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  • 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 cash back 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 postpandemic.

  • 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 this.

  • 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 massively 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 trend line

  • 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 retailing,

  • 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 a 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 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 FICO 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 the 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 median 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 FICO 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