Happy Wednesday, Fintech Listeners!

I’ve got a wonderful podcast to share with you today, so let’s get right into it.

— Alex

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3 BIG IDEAS FROM THE PODCAST

This week on Fintech Takes, I brought back James Wester (co-head of payments research at Javelin Strategy & Research) who I’ve come to think of as our resident stablecoin correspondent to make sense of the biggest stablecoin news of the summer.

We spent the hour on Open Standard, the stablecoin company/nonprofit/consortium/alliance that Stripe organized earlier this month with Visa, Mastercard, American Express, Discover, and Coinbase, among many others, and its stablecoin, OUSD.

Within days of the announcement, it was reported that some of the companies on the membership list weren’t aware that they had agreed to be members.

So, what’s going on behind the scenes with Open Standard? What are they building?

Tune in for the full conversation here

And read below for my three big ideas...

#1: Circle ≠ Only a Stablecoin Company

I read James copy from the homepage of a website cold, without telling him whose it was; “the tech stack for the agentic economy,” “reaching hundreds of millions worldwide,” “supporting trillions in economic activity across on-chain and scaled financial systems.”

He guessed a couple of different companies, including Stripe (a great guess), but it’s Circle's homepage.

I can’t blame James for not landing on the correct guess. I wouldn’t have either. Who would have thought that the company behind USDC wouldn’t use the term "stablecoin" much on the homepage of its website?

However, I think Circle’s description of itself on its homepage explains the invention of Open Standard better than any press release could. If Circle wanted to stay a neutral issuer of a regulated, dollar-backed payment stablecoin, there'd be nothing here to organize against. But Circle's own language nods at a larger ambition: A full stack financial operating platform, the same territory that Stripe, Visa, Mastercard, American Express, and Discover already consider theirs.

Coinbase's presence within the Stripe-organized stablecoin consortium is telling. Its revenue-sharing arrangement with Circle is, in my understanding, close to a modern version of medieval vassalage. It is extremely profitable for Coinbase. That Coinbase still joined a consortium hedging against Circle tells you how serious Coinbase believes Stripe and the others are about disrupting the hold that USDC has on the payment stablecoin market.

#2: What Consortiums Run On

James has been burned by this genre of announcement so many times he can recite the graveyard by memory.

ISIS Mobile Wallet, the joint venture between T-Mobile, AT&T, and Verizon (not to be confused with the terrorist organization and later renamed — I wonder why! — to Softcard), had funding and a plan. It still folded.

MCX, the retailer coalition built to route around interchange fees, had Walmart and Target behind it and ran a pilot for its CurrentC mobile payments product in Columbus, Ohio. It worked fine. It still died.

Libra (later rebranded as Diem … another name change!) was a payment stablecoin before those terms existed, proposed by Facebook in 2019 under a similar decentralized governance structure to what Open Standard has proposed. It was killed by bad press and alarmed central bankers before it could even get to the pilot stage.  

Zelle is the exception, and its path to success was uglier than many remember. At the time, bank CEOs believed Venmo, and later Cash App, threatened their core deposit business so much that they engineered Zelle to succeed. That engineering bordered on coercive: It involved acquisition (remember ClearXchange?), years of capital calls, and the forceful application of leverage onto smaller community banks, so they’d make the right choice to fall in line. Zelle isn't a huge direct moneymaker today, but it was a rare defensive win for a payments-focused consortium.

Then there's Visa. During the podcast, I pulled out my copy of Dee Hock’s excellent book One From Many on the founding of Visa. Before Visa existed as a unified system, reconciling credit card transactions meant merchants had to physically mail boxes of paper statements to banks to sort out by hand. As a product, the general purpose credit card was a stunning success for banks, consumers, and merchants. Operationally, though, it was a nightmare that was slowly collapsing under its own weight.

Visa and Mastercard were both founded as nonprofits; they weren’t built to generate revenue for themselves. The card networks weren't defending against an outside threat but solving a problem from within, given all that banks stood to lose if their plumbing gave out.

Open Standard appears to lack this same kind of historical urgency. Stablecoins already work. USDC and USDT move money reliably every day. The complaint from Open Standard's members is more about not loving who currently profits from that success, which is a weaker problem to organize (and maintain) a viable consortium around.

#3: The Space Between

Traditional payments move in two separate motions. A message goes out first which is the authorization, the "yes, charge this." The real money follows later, during the settlement process. In our conversation, James correctly noted that stablecoins collapse this distinction. The message is the money. It settles in the same instant it travels. Nothing waits in between.

This seems to be the root of legacy payment companies’ fascination with stablecoins, and their belief in the potential for stablecoins — as a payments rail — to disrupt their existing businesses.

It is this belief that is motivating them to team up against Circle. Take Stripe as an example. It has already been working to establish its own vertically-integrated stablecoin payments platform. It bought Bridge. Bridge got a national trust bank charter and launched its own stablecoin (USDB). It has been working to cut into Circle’s lead. It just wasn’t happening fast enough. That’s why Stripe purposefully ruined the economics of OUSD by sharing almost all of the yield with the other Open Standard members. It needed a strategy for catching up to USDC quickly.

The urgency with which Stripe and the other Open Standard members are moving fascinates me. They clearly believe that a payment rail where the message and the money are fused together is, if not controlled by them, an existential threat.

WHAT I'M LISTENING TO

#1: How Matt Michaelis is Building Emprise Bank’s Second Brain (Agent of Record 🎧

If you haven’t been listening to Kiah’s new sponsored podcast series with Alex McLeod at Parlay Finance, you are missing out! Episode one was great, but this episode (featuring Matt from Emprise) was even better.

#2: The End of Reading Is Here (Plain English) 🎧

You probably saw (but didn’t read!) the viral essay from The Atlantic on the decline of reading.

If you didn’t read it, I will just tell you that it was alarming. As the parent of young children, it strengthened my already ferocious determination to instill a love of reading physical books into my kids.

As my wife likes to say, “Literacy crisis? NOT IN THIS HOUSE!”

Thanks for the read! Let me know what you thought by replying back to this email.

— Alex