark and see from an effective rate perspective, from an income perspective, volume, revenue, where does your merchant stack up? Right? So a lot of our clients are now even saying, hey, I um, have all my information in here to really draw a line and say, these are my VIP accounts. I want to ensure that any account who's generating at least 299in net income per month, that's going to be a VIP account. And I want to touch those guys at least on a monthly basis, regardless whether they reflect that risk or not, right? So that's usually a very small subsample of your book. Think about it, maybe 10 to 20% of your merchants or your top merchants generate 80% of the volume, right? So those larger key accounts are always top of mind, right. And the key is engagement, right. And it might be like, what are we saying to this account? Which I think it's the key, right? You can, I can always call you James and, and maybe I call you just to check in on you. Right? And that's what we're doing originally at the very beginning, it's just like, hey, if you have nothing else, just check in on James, see how they're doing to strengthen that relationship. Uh, but what we really learned is the fact that we can actually use this engagement opportunity to now cross sell new products. We see a merchant that was doing 50 grand a month historically. Now he's doubled his volume in the last two quarters. His appetite for new products or services might be greater related to or relative to what it used to be before. Right? So maybe I need working capital because I accelerated my business fast enough where now I need to double down in my inventory and I may not have the cash flow necessary to necessarily do so because I've grown so quickly, so fast. Right. Um, take that a step further, right. Not every account in my book needs a call, right? So as I move forward into that life cycle, right. My key accounts, I always want to monitor them, right? But how about my accounts that maybe are not part of that key account, um, or my stars, But I. But they're based on the information I can see that if they continue to process at this rate, they will be one of my key accounts in the next six months. And the last thing that I want is one of those key accounts to be taken by a competitor of mine when I've just spent all the time, energy and effort to not only get them on board and start processing, but be there along the way as they continue to scale their business. Right? And that's really where the retention piece comes from, right? Is as I scale my portfolio, I don't have the ability or the resources to do the same thing I just did for all my key accounts for my entire book of business. Right. So what can I do? Right? And this is where, again, our retention still are bread and butter to this day. Right? Because we're looking at those portfolios identifying who's going to be leaving, why are they leaving months before that decision has even been made. And what we're providing is ultimately even the workflows to actually engage that merchant. Right. What do I say? It's no longer a question our clients have to ask, right? All they got to do is review the email that we put together for them and say, this makes sense. I buy it sent. Right? So our goal is to really drive that engagement forward. Whether you're trying to engage a merchant, to activate. Engage a merchant, that it's simply one of your key account relationships, or engage them when the data is telling us, hey, this merchant might be looking for a new home.

James: Yeah, Right. Okay. So, yeah, I love that. So, so we, we do that, we try to take action, we still lose the merchant because we're going to lose. Sometimes we're going to lose them anyway, right? We did our best, but we lost them. So what do we do now? So maybe, um, I'm like, um, you know, maybe Arkham comes in and I say like, man, Sebastian, I lost like 300 accounts in the last six months. Anything you can do to help me out there, what do you, what do you do in that situation?

Sebastian: So what we're learning is that not every account is worth keeping and not every account is worth trying to chase back to re engage or win back. Right? But we ultimately have all the information around the merchant ranging from how much were they processing, what was their growth rates, how profitable was this account for me, right. Was the agent taking the bulk or lion's share of that revenue and therefore I don't really care much. Right. So through Winback, right, we can leverage all of the historical data about this merchant to once again prioritize who deserves a call, who deserves a visit, or who maybe just deserves an email. That's AI generated. Right? But ultimately it's going back to this idea of understanding who you're going to call in prioritizing those most viable merchants that will have the largest impact whether you retain them, whether you win them back into your portfolio. And what is the right message to convey to that merchant as you're engaging them is sort of the key, right? It's, it's the difference between me coming to you and offering you a solution that's completely outside of scope. Right?

Speaker C: Yeah.

Sebastian: Hey, I'm gonna. And I think that's kind of how our industry has worked in some time. It's like, oh, we got a new MCA product, let's go blast our entire merchant base with, with pre approval offers and just hope that 3% of those guys accept their offers. Or I can be ultra surgical of when I make that offer and the messaging I leverage to deliver that offer. In other words, what we found is merchants that are seasonal, whether they're in their downturn or their peak volume in that seasonal trend, either one is great for working capital offers. When you're at the bottom, you're saying, hey, you're three months away from your peak season. This is a great time to take some working capital to reinvest in your business and be ready for that peak season. By the time you finish with your peak season, you're already paid for your loan, right? So that is a right message at the right time for a merchant who may need and additional surveys from me, the acquirer.

James: Yeah, yeah, I love it. Okay, so one of the things that you brought up a little bit ago at the beginning, I think is fascinating is this idea of the partners, right? So the problem, of course, as you mentioned, is A lot of times when an acquirer thinks about their portfolio, yeah. They don't think of really the merchant as their kind of responsibility or their kind of end user. It's really the agent or the sub ISO or the isv. When, you know, give me some context of like, what problem were you trying to solve there? I would imagine you had different. Heard different things from different clients. What are some of the pain points there from an acquirer perspective? Or, uh, a, uh, super ISO, where it's like, what are the issues they're dealing with where they needed more data to be able to address the concerns.

Sebastian: Yeah. So this one took me some time to realize, James, because again, I figured everyone cared about their merchants, right? And granted, at the beginning we're working with a lot of direct to merchandise, right? But as we started to move upstream into that acquire, uh, uh, size, right. We started to realize that the higher you got into the larger Super ISOs, the more you realize that their clients are not necessarily the merchants. It's the partner, right? It's my isb, it's my sub ISO, it's my bank referral channel, it's my agent, right. Those are my clients and I want to empower those guys with tools so that they can continue to board more deals with me. Right. And as we started asking more and more questions regarding, like, how are you monitoring your agents and partners? Well, I know who are my top producers and I know who are my bottom, uh, producers. Like, okay, what else can you tell me? Oh, well, we do QBRs once a quarter with our top partners to ensure that they know what best products we have. Like, are you doing anything on a monthly basis as you're having these conversations with them, it's like, oh, yeah, of course. We'll tell them and say you're boarding 10 accounts, 20 counts, 500 accounts a month. Now you're at 300, now you're at 20. Right. It's very myopic. And the how I am looking at my partner health, right. And the more we delve into it is, well, this is a matter of can we estimate the health of a partner whether it's an isb, agent, sub ISO or bank. Right. They all exhibit the same patterns as they're flipping accounts, as they're getting acquired by a PE firm, as they're scaling and suddenly become more attractive to other players that maybe would have never spoken to that ISV some, um, six months ago. Right. So this is really the genesis of that partner monitoring and really quantifying that ability of that partner Whether they are still engaged with me and boarding good deals with me, or is the quality of the deals deteriorating over time? Right. Is that partner churning accounts at a higher rate than they usually churn? Right. Or is their portfolio composition shifting over time? In other words, I used to get restaurants, now I'm getting barbershops from this guy. What's going on? Right. And together those elements allow us to estimate what is the health of this partner. Right. Which in turn allow us to do what we've been doing with the merchants all, uh, along, intervene and have a conversation that it's data driven. Right. If I know you're flipping accounts for me, James, I can say two things. Oh, man, James is just flipping accounts. God, what am I going to do? Or I can come back to you and say, hey, James, I know we signed our schedule A some three years ago when you first got started. Uh, you built a hell of a business, man. You're extremely profitable, and I may have not been giving you the level of attention and support that you deserve, but that's changing now. Here is a new schedule A based on what I understand you're willing to produce. Here's your agent bonus that maybe weren't offering you before. Maybe let's renegotiate our splits. But it's like we can have an actual conversation around, how do I incentivize you to come back to me? Right? Because the reason you stop boarding deals with me, it's not because maybe something in our relationship broke, but rather someone else maybe started selling you and saying, hey, man, you're a valuable player. You should be earning 90% of your splits. And you're like, I can earn 90% of my splits? Of course. Right. That transition happens so often in our industry as new agents come in new. Some agents drop off. A lot of them become very sophisticated, where if we're not monitoring those guys, someone is going to be giving them the attention and support that they need to feel special.

James: Yeah, absolutely. So I want to talk a little more about Arkham and kind of, you know, how people can, can reach out. But before that, I have a little bit of an off the wall question for you. So I know another topic you're very passionate about is entrepreneurship. And I think we did, um, you mentioned before we started recording, I think our first, um, podcast interview was 2022. Right. So four years ago. Um, for those that are just starting their entrepreneurial journey in the payments industry in particular, what do you wish you could tell yourself four years ago that, you know now? What are the Big takeaways for you of like, man, this is what it's really, really like to build a business. A uh, technology company and you know, in the payments industry. What advice do you got?

Sebastian: And James, you want me to cry on your podcast right now or something?

James: That's what I'm going for. But you know, I mean, in all

Sebastian: honesty, I mean, you're an entrepreneur yourself, right? And I think I always tell people is it'll take a lot longer than you expect. Right. And you will have to go through so many obstacles that you know, to the breaking point. You know, many times, man, it's like I, uh, we've had our, uh, you know, Maybe early in 23 can recall, you know, I had to have a credit card round, meaning I maxed out all my credit cards to maintain. I never heard that before.

James: I love that terminology. A credit card round. That's so good.

Sebastian: I mean, man, I maxed out all my credit cards and I have no way in front of me to think how am I going to pay this back? Right, right. But the belief was always there, man, this is a great idea. This is the future of how merchant management, partner management is handled in our industry. How it should be handled regardless of what the external market is telling me or showing me. Right. And many times it takes time for you, even for myself, to really refine what is it that we bring value to the table. Right. And early days, I would talk a lot about the accuracy of our models and how many of your stop accounts are in a capture. At some point I really transitioned to, listen, James, you're going to pay me a dollar and I'm going to net you $5 at the end of that month. How does that sound for you to break even with me? All I got to do is save one single account. Is that worth your while? So the message changes, but you can only get to that point after dealing with the time and suffering through the nose and really ensuring that you're remain part of the game for you to unlock those learnings. Right.

James: 100%. Isn't it interesting too how like you have to have this thing where you care so much what other people think about your company, but then you also don't care. In other words, you have to not care enough to be able to make that pivot and go, man, I'm gonna look so stupid. I bet so many times I've done an event where I'm like 6 months ago I said this and uh, I was so wrong, man. Now I have to do this other thing. But, but then at the same time you also are like really tuned in to like, man, what do people really want? But I think there's like a, uh, I don't know how your thoughts on that. I feel like there's such a balance between like, caring about, kind of providing value to the market, but also not being captured or like, you know, a slave to what everybody says about you or what you're doing or, you know, that kind of thing. You know,

Sebastian: honestly, um, that, that's a really great point and I think it requires a certain level of stubbornness and just, just almost like irrational conviction. Yeah, that's like, man, for, for, you know, again, 22, you know, 22, 23. You know, the market was telling us nobody has an attrition problem, nobody's losing merchants, nobody is concerned with retaining accounts. Right. And if I had taken that at face value, we would have never been or gotten to this side. Right. Like today we work with top 10 acquirers. Like, that was a dream in 22 and 23. Right. And at any point of that journey, if I've, um, given up, we would have never gotten to this side. Right. So I think it was Ford who said, you know, if I had asked my customers, um, what they wanted, they would have asked for a faster buggy, you know, and, and that is ultimately what, in a way. Right. What you're. As an entrepreneur. Right. Especially in our case. Right. I don't think anybody was talking about portfolio optimization, uh, when we got started. Right. We didn't even know. We were just thinking about solving Churn. Well, Churn is just part of this broader picture of how do I maximize the revenue in my book without sacrificing attrition, without sacrificing employee engagement, without necessarily sacrificing profitability. Right. So at face value, you come to realize that a lot of these questions cannot be answered in the short term, but rather through experimentation and persistence of, um, finding avenues to those problems can only arrive after trying, experimenting and really working with real companies out there to drive that value forward.

James: Yeah, I was having a, I had like a two hour conversation this morning, um, with my stackably team and I was just cracking up. I mean it was, it was kind of funny in a way of like, I've started all these businesses and I have several that are very successful, you know, and yet here's one that's new and I am still nowhere, like, you know, we're having this conversation and I'm like, am I ever going to get better at this? Am I ever Going to get faster. And it's like, I've gotten a little faster, you know what I mean? But it's like there's just something about like you just have to do something. You have to put a stake in the ground and say, let's go. And then you go to the market and then the market spits in your face and then you go back and you're like, dang it, okay, let's do something else and let's go back out to the market and it spits in your face again. But every time you get grab this little bit of data and you have to be willing to make the pivot even when it looks like you're eating crow or whatever and you I'm m going to pivot, I'm going to pivot again. And you just keep going with it because again, I love the word you said. Irrational conviction. You know that 100. When you're like, man, no, this is a good idea. I just haven't figured out the right way to package it and deliver it to the market yet, you know, and like staying true to that and it's really difficult.

Sebastian: And what you do along the way as you're doing that in solving those problems and getting spit on your face and going back to the drawing board to then revisit with a new solution or a new approach to the problem, right? What are your building, man, is just unlock after unlock after unlock after unlock to ultimately arrive to the solution of this problem, right? Which if you think about it, it's like, oh, James, this is a fairly easy solution. But to arrive to that solution, right. It required so many experiments, lessons, losses that uh, when you put them all together, right, it's like the, the probability of an ISO giving us data, well, 10%. All right? The probability of us actually being able to predict accounts likely to leave once the ISO gave us the data, 5%. Okay? The probability of us being able to capture good merchants, that we predict, 2%. Right? So as you stack all of that together, right. And arrive to a solution, that it's bringing value to market along the way. That was you building your moat. Because you have to understand that building a company is hard. Finding a solution to a problem is relatively difficult. Right. And a lot of people were just going to give up at uh, every step of the way, right? So every new challenge you overcome, it suddenly becomes an unlock that someone else has to figure out. Right? And I really believe that's where moats and long lasting businesses really get built, right? It's, you know, People are like, oh man, aren't you, aren't you afraid that Claude can just come up with a retention tool for the payment space? And I say, well, uh, first of all, Claude needs to get really good at running machine learning models, understanding payments, having enough payments, transactional information across different acquirers to really derive something like this. And then after you derive a score, what the hell do you do with it? What do I say to that merchant? What is the end user looking at from the approach of what should I bring up when I'm calling this merchant that's at risk of leaving?

James: Yeah.

Sebastian: Or this partner at risk of leaving?

James: Right. Yeah. It's like I was talking to my partner about this the other day that like, one of the challenges of AI is like, is like, okay, is AI smarter than me? Sure. But the issue is when we're approaching a problem, I'm bringing 43 years of context and I can't load that. The Context window of ChatGPT Pro extended deep Learning is not big enough to load all the context that I have from my years as a developer, a payments expert, a salesperson, my business partner who's one of the best developers in the country, et cetera, et cetera. We're bringing all that to this problem. And it's like, sure, if we could take the next 10 years to type this prompt out, yeah, it probably would come up with a great solution, but we're not going to do that. So it still needs us.

Sebastian: And take that, uh, you know, outside of that, right. It's taken years to build relationships in the space. Right. It's, it's. Payments is a complex market. Right. And that complexity lies in the fact that, you know, people are stubborn in here and maybe I'm, um, running on, um, razor thin margin, so I don't want to spend a lot of dough. So maybe I am willing to buy from some young kid that may have a better solution than yours, but I just don't know. And I have no trust and I have not established that trust with that person. Right. So now we get into the other human side of the human element that, you know, I never thought that was going to be the most difficult aspect of our business. You know, we have great tech, we have great solution, but I don't know anybody in the space. When you first interviewed me in 2022, you know, right. Fast forward to today. It's like, we speak at the shows, we know everybody and, and that facilitates the ability for me to pick up the phone and say, hey, James, I have something to show you. I think you're going to really enjoy this. Right?

James: A hundred percent. Yeah. Sebastian. So it's such a pleasure. I love having you on here. Um, before I let you go, I do want to make sure we give you a chance to tell our audience who should reach out to you. And again, I want to make sure we're respectful of your time as well. I mean is this, this is a solution still, I guess, for ISOs as well as acquirers. Give us a little context of like, of my audience who should be reaching out to you to learn more. Uh, and how would they do that?

Sebastian: Absolutely. Um, in terms of ICP, we work with retail ISOs, wholesale ISOs, FSPS processors. We really have seen the full life cycle of providers out there. What I would say is that at this point we have built a stack of solutions that maybe not fit your particular shop today, but there is always a beachhead that we can enter with one of our products to eventually expand and drive more adoption across better tools that would help you maximize your call it, your efforts. Right. So if you're first getting started, right, we're probably, you don't need reporting, you don't need retention, you don't need to win back anyone. Right. But as you're building out that book and you start getting to that, you know, thousand merchant mark, maybe your main priority becomes how is my book doing across all the places that I bought deals at? Right. And then as I have visibility now, it becomes a matter of okay, um, now I'm starting to lose accounts, uh, how can I ensure that I'm not losing those accounts? Right. And the more you go over time, you've lost several accounts right now. Is there any accounts in here that are worth pursuing back to try to win back? Right. And from one thing that I would say is, you know, prior before adding, um, these enhancements. Right. Uh, we're pretty much always building tools for the direct ISO right now as we scale our solutions, we're, you know, able to really build out tools whether it's, you know, for the direct ISO that's, you know, concerned about accounts leaving them or those partner driven shops that are looking for a more data driven way to monitor that partner network and really determine who needs that call and what do I have to say in that call to ensure that my partner feels valued when they come in for deals with me.

James: For sure. Love it. And uh, Sebastian, where would you send people to learn more if they wanted to reach out?

Sebastian: Um, you can reach out to us at, ah, Arkham AI that's Arcum, um, AI or LinkedIn. I'm pretty, um, I'm fairly active on LinkedIn these days. Um, Sebastian Builes Ginete. It's what I go by these days. So that's a mouthful. So I'm sure that you'll be able to maybe write it out in the, in the description of the podcast at some point.

James: Awesome. Sebastian, thank you so much. Always a pleasure. Really appreciate you uh, taking the time to jump on here and share your insights today.

Sebastian: No, likewise, James. Always a pleasure, man. I'm looking forward to seeing again soon.

James: Absolutely. Same here.

Speaker C: Now for today in payments brought to you by Proscribes Inc. With Patty Murphy and James Shepherd. So MasterCard has announced plans to expand its settlement capabilities with uh, additional intraday as well as weekend and holiday card settlement supporting both fiat currency and on chain card settlement using regulated stablecoins. Uh, MasterCard said it will support on chain settlement using a range of regulated stablecoins across several blockchain networks. It has a handful of banks that are, uh, expected to be among the first to support stablecoin settlement. Ark, formerly Dollar App, which actually I have to tell you is not one I'm familiar with. Cbw, um, Bank, Cross River Bank, Lead bank and nuvi. Yeah, I, um, just think it's really interesting because it, it's sort of not from the stable coin point of view as much as the expanded settlement point of view. Yeah, you know, I mean, that's the big deal with that. People like with st. Stable coins is they don't have to wait a day or two to get their money.

James: Right, exactly.

Speaker C: And you know, and, and you know, a lot of times merchants especially, I would imagine during like Christmas season and things like that.

James: Yeah.

Speaker C: You know, uh, whole lot of sales on, on um, on Saturday and they're not going to see that money until Monday at the earliest.

James: Right.

Speaker C: You can get stable, you know, people buy with stable coins. I'm just amazed I, I'm not big into stable coins. It's sort of a little bit, you know, riskier than I'm willing to. It's. It's not an area. I, I just wrote a really big piece in the green sheet about it, so I know more about it than I did.

James: Yeah.

Speaker C: But, um, you know, I still get really perplexed by like how many US dollar coins there are. Like, do we really need that many US dollar coins?

James: Right.

Speaker C: But, um, but I just think that that's, that is really interesting and you know, the, the expansion of the, of the um, settlement options. I Mean it's, it's obviously goes along with this. My next story which is that banks are really, really struggling to pay, play catch up with their digital rivals.

James: Yeah.

Speaker C: You know, uh, the clearinghouse and we, we've, we interviewed somebody from the clearinghouse not that long ago. Um, has announced an initiative, uh, involving many of its owner banks. And its owner banks include some of the nation's largest like B of a Citi, JP Morgan Chase.

James: Yeah.

Speaker C: Um, you know, etc. Um, the initiative can, is, is going to. Because it's only been uh, it's only a concept now they don't actually have it working, but it will connect blockchain activity with traditional payment rails to support 247 clearing and settlement of tokenized deposits. Now tokenization in this context of course involves the representation of funds of money, digital tokens on a blockchain.

James: Yeah.

Speaker C: You know, banks, as I think we both know, have felt the under siege as stable coins become more widely adopted, you know, and rightfully so, they're, they're afraid crypto firms will be able to uh, siphon off deposits. And some of the legislation that's pending in Congress right now would allow stable coins to offer something comparable to interest.

James: Well, uh, and I think petty too. What's interesting to me about the stablecoin conversation just at a high level is that this is very much an infrastructure play. And so when you think about Bitcoin, right. The promise of bitcoin has always been. The promise has always been far more disruptive than the reality of it.

Speaker C: Exactly.

James: And the reason, and the reason for that is because again, in order for bitcoin to really take off, and we've had these debates with people on the podcast many times, I'm always very much the skeptic on this is that in order for it to really take off, there has to be a use case for the consumer. This is a consumer product.

Speaker C: Right.

James: And it doesn't exist.

Speaker C: And most of these initiatives are not consumer oriented even one.

James: Right. And they shouldn't be doing. Yeah. And one. And again, the reason why the banks are more scared uh, of stablecoins is that the consumer doesn't need to care about stablecoins. Stablecoins are, are taking the blockchain technology and the cost reduction and the speed components of all of this.

Speaker C: Right.

James: And they're making it practical for enterprise level fintechs and enterprise level things to say, hey, this is the way that

Speaker C: nationals that want to.

Sebastian: Right.

Speaker C: For liquidity or cross. Cross.

James: Exactly.

Speaker C: Border payments.

James: Right. And so, so bitcoin has Never been this like, foundational competitor to the banks. Now again, their promise has been. Their promise was, well, the US Currency won't even exist anymore and all that. But, but in reality they haven't really been this big issue for the banks. Whereas stablecoin is saying, hey, the banks are this trusted. You know, it's like, what, what is the, the value that the bank brings to the market? Well, it's a stable, um, institution that allows us to securely, you know, transfer value back and forth and regulated in a way. And regulated. Sure.

Speaker C: You can be, you know, secure in the transfer of money.

James: And so if, if stablecoins are going to make the same promises now, right now, to your point, not as secure, not as regulated and all that yet, but if they're going to make these same promises and actually do better from a cost perspective, a speed perspective. Right. Well now all of a sudden the banks have a real disruptive innovation that if it gets to the point of being able to do the, you know, to get the, uh, you know, the backing of the government as an example, like some of these things are coming out where the government seeming to like, sanction this and saying, hey, we're going to make sure this is safe. The banks do have a serious problem with stablecoin. It is something that's going to be very disruptive to them.

Speaker C: Oh yeah. And, you know, not only does the clearinghouse, uh, announce something like this, but fis, um, is working with five other banks, primarily regional banks like Fifth, Third and Key, um, on a digital money network it's calling Project Keystone. And it's built on this technology platform called Lyric, which was created by FIs to allow banks to issue, manage and settle tokenized deposits and digital currencies on their balance sheets while providing continuous settlement. You know, it's the same thing. But again, this is the, uh, to your point, these are the kind of applications that are really not. They're more corporate, they're more enterprise applications than they are consumer, um, applications. And I think that a lot of the consumer, uh, interest is just, um, you know, a novelty of sorts. But all that being said, I just, I thought it was really interesting that the clearinghouse and FIS both came out with these offerings within a week of each of each other announcing these. Yeah, um, almost like, it's almost like, uh, the RTP Fed now thing, right?

James: Yeah, sure.

Speaker C: Once the bank started doing rtp, well, there had to be something for the bank. The banks that are down market.

James: Right, sure.

Speaker C: Um, which is what the Fed, which is what really Fed now promises.

James: Right.

Speaker C: I, I see the same kind of dichotomy emerging with stable coins.

James: M. Interesting.

Speaker C: Yeah. So onward. Here's a good, good piece of news for anybody's, uh, doing business in Colorado. Um, you may have heard that the Colorado governor, uh, Jared Pol Polis last week vetoed legislation that would have prohibited interchange assessments on the tax, uh, portion of card payments.

James: Yeah. Finally a governor that's listening to the experts.

Speaker C: Yeah. And, and it's interesting because he wrote a letter to the legislature that said he was, quote, open to the concept, but it wasn't something that a state should undertake.

James: Yep.

Speaker C: You know, and he said, you know, and the bank said, hooray, because we would have sued you anyway.

James: Right, right. It wouldn't have become, it would not have become law anyway, so it wouldn't have.

Speaker C: Right. And he said, you know, even though the bill survived legal scrutiny, quote, it's questionable whether this bill is fully implementable or operationally feasible while as it would require a Colorado specific carve out to a net to a nationally and internationally integrated payment system.

James: Well, I really like this governor. I need to learn more about this person.

Speaker C: You know, I'll tell you what I, I, when I heard that he vetoed it, that it's like, I got to do some research on this guy.

James: Yeah.

Speaker C: I found this letter that he had sent to lawmakers. Governors don't always do that. They just, a lot of times they'll just veto and, you know, throw it in the trash. Um, but this guy knows what he's talking about, you know, and I like it. He was saying, um, you know, he didn't, he didn't even have to say anything about Illinois. I mean, you know, the, the message has been clear, it's been debated for some time now. And I think I reported last week a federal judge ruled that, that, that law can't apply to national banks out of state, state chartered banks and payment networks. Well, that leaves as banks that are chartered in Colorado. I mean, excuse me, in Chicago, in, uh, Illinois.

James: Right.

Speaker C: Um, so it's dead in the water, basically.

James: Right.

Speaker C: Yeah. So I think, I thought, this guy's really smart. He really knows what he's talking about. And it would be it, you know, whether or not he was a banker and he understood this. I don't think he was. I think somebody took the time to explain it to him. Yeah.

James: And he, and he took the time to listen.

Speaker C: Yeah. It would behoove our industry to do that with some other people.

James: Yeah, I agreed.

Speaker C: Agreed. So, um, and finally I have a few fun story you know, how do you make paying for stuff fun?

James: Okay. This would be good.

Speaker C: A new payment form factor.

James: Okay.

Speaker C: To that end, Cash App is introduced. What it calls the Cash App Wand. Have you heard about this?

James: No.

Speaker C: It's a uh, NFC enabled, star shaped wand that can be purchased by uh. In the Cash App. By Cash App. Card holders in the app for $25 while supplies last.

James: What in the world.

Speaker C: And this is the uh, what block says it's the first of what it expects to be a series of Cash App tags which are being designed with Generation Z in mind. You know, those are the guy, the people between 14 and 29 or thereabouts. I think you might have a Generation Z in yours.

James: I do. Donnie is Gen Z. Yeah.

Speaker C: Ah, yeah, that's what I was thinking. Yeah, exactly. When I wrote that, that was exactly.

James: And he's, and it's funny because he's always like, he's very upset that my, that his younger brother, you know, Lincoln is gin Alpha. And he's like, why are they alpha like that? Why are. That sounds like they're better. He's like, you know.

Speaker C: Right. You know, it's funny I think of that too because it's like, uh, if I was Gen Z, it'd be like, you know, when the Fed ran out of letters for its regulations, it started double lettering.

James: Right.

Speaker C: W, you know, regulation aa, you know, or bb. But um, so these cash tags, the, the wand, for example, comes equipped with a keychain so it can be clipped on.

James: Okay.

Speaker C: Worn or carried with ease. Um.

James: Huh.

Speaker C: They're intended for payments on the go, especially where phones aren't allowed or they're too cumbersome to pull out of your backpack or your.

James: Right, right.

Speaker C: You know, and they use the examples of uh, paying uh, at a phone free venue, which I have to admit, I've never been to a phone free venue. I'm not sure what that would be. Um, or ordering merch at a music festival without having to rush through your back. Yeah, right.

James: You know, it's actually funny. You ramp the phone free venue. Uh, let me explain that really quick because it's actually another kind of a side story on this story. So phone free venues are taking off like, like a rocket. So the, the phone free venues are restaurants, cafes, bars, etc. Where there are no phones allowed. And if you take out your, if you take out your phone, you are literally, uh, asked to leave, um, immediately.

Speaker C: Smart.

James: And so a lot of people are really enjoying like hey, let's go on a date. So we're not tempted to use our phone. However, having said that, that is. I hadn't thought about the payment component of that. Of, like, well, how do you pay for stuff if you're normally using your digital wallet?

Speaker C: Right.

James: So that's pretty smart, actually. Very neat.

Speaker C: It is. And, you know, and, and, and Block said that they plan on dropping a number of new and unique tag form factors, um, throughout the summer months. And we, you know, keep an eye on it. And they hinted at things like clothing and jewelry. Well, I think of your watch. I'm looking at your watch right now.

James: Um, Apple watch.

Speaker C: And, uh, you know, I was at the store. I. I've not seen you use it, but I was behind a guy the other day at the store who took this one watch and y. And paid for his groceries. And, uh, that would be a, you know, logical way, uh, to integrate the Cash app.

James: Yeah.

Speaker C: Into watches that are not necessarily. They might have the NFC capability, but they're not being used. They probably have, uh, a wallet. But this would be a lot easier than, Than pulling up the wallet, I would think.

James: Yeah, for sure.

Speaker C: And a lot more fun idea is fun.

James: Yeah, it sounds like it. Yeah. Very interesting, though. Yeah, I like it. If they come out with something other than a wand, I might try it. I don't think I'm gonna whip my wand out, but something a little, little bit.

Speaker C: I thought of these guys that play like, you know, Dungeons and Dragons.

James: Right, right, right. Something like that.

Speaker C: Little girls like, you know, how old

James: is, uh, Quincy is seven.

Sebastian: Right.

Speaker C: So, yeah, perfect for Quincy. Right. She can go around with a wand.

James: Right, right.

Speaker C: Yeah, but I couldn't see. I couldn't see Lincoln using it.

James: No, I don't think so. No. He's too much. Too much all boy for a wand right now.

Speaker C: So.

James: Although, I don't know. He didn't enjoy the wand on the Disney cruise. They gave him the wand. He did. He did enjoy that. So maybe.

Speaker C: Yeah. Well, but that was the Disney cruise.

James: Right. Of course. Everything goes there, so.

Speaker C: But they could use this on the Disney cruise.

James: Right. To payment Enable. Right, Right.

Speaker C: Yeah. Yeah.

James: Well, good stuff, Patty. I appreciate it.

Speaker C: Sure thing. My pleasure.

James: Thank you for listening to the Merchant Sales Podcast. Whether you are an industry veteran processing executive or just trying to learn about the payment space, we appreciate your time. We hope you will tune in next week for more information and tips on building your merchant services business.