What Does PayPal's CEO Say About Bitcoin?

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0:26Hi, welcome to HBR Now. I'm Adi Ignatius, the Editor-in-Chief of Harvard Business Review, and I'm here with my co-host Octavia Gordima, who is the founder of the 2010 agency, and Joshua Macht, who runs product and innovation at Harvard Business Review. Hi, everyone. Hi there. Um, let's, well, maybe before we start, we should hear from our sponsor, our friends at Accenture, Dave Rollett. Change is all around us. Shaped by technology and human ingenuity. We can make it work for you and your business.

1:05So our guest today in a moment is going to be Dan Schulman, who's one of the most interesting and socially conscious CEOs out there. He's the CEO of PayPal, and we'll be talking about CEO activism as well as about the future of finance, including PayPal's own foray into the world of Bitcoin and cryptocurrencies. If you, the viewers, have questions for Dan, put them in the comments box. We'll try to get to as many as possible as the show goes on. We understand that not everyone who is watching exactly understands cryptocurrencies and their impact. So we found something on TikTok that gets at just that.

1:43Hey dad, use this. It's called cash. Paper for money. People only accept gold. Hey dad, use this. It's called a credit card. Plastic for money. People only accept cash.

2:01So yeah, so crypto is the next great wave. Before we get to Dan, I want to take a moment to remember one of the truly great, truly innovative CEOs of our era. And that's Tony Xia, the former Zappos CEO who died a few days ago at the age of 46 from injuries sustained in a fire. Tony took customer service to a new level at Zappos. And Bill Taylor wrote a very moving tribute to Tony that's on our website now called The Leadership and Artistry of Tony Sia. I met Tony a couple of times and often cite him as an example of a leader who understood the need to constantly reinvent. When I was preparing to give a talk on corporate risk last year, I asked Tony what he saw as the biggest risk out there.

2:45His answer was classically, Tony, he said the biggest risk is not taking risks. He went on, as Darwin showed, it's not the fastest or strongest or most intelligent of our species that survives. It's the ones most adaptable to change. I also loved his philosophy about business. He said, create a little fun and a little weirdness. The game is a lot more enjoyable when you're trying to do more than make money. So, Josh, I know you were, Tony, was an inspiration for you as well. Definitely an inspiration. And also just as a journalist, someone that, you know, for me, covering entrepreneurs for a long time and technology, Tony was one of those people that inspired all of us, made us think that we could do it.

3:24But he just always sort of had a different approach. And it was that Bill Taylor who wrote the piece for the site. It was that, you know, years ago, Bill wrote about him in a piece that just went on some of his tactics around hiring and firing that it went viral, went crazy because people were attracted to him and his ideas. And he's definitely going to be missed. Yeah. All right. So before we start, I feel like we should say something. You know, we just had Thanksgiving and Octavia, maybe start with you. I'd love to hear, I guess, how your Thanksgiving was, but sort of where you are. We started this show during quarantine when we were trying to connect with people in this difficult moment.

4:05And we've all been through probably some great, profound changes and thoughts since then. So, yeah, where are you coming out of Thanksgiving? Oh, my goodness. So thankful for Wi-Fi. Propel Fitness Water with Gatorade electrolytes, zero sugar and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. right at least we're still able to connect and and see each other um but thanksgiving was wonderful um i really valued the time to just slow down a little it was also a double celebration in our house it was my youngest daughter's birthday on thanksgiving day that's very cool yeah i've got balloons just off camera we had as well as all the trimming so it was really nice how was yours josh It was fine.

4:59I mean, it was we we sort of socially distanced, kept windows open with a few people for just like a few hours. You know, I didn't really, though, get to see my sisters or my mother. So that's just strange, you know, at holidays where you're used to seeing them or seeing them every other year. It just felt odd. I don't know. And I guess it was like that for everyone. Yeah. I mean, for me, it's just about holding on right now. So we had a very sweet Thanksgiving. I basically keep my sleeve rolled up most days just in case the vaccine guy pops by. I mean, I'm ready. Wow. By the way, I also wish I'd bought Moderna stock.

5:38We had the chairman of Moderna on, I don't know, a month ago. The stock has more than doubled since Newbar was on the show. You get a bump from coming on the show. He had the HVR now bump for sure. And the vaccine. There's that tip. Yeah, the vaccine. Mostly the vaccine, but it's also mostly being on HBR now. All right, so let's get into it. So let me formally introduce our guest, Dan Schulman. He's had an amazing career. He was a senior executive at AT &T, ultimately heading its long-distance business. He was CEO of Priceline.com. He was the founding CEO of Virgin Mobile USA. He was group president of enterprise growth at Amex.

6:17And six years ago, he became the CEO of PayPal. So Dan, welcome to the show.

6:22Dan Schulman:Thanks, Adi. Great to be here with you. Yeah. So, Dan, you're one of the most, I think, socially conscious CEOs out there. And you've taken on a topic that I find few CEOs do, which is labor. You have all these CEOs who at places like Davos, they talk about how they're for stakeholders. But when it comes to labor policies, they tend to keep their mouths shut. PayPal seems different. You've committed the company to actually paying living wages. How does that work? And I guess, what was the tipping point for that decision? Yeah. Well, there's a lot of talk about stakeholder capitalism now and moving away from just maximizing profit as a purpose of a company.

7:10Dan Schulman:A purpose of a company needs to be more than that. But as I think about the constituents that I serve, from regulators to shareholders, to customers, and then, of course, all the employees at PayPal. I put employees at PayPal at the top of that list because I think the only sustainable competitive advantage that a company has is the strength of their employees, the talent that you can attract and retain, the passion that those employees have. And if you ever stand a chance from moving from being a good company to a great company, it's because you have great employees. And so we did a survey of our employees and asked them how well they felt financially.

8:06Dan Schulman:Were they financially healthy? And I did this survey, by the way, a little bit selfishly because PayPal pays above market rates typically anywhere we hire people. And I expected the results to be quite good. And I was going to talk about them at an all employee meeting. And what I found actually is that two thirds. Propel Fitness Water with Gatorade electrolytes, zero sugar and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. Our entry level employees and call center employees actually struggled to make ends meet at the end of the month.

8:53Dan Schulman:They were financially stressed. They had higher absenteeism rates as a result of that. They were actually having to choose between getting health care benefits for their family or putting food on the table. And that was just unacceptable to me. I mean, our whole mission as a company is to democratize financial services. And so I slashed health care benefits by 60 percent for those employees. We raised salaries. We gave everyone in the company equity so they could be part of the success of PayPal and wrapped all that in a financial education program. And really importantly, Adi, we put a measure on this because people talk about living wage, but you never really understand what it is.

9:41Dan Schulman:And we developed something called net disposable income. How much income does somebody have left over after they pay all of their taxes and essential living expenses? And that obviously changes location by location. But for these entry-level employees, what we found is their NDI was as low as 4%. And we set a target of 20%. So to increase NDI by four to five times. Today, we're at 16 % NDI, and hopefully next year we'll get to our goal of 20%. So what's the cost of that, and how do you sell that cost to your other stakeholders, including shareholders? Yeah. Well, it's a significant amount of investment that we put in, but I can't really think of any other place where I'd rather invest my money than in our employees.

10:38Dan Schulman:I mean, think about it. If you have great employees that are passionate about the success of PayPal, that are passionate and proud to work there, then they deliver better for customers. And if you deliver better for customers over at least the medium term, you deliver better for shareholders. And so we've seen a dramatic reduction in attrition, an all-time high in the pride at working at PayPal. Productivity is up substantially. And so although we made a major investment in this, I think the benefits, to me at least, have been very clear. And I have to say, when we announced all of this at an all-employee meeting, it was probably one of the best days, if not the best day that I've ever had at PayPal.

11:30Dan Schulman:The amount of pouring, you know, outpouring of emotion around it was really something to behold. And we're just benefiting from that. So let me ask you more broadly about CEO activism. You know, there's certain issues that you've been very public about. But I guess my question is, how do you decide which issues are the ones you want to engage in? And then, you know, with all due respect, why should we care what a CEO has to say about social and political issues? Yeah. Well, I think that companies who, again, aspire to be enduring great companies need to have a purpose. It can't just be about maximizing profit.

12:18Dan Schulman:And I would argue that purpose and profit actually go hand in hand over at least the medium term. And if you have a purpose or a mission as a company, you need a set of values that support that mission. You know, an example at PayPal is our mission is to assure that managing and moving money is a right for all citizens. Propel Fitness Water with Gatorade electrolytes, zero sugar and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. Not just a privilege for the affluent. It's a very inclusive statement.

13:06Dan Schulman:And our number one value at PayPal is inclusion. And so we stand up, and very publicly so. And oftentimes, I even receive death threats as a result of us taking stands. because I really believe that if values are just something you post up on a wall and you don't take action on them, then they're just propaganda. I think it's worse to put something up on a wall and not take action. And honestly, this isn't about being political. It's not about what I care about. It's about what the values are of PayPal. And our employees expect that we will stand up for those values. It's why they come to PayPal, why they're proud to work at PayPal.

14:05And I believe increasingly that customers want to buy and use services from companies that stand for a set of values.

14:19Dan Schulman:And it's something that we will continue to do as we go forward. Do you meet CEOs who, at this point in 2020, have a more kind of Milton Friedman traditional line that just says, this is not our job? Or are you finding that everyone is kind of where you are now, that to be a CEO, for all the reasons you suggested, you have to play in these areas? I think more and more CEOs are thinking about a broader role, but it's not easy to go do that. I mean, look, we live in a very culturally charged moment in time, a politically charged moment in time. I think personally that CEOs have an obligation, maybe a moral obligation, to stand up, to advocate for worker rights, to advocate for issues that matter to their company, the values that their companies are based upon.

15:34Dan Schulman:I don't think we should necessarily wade into political issues. Like when we withdrew from North Carolina after they passed the bathroom bill because we thought that that had the potential for discrimination against somebody for their sexual identity or sexual orientation, you know, people said like you're wading into politics. And I said, look, discrimination is not a red issue or a blue issue. You know, being against discrimination is a red, white and blue issue. That's an American value. That's a value of PayPal. And so I try to stay true to our values. And sometimes values get mixed up in politics, but we're not trying to take political stance.

16:21We're trying to advocate for policies that are aligned with our values.

16:28Dan Schulman:And I think that's my responsibility. So if you just tuned in, this is HPR Now. Our guest is Dan Schulman, the CEO of PayPal. If you have questions for him, please enter them in the comments box. Dan, I'm going to ask you one more question, then bring my co-host back in. But I want to start the conversation about cryptocurrency. PayPal has generated a lot of excitement with its announcement that it's handling transactions in Bitcoin. you know why you made that move you know what are the opportunities where does this go the opportunities and risk propel fitness water with gatorade electrolytes zero sugar and vitamins propel hydrates better than water to help you get the most out of your workout and get back to your best self what propels you propel with gatorade electrolytes in a move like this for you No.

17:18Dan Schulman:Well, I think the pandemic has just accelerated trends that were in place, but accelerated by four or five years. And so you're seeing one industry after another digitize retail, education, entertainment. It doesn't really matter. Every industry is digitizing. The same is true in financial services. 40 to 70 % of consumers are using cash less or prefer not to use cash at all. And so forms of digital payments are exploding. And if you think about digital payments and the obsolescence of paper money, you really naturally start to turn towards digital currencies. Those can be central bank digital currencies, those that are issued directly by a government, or cryptocurrencies.

18:19Dan Schulman:And cryptocurrencies initially were kind of more viewed as an asset class, like gold. And asset classes move up and they move down. But the promise of cryptocurrencies is utilizing modern technology to make payments faster, less expensive, and add more utility to payments. And so we've moved into cryptocurrencies not just to provide an easier way to buy, sell, or hold cryptocurrencies, but really to utilize them in everyday commerce. And we're going to allow cryptocurrencies at the beginning of next year to become a funding source, just like a credit card or a debit card or cash might be, to purchase anything at the 28 million merchants at PayPal.

19:12And so I think the utility of cryptocurrency and its benefits will only increase.

19:19Dan Schulman:And that will stabilize cryptocurrency from being so volatile because it'll just be more of a utility. So, Dan, I have a couple of questions related to this. I knew you were. So, yeah, but you talk about the utility, and I'm curious about it because to get a little bit more there, because for me and someone, a lot of people who just sort of don't use that much cash anymore, it's kind of like we have all these easy ways of paying for things. What's that for the utility? And then I'll leave it there for the moment. Yeah. So, in today's environment, it's actually interesting. You have all these technological advances, but you send money overseas to a loved one or you try and cash a check.

20:10Dan Schulman:It can sometimes take up to three days for your money to actually get to somebody. I mean, that's crazy. It should be instantaneous. Doing transactions and adding things like a smart contract on top of that thing, this payment is for this thing and it's got this utility associated with it, can really, I think, create different forms of payment types. You can digitize assets so that you can break them up and more sort of like buy a share of PayPal instead of spending, you know, whatever we are today,$215. You can buy a third of a share of PayPal, you know. And so there are so many things you can do with digital forms of currency moving forward that I think will just bring more people into the system and create a more inclusionary, faster, more secure, more utility type of payment.

21:14Dan Schulman:It's a little, you know, it's the next form of currency for the next era that we're entering, which is going to be all about the digital economy. It won't just be crypto. It'll also be currencies issued by central banks that are very different than crypto. But all of it thinking about how do you think about the next generation of the financial infrastructure. Interesting. So, Dan, I want to draw on that a little and what you shared about the pandemic accelerating trends. You know, for many years now, experts have been telling us that blockchain is going to change the world as we know it, not just for financial services, but for almost every industry.

21:54And I know PayPal is heavily invested in the future. You've invested in blockchain focused research, identity management and compliance. Can you tell me, in your opinion, 20 years from now, where could we be?

22:08Dan Schulman:Well, I'm definitely going to be wrong in whatever I predict, but hopefully nobody will remember 20 years from now. We are recording this. Yeah, exactly. Here's what I think. I think there is going to be this blurring, and I mean a real blurring, between online and offline. online. You're seeing that more and more in industries right now. People used to talk about online commerce and in-store commerce. I just think of it as commerce right now. Somebody can buy online, pick up in-store. They can be in a store, scan something with a QR code, go home and have it delivered to them. Entertainment going forward will be some people in person, some people watching digitally, being able to adjust the camera when you're watching it at home, request different songs.

23:13Dan Schulman:And so I think we are going to enter into a world where what were two distinct domains, online and offline, will merge in ways that will be quite unrecognizable. And I also think that if you think about technology, you think about quantum computing coming in, advances in AI, advances in 5G, and you'll eventually have 6G and an Internet of Things. this is going to be 20 years from now. It's going to be a radically different world from a technology perspective. And I think we can only begin to imagine what the power of those technologies will do. Really, I mean, I think it will be like a tornado touching down on every industry.

24:14Dan Schulman:and what gets spit out from that will be very different than what was. I don't think we're going to be able to extrapolate from what was, but kind of almost reimagine what could be. And I think that's both scary and very exciting at the same time. Yeah, I agree. It's pretty wild. And as you said, you know, when it comes to digital assets and transactions, pretty much anything could be touched. You can put pretty much anything in blockchain. How do we govern this? What are your thoughts around that? I mean, you touched on what this could do to currency and from a banking perspective. But what's your take on how we regulate what we're about to do?

24:56Dan Schulman:Yeah. Well, I think when it comes to the financial system, there has to be a strong hand in regulation. There needs to be assurance that your money is safe and secure, that cyber criminals and other bad actors don't have access to it. And so I think it is absolutely incumbent that the private sector and regulators work hand in hand. Things are moving very, very quickly. I mean, I actually think the very nature of change is changing. I mean, we used to think change was kind of moving quickly, and I think it is just now accelerating to a place where it's hard to keep up with all of it. And we need to make sure that we have kind of regulatory sandboxes that we can experiment in.

26:07Dan Schulman:But I do think this partnership between the private and public sector is crucial to assure the safety and security and privacy of our financial system. I think it's essential. So, Dan, one of our viewers, Candice from London, wants to ask you, how do you manage board members who hold different views on employee pay? That's a good question. It is a good question. I think, you know, when we withdrew from North Carolina, I actually didn't realize, you know, how much publicity that would get. It was headline news. The amount of hate email and death threats were quite something right away. And it was a decision that I made hearing the governor of North Carolina basically say that, yet we passed this bill.

27:11Dan Schulman:A lot of people are talking about it, but nobody's taking any action on it. So, you know, I don't think we really have anything to worry about on this. And I literally walked down the hall to my head of corporate affairs and said, in two weeks, we're going to pull out of North Carolina. And I forgot to tell my board because it was like, it was just part and parcel of our values. It was just anathema to everything we stood for. And, you know, I apologize to the board not telling them beforehand, but I mean, all of them joined PayPal. And, you know, we've taken our board and really we've done it.

27:59Dan Schulman:You know, we're a very diverse board. About 50 percent of our board is diverse right now. And we did that with everybody understanding these are the values that we stand for. This is the mission that we're undertaking. And that means sometimes we're going to make decisions that maybe can be more difficult. Employee pay, I did spend a lot of time with the board talking about investment and what I thought the benefits of that would be. The beautiful thing is, you know, we spent a whole board dinner, maybe three hours talking about just that. And, I mean, they could not have been more supportive.

28:42Yeah. So another viewer, Mohammed from Minneapolis named Paul, his question is, he asks, is Zelle a threat to PayPal? Now, I kind of wouldn't mind widening that to sort of also say, like, what is your biggest threat? I mean, what are you most worried about? Well, the addressable market, if you look at all of payments, is about$100 trillion.