Designing the Future of Payments Systems | Konstantin Richter & Tom Zschach

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Hey, Desk, New York. How is it going? Tom, concert team, really glad to have you guys

here on the main stage today to talk about payments. Maybe before we dive into,

there's a lot of excitement around payments and agentic payments and all these different things

going on, but I'd love to maybe just start with a quick background. What you're doing at Swift,

what you're doing at BlockDamin, talk to us a little bit about background and kind of

where things are going for you. Great. Well, thanks for having me and congratulations on a really

successful event so far. It's quite a turnout. I'm Tom Shach. I'm the Chief Innovation Officer

for Swift. I've been in that role for just over six years. Now, based in New York, even though

we're headquartered in Belgium, and I guess for us in the last several years and kind of

lead them to announcement that we made at the end of last year, really the focus is about digital

assets and how banks and traditional finance companies step into digital assets in a significant

way. We announced the ledger last September. We're going through the process of explaining what

that is. We're not changing what Swift is, and that's probably pretty good context for this

conversation. It's also a network. We don't issue tokens. We don't hold value. We're not a

custodian. We don't do settlement. It's really kind of the trust fabric that's used globally

by over 11,500 banks and financial institutions in 200 different countries.

Really interesting time. Lots of things happening and looking forward to this conversation.

Yeah, definitely. Constantine. Yeah, I'm the CEO and founder of BlockDamin. BlockDamin is a quasi-cryptonate

of infrastructure company. Really what that means and why I'm on this panel is we sell two distinct

products. The first is on-prem wallets that we launched in 21 that have not been very popular

really up until the Genius Act passed. We have on-prem wallets and signing capabilities for

institutions. Really what that means is it allows institutions to sign digital transactions

and have multi-party policy encrypted on-prem and so suddenly we find ourselves with a wallet that

is uniquely positioned to support agentec payments and transaction settlement. We also sell notes

that you need for liquidity sequencing and monitoring and all those other things that come with

any sort of agentec driven payments and transactions. I think the last thing, what's unique

about BlockDamin is we also have JP Morgan and Goldman and Citibank as major shareholders and

public customers of our service range from all those to the fidelities in Bank of New York's

and so forth. We're all over all these different institutions trying to explain to them how

crypto-native infrastructure relates to existing financial rails. Awesome. Thanks for the background,

guys. I think maybe what we can do is start with a hot narrative right now. Agentec payments,

I think, is on everyone's lips right now, but I think it's pretty questionable and maybe up

in the air what that actually means today. Maybe Tom, if you could start off and just explain

what are the caveats? What does agentec payments mean? Where do you see that really impacting

maybe what Swift does and large institutions? The signal to noise ratio on agentec payments

is probably off the charts at this point, right? There's so much hype and so many stories that are

out there. What we're really talking about is instead of a human making a decision directly,

it's going to be done by an algorithm, right? And kind of really simple terms and you're going to

apply that into retail or consumer environment or you can apply that institutional environment.

I think we're probably a ways away from a kind of full automation in the institutional environment,

just especially when you look at kind of cross-border, but I don't think it's a completely new topic.

You know, having spent a lot of time on trading desks for example and investment banks

and knowing how the hedge fund industry works, you know, they've been trading automatically,

you know, for taking positions and placing orders and doing hedging and moving cash,

you know, for decades. And so we didn't call it agenteci at the time, but we called the algorithm

trading, right? And the banks have been offering that for, you know, for decades. And so I think

what comes along with that is, you know, do you have the control structure in place? Can you manage

the risk? You know, are you going to, you know, can you, can you do all that time where, you know,

something goes crazy, you know, end up doing a fire sale of the, of the institution as a result

of that. But I do think we have a ways to go in that, but I think it's, it's going to move probably

faster than people think and practical ways like way liquidity moves, way things are, are hedged,

cash and treasury management functions. I think those are, those are going to, on a path,

pretty quickly to start to be automated pretty, you know, in the not too distant future.

Do you, Constantine, I'm wondering, do you have a different perspective maybe from where you sit

with interaction with your customers? Is there, do you see a credible and like near-term path to

like, agentic product offerings? Yeah, I mean, the way I think of agentic payment, I mean, it's really

software driven payment orchestration that uses, and the really, the only difference to existing

systems is really the encryption and tokenization of pre-approved credentials, right? And so if I get

technical here, that's kind of really what this means. And so I think, but the, the biggest gap

that still needs to get filled is how this actually relates to what an institution really needs

to do and retouch on this really briefly, but like, you know, like, the, that is one simple part,

but it needs to tie into the liquid liquidity sequencing, into the settlement, into all the

different components of security, as well as, you know, this conditional settlement, and all

these other things, reconciliation that still need to occur, that need to tie into existing

frameworks. And so I think, in the short term, I think we're at the stage where everyone's

moving around POCs, waiting for regulatory clarity, and then to really come up and currently

actually building a stack that connects to those respective systems, right? And so, but I do

think it'll be a carefully selected few workflows initially that will get tied to agentic payments

at scale. I think that makes sense. I want to go back to something you mentioned time around,

going from human ledsiding to machine ledsiding. How in this sort of future world do you build

those systems then with accountability, accountability intact? You know, today you might have a

human kind of reviewing a large transaction. What does that look like if it's all machines?

So, I mean, you're right. Accountability is not going to disappear. You're not going to be able to

say to your risk manager or to an auditor or to a regulator. I'm not sure why that happened.

The algorithm did it, right? There's no black boxes in finance, so that's not going to happen.

I think a couple of things to think about, and I've spent a lot of time thinking about this,

and I've a really kind of interesting vantage point with talk with the builders and regulators

and banks and fintechs and everything else. I think if you think about the intersection of

models and programmable money is super interesting to me. And it's not going to be a factor of

I can do a thousand payments a day. You might get a million payments a day, right? So this idea of

bilateral compliance and doing things on a bilateral basis and institutional finance

has to change. And you can't be in a situation where you reconstruct the problem after it happens.

And so the analogy that I've been thinking about lately and testing with some people

is kind of the shipping container, right? Because a token is a digital representation,

and we've been able to kind of put assets in a container.

Shipping didn't get faster because the container was invented in 1956.

Trucks didn't go faster, ships didn't sail faster. They didn't get loaded on docs faster.

What really actually changed that was when it became programmable. When the container was sealed,

when it had all of the information and the manifest about what was in the container,

you know, is it compliant? You know, can you hold it in this jurisdiction? You know, how do you settle

it? You know, now that I have the container in the port, how's that payment made and trade

finance, for example? So this concept of which doesn't exist today of a programmable container,

where all of the details about what's in it and the compliance with it that as it travels across

chain, I think we're going to have to get that. And I think we're going to also have to get to the

point where that's checked at execution time, or the time when the container hits the port if you

want to stay with that analogy, that's going to be done at execution time because the reconciliation,

if you have problems, when you go from thousands to millions, maybe billions, it's just not something

that humans can keep up with. I think if I'm just looking at this the question of humans versus

machine differently, I think it's really important to understand that you basically have to

separate accountability from execution, right? And so the execution layer is going to be fully

programmable, that's going to be done by software. The accountability layer still requires humans.

It's just the activity that the human engages and looks very different, meaning I give you a concrete

example. Like for our product, our on-prem wallet has an encrypted policy engine and if you're an

institution and you're a customer of our wallet, you have to make these decisions around what are

actually the roles and permissions who can actually engage with this respective wallet.

What does the multi-party approval flow look like? Who needs to approve what transactions and

what are the transaction limits that these individual roles can do? The logic needs to be developed

by a human and then once it's in place, then you can have programmatic execution against it.

And so I think what's so important and that's why crypto is so interesting and why we have this

interesting sort of coalition forming between AI and crypto is ultimately for all this web

three stuff, it wasn't really built for humans. It scales perfectly against machines, but it still

needs the human architecture and the physical implementation of rules, basically.

Can I just build on that? Because you just heard from BlackRock in the previous session.

And so if I'm looking at, if I'm an algorithm and I'm looking at where should I place money,

where do I want to actually invest the balance that I have? And I have the authority to do that,

and it's in a structured environment. When I get that token from BlackRock, I'm going to say,

well, first of all, you know, what is it? Is this a 40-ock fund? Is it a usage fund? Is it like,

from a compliance point of what is this? How does it settle? When I give you the token back,

what do you do? Oh, you give me USDT in my wallet. Okay. And we agree on what the wallet is. Okay,

why is he's covered, right? Hey, can I hold this thing in Brazil? I don't know, I'm not going to

call BlackRock or, you know, take a 50-page PDF file and parse through that with AI to figure

that out. I think all of those things have to be in that programmable container because humans

are not going to be able to keep up with this. And BlackRock is going to want to get that right,

because they're going to want the distribution. And they certainly don't want their token or

their fund to end up in the wrong place, the wrong hands. Of course, they're going to comply

with the law. And the people who are receiving it don't want to buy something they shouldn't

help be able to hold, whether that's by law or their perspective. I think all of this stuff

is going to have to be done up front. Yeah, I think you guys are both making great

points and leads me down this path way to talking about regulation and how that has an impact.

Obviously, you talked a lot about the technical implementation versus, you know, what are the

compliance requirements of something? And oftentimes, those aren't, it's not so simple as just

we can technically do it. But, you know, what are all the other pieces that come after that?

Where are we now at a point with, you know, the genius bills passed? We're looking for some

more clarity from clarity. Are you still being held up in terms of the development of like

large institutional solutions for on-chain and payment rails for customers? Or can we can we

be moving along with those and offering them? I mean, I'd say we're still waiting on clarity,

meaning reserve requirements, you know, there's lots of questions. I think that institutions

still have as far as it pertains to the structural enactment of activating all this. And so,

yes, there's, I think the OCC just gave some guidance and marriage, which has been helpful,

but we still don't have clarity on all the components regulators require to launch a large scale

so others. And so, just to be clear, like that, even like the regulatory oversight requirements for

these digital type of things have not been clearly been defined. And so, my experience has been that

institutions, the minute that there's any gray area legally in anything, they will not engage in it.

And so, I think that's why we're waiting so desperately on the clarity act, because, you know,

our assumption is the minute that it's there, people will move from POC to real workflow enablement,

and then we're still 12 months out until you'll probably see real flow.

I can't perspective.

Slightly this might be a little bit controversial, but I can say in my entire career,

and I've been doing this for quite some time now, I've never been held up by a regulator.

They have a very specific job to do, right? There's not this kind of regulator in the sky that

kind of oversees everything has happened. Regulators have very specific responsibilities for activities

and a jurisdiction. So, in the case of the OCC in terms of writing the rules for genius,

they have a job to do, right? The law gets passed, they're given permission to do that,

and then they write the rules and those are discussed and finalized. And so, there's a lot of

things you can do leading up to the rules, but you need the rules and you need the certainty.

So, the biggest difference between retail and consumer and the institutional finance and banks

is certainty. So, in somebody says, oh, I can have a stable coin and a bank can move something

faster and cheaper. That's great. You know, we move messages over the Swift network in seconds.

That's not what's holding them up.

Yeah, but I mean, I just want to break a lens for my fellow crypto brethren's. I mean, if,

you know, I'd be foolish to say that regulation hasn't held up development in crypto rails,

because regulators very actively try to destroy this industry to some extent, right?

So, on the digital cryptographic and encryption sort of side regulators have very actively

held up development. And I think that the risk associated to it in my discussions with these

banks and stuff is that there are kind of concrete examples, like some of the largest financial

institutions when discussions of launching validators for them where they earn yield on chain,

which is none of them have currently done to date. And the only

anything that holds us up is legal. You know, technically, all the participants have agreed to it,

and it's within the legal departments of these banks where it's just like, if we launch this,

what would happen? And, you know, what you describe is like the wishful thinking for us

that a regulator has a clear view and sits there and we talk to them normally and come to it.

That's, I think, people are still a little shell-shocked.

And it's a really exactly the right distinction, right? And working in kind of regulated

finance and banks. I'm not in a crypto company, so I have an experience at myself.

But I think the one last thing I would add to this is we talk about, there's been a lot of

discussion about yield on the Genius Act, right? If you think about somebody who's holding USDT

in Argentina or Manila or Lagos, they don't care about yield. They're happy they have dollars

in their wallets, right? So when we also think about these issues and being held up, so maybe you're

held up and you can't do something in the US because you don't have the legislation we need,

you know, and the yields kind of one of the things that need to be resolved, which looks like it will

be in short order here. If you're a Lagos and you have a hundred dollars of USDT in your wallet,

who's better than you? This system's working. I mean, it's the most most traction of any stable

coin ever is Tetherby and it's all in the national market. The world's a big place, right? So if

you're held up in one area, the question is, can you someplace else and still stay within kind of

the confines of the law and the regulations? I think that makes us on a sense. Maybe as we look

forward, there's a lot of talk within this space frequently that, you know, on-chain rails will

replace a lot of the legacy or prior rails that came before them. How do you guys view that statement

when looking at it from your POVs? Is there an expectation that there is a replacement? Do

is there a transitional period? Do they live side-by-side in the future? What does that look like?

Yeah, I love the question. I've sat on panels before where people say, well, when this happens,

I mean, Swift pretty much disappears, right? It's like, yeah, not really. If I could buy stock and Swift,

I would, right? The world's only getting, and I can't, nobody can because it's privately held in

it's a bank co-op, but the world's only getting more complicated and the frabric that you need

for, not only for standards, but for compliance, for integrated workflow into every financial

institution in the world, that doesn't change because you have a new type of asset, right? That

actually becomes more valuable when you get into algorithms making decisions because you have to

have accountability and you have to have traceability and all those things. So I think, you know,

it's only getting more complicated. And also, you know, we're in a really unique position because

we can actually now integrate into the workflow new assets like tokenized deposits and deposit

tokens and stablecoins and CBDCs in some parts of the world. And we can actually go extended it

into new settlement locations like public and private blockchains, right? So the blockchain that we're

putting on top of the Swift network, the whole idea is composability so that we can connect to

the new settlement locations that that banks want to get to. So I think I think we're in a great

position. I think it's a needed function and I think we're going to continue to see volumes

grow on the network. I think, I mean, you know, they're not going to replace one another,

nor are they going to coexist, they're going to interconnect, right? And so if you think about what

digital networks do really, really well, it's liquidity sequencing, lowering of operational friction

speed of execution, but they also do certain things really badly like consumer protection

and compliance. And so I think, and so they they'll sort of get interconnected between both.

And sometimes pains me to say it, I came from the Bitcoin, cyber, punky and world, but

having spent a lot of time in the space, I feel like if you want real volume consumer protection,

it's just really, really important. And I don't know how to build the system in a way where I can

bypass all the existing institutions. Can I? So I think instead of things are going to disappear,

things are going to materially change, right? The way that that settlement's done to

me, think about what a correspondent bank does, right? They complete transactions, they do for an

exchange and they provide float in a in account in a different country, a Nostra Voster account.

If you can do instant settlement on a on a stablecoin, those all go away.

You don't need that. It doesn't mean it doesn't mean a bank won't be involved. I'm pretty sure

banks will be involved in that and they'll offer some pretty clever services to their customers,

but they don't it doesn't go away. Though that friction that was there was was set because of

the way settlement was set up, you know, 20, 30, 40, 50 years ago, and the banks offer that service

and they charge her and monetize that service. If that gets more efficient, then they'll have to

think of other ways to monetize that flow and the whole thing will get more efficient, but I think

you're still going to have banks and regulatory financial institutions in the flow. Great point.

Maybe I can get one more hot take out of both of you guys. If you could change, you know,

one thing the way that the industry views digital assets are on chain systems, like what would it

be? What do people have wrong that that should be corrected? Yeah, I think I think the I wish it

were less about ideology and more about systems design. And so I think we're getting to a place

where it's a really, you know, like the words associated to crypto shouldn't really live

within the consumer conscience, right? Like it's a technology that really provides plumbing

and execution and settlement. And so I feel like changing that ethos from ideology to systems

design is something that I wish would happen more. I have a more simple one. And you could

follow me on X or LinkedIn and you can see some evidence of this. But in the DeFi world, this is

idea that I win and you lose zero-sum game. My change the best everybody else has to die.

That's not how finance works. It's actually completely intertangled. I mean, Swift's a good

example of how that works. And I would even go so far as to say that Swift was probably the

original Dow, right? And in terms of what we did and how we connected disparate payment systems

and different areas. So this whole idea that that one wins and everybody else loses and dies,

that's just not how finance works. And if we are going to use, you know, the innovations that

have come out of the crypto world, including the assets, we're going to have to get over that

and figure out how things get integrated much better. Awesome. Well, Tom, Konstantin, thanks so much.

Thank you all for listening and there was a pleasure to have you. Thank you.