Rachel Pether: I’m joined today by Soham Jethani, managing director at Septten Advisors. Soham, welcome to Capital Markets, Wall Street to MENA.
Soham Jethani: Absolutely delighted to be here. Thank you so much for having me.
Rachel Pether: Absolutely, our pleasure. Now, let’s talk stablecoin payments. Network International’s UAE retail pilot has brought stablecoin payments closer to the checkout. But what does a successful stablecoin payment actually look like? And [unclear: “whoever owns the tokens”].
Soham Jethani: Right. So that’s a few different pieces to unpack. Quickly, what I would say is the biggest part of this success story is the fact that it’s actually happened. I’ve been in this space for very many years now, and what’s extremely exciting is that this is something people have been talking about since 2018: that I could have crypto in my wallet, walk into a 7-Eleven, tap my card on the QR code or a payment reader, and pay with my USDT in my wallet to buy a pack of gum. Seems quite innocuous, a pack of gum. But it is something people have been dreaming about as the realization of the movement of digital money.
But there are a lot of components underneath that, and [unclear: “making a get to be to get to see”]. The truth of the matter is the UAE government has taken a very thoughtful approach to it. It’s just that once they figured it out, it moved very quickly. What they did was they said, all right, you can do this, but you have to be appropriately licensed.
So Network International is a license holder from the Central Bank of the UAE. They’re allowed to do stored value facilities and retail payment services. With those licenses they’re allowed to make payments, usually in fiat, but with permissions to now accommodate digital asset payments. So what the UAE government said is, okay, we’ll allow it, but it has to be with dirham-backed stablecoins.
That’s a much longer conversation at the back end: what can actually be a dirham-backed stablecoin? And it’s only, I would say, last year and now, implementing this here with AE Coin and with DSC, that we finally come to the point where you’ve got a central bank recognized, registered and approved issuance of digital dirhams, or dirham-backed stablecoins, that is then put into someone’s crypto wallet.
You can use whatever wallet you want. The implementation of these dirham-backed stablecoins on more and more wallets is growing every day. A few weeks ago, DSC launched with Fasset as well, which is a homegrown UAE exchange, and that stablecoin now sits in your wallet. It is directly connected into whatever regulated service provider you’re using in order to access that wallet, which can then be used to tap against a point-of-sale system in 7-Eleven, in Marks and Spencer, really right now in Festival City Mall in Dubai, and in all sorts of other places where the pilot has been made active.
Rachel Pether: That’s absolutely amazing. And, you know, you mentioned this payment from A to B to C. There’s obviously going to be some counterparty risks along that chain. So in the case of stablecoin payments, who does bear the risk if something is delayed or there’s a missed transfer? And who bears the loss in something like that?
Soham Jethani: Look, it gets complicated. But what I would always say is there’s a chain of responsibility, and that chain comes into existence because of the regulation that has to exist at every stage of the process. So if you’re issuing the stablecoin, you’re regulated. After you’ve issued the stablecoins, you’ve placed them on exchanges. Those exchanges have to be regulated. Beyond those exchanges, if you’re using a separate wallet provider, not an exchange wallet, that’s regulated by that service provider. And then in this particular example, you’re using Network International. They are regulated.
So if you’re a customer who’s using this service to pay for something, your immediate counterparty is not going to be Network International. They’re just a service provider in between, connecting your wallet to the retail merchant. But if something goes wrong, whoever in the chain is responsible for that thing going wrong is responsible for [unclear: “making you go to the end as a customer”]. Your [unclear: “response”] and your claim for liability is always going to be at the back end, to the person that is your direct service provider. So if you are using your, I don’t know, Fasset app, your Crypto.com app, which has a payments license to make that payment, then that is the person you would have a claim against if something goes wrong with that payment.
Yeah. From a merchant perspective, it gets more interesting. If you think about card payments, I’m a little bit older. I remember a day where not every store you walked into necessarily had a card payment terminal. It wasn’t that long ago, but it was a while ago. That preponderance of availability of card payment terminals is still new. This is going to be rolling out in a similar way, but the difference is that they’re working with technology infrastructure providers in between, who are the ones who create the software that works on these card terminals. So once things get approved, once they become widely expected by the populace that is moving around in this market, it’s going to be very easy to bring that into your card terminals in whichever store card terminals are offered in.
From a merchant perspective, your claim, if you will, is going to be at the back end, based on the arrangement you’ve put in place. And this is where merchants can really make a decision of what makes sense for them. If you are a merchant that says, look, I just want to enable a smooth payment experience. It’s hard enough getting a customer through the door, getting them to pick up whatever goods they want to pick up, and then getting them to pay for it. I don’t want a payment blocker to be the reason that I can’t get the money in.
Now, the biggest solution that crypto and stablecoins are offering in this situation is probably the biggest complaint of every merchant out there. When you walk into a store and you buy a really nice outfit, you’ve paid whatever, 20, 25,000 dirhams for it. But that 25,000 dirhams is not actually reaching the account of the store. When you pay it, it’s getting instantly deducted from you, but bank-to-bank charges, bank-to-bank communications, transfer of the money. That’s why you often notice that the day you make a payment, it shows up on your bank statement, if you look at it the next month, a few days later.
Now, if you’re Dior in that example, you can afford to wait a couple of days, but 99% of stores out there cannot. And that 2 to 3 day delay for every single payment they’re making, particularly if you’re a store that lives off of giant sales and a huge rush of people, that 2 to 3 day delay can create a huge cash crunch. [unclear: “100% is a cumulative right, and it’s free”]. And then they’re paying charges for every single card transaction. It really builds up.
The beauty of a stablecoin payment is, in theory, it is meant to be instantaneous. It is meant to be that when that deduction happens from your wallet, the reallocation into the merchant’s actual bank account is happening, ideally instantly. Eventually it will be, if the movements are fast enough, but extremely quickly.
Rachel Pether: Amazing. Thank you so much for coming on the show. It’s been a pleasure.
Soham Jethani: Absolutely. Thank you.
Rachel Pether: Thank you so much.
