Corey Hajim: Today, our guest is Dan Schulman, CEO of PayPal.
When most of us think of PayPal, we think of buying something online
or paying a friend back for a drink using Venmo.
But PayPal has also become a major financial services player,
often acting as an alternative to a traditional bank.
During this pandemic,
PayPal has supported small businesses around the world by providing loans,
waiving fees,
and increasing cashback programs.
It has also worked with the US Government
on its Paycheck Protection Program,
as well as distributing stimulus checks.
It has enabled an outpouring of generosity online as well.
The trend towards digital payments,
or what we might now want to think of as contactless payments,
has massively accelerated,
and it's changing forever how we think about commerce.
So I'm really excited to have Dan here with us.
Thank you so much, Dan.
Dan Schulman: Thanks for having me, Corey. Pleasure to be here with you.
CH: Glad to see you.
So let's dive right in.
Within a few months of this pandemic's arrival,
more than 30 million people have filed for unemployment
in the United States alone.
These are certainly unusual circumstances,
but it seems clear we were running very close to the edge,
and now so many businesses and their employees
are facing huge financial challenges.
How worried are you?
DS: Well, I think the crisis has exposed three things.
Obviously, it's a health crisis
for so many people.
Second thing is that health crisis
has ricocheted,
and the world is now in an economic crisis.
And the third crisis that we don't talk so much about,
but I think is impacting
the way that we're going to live our lives going forward,
is this is a psychological crisis as well.
People are reexamining their place in the world,
what's happening in the world,
how they're going to live their lives,
both in the pandemic and post-pandemic,
and so I think this is something that each of those phases
will need to be dealt with.
But you said this,
and I completely agree with you:
there was an economic crisis happening
well before the pandemic exposed it.
It's kind of like the water level came down
and exposed what was already there.
You had, for instance, in the US,
185 million adults in the US
struggling to make ends meet at the end of the month.
You have over 70 million adults that are really outside of the financial system,
spending over 140 billion dollars on high interest rates,
unnecessary fees, and struggling as well.
And so I think what this has really done --
because you can't ignore 20, 25 percent unemployment rates --
it's exposed this crisis
and forced a lot of people
into maybe actions that they might not have taken
without this crisis happening.
CH: Yeah, I think that's right.
There are so many challenges and so many opportunities,
and I think you've spoken of this opportunity
of digital transactions being helpful to people,
and obviously the trend, as you've said,
has massive accelerated and pushed us into this world even further.
So I'm curious,
what does the world look like without cash?
Or less cash?
What are the advantages and what are the challenges
of making that transition?
DS: I think some of the trends that are emerging
coming out of this pandemic or coming into it and as we look forward
is clearly this has been a discontinuous change in the trendline,
as we move from physical to digital.
I think we've accelerated many forms of digital capabilities
by three to five years.
And that can be from digital payments
to telemedicine
to really changing the face of retail
and how we think about retail
and changing the face of entertainment,
even changing the way governments think about managing and moving money
and really thinking about digital currencies going forward.
And so I think there are a tremendous number of changes
that will occur
during this pandemic and coming out of it.
Digital payments is obviously one of the big ones that will happen.
I mean, cash has been around for quite some time,
thousands of years.
I would not be so bold as to predict its full demise.
Many people have been wrong doing that.
But there is no question right now
that you will see an acceleration of the demise of cash.
Last year, you had over 18 trillion dollars of cash
spent at retail.
Eighty-five percent of the world's transactions today
are done in cash still.
But the really big change right now
towards digital payments,
and that's both the advent and the acceleration
of commerce that's happening,
as well as the shift to in-store contactless payments, as you said,
and the real impetus for that
is health reasons.
People do not want to hand over money.
They do not want to touch screens.
They don't want to pick up a pen and sign at the point of sale.
And so there is a demand
for contactless payments and digital payments
to keep social distancing requirements in place,
to protect the health of cashiers,
to protect the health of consumers.
And I think we are going to see, we are already seeing in our business,
a surge in digital payments across the world.
CH: It seems like a great opportunity,
but how do we make sure that this transition is inclusive?
I mean, you've talked about how so many people are underserved
by the traditional banking industry.
How do we make sure that those people
have that opportunity?
And it feels like a smartphone
becomes an essential item.
How do we address that?
DS: Yeah.
I do think that a mobile is really a key to unlocking this.
I've often said that, really,
one of the big moon shots for the financial services industry,
is this idea of not just financial inclusion.
Most people define financial inclusion by somebody having access to bank account,
but just having access to a bank account is not nearly enough.
I think what we need to aim for
is how do we think about financial health?
How do we make sure that people have the ability
to have some wherewithal
to create savings to withstand some kind of financial shock to the system.
I do think that mobile phones
will be the way that this occurs
and will be very inclusive going forward.
There are going to be something like six billion smartphones in the world
over the next several years.
The cost of a smartphone is plummeting.
I think in India now you can buy a smartphone for under 25 dollars.
So you're going to have ubiquity of smartphones across the world,
and in fact what's very interesting
is in lower income populations
there is a greater penetration of smartphones than in higher income
because the smartphone is the only device that somebody has.
Higher income individuals may have desktops or iPads,
that kind of thing,
but lower income can afford one device,
and they choose it to be a smartphone
because they can get and live their life through that one device.
And think about that one device.
Really you have all the power of a bank branch
in the palm of your hands,
and when you can start to create distribution of services,
financial services,
through a smartphone,
you then are able
to manage and move money
in ways that we couldn't do traditionally.
In the physical world,
if you get a check,
you need to then go to a cash checking place to cash it.
You stand in line for 30 minutes.
They then charge you anywhere between two and five percent
to just change the format of currency
from a check to cash.
And then you have cash and you want to pay a bill.
You need to stand in line again
at a bill pay,
and then you have to pay maybe 10 dollars
for an individual bill as a fee.
If you do that via a smartphone,
I believe that not only do you save a tremendous amount of time,
because if you're outside the financial system,
managing and moving money is practically a part-time job
to go and do that,
so not only do you save time and return time to individuals,
but you can cut the cost of transactions
by anywhere between 50 and 75 percent.
And remember that $140 billion number that I gave you?
And that's just in the US.
Imagine if you could cut that in half
and return that to the populations, the most vulnerable populations
that need it most.
So I think there's tremendous promise
in the use of technology
to help provide both inclusion,
and make sure there aren't digital haves and have-nots,
but also to start on this journey towards financial health.
CH: Yeah, I think a lot of people don't realize that you don't need
a bank account or even a credit card to open a PayPal account,
which is super-interesting.
I mean, do you see a time where traditional banks don't exist
or at least play a much smaller role in the financial services industry?
DS: Well, I think the entire financial services industry
is evolving right now,
and so I think banks will always play a role,
or as far into the future as I can see,
but it will evolve.
I mean, think about basic credit cards.
Today, you think about a credit card,
and you think about it predominantly as a form factor,
something that you pull out of your pocket.
Sometimes there's status associated with what you're pulling out of your pocket,
depending on the color of that credit card.
But really I think those form factors start to go away
and become embedded in digital wallets.
So credit will always be an important element.
You know, most people in the world,
it isn't that their cash outlays exceed their cash intake.
It's just that they're not evenly distributed.
So there are times where your cash outflows exceed your cash intake,
and there you need some form of credit to make up that difference.
And so I think forms of credit will always be an important element.
But the way that you extend credit will change going forward,
the way that you think about scoring people
in terms of can they handle credit.
You know, traditionally, in more developed countries,
you use what's called FICA scores or Bureau scores,
but those ignore so many of the financial transactions
that people who are outside the financial system do,
like paying rent or paying their bills on time.
And with data and information and machine learning around that --
and we need to be careful that there aren't biases
built into those algorithms --
we can start to do things that could never be done before.
I'll just give you one quick example.
We're one of the largest providers of working capital to small businesses
in the world.
We're probably one of the top five in the United States.
So we've done over 14, 15 billion dollars
of lending of working capital to small businesses.
Seventy percent of that goes to the 30 percent of counties
where 10 or more banks have closed branches.
And where do banks close branches?
Banks close branches in neighborhoods
where the medium income is below the national average,
which makes sense because for a branch to be profitable
they need a certain amount of deposits
for that branch to actually be profitable.
And so, in lower income neighborhoods,
branches are starting to close.
So why are 70 percent of our loans in those lower income neighborhoods?
It's because we do machine learning.
We don't even look at FICA scores or Bureau scores.
We look at a number of different data elements.
And so we can lend into those lower income neighborhoods
where nobody else can,
and when we do that,
the average sale of a small business goes up by 22 percent.
And imagine the impact that has on communities and neighborhoods
where they can finally get the working capital
to expand those small businesses.
And I think that's a perfect example
of the promise of what technology and financial services
married together can do.
CH: I think it's so interesting.
I'm curious.
The tech industry has been criticized for amassing power over society,
not that the banking industry isn't criticized.
But what do you say about people who might be worried
about tech companies taking on even more influence and control
over what's happening in their lives?
DS: Yeah.
Well, I think what's so important for any company, and tech companies,
is to respect the boundaries
in terms of what consumers expect from a company that serves them.
I think the most important brand attribute that a company can have is trust,
and trust comes from the understanding
that a company respects your privacy
and will not sell your data or information,
that it can perform transactions in a secure manner
so that your transactions are protected.
And I think those are kind of foundational,
and I think any company
needs to respect that.
They need to assure that consumers
have the privacy that they desire
and the safety and security that is required
to serve them the right way.
CH: And obviously, you've gained a lot of trust with the US Government.
Maybe we could talk a little bit about how you've been working with them
to distribute some money through the Paycheck Protection Program.
And I was curious,
I've been reading about it and it sounds like
30 million-ish small businesses in the United States
are able to get those funds,
but only six million have received loans.
What do you think's happened?
DS: Yep.
Well, I think initially, the government, and I give them a lot of credit,
they responded quite quickly
with a $3 trillion stimulus package.
These are massive numbers that were happening
in very condensed timeframes.
We were working with various agencies,
very closely with the Treasury Department,
in terms of distribution of the stimulus.
And they were working literally night and day on this.
The Small Business Administration was working night and day.
But these are volumes
that have never been seen before running through these systems,
and the first tranche of those loans
was very difficult.
There were a lot of technical difficulties in getting those out to small businesses.
And that first tranche was not enough,
and it was quickly used,
and there are still a host of small businesses
that needed money.
The second tranche that came out
is still actually in effect.
It has not been used up,
and we are continuing to lend on that.
We've been able to lend to some 50,000 small businesses.
We've lent out about 1.7 billion dollars,
and our loan size,
which really I'm proud of,
is about 31,000 dollars.
The average that a bank does is between 100 and 125,000 dollars.
So we are lending to these true small businesses
on Main Street,
and I'm proud that we've been able to go do that,
and I think we should give credit
to the US Government and governments around the world
that are taking this quite seriously
and putting a tremendous amount, percentage of their GDP,
towards the rescue of small businesses
and towards trying to take care of consumers
that find themselves in really difficult straits right now.
And we've been trying to,
instead of people mailing out checks, which is ridiculous in today's world.
People aren't living where they think they're going to be living.
They're with their parents or with friends or in a different location,
and mailing a check
and then having to take a check and go somewhere,
which you can't even go if you're sheltered in place,
to cash it,
doing that electronically just makes a ton more sense,
and we've been working with the IRS and Treasury
and other government agencies to distribute that electronically.
CH: Yeah, that makes a lot of sense.
It's a massive, massive project
for all of us.
Whitney is here with some questions from our community.
DS: Hello, Whitney.
Whitney Pennington Rodgers: Hello Dan. How are you?
So the community has some interesting questions
following up on what you were talking about earlier about security.
We have a question from Marc --
and I apologize in advance if I mispronounce your name, here, Marc --
Marc Vanlerberghe:
"The move to digital cash could be one more step
towards creating the perfect surveillance state.
How do we avoid this from happening?"
DS: Yeah, well this is what I was talking about, Marc, before.
I mean, I think this idea of trust
is incredibly important.
It is, I think, the only companies that will [inaudible].
And I think we hold a lot of this in our own hands as consumers, by the way.
We need to be aware of data and information that we're giving
and to what companies we're doing that with,
but I think the companies that will be successful
are those that have a high degree of trust,
and trust happens by protecting your privacy
but also very much assuring that your transactions in a digital world
are safe and secure.
I mean, the idea of cybersecurity
has always been important,
but is ever more important as we move from physical to digital,
and that's where large datasets are important,
because a consumer's identity is stolen every two seconds.
Every two seconds, some consumer has their identity stolen.
And so we have to be, for instance,
we have to be sure that even when you sign in
with your credentials,
they're actually real credentials,
we have to look at 30 to 100 different elements of that transaction
to make sure it's really you
before we let that money out of your account.
And so there is a combination of making sure that you have
enough data to protect somebody
but also assure that your privacy is held sacrosanct,
and I think that is a balancing act and one that needs to happen
in order for us to do this successfully.
WPP: Great, and actually sort of going from digital cash to digital currency,
we have another question from Simone Ross in our community
about the opportunity that exists for digital currency.
She mentioned that PayPal [?].
What would it take for a truly inclusive digital currency to take hold here?
DS: Yeah.