WALLETS

Michael Salmony 0:12

Hello, my name's Michael Salmony and I'd like to welcome you to another episode of the Payments Trilogue. In this time we have the pleasure of Jeremy Light, who's been in payments for a while, knows everything about it and is a very prominent blogger and substacker and a lot of people follow him because he's super knowledgeable on this topic. So thank you for joining us, Jeremy. And maybe you can just give a quick intro to...

what your background is and where you come from.

Jeremy Light 0:44

Okay, thanks Michael. Yeah, as you say, I have quite a long background in payments, mainly as a management consultant, I a very long career in management consultancy, where I specialized in payments for a long time here in the UK, but also across Europe and Latin America. ⁓ And then about seven years ago, I joined a company in Silicon Valley, where we building a cross border payments network. And more recently,

I've set up my own business with a co-founder where we have been building a micro payments digital wallet and as you say also spend quite a lot of time writing a sub stack each week on the sub digital payments.

Michael Salmony 1:25

Excellent.

And the more perceptive of you will notice that there's one guy missing from our trial log. It's actually a dual log today because unfortunately, Gijs had his laptop stolen and so he's in the process of trying to find a replacement, but he may join us a bit later on. So ⁓ Jeremy, ⁓ you... ⁓

published recently a very interesting article that may be the way to sovereignty for Europe is through A2A wallets. Can you just expand on that idea a bit?

Jeremy Light 1:57

Sure, yeah. In the substacks I've been writing over the past few months, it's become very clear to me there's a trend towards digital wallets with account to account payments that are real time for all types of payment in store, on the street, online and so on. ⁓ And if you look at Asia Pacific in particular, but also other countries like Brazil, these are very well adopted and they are...

they've in many countries they surpass cards and if look at countries like India for example they're processing 18 billion payments a month I mean it's huge. China is even bigger. China's I think last year did 1.3 trillion payments. That's not value that is volume, number of transactions through in particular through Alipay and WeChat Pay. And I don't think it's a pre-shaker that much ⁓ certainly in Europe and North America.

how advanced these payment methods are. And I think the good news for Europe is that they're already here. I mean, if look at Swish in Sweden, you've got Blik in Poland, Bizum in Spain, RoPay in Romania and so on. And it's a very good starting point. And they're all quite well established. some of the volumes, I think Swish does a billion payments a year itself. So I can see that this is the basis.

where payments are going to go. And so you've got a great starting point in Europe and then also you've got the likes of Wero that are, you know, they've launched in France and Germany. They will be, I mean, they've acquired iDEAL in Netherlands and so on. So I think this is a very strong trend, but it's underappreciated. And people still have got that mindset around cards. I think one of the biggest

Michael Salmony 3:29

Mm.

Hmm.

Hmm.

Jeremy Light 3:54

changes and differences with digital wallets using account to account real-time payments is that it completely collapses the value chain. So in the traditional cards value chain you've got on the merchant side, you've got the acquisition through point of sale or online, and you've got the merchant ⁓ processing with charge backs and routing of payments and so on. Then you've got the acquiring side where you, you know,

merchants can have accounts, can settle their payments and so on. And then separately, you've got the issuing side, where the issue is typically the banks issue the cards, they do the statement seeing they collect the payments. Then you've got the processing side with authorizations and so on. So it's quite a big value chain. typically the revenue available in that is quite big, 1 to 2 % of transaction value and so forth. So many people, including ourselves, they've made money out of that and benefit from it for decades.

⁓ But with digital wallets, that is completely collapsed. All you need to do is just download the wallet, you link your bank account to it, you onboard yourself, and away you go.

Michael Salmony 4:57

Hmm.

Hmm.

It just goes straight from account to account, right, as the name says.

Jeremy Light 5:10

And because with a card you can't accept a payment. With my debit and credit card you can't pay me. I've got to have a machine of sorts or some device and an account somewhere and a contract typically. But with digital wallets it's just like cash.

Michael Salmony 5:16

Yeah.

Now, we can give

⁓ Ralf an opportunity to comment on that because he's a big fan of what you're describing, right? Would you say the same?

Ralf Ohlhausen 5:34

Yeah, yeah, but first, first, the

question so because, you know, that there are all these different kinds of wallets. And well, firstly, I would say the vast majority are these card wallets. So you have a virtual card in your wallet. So it's basically a wrapper around the card. So you don't have to have the card with you. You just have it on the phone, but it's

sort of like still a card payment and which is of course different from say, a PayPal wallet payment or whatever other types of wallets and also what Wero is planning in terms of wallets. so first question I actually have is how important do you think is it that the wallet is a separate branded app?

as opposed to, say, Swish or Vipps or Twist or Twink and Blik and et cetera, and Bizum, which are mostly accessed through the bank app. And so the customer is not having a separate app. Is that an advantage or a disadvantage in your mind to... ⁓

Jeremy Light 6:53

Well, it depends how it's set up. And I don't think there's any right answer. But one point I would give is in India with UPI. So UPI, as you're aware, is the real time payment system. And any bank and any non-bank, obviously with the right authorisation and licence and so on, can link to it. ⁓

I'm sure when UPI was created that the Reserve Bank of India was planning to be a bank application. But 97 % of those 18 billion transactions a month go through non-bank digital wallets. Only 3 % go through banks.

Michael Salmony 7:42

So if I just interrupt you, in fact, there the sovereignty agenda didn't work in India, right? It was one of the one of the goals of UPI. But it turns out actually the Walmart and the Google apps are the ones that are taking about.

Jeremy Light 7:54

Yeah, exactly.

Yeah, they escaped from Visa and MasterCard. I usually get Walmart and Google.

Michael Salmony 8:01

Exactly, exactly. But with Ralf's

point, mean, there are, I mean, I always think of wallets as coming in three flavors. One is like the Apple wallet, where it's basically just storing your cards. The other one, which is a true wallet where the value stays in your phone and you sort of send it. And the other one is a sort of proxy wallet where your phone just initiates money away. So the last two are without cards. And the first one is with cards.

And you were particularly religious about any of those, which ones work best for A2A?

Jeremy Light 8:31

Well,

I think the link to the bank account is one that works because I mean, that's where people keep their money. It's in a bank account. having a wallet that links to a bank account allows you to initiate payments and receive payments as well into your bank account. that's how UPI works. You download a Google Wallet or a PhoneP wallet, you link your bank account to it and you can now make any payments from your bank account to any other bank account in India. you can use the bank account details, but you can use a phone number, a UPI ID and so on.

I think that model works. And maybe look in other countries like Kenya, for example, with M-Pesa, which was also another hugely successful wallet. I that started as a cash in cash out service. And I think when it started, about 20 % of the population were banked. That was 20 years or so ago. That's right, 18 years ago. Whereas now 85, 89 % are banked as a result of M-Pesa because they link their bank accounts.

to the wallet. I think that definitely seems to be the model that works. But having said that, I think you need a mixture, which is what I call hybrid wallets. So it's not just about a bank account, it's not just about a stored value account, it's not just about cards. It's the ability to have a mixture. So Vipps is the way to do that.

Michael Salmony 9:32

Yeah.

Mm-hmm.

Yeah, mean, you work with

Ripple to do this cross border thing, you would have the value actually in your phone, right? And not on a bank account typically.

Jeremy Light 10:00

Yeah, mean putting money from a bank account into a stored value account is, know, particularly across border payments can be one way of doing it. But rather than try and guess which is the right answer, if you provide all of them, let the market decide.

Michael Salmony 10:15

Very good. Yeah. Yeah.

But Ralf, you must be happy, right? With those ideas.

Ralf Ohlhausen 10:18

Yeah, but isn't? Well,

I don't know. Well, as you know, you know, I'm doing mostly ⁓ open banking. And so there is no app there is there is we don't have anything of that. So it is there is no real estate on the customer's phone at all, typically. So which is, of course, a difficulty and hence, also looking for other solutions there. But

Jeremy Light 10:48

But that's issue with open banking is that you're at the mercy of the mobile banking app of the bank and they're all different and they're all optimized. They're all secured for payments up to 10,000 euros or more. So if you want to do a three euro payment for a cup of coffee, clicking through, do you really mean to do this payment? It's nonsense. Whereas these digital wallets I'm talking about, they've all got

Ralf Ohlhausen 10:49

⁓

Yeah, that's right.

Yeah.

Yeah, no, exactly.

Jeremy Light 11:18

an interface that is standard and optimized for all use cases, whether it's online using QR codes, point of sale using QR codes ⁓ or using links or whatever.

Ralf Ohlhausen 11:29

Yeah. So this is where we

are also, as you say, relying on the bank app, but many, or actually most, think of those European wallets currently working are bank apps, are the bank app doing a Bizum payment or a Blik payment or whatever. so it is not, that's hence my initial question there, if that is a disadvantage or an advantage.

versus an approach where which like Wero, they have a ⁓ dedicated app for the purpose of dedicated wallet. And we have discussed with the Wero proposition here before and with Martina and we have also discussed the EMPSA approach with Chris.

Pirkner here and the pros and cons of each. But yeah, I mean, from my more fintech perspective, think, well, we are we have a dependency here. And of course, it's true that it is a lot to do with ⁓ the SCA process and how good or bad that is being implemented. which is also why we are proposing a solution to that with a much more

straightforward or slicker authentication process based on, of course, biometric SCA and all that. yeah, so we've discussed that in our last episodes. Here for the wallet, I'm therefore tending more towards this bank app thing, but

stand to be corrected if you if you think the one or the other is better. But what you just said, I think is but you think both is an option, but then they are in competition. So I'm not sure you will have both. So I think you will have more one or the other and also probably not as a stored value wallet, because that again is yet another approach, which I think neither the bank app nor a Wero app would probably provide. I'm not sure, but I guess so.

Jeremy Light 13:43

Yeah, I mean, certainly if you're linked to your bank account, you don't really need a stored value account. But there are particularly I mean, it's it's less of an issue in Europe and North America, because most people have got bank accounts, but in in countries like India and in Asia and so on, that is less the case. So by having stored value account with a bank account, yeah, absolutely. And they've been stored value accounts and bank accounts is a way to do it. And as I say, the trend seems to be that when that is offered that people then who haven't had a bank account in the past.

they then get a bank account even though they can use it for the stored value account. That's been the case in India and Brazil and sure elsewhere.

Michael Salmony 14:21

Absolutely.

Ralf Ohlhausen 14:21

Yeah,

and I think the stored value, I mean, it's basically the prepaid card model just in a a wallet format. And which has, of course, its advantages, but also its disadvantages, like you first have to load it before you can use it. And although I mean, there is automation coming into that as well. So we are we're further down the road now with these than we were like 10 years ago in making this pre loading more automatic, I guess.

Jeremy Light 14:50

Yeah, and also,

you can have it as a pass through. I think PayPal operates like this, certainly in the UK, where you may not have enough money in your PayPal account, but you can make the payment and it then pulls it off your bank account as a direct debit. I mean, they take a of a risk in the UK because they don't know whether the money's there unless they open banking to do a check. And it's the same in things like Alipay and WeChat Pay in China. If there's not enough money in your wallet, it will just pull it in real time off your bank account.

Ralf Ohlhausen 14:55

Hmm.

Michael Salmony 15:06

Yeah.

That's the famous waterfall and reverse waterfall, which we see in CBDC. In fact, it'd interesting to hear your take on that because you recently mentioned that the Digital Euro is a quixotic project. you enlarge on that?

Jeremy Light 15:33

Yeah, the reason I say that is because no one wants it, from what I can see. Commercial banks don't want CBDCs because, you know, at the sort of macro level, it interferes with ⁓ money creation and lending money ⁓ and deposits and so on. But at the more prosaic level, it's going to be another massive project for them to integrate CBDCs into their mobile banking app. So commercial banks don't want it. Also, the

the population who are aware of it don't want it either. it's... Sorry?

Michael Salmony 16:06

Hmm. Merchants may want it,

Merchants may want it. It's a cheap pan-European.

Jeremy Light 16:12

Well, yeah, merchants

will merchants will use anything that is cheap. The key values merchants looking for one is low cost, but more importantly, does it generate them extra sales incremental sales is what's important to merchants. So whether CBDCs do that, I don't know. But it's you know, it's a chicken and egg. If lots of people have got CBDC wallets, yeah, they'll accept them.

Michael Salmony 16:36

Hmm.

Ralf Ohlhausen 16:36

But here, the connection to the wallet because, well, we've discussed the CBDC and digital euro here as well before. I think our conclusion was a bit like the offline version would be very valuable with doubts on the online version or account-based version, which is more in competition with private payment solutions. But the offline version looks

Jeremy Light 17:00

Yeah.

Ralf Ohlhausen 17:05

very similar to a stored value wallet.

Jeremy Light 17:08

Exactly.

I CBDC is logically equivalent to e-money. So it's equivalent to a prepaid card or a PayPal account and so on. But I do agree with your assessment that an offline version is where the value is. You know, imagine in Spain and Portugal this week, it would have been very popular.

Michael Salmony 17:30

Yeah, the outages in Spain and Portugal made a lot of ECB people very happy, Because it shows the need for an offline solution.

Jeremy Light 17:37

Yeah, Yeah, I

mean, because there's no equivalent with the bank other than obviously physical cash. Although obviously you can, I mean, you can use cards to some extent if the authorization system is down, but obviously if everything is down, there's no electricity, nothing will work.

Michael Salmony 17:57

Absolutely. So we welcome Gijs into our ⁓ trilogue. I hope your laptop got found again.

Gijs Boudewijn 18:05

No, I got a new one, but that means all sorts of settings you have to redo.

Michael Salmony 18:11

joys of technology. It's made our lives so much easier.

Ralf Ohlhausen 18:14

Well, we've gone through quite a bit already, but the, just got the connection here between like a stored value wallet and the digital euro plan, at least for the offline part of it. And, and I think that that is where a lot of value can be seen. also like it's essentially a digital version of cash where

you have a more future proof version of cash and can use it that way. ⁓ but then it yeah, but then it but a lot of the investment comes in when you when you have an account based and when you then have the waterfall and the reverse waterfall and then you have the link the links between accounts and then and then that's that's where all the complexity comes in. There's also then the holding limit and everything come all the complexity is linked to this. ⁓

account-based thing or the account linking, whilst in this particular case, I think the stored value type of the wallet would be quite appropriate.

Gijs Boudewijn 19:23

Yeah, but Ralf, we had this discussion. What would it have helped in Spain?

Ralf Ohlhausen 19:25

Yeah.

Gijs Boudewijn 19:30

I mean, people are not carrying huge amounts of money on their wallets or in their wallets. So you do have to have a pretty big amount pre-stored on your offline wallet for it to be of any use in case everything goes down. So we have to also sort of nuance the added value of the offline thingy in case all power goes down. Because there you are with your...

Ralf Ohlhausen 19:48

Yeah, well I-

Gijs Boudewijn 19:58

card or phone or whatever if your phone still works with a wallet with stored, well, maybe no store value because I didn't store any. I can't use the reverse waterfall or the waterfall because there's no electricity. So I stand there basically with an empty digital wallet, right? Just as I forgot to go to the ATM to get bank notes, I stand with an empty physical wallet. mean, you would all have to have a ration which you would need to have a minimum

a ration of cash or digital cash just in case. Well, when in troubled times people do that, they store batteries and candles and water. And as time goes by, they start burning the candles and drinking the water and using the money because nothing happens usually.

Ralf Ohlhausen 20:45

Yeah, but this is where good old physical cash comes in, of course, which is supposed to be stay around, of course. And by the way, Jeremy, saw one of the stats that you showed was about, well, the declining use of cash and proxied by the number of ATM withdrawals. And so what's your expectation there on where is the cash thing going?

Gijs Boudewijn 20:48

Exactly.

Jeremy Light 21:04

Yeah.

Well, I think, as we all know, cash is decreasing almost everywhere. But I think there is a lower limit. And we're seeing that in Norway and elsewhere in the Nordics, both from a consumer point of view, but also from a regulatory point of view, they want to have some level of cash that's available to the public. But the problem with cash is that it's only useful if people accept it. So

That's why getting these regulations. I think that's something I read in the UK today about, and think about forcing shops to accept cash, because if you can't, if a shop refuses to accept cash, like, I mean, lot of restaurants nowadays refuse to accept cash. 10 years ago, the other way around, they prefer cash over cards. But the, it can be accepted, it's not particularly useful. But I do, I do see it plastering out, you know, at around, think Norway's four

Gijs Boudewijn 21:48

⁓

Jeremy Light 22:08

cash withdrawals per capita per year on average.

Michael Salmony 22:12

Yeah, but just a small correction or clarification. ⁓ The use of cash is reducing. The amount of cash in circulation is actually increasing. People are hoarding it. ECB is printing more and more banknotes every year, right? But the use of cash is absolutely decreasing.

Gijs Boudewijn 22:12

Yeah, but do it, look,

of that.

If I may jump in, let's take the Nordics and especially Norway out of the equation because they have always been so different because they are so vast with so little people living there. That's why they have mobile phones and no cash because that's not very handy landlines and cash if you are living hundreds of kilometers away. I think my country is a better gauge of where it is going in more, let's say,

densely populated. We are the most densely populated by the way on the continent apart from maybe Monaco. It's horrible. We're a small, very densely populated country. the bottoming out is a relative thing. It depends on where you come from. And the Nordics have bottomed out. I think also my country, we have bottomed out. We saw a dip as low as 15%. And then you have to be very precise on definitions. What do you mean? We in our country

calculate the number of point of sale transactions electronic versus cash. We have now bottomed out at 19 % and it has been stable for four years now. We thought it would decrease, would have decreased till below 10%, but it doesn't. So apparently there is a national sort of equilibrium somehow. And in my country that seems to be around 20 % and at that exact point in time, where it was without any

interventions from the regulators, it seems to have bottomed out. The regulators also step in. On the one hand, there's a law going to parliament in my country, mandating the banks to maintain the basic cash infrastructure. That's the one thing. And all banks having to finance that, even those that are not non-Dutch but have more than 500,000 Dutch customers, it's a sort of socializing the cost of cash.

That's so that the first thing is to maintain the cash supply infrastructure and you complement it with an acceptance, mandatory acceptance, which will come from Brussels. The cash, the legal tender regulation will make cash acceptance mandatory. And there's only very limited room for exceptions there from security, physical security of shopkeepers. But there's an extremely ⁓ small margin to not accept cash.

The consequence is that in my country, some shops that have stopped accepting cash will be forced to accept cash again. So I don't see the problem with cash anymore. It has bottomed out. It's become normal. Those who want to use it can use it. The infrastructure will be there as long as it's needed. So there is no problem anymore. That's a different sound, right?

Michael Salmony 25:15

Would you agree Jeremy

or do you have a different view on that?

Gijs Boudewijn 25:21

off.

Michael Salmony 25:23

Ralf, I think your microphone.

Jeremy Light 25:24

go back to my mute.

Ralf Ohlhausen 25:28

God, okay, that was stupid. Anyway, so ⁓ the other thing I have ⁓ noticed in your report was about the other stats that you showed was all graph was about the use of A2A in different countries and how it compares with cards, right? So I think you're, I think you're suggesting that it is growing fast, but it's still far away from the number of card transactions, obviously.

So do you see it overtaking?

Jeremy Light 25:58

Well, it certainly is in Europe and

Australia and the West and so on, but it's not the case elsewhere. I mean, in India, the card usage is very low compared to A2A. I mean, it's substantial, but it's low. Same in China. In Brazil, it's about 50-50. But PIX is growing so rapidly that cards are decreasing quite rapidly there. So I see cards in A2A coexisting.

quite some time.

Michael Salmony 26:28

mean, the trick we've got to get

together in Europe is how to connect all these different local solutions, right? Because you gave the long list of bizums and twists and twints and swishes and what-whatevers, right? And that really isn't what we need for the future, right? Do you have any views how that's going to work?

Jeremy Light 26:46

Well, I mean, you've got to have interoperability at the clearing level and the settlement layer as well. ⁓ But my question is, does it need to be uniform as long as it's interoperable? Because if I look at the figures, the actual cross-border payments within euro is 5%, 6 % at most. If you look at the Tips, instant trans-SCTs going through the ECB.

It's about 3 % of total SCT, it's SCT Inst same, and I imagine EBA Clearing probably got a similar number. So it's about 6 % and also I look at other data from other countries. the point is that 95 % or so of payments are made within a country, right? And most of them, 80 % of them made at point of sale. So unless you're living on the border of between countries, you're not going to be making money across border payments. But having said that,

Michael Salmony 27:32

rights.

That is true, but this was the argument that was brought against SEPA. Why do we actually need to create SEPA? Because only 3 % is cross border. But actually it turned out it was not a bad idea to do SEPA and do it in a harmonized way across Europe. And maybe this applies to the wallets now as well.

Jeremy Light 27:59

Well, think it's about how would you achieve that? don't know. I you've got, you know, I'm a great believer in market forces. You've got, you've got swish that has developed through market forces and through market demand from consumers and, you know, the spiced on the bank side, same with, know, Blik, Bizum, you know, the whole lot. How you can then reconfigure them so that they are a uniform.

Michael Salmony 28:22

There's these interoperability models like EMPSA and there's the greenfield models like EPI, which says, let's create, but, Ralf was shaking his head. was disagreeing with what I just said. So please feel free to.

Ralf Ohlhausen 28:32

No, no,

no, no, no, but but they are well, we have these. also noticed that you were rightly saying that the vast majority of payments are obviously domestic national. And both EPI and EMPSA here in the past have said, well, they want to win the hearts and minds or you have to win the hearts and minds of the the the payer, especially as there are many other options and there have been many other options already.

long time around. And the question for me is also how big a part does this interoperability or this cross border payment actually play? Percentage wise, it's already low. And you have a lot to do to get there and a lot of investment. That's also something I think you mentioned is questionable, whether it's actually affordable.

Jeremy Light 29:20

Yeah.

Yeah. Well, I mean, the relative cost to make it interoperable compared to making it domestic is huge, but for the benefit you get. having said that, you need it to complete the proposition. It's the same with, you know, I like the mobile roaming analogy because with a mobile phone, if you couldn't use it in another country, you know, within Europe or elsewhere around the world, it doesn't become particularly useful. But the fact that it does work wherever you go, OK, admittedly, may get different charge rates if you go outside of Europe.

But having that completeness of the proposition, think, is very important. And it's the same with payments.

Michael Salmony 29:54

That's a lovely analogy, yeah, because most of your phone calls are going to be in your village or in your town or in your country, but you still do need roaming, right? So even that makes

Ralf Ohlhausen 30:03

Yeah,

but then if I...

Gijs Boudewijn 30:03

It's capped, right?

We have capped the fees for roaming and they are now uniform in the EU. So we have a regulated business model, capped on the business model here. But I would also like to add something else to this discussion, the greenfield audience operability. I believe we need both. It's not either or, it's both. In some instances, greenfield will work and in others there is vested interest like Bizum and Blik. And as I said earlier, ⁓

You can't expect anyone that has a growing and very successful domestic ⁓ solution to just kill the darling because you believe greenfield is better. And it doesn't really matter because in the bigger picture we just want to have homegrown European solutions. So it may be suboptimal from a conversions point of view, but at least they are homegrown European solutions and not, let's say, American solutions or Chinese solutions.

So if you look at it positively, ⁓ one road would be the green field, aside the other convergence through interoperability. But the important thing is that you will, let's say, preserve the payment volume because you need all the volumes. That is the thinking also behind EPI. If you only go for a fragmentation, you will never have the economies of scale you need to be competitive with those that have these economies of scale.

and which are the ones you have to compete with by the end of the day. So people tend to forget, oh, if we just tie it together, it's European. Yes, in the short run, but you will never be able to sustain it in the long run because you will not have the money to do that or the efficiency and the economies of scale to do that. And people tend to forget that just tie it together and then we solve the problem. Yes, short term, but not long term. What is your take on that, Jeremy? Because this is one of my favorite...

hobbies these days.

Jeremy Light 32:03

Yeah, I mean, I don't know the right answer, but what I do know is it needs to be more than Europe though. I mean, even if you get a wallet or a payment system that works, you know, one brand works in exactly the same way everywhere across Europe, what do do when you're traveling to the United States? It's got to work there as well. ⁓

Gijs Boudewijn 32:24

Sure. Well, you co-branded us with you today with Visa and Mastercard.

Michael Salmony 32:30

Or you do

interoperability with the schemes in India and where... Yeah.

Gijs Boudewijn 32:34

Yeah, whatever. Whatever it takes.

Jeremy Light 32:35

Yeah. Bye-bye.

Ralf Ohlhausen 32:37

Bob,

I was about to say, what if I need a card anyway, to go to America or outside Europe, because the European payment options are not available there. So if you need a card anyway, then I may as well use that card also when I go to France or to whatever, so for the 3 % of cross border volumes that I'm making or that I need. So

Jeremy Light 32:59

Well, yeah, it's a good point. I mean, what it comes down to is the UX and the convenience of using the wallet. You know, you hear stories in Poland and India and so on, that people actually love using their wallet. They find it really convenient. They're both accepting payments and making payments. So they're using it all the time, right? Okay, with cards with Apple Pay and Google Pay and so on, it's a very, very slick experience. And people love tapping that as well. But it's of a limited use because you can't accept payments.

Michael Salmony 33:30

and of course, phones can do that now too.

Ralf Ohlhausen 33:30

I have one more question though before we run

out of time because the other thing is credit. I know it's in Europe mostly we use debit cards but there is a credit element to the card usage. Do you think that that is a feature that would be required for account to account wallets?

Jeremy Light 33:49

More than likely, but again, credit payments, what, five, six percent of total? It's happening in Brazil where there's with PIX, there's some banks like Nu Bank, they're offering a credit option. Essentially, it's just a bank account with an overdraft, making a, just making a normal payment, but it's going through to an overdraft rather than through a credit, a debit balance.

Gijs Boudewijn 34:11

or BNPL solutions.

Michael Salmony 34:14

All that exactly.

We're almost at the end of our time, but just maybe two more minutes on micro payments because you've done some work on that and sort of the stored value wallets are surely a great way of doing micro payments. Can you talk a little bit about that? What you're doing there and why it's working or why it's so hard to make it work because the industry doesn't seem to have cracked it so far.

Jeremy Light 34:35

Yeah, sure. I mean, that's been one of my interests over the past few years is developing a micro payments wallet. And the rationale behind it is that it's very difficult to make cost effective payments below certain values, say below 20 euros. Simply because of the costs start kicking in. Even if it's a fixed cost of 20 cents or even 10 cents a payment, when you start getting below 10 euros, that starts becoming

you 1 % and then one euro is 10 % of the payment and so on. And because of that, there's a huge reluctance, particularly amongst the card companies, because that value chain I was just talking about earlier can't sustain very low fees. There's a reluctance to optimise it for anything less than 20 euros or so. I obviously you can, I I regularly buy a packet of peanuts with my Amex card, but that is a very, you know, an exceptional

the low volume of payments made that way. whereas particularly in the subscription economy we have nowadays, when everyone's got subscriptions, know, like a substack, for example, mean, you're familiar with substacks, are literally hundreds of really good people you can follow. But if they start charging five euros a month each, you're never going to afford it, let alone be able to read it at all. What you really want to do is be able to pick and choose.

this article about wallets in Africa or about growing maize in Australia, whatever. That's interesting. I just want to pay 50 cents for it or a euro or something. But you can't do that. And it's that model, which I think is the one that's to be cracked. the first step is to crack the cost, which means getting a well away from

the card system, the card networks, because the fixed costs there are too high, and probably getting away from banking networks as well, so going through a stored value account, which you can operate at scale at very low cost.

Michael Salmony 36:42

So a stored value wallet, be it traditional sort of on the phone or even the CBDC offline wallet should be able to do fractions of a euro at very good costs, Yeah.

Jeremy Light 36:53

Yeah, yeah. mean,

or even, you you can have it linked to a bank account. I mean, there's a great video on LinkedIn, which I've linked on one of my sub stacks of someone paying for, I think, some chewing gum in India, ⁓ which is one rupee, and that is about 10 cents. And goes through, it's fantastic.

Michael Salmony 37:16

Okay, I think we've reached the end of our time. That was really fascinating talking about wallets in their various guises, a little bit about the quixotic digital euro and a little bit about micro payments. Jeremy, thank you so much. Your bookshelf is only half as full as mine, but you're twice as smart. So it's been a real pleasure talking to you.

Jeremy Light 37:37

It will

fill up eventually.

Michael Salmony 37:40

Okay, so thanks to everybody for watching and thanks to my co-hosts, Gijs and Ralf, and to you, Jeremy, for joining us for this session.

Jeremy Light 37:47

Well, thank you very much, and I enjoyed that. Thank you.