How Credit Unions Can be the Netflix of Crypto and Blockchain

At one time, there were over 9,000 Blockbuster Video stores. Today, just one remains. It happens to be in my home state of Oregon, just a few hours away.

If you were born in the 2000s, you might not remember the days when we had to physically transport ourselves to a video rental store if we wanted to watch a movie at home, nor is the name Blockbuster Video likely to mean much to you. But the rest of us associate the name with both astounding success and spectacular failure—from a Fortune 500 company in 2007 to bankruptcy in 2010.

So what does all this have to do with crypto and credit unions? Kyle Hauptman, Vice Chairman of the NCUA, joins us on The Remarkable Credit Union podcast to address this month’s BIG Question:

How can credit unions be the Netflix, not the Blockbuster Video, of crypto, and what actions is the NCUA taking to encourage innovation in the space?

We talk about how regulators are encouraging innovation in cryptocurrency and blockchain, why credit unions have a head start over banks, and what three areas he would focus on if he were a credit union CEO.

 

Key takeaways:

1. Blockchain is more interesting than cryptocurrency. It does transparency and certainty well, and I feel the same way about its game-changing potential as people have felt about the Internet.
2. In May 2022 the NCUA issued a letter that essentially said, go forth and experiment. If no rule is broken, go for it! Right now, credit unions have an advantage.
3. The NCUA is actively seeking your questions and feedback around blockchain and crypto—please communicate!

 

Read the full transcript:

Cameron Madill:
Hello, and welcome to another episode of the Remarkable Credit Union Podcast. We created our podcast to help credit union leaders think outside of the box about marketing, technology, and community impact. Each episode we bring on expert guests from inside and outside of the industry for conversations about innovation. Our goal is to challenge your preconceptions about business as usual, and provide you with actionable takeaways that you can use to grow your membership, improve the financial health of your cooperative, and magnify the positive impact you have in your community. Today’s big question, which is closely aligned with our theme and interest in innovation, is how can credit unions be the Netflix, not the Blockbuster Video of cryptocurrency? And what actions is the NCUA taking to encourage innovation in the space?

Today, I’m really excited to welcome Kyle Hauptman. Kyle’s been the vice chairman of the NCUA since 2020. Prior to joining the NCUA Board, Mr. Hauptman has an extensive and impressive resume, including serving as Senator Tom Cotton’s advisor on economic policy, and staff director of the Senate Banking Subcommittee on Economic Policy. Kyle has done a number of really interesting things, including being senior vice president at Jefferies and Co. and working at Lehman Brothers as a bond trader in New York City and international offices in Tokyo and Sydney. Kyle also served as a voting member on the US Securities and Exchange Commission’s Advisor Committee on Small and Emerging Companies.

All right, so lots of impressive resume things. At least as important, Kyle told me he is part of a 10-leg family, which means that he has a wonderful son, a Yorkshire Terrier, a wonderful wife. You can actually find photos of him online getting sworn in and showing his passion for the Patriots. He was wearing a Patriots’ face cloth. He mentioned, which I thought was really fascinating and relevant to today’s discussion, he’s been around a few natural disasters in his life, including Lehman’s collapse, which I think gives people a really powerful and unique perspective on innovation. Kyle, thanks so much for joining us today.

Kyle Hauptman:
Happy to be here.

Cameron Madill:
All right, Kyle. I’d like to jump in, then. The NCUA’s approach to crypto seems to be quite different from a lot of other federal regulators, and I know you’ve been a big part of that. Can you talk about how it’s different? And what opportunities your approach opens up for credit unions?

Kyle Hauptman:
Yeah, I’m proud to say it’s a little different now. We don’t intend to be different. We’re just trying to do what we think is right. But the way we’ve got things with this new technology blockchain and blockchain was the underlying system behind Bitcoin, was created after the financial crisis in 2008. It’s a very neat technology and I think blockchain’s probably more important than crypto. I think like a lot of scientific experiments, they’re looking to solve problem A, and they wind up discovering answer B. Bitcoin was a way to send money to anybody in the world with an internet connection without relying on a government or a financial service provider. That’s kind of cool in its own way. But the mechanism, blockchain, this decentralized, unhackable, immutable database may have a lot of uses the same way the internet changed everything in credit unions.

Anyway, go forth an experiment. And the banking regulators right now have taken kind of the other way around, which is they’re not saying you can’t do anything, they’re saying you have to get written notice ahead of time from your examiner. Ours is kind of the other way around, which is if it doesn’t break a rule, go and experiment. I know there’s going to be problems. There’s always problems. I always say, “You know there was zero plane crashes before we had planes?” So, we think people are looking at things like title for real estate or for automobiles. That’s most of what credit unions do is car loans. There are people getting non-interest income by people buying and selling Bitcoin. Obviously, the credit union doesn’t have them on balance sheet or anything, but last year we put out guidance around that, because credit unions, just like banks, were seeing all these outflows to places like Coinbase, not getting a dollar for it.

The vast majority of people say when they invest in crypto, they’d rather do it with their trusted financial services provider. That’s a piece of guidance. There’s possibly loans against that. Maybe help fight overdraft fees, you could borrow against your crypto. That there’s a shiny object. But I think the really interesting thing is our May guidance we put out, which is basically there’s a new thing called blockchain. It will probably have various use cases and it was a go-forth-and-conquer experiment. If people need further guidance, they should talk to us. But there’s some neat things happening with identity and title and a few other things. So, that might have been more than you wanted my first answer, but there it is.

Cameron Madill:
No, I love that. I’ve spent a lot of time studying this space and I think your analogy to internet obviously is spot on. When you look at where the internet was in ’97 or 2000 or 2005 or 2010, it was almost impossible to forecast some of the innovations and transformational things that would come out.

Kyle Hauptman:
Yeah. It was just web pages. When we talk about the internet, you dialed on and then you saw a series of pages. Some of which were static, like magazine pages. Then you could maybe do some stuff on it. Now it means something totally different. When you use an app on your smartphone to call a car to give you a ride, that’s using the internet, but you’re not going to a URL, you’re not going to a web address. I try to be humble about this. I know it’s going to be… Well, I can’t picture right now, put it that way. Just like the internet. But I’m generally curious to hear your thoughts, too, if you’ve looked at these things.

Cameron Madill:
Well, I’ll interject at various points, but I just wanted to build on that of I think it’s a little bit like people who saw Pets.com or something and said, “Ah, this internet thing is garbage. It’s a fad.” Just knowing that the platform is so powerful that we cannot anticipate the innovations and whatever you think about Bitcoin, et cetera. Yeah.

Kyle Hauptman:
Let’s stay with that analogy, because I think it’s appropriate in another way, too. In the era of Pets.com and everything, a lot of people first heard of what we call dot-com back then, because there was a massive investment bubble and people were getting the Netscape IPO, and investing in all these dot-coms and then it all crashed. A lot of those business models work now, they didn’t back then. If you didn’t know any better, in the year 2000, when everything crashed, you’d say, “Well, this thing was just a fad.” Well, no, hold up. It was an investment bubble. And that’s what investors do when there’s cheap money and they’ve done it throughout history and they always will. That to me is the analogy of when Bitcoin was at 60,000 last year. That’s how a lot of people heard of it and that’s how people still think of it.

I get it. The investing side is the shining object. But in 2000, it all crashed and if you didn’t know anybody, you’d say that was a fad. Well, hold up, this new thing called the worldwide web, that was not a fad, that’s changed all of our lives. It’s changed everything credit unions do. That’s how I look at blockchain. The shiny object, whether it is crypto investing going up and down. I’m not here to give investment advice, but the use of it change credit unions, the internet did, and I think blockchain may do the same. It won’t change what they do, it’ll change how they do it.

Cameron Madill:
Like that. Well, another analogy you’re fond of using, which I like, is if you say that you don’t want credit unions to go the way of Blockbuster Video, because the regulators prevented innovation. Thinking about how that whole business model was built on a set of assumptions, real estate, videos, DVDs, eventually they kind of got wiped out by what’s the red box? Hey, we could just basically take a Coke machine and put DVDs in it. But then of course that got largely wiped out by Netflix. If that’s your aspiration, really, it should be all of our aspirations for credit unions to be the Netflix of blockchain. What can credit unions to do to stay ahead of the curve when we don’t even know what’s around the curve?

Kyle Hauptman:
They’ve done it before. As I understand, the credit unions have adopted ATMs, shared branch networks, they’ve adopted technology just like with the internet. The core functions have always stayed the same, what financial institutions have done forever, they accept deposits, people pay bills, you give them tax forms, you give them statements, you make investments, you receive income from those, et cetera, you make loans. The internet didn’t change any of those things. It changed how you do it. I think the same thing with blockchain. The main thing is stay nimble and listen, we made very clear when we put out that May letter, which was just general principles, blockchain is here, it’s interesting, there will be use cases. You are not prohibited from saying no just because you hear the word digital assets. That’s the difference with the bank regulators right now at least.

We said, when we put it out, that one of the purposes of that letter was to shine a light on this credit union industry and tell Silicon Valley and venture capitalists and tech people, “Hey, there’s these credit unions over here, it’s a decent market, it’s 140 million Americans, it’s 2 trillion in assets. Make some cool stuff for them, call them up, partner with them, make your cool stuff for credit unions.” Because as you know, sometimes you have to tweak things for credit unions versus, say, selling to banks. I’m trying to do my part by being the pied piper. It’s one of the reasons I want to do this podcast was just to get the message out there, wherever it can get, to say, “Make your stuff for credit unions.” And for the time being, you have a little bit of a head start in terms of regulatory clarity versus selling to banks.

Because the other parts of finance don’t need a pied piper. They’re big enough that people just want to… They’re attracted to them. Insurance, investing and the regular banking world, credit unions, people kind of forget about it sometimes. So, we want to do our part and if I was a bank regulator, if I was at the SEC or insurance, I wouldn’t have to do this. But sometimes you have to tell people around the world that, at least in America, there’s this big market called credit unions. Listen, make your own decisions. Do your due diligence. Please, please, please, if you’re a credit union CEO, this is your responsibility to decide who you partner up with. But you don’t have to just say no just because you hear the word blockchain or digital asset. I think we all agree that in 20 years we’re not going to transfer title for real estate the way we do now filed in a county records office. It’s going to be different.

Cameron Madill:
Let’s talk about that, Kyle, because I think that’s one of the coolest use cases. I actually just went through a title change, I won’t go through the details for my house, but it was really annoying, it was expensive, it was slow. Talk about how, we don’t want to lose people in the weeds obviously, but how could blockchain take something like title insurance as it operates right now and change it?

Kyle Hauptman:
I don’t know about you, but I find it odd that in this country, the home of Silicon Valley, in this era, it’s still so clunky to prove that the house I bought from you is no longer owned by you. It is now owned by me. Oh and by the way, you had the right to sell it in the first place, because you bought it from somebody else. Now, if you’re getting a mortgage, that means you don’t have title. It means your lender does. But I think that credit union members are going to benefit from this without first seeing it. Because, again, if you’re getting a mortgage that means you don’t have title. Your lender gets title of the property. And it gets transferred from the other owner or the other lender to your lender. This is all behind the scenes, the same way it is now. It’s just going to be easier and hopefully title insurance will be cheaper.

I noticed the country of Colombia in South America, they were putting their entire nationwide property registry on blockchain. Partly, it’s an anti-corruption mechanism. So you don’t have, like you had in Greece and other places, civil servants who bizarrely have three vacation homes who shouldn’t be able to afford it on their salary, nobody knows, because you bribed someone to just sort of bury the documentation. What is Colombia doing? It’s putting an immutable, nationwide, unalterable, unhackable, decentralized ledger of property transactions so they can have a hurricane and a volcano and a coup and a revolution, and those records are still there, immutable. I think the developing world uses a lot of this stuff first. They have a lot of [inaudible 00:11:04], it’s exactly the same reason that I have telephone wires up and down my street here. But in some parts of the world, you don’t, because they skipped right to cellular.

Who owns what? Edit it, maybe you bought an extra parcel next door, immutable, not relying on some property record. In some places, it’s an anti-corruption mechanism. You can’t just pay a guy to bury it and not pull it when the journalist asks for it and that sort of thing. It should be neat. But again, not only do I not want to get in the weeds, I try to be humble about this. I always worry that we’re going to be talking about the internet like in 1997 and talking about various webpages, when so many things we use the internet for are not webpages that we go to. It means all these different things.

Cameron Madill:
It’s a great point that we can’t [inaudible 00:11:45], I want to circle back on a couple things real quickly. With title, though, one of the things that’s cool is I think it’s a bit like booking a plane ticket 25 years ago. We just didn’t know how much that sucked, then it was like, “Oh I can just get access to the search engine effectively that a travel agent is doing.” 90% of the time, there’s exceptions, it’s just so much easier just directly interface with it rather than trying to communicate my preferences, some of which I don’t even know until I talk to the travel agent.

Kyle Hauptman:
No, I mean I hate when I feel old, but you talk to somebody who’s 13 years old and you tell them you used to have to try to remember the names of airlines or maybe you had a phone book, call them, each, wait for somebody to say, “Well, how much is it from Atlanta to Chicago on this date?” Write it down. By the time you finish doing that, the fares had changed. I had somebody walk up to me, a very bright guy, who’s been in financial services for 40 years. He said, “Well, you already have blockchain. It’s a county records office. This property was sent to that.”

I’m like, “Whoa. No, man. I mean, that’s a hackable database. It’s prone to human error. You have to know where it is. The transfer of records is clunky. Some of this was on paper back then.” It’s a whole different thing to have everyone have transparent knowledge all the time. You shouldn’t have to go to a central authority like a county records office and it’s public knowledge. You have every right to get it during their hours when they’re open, but if their computer system blows up and it’s hacked or something.

Cameron Madill:
Totally true. I just want to circle back on one thing, which I think is really important, is that I want to see if this is an accurate summary of what you’ve said. That basically you’ve said to credit unions, “Ask for forgiveness, not permission, don’t break any rules.” But you’re basically saying, “Go innovate and let’s learn together and grow together.”

Kyle Hauptman:
Yeah. Because we know that standing still is going to be a disaster if paralysis because of ambiguity. I consider myself in the ambiguity reduction business. Now, sometimes that means there’s someone doing something really bad that doesn’t break a rule, that’s on us. Because obviously maybe we should have a rule or guidance about that. But if people aren’t doing things that are better, faster, cheaper, more secure, that they think they need to do to serve their members and survive, and they’re not doing it because of NCUA, even though it doesn’t break any rules, that’s also on us. We should be reducing that ambiguity.

So, that’s why we ask some of the vendors and stuff to reach out to us, because they often care more than an individual credit union does. I can tell you some stories about that. As soon as we found out from one credit unit they were looking to do something. Turns out tons of other people were, but we never heard about it. Then we put out guidance and all these projects launched into action, because credit unions have other things to do. They have other things to do with their time and money. Anything that has a hint of regulatory uncertainty, they’ll pursue something else, all else equal.

Cameron Madill:
Well, I think you’ve very smart, you’ve removed the excuse of the NCUA as a reason not to innovate in the space.

Kyle Hauptman:
Don’t blame us.

Cameron Madill:
Yeah. Tell me more about some of the questions and concerns you’re hearing as well as some of the opportunities you’re really excited about.

Kyle Hauptman:
It’s important for me who’s like, this is sort of my baby, it’s my issue. I’ve been very public about it. I was public about it when I went through my senate confirmation even before I came to NCUA, it’s important that the first few encounters go well. So the people who are the innovators, the bleeding edge people, really hope they to due diligence, because they could record for everybody else. So, I try to employ that. If you guys create some disaster for us or a insurance fund, it’s my approach to regulation, which I consider pro-innovation, is going to look bad. It could hurt everybody going down the line. So, that’s something I say.

But I’ve just noticed how much ambiguity there is because it’s new and they don’t want to raise the eyebrow. We often don’t realize this, anytime you have enforcement authority, even when you’re pulled over by a cop, they have a badge and a gun and you don’t. We don’t realize often, as regulators, and this is one of the reasons I took the job, they don’t realize they’re bam, bam. They don’t know their own strength. A raised eyebrow, a comment, a tone in an email, which may be misconstrued. This lands like a ton of bricks. I’m also proud of the fact we’ve availed ourselves of modern, transparency methods that are common in the private sector to help that.

But there are people out there who want to innovate and they’re going to have problems and I know there are. There’s going to be partners that don’t work out, or just projects that don’t yield enough income to justify it. It happens. But I know that staying still is definitely the problem. You’re heading at the iceberg and we could say, “We’ve turned left. That causes some issues. Well, turn right has its own set of problems.” You know what’s definitely a problem? Heading straight at the iceberg. You and I both probably know some people in this space who are maximalists and think DeFi, decentralized finance, is going to destroy TradFi, traditional finance, and everything I’m saying is pointless.

Maybe that’s true, maybe that’s true. I don’t know. But I don’t want it to be because of a regulator. We know sometimes people blame their regulator or blame government and sometimes it’s a reason just to get the salesperson out of your face. That happens. I’m saying, “Hold up. If something’s better, cheaper, more secure, faster, don’t blame us.” We’ve been talking to some neat credit unions who, fair enough, are going to be at the forefront. Not everybody’s first on all these things. Trying to reduce fraud significantly via blockchain-based identity. Pretty neat stuff. Not only just the money of fraud, but the unbelievable hassle even a $400 fraud can be for a credit union. I suspect it may be some smaller ones that adapt to this, because they don’t have the legacy infrastructure to protect, like a Blockbuster Video did.

Cameron Madill:
I’m curious, Kyle, if I can just put you on the spot. If you were CEO of a credit union, what are one to three blockchain projects that you’d say, “Hey, leadership team, take a real close look at these things.”

Kyle Hauptman:
Right now?

Cameron Madill:
Yeah.

Kyle Hauptman:
And I’m going to say right now, whatever I say is going to wind up historically being wrong. This is like talking about the internet in 1997, your dial-up connection. One is real estate title, vehicle title, too, over 85% of what credit unions do is car loans and home loans. Look into ways to tighten up, streamline and reduce the cost of real estate title. You might wind up being what every lender wants to be, which is the easy lender to work with. Adheres to all the regulations and does a good job, but is easy to work with. When I got my mortgage, I was having trouble meeting the deadline and I switched from who I was banking with, who I had a HELOC with, got word of somebody who said, “Listen, this person is on top of it, you’re never going to have last minute surprises. They’re the good lender to work with.” And it rescued my home purchase. Rescued it. That’s what you want to be, the easy lender.

If you say, “Well, you can get cheaper title insurance using them, because they have a much more secure title issue and it’s less paperwork.” So, title is one thing and I’m not here to say that the system’s all the way there yet. I would look into it, given that it’s so fundamental to what credit unions do. Another thing is identification. Thanks to the Mobile Act that Congress passed, you can start an account entirely online, never physically see anybody, never go into a branch and you’re uploading a picture of your license front and back and it’s a JPEG. There’s better ways to do that via blockchain based ID. I downloaded something called GlobaliD, it’s free just to play around with it. I try to play around with these things just to get a handle on it. Pretty neat.

ID and title is probably what I would go with. Another one, which may require more of a industry-wide, a settlement token. Kind of a stablecoin of sorts. Just because anytime there’s money going back and forth, there may be ways to make that easier and less clunky. Give one example of I owe you 100 bucks, you owe my colleague, Sarah, 100 bucks, she owes me 100 bucks. Okay, that’s a circle. Everybody owes each other a hundred bucks. Let’s say it’s on the same day. None of us know it though. I have no idea you owe Sarah money. So, what are we going to do in the real world? We’re going to have three separate transactions of $100 dollars, all requiring some effort and time, possibility of failure, et cetera.

What we should do is just cancel them all out and nobody pays anybody and we wound up back where we started, because each of us is getting 100 and paying 100. There’s no point in that. That’s a very simplistic way of talking about it, but the blockchain might know that even though none of us know that, nor do we need to, I don’t need to know about your transaction with Sarah. It’s not my business. All I need to know is that I don’t need to get a payment in or out and we arrive back at the same place. Just anything with payments, a settlement token, making that easier. That’s maybe something I would look at. And I’m going to say, again, just to wrap it up, I’m definitely going to be wrong on my predictions.

Cameron Madill:
You’re going to be like that guy who was interviewed in 1999 and was confident we’d still be using AOL CDs in like 20 years or whatever. It’s the nature of talking about technology [inaudible 00:19:42].

Kyle Hauptman:
Yeah. Like, “Oh, digital music, it’s so cool. You can make your own CDs now.” And it’s like, “Whoa. No, the whole point is no one will use CDs.

Cameron Madill:
Right, CDs won’t exist.

Kyle Hauptman:
But that’s what it… Oh, you can print out directions from an online map and that was kind of cool, but no, hold on a second. You’re not going to print anything out eventually. For a while there, that looked innovative, right?

Cameron Madill:
Yeah. It’s just hard to know. We had a previous guest who talked about the idea of using a version of, like you were talking about the settlement token, but taking credit card points, what a junkie confusing thing [inaudible 00:20:12].

Kyle Hauptman:
Excellent point.

Cameron Madill:
Just put that on the blockchain, wouldn’t that be awesome? And wouldn’t it level the playing field with credit unions on some levels with the credit cards they can offer? There’s endless possibilities. I really appreciate your personal perspective. What are the top two or three questions you guys get from credit unions who are interested in exploring blockchain but are kind of stuck?

Kyle Hauptman:
Well, you know how compliance officers are, the nature of the job is to be a nervous Nellie, that’s their job. They like seeing things in the affirmative. If I had to give the okay, yes, let’s take resources away from other things and put it towards this, I would want to see something on ncua.gov or FDIC or SEC.gov or whatever, that said, “This is okay to do.” That’s what I would want. Rather than, “Well, it doesn’t break any rules. I can’t find a rule it breaks.” Right? You’d want it in the affirmative. We’re here to do that if absolutely needed.
But the point of the May guidance was very broad. And let me tell you this, because I want to give credit to our career staff for jumping in on this. I want to give credit to my counterpart, Rodney Hood, who’s the other Republican on it, his term ends next year. And our Democratic chairman, Todd Harper. The May guidance, which was purposely broad, it was just principles. This thing exists, it will have use cases. This letter purposely is trying to shine a light on credit union world to tell the powers to be, “Hey, look at it.” Modeled on what I think is the best economic policy that came out in my lifetime, which was 1997, Clinton-Gore administration. I’m trying to be bipartisan here. It’s my point. I’m a Republican. I’m a Republican nominee, but in terms of jobs for America and paychecks and food on the table, my personal opinion is that 1997 guidance, all they did was put on the White House website, Whitehouse.gov, a website that was only around for two and a half years before that, principles for this new thing called the internet.

You can actually Google it. It’s five principles. It’s kind of funny to read it now, talk about the information super highway and all this. That’s what Al Gore always called it. And all it was, was principles. Number one, the private sector shall lead. That was the first one. I remember the third one was about no new taxes specific to the internet. That’s why you and me didn’t have to pay out-of-state sales tax for years on our online purchases. And it wasn’t a law, it was just on a website, but it was a symbol from upon high, from the White House, to all it may concern, we want this industry to develop organically and we want it to develop in the United States. And you know what happened next? America won. We won the internet. Nobody got more headquarters, more jobs, more investment, higher investment returns, more life-changing financial circumstances. Like my friend who was the ninth employee of Google. We won with anything disruptive.

What’s the worst thing that can happen? To get all the downside and none of the upside. So, we got the upside, we got the downside, too. How many industries were destroyed by the internet? Plenty. We lost all of our video rental jobs, so did Canada, so did Mexico. But we at least got the upside. We have Netflix headquarters, we got the employees that got in early with stock options. We got the headquarters that, and Hulu, and this, and that, and our investment funds and pension funds got in first. We got the upside. Canada, Mexico, they can use Netflix and Hulu, that’s a nice use. But they didn’t get the headquarters of jobs and the investment. I feel the same way about blockchain and that’s why I credit President Clinton, Vice President Gore for their thoughts then. In our little world of credit unions, that May guidance was based on that, those principles for the internet back in ’97.

Cameron Madill:
I appreciate. That’s a great story. So, I have one last serious question before I’m going to ask you some silly questions. We talked about blockchain from an innovation standpoint, but what about just from an impact standpoint, because it really is transformational, whether it’s the potential with it’s remittances or, as you said, identity, credit unions have this unique space as member-owned, not-for-profit cooperatives. So, how can blockchain potentially help credit unions better fulfill their broadest mission of improving the lives and financial wellbeing of their members and communities?

Kyle Hauptman:
Well, there’s another one where I’m being asked the first thing in the game how it’s going to go. Again, I’m trying to be humble. But one thing blockchain does very well is transparency and removes uncertainty because of shared databases, can’t be hacked. The same reason Walmart put all of their supply chains first for perishables on a blockchain with their suppliers. I don’t know if you remember a bunch of years ago, there was a lettuce scare in America and everybody in America threw out their lettuce, Burger King made the whopper without the lettuce and BLT was just a BT there for a week. It turned out it was all one farm in Yuma, Arizona making romaine lettuce. I’m using Walmart as an example here. They’ve figured out whose problem it was that the lettuce was bad, what temperature was in, broadcast to all parties all the time, every minute. It’s pretty neat just through transparency. Nobody can point the finger at somebody else, it’s just transparency.

So, I think credit unions, like with loan participations, it’s a neat case of it, where I have a loan, but for every $1,000 dollars I get in payments from the loan, I have to give you 10%. That’s how a loan participation works. For every 1,000 bucks, I got to kick you 100. Well, you put that on a blockchain, you don’t have to wonder, “Hey, Kyle, did they pay you yet? Did you get the 1,000? When am I going to pay you your 10%?” All of this can be a smart contract automated, you and I have the same information 24 hours a day, the same time.

There’s a level of trust that it gives, because the system is trustless. You don’t have to trust me, I’m going to adhere to the contract, even though I probably will adhere to your end and the borrower will probably adhere to their end. It just removes a lot of issues, that wonderful transparency we get with the internet versus trying to figure out airfares back then, where you take it for granted that anybody anywhere can find out the same information at the same time. I think that’s neat. So, anywhere, where real-time smart contracts, not relying on anybody, and I think it will benefit the smaller ones the most.

Cameron Madill:
Love it. You’re making me think about a lot of the… We talked about this briefly, but the whole idea of development of countries or economies skipping cycles or generations. There’s a lot of famous examples from Africa, how you said they just skip straight to mobile. And some of the most powerful stories are how all these small farmers were able to get real-time information on what their product, their lettuce or whatever produce is selling for in the market four hours away. They were able to really improve their profitability as producers. So, as you said, that transparency can really level the playing field in a powerful way.

Kyle Hauptman:
Yeah. I think that’s the core beauty as I understand it of blockchain is just transparency. I say it’s like a shared Google Doc, except there’s no Google. Somebody at Google could change our Google Doc, which is shared, but you and I wouldn’t know that. And we have to wonder in our head, “What if Google was out of business?” Just the transparency of it is really neat. I’m reminded of 2020, wherein this country, the home of Silicon Valley, for emergency stimulus payments, we sent 88 million paper checks and paper envelopes through the US Mail. This was like five weeks, I believe, after the people had gotten their ACH direct deposit to their checking accounts. It was people who hadn’t filed in 2019 or 2020. If you remember, all this went down in March, people hadn’t filed for 2019 yet.

I think we agree that’s a better way, faster, more secure way to get money into people’s hands. If you had a digital wallet, it doesn’t matter if you move down the street and you haven’t given the IRS your new address, your digital wallet address hasn’t changed. I just remember thinking that, “Wow, in this country we had to get money out in an emergency, that was supposed to be pay-the-rent money, buy-groceries money. And it took months and we did it via paper,” knowing for a fact that the addresses were out of date, because that’s who… It was the people who hadn’t filed with the IRS in two years. So, we’re going to get advantages to this and I just hope the next time we ever have that emergency situation of getting money to people, we’ve got a quicker, more secure way to do it.

Cameron Madill:
Great. All right. I’d love to ask you some rapid fire questions. Gosh, I mean, you’ve been through Senate confirmations, you can handle this. First one is a tough one. What is your favorite movie?

Kyle Hauptman:
I’ll be Pulp Fiction.

Cameron Madill:
Pulp Fiction. It’s classic. All right. It’s going to get a little bit harder. What is your favorite ice cream?

Kyle Hauptman:
I like ice cream with a lot of stuff in it. Like Ben & Jerry’s where they got all the flavors in there, let’s say cookie dough. That’s a good one.

Cameron Madill:
Cookie dough, that’s a good one. You seem like you’ve seen a lot of the world. You’ve done a lot. What’s a place you’d love to visit that you’ve never been to?

Kyle Hauptman:
India. I’ve never been to the subcontinent. I know that it’s one-sixth of the world, like China is, one of every six people is Indian. It’s a big part of the history and a it has to be a big part of the future. China obviously is, too, but I’ve been to China. I would say India. Also, I like the food.

Cameron Madill:
Yeah, great food. All right, Getting a little harder now. If you had to wear a T-shirt for the next 365 days straight, you do get to wash it, but it’s the same T-shirt, and it had one word on it, what would that T-shirt say?

Kyle Hauptman:
If I could get three, it would say, “You’re on mute.”

Cameron Madill:
All right, last question. One thing, I appreciated your nonpartisan approach. We need more of that in the US, obviously. Probably the whole world. Part of this podcast is you can’t talk about politics, but can you talk about the New England Patriots? How are you feeling about this coming year? What’s your prediction?

Kyle Hauptman:
Well, they’re two wins and three losses. They lost a tight one to Green Bay. I’ll say this, because they won last week, 29 to zero. If they lost, they would’ve fallen to one and four. And I am not prepared emotionally yet to have a team that is just not good and not going to make the playoffs, like a lot of teams, where by Halloween, this isn’t our year, I wonder who’ll be drafted next year. All right. Not happening. I know I’ve been incredibly spoiled for over 20 years. They’ve won 10 games, 22 of the last 23 years. I just want games to matter in December. Even if you don’t make the playoffs, if it’s around Christmas time and you’re really excited for a game, that’s kind of like a playoff game. I just want to have October, November, December, hopefully January have an interest. Because I live in DC, the local football team, usually, by Halloween it’s, all right, maybe next year. And they’re on Twitter trying to sell tickets for 20 bucks. I am not prepared for the Patriots to be that yet, although it will happen inevitably.

Cameron Madill:
All right, so your hot take is you’re going to be in playoff contention. Not going to guarantee a playoff spot, but we’ll be fighting. All right.

Kyle Hauptman:
Yeah. It pains me that the Buffalo Bills are indisputably a better team too there.

Cameron Madill:
Well, yes. These things happen in life. All right, Kyle, I really appreciate you joining. It’s been great. I’d love to do a final take. Is there anything you mentioned today that you’d like to reiterate or anything you didn’t get to that you’d like to leave our audience with?

Kyle Hauptman:
Yes, communicate. NCUA, because we’re in credit unions all across the country, we have employees in all 50 states, there’s still a lot of levels that we at the board don’t hear, just like any organization. We set the rules of engagement, but what happens down on the street is different. So, I happen to run into one CEO who was talking about something he did, and I might never heard of it. khauptman@ncua.gov is my email, pretty easy to find. My advisor Sarah Bang is on here, sbang, bang like firecracker, sbang@ncua.gov. You can ping me on LinkedIn or something. Now, I’m just going to reply, please email this to khauptman@ncua.gov, but I’m pretty easy, is communicate directly.

If you’re a little nervous, that’s a separate topic. They shouldn’t be nervous talking to regulators and that’s a regulator’s fault. But if you are nervous putting your head above the tree line and you’re a credit union out there trying to do something, or a vendor trying to sell to credit unions or partner with them, talk to me directly. If you want to use a league or a trade group, they put their head above their treeline. That’s what they’re for. Communicate directly. We want to get in the nitty-gritty and hear about it and find out what will move the needle for you. What do you need from NCUA? What is stopping you? If you have stories, et cetera, anything, communicate directly. It’s been the best part of the job so far, is speaking directly to actual W-2 employees of credit unions, especially the smaller ones, and finding out what issues they have.

Cameron Madill:
Wonderful. Kyle, thanks so much for joining us. It’s been a real pleasure and I really appreciate the success and innovation that you’re pushing for in the credit union space. I wish you all the best of luck in the next steps.

Kyle Hauptman:
Appreciate the great podcast. Thanks for having me.

Cameron Madill:
All right, folks, thanks for joining us for another great podcast. Really enjoyed talking to Kyle, Mr. Hauptman, he was a very, very interesting interview and he is got a lot of energy and passion for credit unions, as you can tell. My key takeaways I’d love to share. The first one is something that hopefully you’ve heard, and I think this is my biggest takeaway when I first started investigating the whole space, is that blockchain is way more interesting than cryptocurrency. It’s not that cryptocurrency isn’t sort of interesting, but ultimately a lot of that is being driven by speculation. Then blockchain is that foundational technology like the internet that we can’t even anticipate all the uses that it’s going to have.

The second takeaway was just the importance of being really clear on that May NCUA letter that was referenced and that it basically says go forth an experiment and that if no rule is broken, go for it. I think that’s really important. Highlighting that right now, credit unions have an advantage over banks, which is appealing both for internal innovation, but also partnerships with vendors, Silicon Valley, venture capitalists, and those kinds of advantages are not to be squandered. I also appreciated just the framing around why this matters so much to Kyle, which is that the analogy of the Clinton-Gore internet guidelines from 1997 and just largely saying, “Go forth and experiment. This is a big unknown area. And that there will be a lot of disruption, but there is the possibility of really capturing a lot of the value from that innovation as well.” This phrase that we won the internet, that we have that potential with blockchain really resonating.

I also appreciate hearing if Kyle was put on the spot as CEO of a credit union, where would he tell his leadership team to focus? He mentioned real estate and car title, identification, some kind of settlement token. I also appreciated him referencing some other cool things that are happening in the industry. The opportunity around reducing fraud is huge, reducing overdraft fees and, of course, engaging with crypto investing. I’ve seen a lot of interesting things that credit unions are doing in that space.
Then I thought it was just a really good point that probably the biggest objection and the biggest challenge is going to be working with compliance, because compliance wants to see something in the affirmative. What the guideline really says is go experiment, and if you’re not breaking a rule, then you’re okay. I think really leaning into that and making sure that there’s an understanding of the broader principle that’s going to be needed to move forward and innovating and engaging in this area.

Then lastly, I think really good just summary of the value of blockchain, which I appreciated from the story about Walmart putting their entire supply chain on blockchain, so anyone can reference it, on thinking about the future that blockchain does transparency and certainty really well, and that can be such a powerful transformational thing. Kyle mentioned that, he said, “Just, please, please, communicate.” That’s his number one thing he wants to leave everyone with. The email address is khauptman, K-H-A-U-P-T-M-A-N, @ncua.gov, as well as his, I think, chief of staff, I’m probably getting her title wrong, but a really amazing credit union advocate evangelist Sarah Bang, it’s sbang, S-B-A-N-G, @ncua.gov. All right. Thanks for joining us today for another great episode. Until the next time, I wish you the best of luck in making your credit union remarkable.