Kevin Rooke - 00:00:00:
Julie Landrum leads international strategy and growth at OpenNode, a bitcoin payment processor built on the Lightning Network. In our conversation, Julie and I discussed the addressable market for making Lightning payments. We discussed the hidden fees and costs associated with traditional payment platforms, and we discussed the challenge of overcoming the network effects built up by traditional payments systems. Now, just like my last episode with Lyn Alden, I've asked Julie to set up a fountain account so I can add her to today's show splits. So, if you guys send in sats comments and questions, everything is going to be split 50/50 between Julie and I, and both of us will be able to read the comments and questions. You guys sent in a record number of stats last episode, so let's keep that going and show Julie what Podcasting 2.0 is all about real quick. Today's show is sponsored by Voltage. Voltage is the industry standard and next generation provider of Lightning Network infrastructure. Today's show is also sponsored by Zebedee. That's Zebedee, and Zebedee is your portal into the world of bitcoin gaming. We'll have more from Voltage and Zebedee later in the show. Julie, thank you for joining me today. I'm really excited to discuss OpenNode and the vision for the company and exactly what you're building. Maybe for people who aren't familiar with the business, maybe we can start off with what the vision for Open Node is and why you decided this was an important vision, this was an important mission to be part of, and why you decided to join the business.
Julie Landrum - 00:01:41:
Sure. Hi, Kevin, good to be with you, and thanks for the opportunity to chat. OpenNode is a Bitcoin payment processor and infrastructure provider. We started in 2018, very focused on merchants and leveraging the Lightning Network for retail payment acceptance in the last couple of years. But really, I would say in the last maybe twelve months, our mission of growing the bitcoin economy and of helping to make the Lightning Network accessible for money movement has morphed into a much broader opportunity. And what we're really trying to do now is beyond powering merchants, beyond powering businesses with bitcoin payments, we're working with distribution partners, remittance companies, ATM networks, banks, digital wallets, exchanges. So anywhere that there is either a new or an existing method of moving value, open Node is powering a Bitcoin and Lightning Network rail.
Kevin Rooke - 00:03:19:
Interesting. You're right. It's maybe a different perspective from the one that many might assume Open Node operates in with merchant payments. Can you talk to me about what you think some of the biggest markets might be in those kind of verticals you just mentioned? Which do you think are going to be the most impactful for Opennote?
Julie Landrum - 00:03:41:
Sure the first thing to note is that there are two transaction streams that we support that are very complementary. The first is payments, meaning enabling someone to receive payments to accept payment in bitcoin. The second one is payouts. And when we talk about payouts, we talk about not only bitcoin payouts, so paying trade partners, paying salaries, making cross border transfers, those can be in bitcoin or they can be powered by the bitcoin network and by Lightning. And what that means is that that same payout that is taking through bank rails, you know, days and costing 20, 40, 60, who knows how, how much. And that and those payments basically disappear from the time that they are sent to the time that they show up, having gone through a number of intermediaries and a process that is opaque and antiquated. When we execute bitcoin powered payouts for our users, they can fund payouts in Fiat and we can deliver those payouts to recipients in their preferred currency as well. Payouts is actually a massive global money movement flow that people maybe think about a little bit less. And I think also payouts have maybe a branding problem because when people say payments, they're actually inferring payouts as well, since we're talking about sending and receiving money. But many of us, and certainly businesses everywhere, are huge users of payouts. They're sending money to the four corners of the world, to many suppliers, many business partners, many employees. And in our developing relationships with payment processors, for example, where we initially focused on helping their merchants accept payments, they immediately saw the value of being able, for example, to pay the merchant settlement funds of a merchant domiciled in Europe who is accepting payments in Africa. And maybe they, on a daily basis, are accumulating Nigerian naira that is linked to the activity of that merchant in the market. And they need low cost, risk free and kind of final settlement type ways to send money. And Lightning and bitcoin in general have become really good mechanisms for doing that. We're seeing a lot of demand for payout flows from US companies, but also from Latin Domiciled businesses and businesses in Africa continents where the local currencies are maybe maligned a little or viewed as not as mature or not as stable as currencies in Europe, currencies in North America and businesses in those places when they try to send money, the global payment system is pricing in a risk that's really eroding their revenues.
Kevin Rooke - 00:07:47:
Right. Interesting. So if we were to break these up into different buckets, the two you were speaking of, the payments is kind of like what people traditionally assume. You're going to a store, you're buying something, or you're buying something online, and then payouts would be almost any other kind of money flow outside of that traditional merchant consumer relationship. Is that the idea?
Julie Landrum - 00:08:09:
Pretty much, yeah.
Kevin Rooke - 00:08:11:
If we're to apply a market to each one of these, what's the addressable, market size for payments versus payouts?
Julie Landrum - 00:08:22:
Yeah, good question. So, I mean, they're massive global markets. When we think about the mix of those two flows, payments and payouts, we have seen, and you can look at payment processors in general who report their detailed numbers. Processors like Adyen sometimes stripe reports some interesting numbers even though they're not public. There's a mix of about it depends. Some processors have areas of focus, but I would say Payouts probably constitute no less than 60% of the payment mix for any given payment processor. And for us we expect that to be similar. I think we'll see a lot of variations as we scale up. Like we'll land a massive deal and that will bump payments volume. Then we'll land another massive deal and that will pump payouts volume. We're still at the point where when we are doing these very strategic enablements in very different geographies, it has a tendency to short term kind of impact our numbers, impact the mix of transactions. And then a third category for us specifically is what we talk about in terms of infrastructure. And what's interesting about infrastructure is we're no longer talking about payment acceptance or payouts by businesses, but we're talking about powering the Lightning Network transfers for digital wallets exchanges. I know you recently talked to Kraken about their enablement. Now imagine every other exchange in the world who want to be able to get the same benefits but maybe don't have the resources or the time to dedicate a team and expertise to developing a part of their business which is really not yet core. So across the world right now, we are working with many exchanges to help them support Lightning Network payments. And what's great about that is that it is going to much like what we saw with Cash App, is going to dramatically change the number of people in the world who are equipped to initiate Ln payments. So we're really excited about that because again, it's all about the network effect. We started with a focus on businesses and really trying to rely on number one kind of a merchant and business army to help us disseminate the benefits of bitcoin and bitcoin payments. Now we can actually leverage our own technology to build out that side of the two sided network. So the payer side equipping them with Lightning capabilities.
Kevin Rooke - 00:11:48:
Right? So this infrastructure bucket is more like a Lightning service provider, right? It's managing liquidity for them. It's managing making sure they have high reliability if they're trying to accept payments or send payments. That you're just kind of like managing their Lightning integration. Is that the idea?
Julie Landrum - 00:12:10:
Exactly.
Kevin Rooke - 00:12:11:
Very cool. Is this something that you guys decided to build after seeing the success of your like, you have one of the largest Lightning nodes in the world. I believe you've got 50 plus bitcoin on there. And is this something like have you taken the lessons from that and said we're now going to productize this and we're going to take what we've learned from our own node and we're now going to allow any other exchange or service to use our lessons in a product? Is that the idea?
Julie Landrum - 00:12:43:
Yeah. So we have at least two nodes. I think you should be able to see two of them.
Kevin Rooke - 00:12:48:
All right. Yeah, they both have about 50 bitcoin.
Julie Landrum - 00:12:50:
Oh, good. I think that's good. I thought they had more, but anyway yeah, that's exactly right. In speaking to Open Node, until beginning of this year, and arguably still is a very small company, we've never done a ton of marketing, we didn't have a lot of formal sales processes. A lot of our growth has been organic and a lot of our product features have been in response to demand from the market. So, I gave it the example before about talking to payment processors and thinking that we were only going to talk about payments, but actually they had this giant need to send end of day merchant settlement funds across the world without being robbed, essentially. We work a lot with exchanges, obviously, in order to facilitate our fiat on ramps and off ramps. And during many of those conversations, OpenNode, who has proven to be a really industry leading partner when it comes to the Lightning Network. With operational successes in El Salvador, with other high profile successes, we just had digital wallets and exchanges start to approach us about being able to leverage our capabilities for the transfers that they want to allow their users to benefit from. And I would say maybe one of our first adopters or one of the first businesses that we worked with in this capacity is actually a very big digital wallet and financial services mobile financial services provider in El Salvador who I wish I could name, I cannot. But that was kind of a gateway to understanding that we can be a managed payments provider and we can offer our services to business on the one hand, and we can offer our businesses, our services to the ecosystem, to the payments ecosystem, on the other hand, and just enable unlimited entities.
Kevin Rooke - 00:15:23:
To.
Julie Landrum - 00:15:23:
Stand up Lightning Network payments in a way that's reliable, where they don't need to manage liquidity risk exceptions, and all the other great things that go into managing node infrastructure.
Kevin Rooke - 00:15:39:
Right. On the topic of El Salvador, do you have any insights you can share on maybe the adoption of Lightning across the country as a whole? Because I imagine you have perspective into a lot of different businesses, not just the financial institution you aren't able to mention, but like other businesses that are adopting Lightning in El Salvador, how has that growth evolved over time? We've now had El Salvador with legal tender for just over not quite a year. But what have you kind of learned in the first kind of like nine months of that?
Julie Landrum - 00:16:16:
So very obviously, there were spikes in usage driven by the $30 AirDrop of bitcoin to chivo wallet users. We've also seen since then kind of punctual sort of limited incentives for people to spend bitcoin, for example, at gas stations and benefit from a discount so those mechanisms are still there. We definitely see a government that is committed to making this work and to continuing to drive incentives to the population. I think in the last couple of months specifically, probably one of the challenges has been the price action. There hasn't been sort of this crazy and I'm actually grateful for that because we are building and we can use the time, there hasn't been this through the roof price action that would galvanize people and make them pay attention on a daily basis. The retail usage continues. We saw a drop off after the initial air drop of bitcoin, but it is very healthy. But I think the non retail usage so businesses, the digital wallet that I mentioned before, kind of financial related businesses. So we also power a couple of insurance companies that's been actually a lot more resilient and showing a lot more growth than, for example, fast food or other kind of more, I don't want to say mundane or daily uses of bitcoin. Where there are remittance flows, where there are higher value flows, bitcoin is really shining.
Kevin Rooke - 00:18:29:
How much of that do you think is attributable to the fact that you can move money instantly versus the fact that you can move money for almost no cost? I guess those are both major benefits in the case of something like remittance solution. But which one do you think is driving growth? Do you think one is more important than the other? I guess it depends on different contexts for what kind of payment it is. But what's your sense? Is it more important that these are instant payments or that they are nearly free payments?
Julie Landrum - 00:19:03:
So first of all, how lucky that we get both? It's like the total package and I guess it depends on who you speak to. But if I had to take a guess broadly, I would say people like really inexpensive stuff. And so if I had to take a guess, I would say the cost savings specifically when it comes to remittances which are staggering, versus the cost savings for retail acceptance, which can be pretty material. But if you're a small business may not add up to much like payouts and remittances, I would say the costs are just incredible. And also the fact that the transaction can be traced, traceability of transactions is so, so important. The fact that you don't just have to kind of like close your eyes and pray that this transaction is going to show up where it needs to be after x amount of time and x amount of intermediaries. So traceability tends to be important as well.
Kevin Rooke - 00:20:13:
Right now in remittance market, right now in El Salvador or I guess in the remittance market before bitcoin came along, I was hearing numbers that were like 10, 20, 30, 40% of a remittance payment could be taken in fees. What are some of those? Do you know what some of the legacy remittance platforms are now doing in the face of Lightning adoption? Are they entirely being wiped out? Are they adopting Lightning? Or how do you run a business that is being disintermediated by Lightning so quickly and so violently? Do you know what any of these kind of traditional payment processors are doing to kind of like, keep their business running?
Julie Landrum - 00:21:01:
So I would say two things. One, I'm super focused on what we're doing, not really focused on what people are doing to try to adapt, survive. I don't know. The other thing I would say is that we did hear those numbers, but on the ground you could also, especially because it's El Salvador and especially because it's dollars, it seemed that there were opportunities for remittances to be less expensive than the 20, 30% numbers that we were hearing. First of all, because there's no cross currency trade, so there's no like, currency risk to price in. And secondly, because a lot of these companies in El Salvador also have bank accounts in the US. We found examples of remittance providers that were actually quite low priced. And what we thought there was that they may be doing a transfer-wise type thing where they're managing pools of currency, but luckily, it's the same currency and being able to disperse or receive from either in El Salvador or a US. Based bank account, that was sort of a theory based on no real firsthand knowledge, but there were huge variations in what the remaining costs were in El Salvador. And so we also thought that there were mechanisms for companies to minimize costs. Now, whether or not companies do minimize costs when there are opportunities to do so is kind of a different story.
Kevin Rooke - 00:22:54:
Yeah. And now, when you think about remittances on Lightning or using Lightning as simply a backbone for transferring money, what do you think is the most popular choice right now? Are people choosing to actually move bitcoin to someone else over Lightning or are they choosing fiat money across Lightning to fiat money?
Julie Landrum - 00:23:22:
So obviously there's a whole spectrum. Bitcoin enthusiasts and believers and companies, sports teams. Anyone who's living on a bitcoin standard is trying to minimize the number of times they have to come in and out of bitcoin, because that impacts the value proposition. That's one set of users. But almost like the low hanging fruit or the use case that doesn't require people to own bitcoin yet, and the use case that has the potential to deliver bitcoin. On the other side is the payouts. And payouts is where we are seeing the biggest short term opportunity to completely fix the flaws of legacy banking transfers without necessarily requiring people to buy or hold bitcoin. So that's really powerful because what you try to do, certainly what we try to do, and even though we're 100% focused on bitcoin and 100% focused on payments, we're also trying to respond to the market demand that we are getting. And that demand when there are less barriers to being able to deliver, a solution just becomes a growth engine, a priority, and definitely a very worthy use of our time and resources.
Kevin Rooke - 00:25:18:
Right? Yeah, that makes a ton of sense that there may be a class of people, it's billions of people, really, that would love cheaper payments and don't know anything about Bitcoin or have not been onboarded, or don't even care about Bitcoin. And so, yeah, I see the use case there, the business use case. It makes a lot of sense to be able to appeal to this group of people, offer them a better solution than what they have. Maybe they don't even know they're using Lightning in the process.
Julie Landrum - 00:25:45:
Exactly.
Kevin Rooke - 00:25:46:
Over time, maybe they pick up on Bitcoin and decide they want it and instantly you guys can just turn that on and say, oh, instead of fiat to fiat, it's now going to be fiat to, I want bitcoin at the other end. And I that works for you guys. Do you think this is going to be something that people start taking? Are people going to start taking salaries in bitcoin through open node? Can we do bill pay through open node? What are some of those other payout use cases you're excited about?
Julie Landrum - 00:26:17:
Yeah, absolutely. Everything you just mentioned, paying contractors, paying suppliers, cross border, anywhere that value is being sent, Lightning can be used. And what you said is exactly right, which is Lightning can be used to improve the payment economics, the speed, everything about the payment, really. And you don't have to know that it's being powered by bitcoin. So you don't have to think about regulatory considerations, you don't have to think about tax implications, you don't have to think about price volatility. And then also exactly as you said as we deliver the funds and maybe what we've seen in the merchant space, they start by auto converting to preferred local currency, then a little bit down the line, because we have a capability called split settlement businesses but also payout recipients can decide to receive, for example, 80% of the payment in Fiat and 20% in Bitcoin. So I think there is, if we're talking about a world where bitcoin holds its value in the medium to long term, but that volatility is still an issue in the short term. There's a way for people to, number one, use bitcoin as part of their payment flows, but not have to worry about covering their costs, not have to worry about volatility while still taking some exposure to, you know, what we think is a fantastic digital asset.
Kevin Rooke - 00:28:20:
Right. So if you're a business and you've got, you know, 20% profit margins, you take the 80% in dollars or whatever your local currency is, pay out all your suppliers, all your business partners, and then that profit you can just save in Bitcoin and kind of like accrue value as bitcoin asset grows.
Julie Landrum - 00:28:40:
Exactly. And at the moment, that capability is quite rudimentary in the sense that we just make it available and sort of let businesses and people kind of figure that out for themselves. In the future, we will be focusing much more on educating and demonstrating how the capability can be used to do exactly what you said, cover fixed costs, but also allow you to set up a savings engine.
Kevin Rooke - 00:29:09:
Now, I'd love to know more about the North Star metrics or kind of success metrics that you view of as important at OpenNode, because there's a few different ways, I guess you can define success. When you're talking about Bitcoin, you're talking about Lightning payments. One is it could just be more people using it, like more humans using Lightning or using Bitcoin. One could be just more transactions happening on Lightning or on Bitcoin, and another could be more dollar value of transactions. Like when you think about some of those different ways of determining success, what is the most important way that you guys view success?
Julie Landrum - 00:29:57:
So, I mean, all of those things as part of financial metrics like matter a ton, our pricing is typically driven off of either transaction value or number of transactions. So obviously that's going to be a key metric for us. But our reputation and our brand is also driven off of things like operational reliability, customer service, and another thing that we've started to see in the space with traditional processors adding crypto payments or crypto processors supporting a bunch of coins like first principles. Okay, now we're no longer talking about metrics, but they matter. Like we have been committed to the growth of Bitcoin and the Lightning Network for as long as the company has existed. We've not pivoted, we've not compromised, and we really believe in this mission and believe in… not that it's a narrow mission, but it's a very specific mission that we can use to have huge impact in the world. There's companies that do payments and exchange services and lending and it just seems like a lot. We want to do a couple of things really, really well and then we want to power everybody else with a rail that is the best performing, most flexible and industry leading.
Kevin Rooke - 00:32:05:
Interesting. Now, how do you distinguish yourself among the different sets of competitors in those different verticals that you mentioned? Right, like infrastructure has all the kind of like Lightning service provider competitors. There's a handful of them. The payouts has some, like Strike comes to mind as a competitor there where it's like remittances back and forth and then payments. You may mention things like BTCPay server or some of the other Bit pay or any of the other payment processors. So in each bucket it seems like all those three buckets you mentioned have their own distinct set of competitors. How do you distinguish between the three and make sure Open Node is how do you set OpenNode apart from the crowd, I guess do those three help you when you pull them all together, when you can do all three at once?
Julie Landrum - 00:32:59:
Yeah, absolutely. Because when we look at the landscape, we don't see a crowd. I mean, we see players who have completely different areas of focus. To us, we are the leading custodial managed payment and payment infrastructure provider, full stop. We're not even competing when it comes to Powering digital wallets, powering exchanges, powering Lightning payments for merchants or Powering Bitcoin payouts. We have a head start. We have an incredible roster of partners and clients, and the one space where we haven't been directly present is the PTP space. So that's a little bit separate, but we do Power exchanges that have PTP user bases. We're just focused on the pipe. Having worked in traditional payments for, like, more than 15 years, I was always very interested in and focused on the network space. I think Bitcoin is very benevolent technology. The Lightning Network is getting more diversified. We have started as a custodial managed payment solution, but we definitely are just looking to help the world adopt a currency that enables privacy, freedom that can't be censored. All of the things that, when you look around, just seem like really huge shortcomings and potentially worsening shortcomings when it comes to surveillance and control of people in an open society.
Kevin Rooke - 00:35:37:
Have you seen in the last maybe a year or so, any kind of, like, spikes in growth or any inflection points along? Because we had a lot of significant events in the Lightning space. We had significant events in the macroeconomic space, just to list off a few: we've had El Salvador announcing the Bitcoin law in September. We've had the Canadian truckers getting their payments blocked in maybe January. We had the Ukraine Russia situation in February. A lot of people lost payment access there. We had Kraken introduced Lightning to the exchange in late March, and then another host of, like, five or six different announcements of other exchanges integrating at the Bitcoin conference just a couple of weeks ago in early April. Were any of those events, like, a meaningful boost in interest or activity at open node? Did you get a sense that there was, like, an acceleration of interest or adoption after those events?
Julie Landrum - 00:36:43:
So I can only talk about metrics or things that would have been a direct result of activity by our clients and partners. We do route payments, but we don't really have insight into what is causing spikes or decreases. El Salvador was definitely a huge event. I think we saw, like, 20X in Lightning transaction volume.
Kevin Rooke - 00:37:27:
Is that like, the month after El Salvador came online?
Julie Landrum - 00:37:31:
Yeah, exactly right. But what's really interesting is it's not a huge market. We recently enabled a few digital wallets and exchanges in Latin, and we're working on a bunch more. When we look at Lightning Network transfer volume, it's astronomical. Astronomical for all of the reasons that people can now send very trivial amounts of money at even more trivial cost, instantly, in order to fund trades transfers, in transfers, out transfers to others. So with that, we are seeing exponential Lightning Network transaction growth as well.
Kevin Rooke - 00:38:30:
Interesting. So is most of the growth that you're seeing centered around Latin America today.
Julie Landrum - 00:38:37:
Maybe I'm mentioning it a lot because it's like one of my sweet spots is a place where there is just a natural market receptivity to these technological innovations. And it's just such a dynamic continent with all different kinds of currency and people drivers. It's also a continent that happens to have a ton of borders, which is also a huge opportunity when you think about the exponential benefits of Bitcoin across borders. But I would say the same is true in Africa. Again, I'm specifically not really talking about the US. Because that's not really where I spend a lot of my time. But the growth in the US. Is phenomenal. Obviously, we have had some incredible deals and partnerships announced over the last twelve months. We recently announced a partnership with Primer, who is a really fantastic payment platform for merchants. No code payments. And our pipeline is crazy. Our pipeline is crazy. Three years ago, people were like they weren't sure if this was something they wanted to do. Maybe a year and a half, two years ago it became it's a matter of when, not if. And now we're entering a period of like everybody is trying to get enabled because this is the time. Interestingly. I think this is a little bit behind the scenes. There's a lot of work and enablement happening with the price action. It sort of seems like the calm before the storm, but it's a race. The race is on and we're here for it.
Kevin Rooke - 00:40:54:
I hope you're enjoying the show so far. I just want to give a quick shout out to our sponsor, Voltage. Voltage is the industry standard for Lightning Network infrastructure, creating layer two applications and services on top of bitcoin starts with Voltage, where you can spin up nodes, get access to the liquidity, optimize your node, and much more. Voltage is leading the way as the next generation provider of Lightning Network infrastructure. And if you want to get a free trial and start using Voltage today, you can do so at Voltage.cloud. One thing I want to talk about is the kind of network effect of the Lightning Network versus the network effect of, let's say, traditional payment processors. Or maybe we can just define it as credit cards and credit card networks because historically the credit cards have had pretty strong network effects over point of sale terminals. They've been deeply integrated into every ecommerce checkout. I guess my question is how do you see Bitcoin's Lightning Network? And that network effect of people all over the world breaking into the market of traditional payments where there's also another network effect, but it's a different kind of network effect. How do those two converge?
Julie Landrum - 00:42:15:
Yeah, that's such an interesting question. First thing I would say is a very limited set of global payment networks and banks have had decades to organize themselves, impose themselves on society, the world, from a technical standpoint, with technical requirements, policy requirements. And the thing that's helped the payments industry to date the most is the lack of options. What was really interesting about my journey into bitcoin is that after working for a number of payment networks in the traditional space, I decided after 15, 18 years that I wanted to do something different. I was like, still super hooked on payments, but I wanted to do something different. And actually, you can't work in payments without contributing to exactly those same three, four global payment networks or dozens of banks around the world that completely control our monetary and payment systems. Like, it didn't matter. Stripe is a cool company. Everything they do feeds into banks and networks and the same applies to every single payment related company you could think of. Three years ago, the optionality finally came arguably longer than that. But for me, the optionality finally came in the form of a new global network that is interoperable. So that's one of the main advantages in terms of network effect that is not owned by anyone, certainly not a monopoly. There's no one to fight for that position of monopoly. Benevolent, as I said before. So, like, all of these things that made it so much more magical, so much more fulfilling, so much more mission driven than just extending the growth of antiquated clearing systems of yore. So interoperability is huge in terms of network effects. Airdropping bitcoin in the form of payouts, salaries, payments is going to be an incredible way to spark supply of bitcoin for payment. And again, we're talking about a rail that is, we can plug it in anywhere that there is money to be moved. And we have bridging. Right now we're working on additional support of additional currencies. We're also working on education and product developments that will allow us to start avoiding having to bridge. And then outside of kind of like the technical and payment industry space, there's so much maturing happening in the regulatory space, in the political space. The world is changing. Everything seems to have a connection to this new monetary system that we are trying to build and grow. Yes, it's a really crazy exciting time.
Kevin Rooke - 00:46:39:
Yeah. Now I've asked this question to a couple of guests before, but I think you'd have an interesting perspective on this. I'd love to know if you see adoption and kind of the growth of this network effect happening primarily through bottom up organic adoption being like, you know, word of mouth or people just like spreading. Sending one payment to a friend who all of a sudden now has bitcoin and can send it to another friend who all of a sudden has bitcoin as well. Or whether you see the primary means of adoption or network effect growth coming from large corporations or governments coming online like we saw with Cash App and Kraken and El Salvador. Which side of that? I guess that's a spectrum as well. But how do you weigh the importance of those two kind of components?
Julie Landrum - 00:47:34:
You're totally right. It's a spectrum, and I would say they're complementary because in order to cross the chasm, as it were, two things need to happen. You need to personally have some kind of visceral or impactful experience with the technology, with the asset, something that is personal. And then secondly, because you can't know everything about bitcoin and where people it has been maligned for so long, just this overarching sheen of trust and embracing that's more of like a contextual, “okay”. That's like the world giving you the nod that you're not a shadowy supercoder, you're not a criminal just because you don't want every single one of your payments surveilled. It reminds us that we shouldn't be ashamed of the fact that in our lives, we want choices. And when influential and very wellrespected, people and institutions back bitcoin and back bitcoin payments, it just helps us get the conversation out of the gutter wherever else people are trying to put it. Because bitcoin may be a threat to the status quo or to legacy interests. So both, I mean, both are important.
Kevin Rooke - 00:49:29:
Well said. I like that. Okay, I want to talk specifically about we've talked a lot about payouts. I want to talk about payments in the traditional sense, in the, like, going to a store and buying something and some of the challenges that you guys are going to have to overcome and the whole Lightning bitcoin community will have to overcome if this is actually going to be implemented everywhere. One of the common critiques I hear when I talk to people about this stuff is that everyone can use a credit card at any point of sale, which has a very strong lock in. I agree with that. But then there's also a second point that people will say, well, everyone's getting cash back on their credit card too, and obviously the cash back in some capacity is coming out of the merchant's pocket. It's not just free money that's being airdropped, but to a consumer, you can see how it seems that way. Like a consumer is like, oh, I'm getting 2% back for free, and they're not seeing that, oh, the price is actually 3% higher because the merchant has to pay the 3% out of their own pocket, or whatever the percentage is. I guess it depends on the different merchants. But how do you think about getting over those two hurdles in the Lightning space? And do you think there's some similar form of cash back? Or maybe it's a different kind of a payment incentive that we can develop in the Lightning space to kind of compete in that way?
Julie Landrum - 00:51:06:
Absolutely. The way incentives are structured today have gotten western economies, especially, you could argue, places like America and Canada. Most have gotten consumers hooked on credit, and those incentives, the cash back, are used to incentivize consumers to defend the way traditional payments work. I don't know when it was like ten years ago, 15 maybe it was as long as 20 years ago, there was a consortium of merchants that came together in the US. And tried to create their own group so that they would have lobbying power over prices. What's super interesting is so that failed, and unfortunately, I can't remember the details of that effort. But what's interesting is merchants are people too. Businesses are people too. And in our experience, what we find is a lot of times people say, oh, what kinds of businesses benefit the most from bitcoin payments? Well, any business can benefit, but the businesses that are most successful could be a, like, shoe retailer because actually the owner is a bitcoiner. That person wants bitcoin. And so what are they going to do? They are going to help incentivize the use of bitcoin. How? You can give discounts. There's lots of different ways you can do an equivalent of loyalty programs. There's all kinds of things. So what's interesting about a business community that wants to benefit from lower fees? Instant payments abolishing a tax on their commerce activities, abolishing theft of their revenue as just like a standard operating procedure, they become part of a movement. Does that answer your question?
Kevin Rooke - 00:53:45:
Yeah, that's helpful. Do you think that it becomes commonplace for merchants to offer discounts if you pay over Lightning? Do you think that's going to be like a standard feature for all Lightning merchants over time? Or I guess, what would that discount even be? Because I know with large credit card networks, whether it's Visa or Mastercard or any of the kind of top three or four, they have fee rates that change depending on the size of the merchant. Right? Like, isn't it like only only 1% or one and a half percent for some of the biggest merchants, but maybe it could be three or more percent if you're doing if you're a mom and pop shop doing small value transactions. So how do you think about what is that opportunity for fee compression?
Julie Landrum - 00:54:35:
So when people talk about 1%,2%,3%, they're only talking about the interchange portion of the fee that merchants and businesses pay to accept payments. Bigger costs or as important are the cost of capital. You're not getting your funds if you're a high risk business. You might not get your funds for five days. You might not get them for 14 days. If it's like your first time working with a specific processor, the cost of chargebacks is massive. The cost of fraud is massive not just in terms of chargebacks that merchants have to subsidize because they are liable, but also in terms of the solutions that merchants are also made to buy in order to protect themselves from these things. None of those things at the moment, number one, are hindering adoption of Bitcoin payments. And number two, they're just not a core part of how the system works. We can offer chargebacks, we could offer escrow, we could offer insurance relative to large or high value purchases or electronics. There are lots of ways to structure that. But today, in traditional payments, those costs are just baked in. So the interchange is really just a part of what merchants are paying. If you look at a merchant statement, there's like 20 fees. Some of them are related to individual transactions, some of them are set up costs, some of them are monthly recurring, some of them are value added services. And what we're trying to do is we're trying to work with distribution partners, but extricate or isolate ourselves as this new rail that doesn't require any of that other crap, maybe reporting and that kind of thing. But we don't need Bitcoin accepting merchants to opt into fraud solutions. Like, we don't need to be worried about the sale of credit card data on the darknet because we transfer value, not personal information. So there's lots of advantages that are material. But these things take time. They take time. You need enthusiasts, you need early adopters, you need… You know Michael Sailor is a great example. He's like a super visible proponent. Doesn't matter what the price is, he's buying. He has conviction. Sometimes because we're in this business or because we're in this industry, things get complicated. We're blindsided by a new objection or something that seems complex or insurmountable. And every time you go back to first principles, it's like, this is absolutely inevitable, guaranteed. And I felt like this three years ago when we were trying to sell OpenNode and people were like, what are you guys thinking? Like, nobody is going to do this. But again, it can't not happen. It is the best monetary technology and now we're getting validation. We just raised a pretty serious amount of funding. We have an incredible pipeline. The world is only headed in one direction, so there'll be bumps and there'll be exceptions we have to manage and use cases we have to figure out, and products that we need, capabilities that we need to build on top of the rail. But it's kind of unstoppable.
Kevin Rooke - 00:58:55:
So do you think if you can split up those fees, interchange fees and all the other stuff that traditional payments have to deal with?
Julie Landrum - 00:59:05:
Yes.
Kevin Rooke - 00:59:06:
Are the two comparable in size? Are we talking like 1, 2, 3% for both of those payments, for both those buckets? Or is one bigger than the other? I guess the cost of capital is dependent on the type of business and the size, right?
Julie Landrum - 00:59:23:
Yeah. We've talked to companies that said that it wasn't really like the cost that mattered, it was more the time, because every company is managing cash flow and already pre allocating the cash that's coming in to subsequent activities that allow them to grow their business. Probably in terms of your model, like, not very easy to quantify, but certainly something that just that time between when you're needing money and when you get it, it just stops businesses in their tracks.
Kevin Rooke - 01:00:05:
Right. And it seems like it would benefit the smaller merchants a lot more to be able to, at least on like a percentage basis, to be able to accept Lightning payments because the interchange is probably much higher for them. And then they also have to it's probably just one person or a handful of people that are dedicated to taking on all those other tasks that you mentioned, and they may not have those processes in place versus, like, a Walmart that has thousands of employees managing all these tasks. And they can kind of absorb that cost maybe a little bit better.
Julie Landrum - 01:00:44:
So, first of all, Walmart pays like, they have such tremendous lobbying power. Like, once in a while you'll hear about I think the most recent was like Amazon in the UK threatened to stop accepting Visa cards. They're like, no, we won't do it. Well, guess what that means? That means they get all the market participants around the table negotiating with them on a transaction fee that will be acceptable because they are such a huge driver of volume. The structure of our global economy is changing. There are so many more small and medium sized businesses now. They have always shouldered the primary burden for these costs. They have always paid more than the large companies with negotiating power. And that's where we also feel like businesses are understanding the value proposition because businesses, especially small and medium sized businesses, are people too. There used to be not old now, but maybe back in the 70s or in the 80s, there would be this, like, massive dichotomy between you, the individual versus you walking into a massive office building and going to work. Those were two completely different types of participants in the world. Well, now there's lots of businesses that are small and being run out of houses, especially with the pandemic and remotely, and there's lots of people contracting. We just have a lot more fluid and less hierarchical world. And that certainly also lends itself to a digitally native currency and to instant low cost payments that can be sent from and to everywhere.
Kevin Rooke - 01:02:45:
Right. That's a really interesting way of framing it because, yeah, we now have this transition from that corporate job in the office nine to five to now. You got gig economy, you got Uber drivers, you got creators online, you got people selling things out of their home on shopify. There's all sorts of kind of new business models and new ways to approach being a business that didn't exist before. Do you think that open node is able to serve that full kind of spectrum all the way over to the individual creators. Do you have any kind of interesting, I guess, shopify? You have a shopify integration for that. Is there anything else on that creator side that you guys are working on or plan to roll out?
Julie Landrum - 01:03:35:
So the breadth of what we're doing, like the breadth of users that we have and solutions that we offer is so vast that we are kind of at the point of no longer building like bespoke applications for specific industries or verticals or use cases because we're focused on the foundational movement of money. And we have two types of solutions. We have no code solutions that kind of small businesses or sole proprietorships or creators can come to our website and start and sign up and start accepting bitcoin payments or start sending bitcoin payouts without having to code a single thing. All the way to APIs that can be integrated by companies who provide a lot more value to end users or have other services that they add on where they can integrate what we provide but also manage the relationship with customers. We think about and talk about those partners as distribution partners. They are helping OpenNode distribute our rail more broadly without us having to specialize in specific use cases, without us having to build massive sales teams that individually go after end users. When you work with a shopify, when you work with a big commerce, when you work with a company like Primer, when you work with some of the payment processors that we have lined up to implement, those guys have been specializing in marketing and sales for many, many years. They have existing customers, they have huge pipelines, they have massive budgets for active selling and active marketing. We want to augment their businesses, especially if we can continue to dictate the terms of the pricing. Because again, what we don't want to do is to create that same pyramid scheme level of pricing where we have a buy rate and then everybody who resells is adding their bit on top. That's where the end merchants and the end businesses have always gotten screwed. I'm watching my language just for you, Kevin.
Kevin Rooke - 01:06:31:
I appreciate it. Where do you see Lightning fees going over time? You guys must have a fee on some kind of payments. But there's also the fees that a router may earn on processing the Lightning payment across the network. What do you think it is a reasonable percentage for a consumer to expect when they go to make a payment on Lightning over the next five years? Do you see the transaction fees rising up higher than their current level? Do you think that we can make it nearly free forever? Obviously some of this is incorporating the open node business model and what that fee is going to be as well. So how do you see that fee landscape evolving on lightning?
Julie Landrum - 01:07:24:
So I could probably not answer that scientifically in terms of what I know about node infrastructure costs and how the network is growing and how node operators and routers are pricing their transactions. What I can say is that from an open node perspective at the moment, we have broadly two pricing philosophies. One is a pricing philosophy to merchants and businesses who today, at the cost of doing business, are having to pay much higher costs than what we offer. Number one, because again, we're a small company. It's not super clear. Like over time we'll have a very data team and finance team, and everybody can figure out exactly what is our cost of processing and then we can understand exactly what our margins are today we price relative to the competitive environment, not just especially traditional, but also cross border, bank, all of those types of things. And then we have a pricing philosophy when we talk about enablement and transfers and equipping digital wallets and exchanges to enable Ln transfers. That's a model where we price to users. So we're thinking about how do we deliver the benefits of the Lightning Network to the end payers. And the way to do that is to not charge them. You pass on the Lightning Network fees. We've seen them be quite consistent over time. Certainly I haven't heard the guys kind of squawk about Ln fees. They tend to be fairly straightforward to estimate and pass on. And maybe it's because we benchmark them not against zero but against on chain fees that they seem problem free at the moment when that changes and we start to think about, hold on, maybe payers don't want to pay anything. Like they're coming from a place where they're being paid to make payments versus having to pay to make payments. But again, Bitcoin doesn't necessarily directly compete with the credit. We can't compete with credit card payments in a material way now. That's where you're talking about a monetary structure to the economy and like a cultural crazy, out of control phenomena that it's going to be hard to replace credit with cash, even digital cash, even the best digital cash in the very short term.
Kevin Rooke - 01:10:28:
Interesting. Right now, I think on open node site fees are like 1% on payouts and payments. Is that correct?
Julie Landrum - 01:10:36:
That's the maximum we have lower fees for higher per transaction amounts.
Kevin Rooke - 01:10:43:
Got it. Okay, so you think maybe 1% is like a fair do you think that might be just like a benchmark that the industry is kind of like aiming for? If we say credit cards are 3%, is it realistic to say somewhere in that 1% range, maybe even lower than 1% is almost like the expectation for Lightning?
Julie Landrum - 01:11:06:
So when you talked about Lightning fees, I thought you were talking about the Lightning Network fees themselves.
Kevin Rooke - 01:11:15:
I guess you could manage those fees and just eat those costs on your own. But yeah, there's different ways I guess, to structure it. But I guess what I'm really getting at is the overall fee that a consumer is going to have to pay. What do you think that is going to have to be on or what a merchant might have to eat. Right? If merchants are eating 3% with credit cards, what are they eating on? Lightning?
Julie Landrum - 01:11:43:
So today we charge a maximum of 1% for standard payment acceptance and standard payouts. And again, don't forget that's an all in cost.
Kevin Rooke - 01:11:54:
Right.
Julie Landrum - 01:11:55:
The only thing it doesn't include is that when open node facilitates the payment, payment is received in an account that is associated with open node, and there needs to be a final transfer to the destination bank account or Bitcoin wallet. But that's it. We don't have set up fees. There's no fraud risk, there's no chargeback, and there's also no such thing as a foreign card use. There's no distinction between whether it's a personal card or a commercial card. It's just super simple. So I would say, you know, as a headline, it seems like you're comparing 1% to 3%, but actually it's more like 1% to 5% plus management of capital plus chargebacks can be initiated for 120 days through bank rails. They can be initiated for like 90 days in the US. So these are costs that businesses just can't plan for.
Kevin Rooke - 01:13:07:
Right. So that 3% headline isn't really including all the actual costs that we've gone through, the cost of capital, the fraud, the charge backs. And when you compare it that way, you're already well below the 3% to begin with. But then when you tack on all the extra things, you're looking at like 1% to 5%, 1% to 10%. And it's almost a no brainer at that point.
Julie Landrum - 01:13:29:
Exactly.
Kevin Rooke - 01:13:30:
Interesting.
Julie Landrum - 01:13:31:
And it's clear, it's transparent. Stripe and square charge relatively higher interchange fees in market. Like the US. For example, is 2.9% plus thirty cents, I think. And that's because they're trying to simplify the pricing for merchants, because when pricing isn't simplified, like, every transaction can be priced differently, first of all. So they try to do a blend like they do, like a risk based assessment of, like, what is the transaction mix likely to be. But then when you work with those guys, the fee is simpler, but you're paying for the abstraction of complexity because they are in the background weighing up all the different prices, all the different fees that they're actually having to pay. As like, a master merchant, for example.
Kevin Rooke - 01:14:30:
Yeah. So they're doing the risk assessment behind the scenes, giving you a straightforward fee, but you know it's going to be higher because they have to take a fee as well.
Julie Landrum - 01:14:41:
That's the ceiling. But it's just a higher ceiling because they have to cover every eventuality.
Kevin Rooke - 01:14:47:
Yeah. And earn some fee or earn some revenue from the business themselves.
Julie Landrum - 01:14:52:
Right.
Kevin Rooke - 01:14:54:
Okay, I want to finish this off with one more question. You recently mentioned you guys raised some money, I think it was a $20 million raise. Are there any things in particular that you're excited about on the OpenNode roadmap that you want to highlight or anything. I'll even make it more broad if there's anything in the Lightning ecosystem outside of Open Node that you want to draw attention to as well.
Julie Landrum - 01:15:17:
Yeah, sure. So this is a very nerdy answer, but I'm very excited for us to kind of strengthen our foundations when we look out at the pipeline of demand and the enablement that we're going to be doing in the next six to twelve months. We really need to make sure that we have just the basics really buttoned up, because we pride ourselves on delivering a really good experience. We pride ourselves on reliability and we just need more devs, more operational focus from a compliance standpoint are going to obtain our licenses so that we can have more operational autonomy and so that we can actually try to optimize our commercial structure a bit more. That's the nerdy stuff that excites me is like just getting super buttoned down so we deliver like a great experience to all of the partners, all the clients, large and small, that we expect to be enabling in the next however many months. But some of the other things that we are looking at are cool and top secret, so I can't tell you about them.
Kevin Rooke - 01:16:52:
That's fair. I'll take that. I really enjoyed this conversation. Where can listeners go to learn more about you and the work you're doing at OpenNode?
Julie Landrum - 01:17:01:
Sure. I think the best place is our Twitter @OpenNode. I'm on there too, but I don't tweet a whole lot, so I don't know that it's very I don't think it'll be very interesting for a lot of people. But yeah, at OpenNode you should be able to find us. We kind of had our heads down for like two or three years, just cranking out work. We are trying to be a little bit more visible, approachable, more engaging, I guess, on the world stage of bitcoin and payments. So you can also find us at Money 20/20, which is coming up. You can find us both Money 20/20 Europe and Money 20/20 in October, in Vegas. Where else are we going to be? Yeah, lots of different places where either bitcoin or payment people congregate.
Kevin Rooke - 01:18:11:
Cool. Well, thank you so much for taking the time today and I'm really excited to follow along with OpenNode over the next year or so.
Julie Landrum - 01:18:19:
Pleasure, Kevin. Thank you so much.
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