Dan Weiskopf 00:20
Hey, guys, um, thank you very much for joining me in the blockchain CEO interview series. Jon, you know, you and I’ve talked a number of times, we were very excited to see you guys come public. Adam, thrilled to have you here as the Innovation Officer. That’s your title, right? I’ve got that correct?
Adam Lowe 00:46
Few hats.
Dan Weiskopf 00:47
Few hats. You know, every entrepreneur has a lot of hats, you know, and especially in the blockchain, crypto area. So thrilled to have both of you here. We’ll have a definite, interesting conversation. And, you know, I’ll just say that, Jonathan, you know, let me take a step back, actually, before I continue. Give us your background, tell us a little bit about your story, Jonathan, and Adam, and then we’ll, we’ll get into the nuts and bolts of things.
Jon Wilk 00:50
Sure. So I’m actually gonna have Adam, go first and then I’ll hop into my story and then talk a little bit about the connection to Composecure, if that makes sense. Adam?
Adam Lowe 01:32
Sure, absolutely. So I’ve been with Composecure about eight years. I’ve done new product development with them and brought a variety of innovations to the banking and now blockchain and security space. Prior to that, I was a researcher and led a lab at a not for profit defense contractor where we helped keep the warfighter safe. And prior to that, I did my PhD at Cornell.
Jon Wilk 01:57
And Dan, I spent a good part of my career on the banking side, Bank of America and JP Morgan. So I lead strategy and m&a at B of A for all of their payments related businesses. Did the acquisition that lead to Bank of America merchant services today, managed the retail banking products for B of A, and then Treasury services. Moved over to JP Morgan, where I managed all the retail banking products and also served as the Chief Marketing Officer for the retail bank. So extensive experience in banking and payments. And about eight years ago, moved into the private equity world, I lead a turnaround of a software business in the payroll and HR space, and then connected up with Composecure about six years ago. And from my perspective, it was important that, I was at JPMorgan at a time, when they were launching metal cards, I was in the executive pilots, I got to see firsthand what the metal cards could do to help grow business and I fell in love with the products. At the time, I had no idea who produced them. So when I met the founders and private equity owners of Composecure about six years ago, just great alignment around the vision in the future for the company.
Dan Weiskopf 03:18
Yeah, when when I started doing analysis on your business, you know, I got real excited on the whole concept of kind of like the “Intel Inside”, the cash cow business, the thing that makes things work, um, talk to us a little bit about specifically, you know, the metal card business that you guys have.
Jon Wilk 03:42
Sure, so we’ve been around for 20 years, we’re not a startup. You know, we’ve essentially created this category from scratch, right? It started back in 2003 with American Express in the Centurion card, the first metal card of any scale or substance in the market. It evolved with JP Morgan with their private bank card, the Palladium card. And then from there, the business has really evolved and grown as we moved into what we would refer to as the mass affluent market. So think about Chase, Sapphire, Preferred and Reserve, Capital One Venture and Saver, American Express Gold and Platinum, and a whole number of products. And, Dan, from our perspective, what we’re trying to do very simply, is help our customers acquire more customers, more end customers for them, and drive more spending. And both of those are the lifeblood of a card business right you have to continue to acquire new customers and you want to be top of wallet, and those two things are critical. And you know, what we’ve seen from our clients is they build great products, exceptional products, great value propositions. And when they bring together the metal card, that form factor, with those great value propositions, you know, it can really help lead to great things in their business.
Dan Weiskopf 05:14
Yeah, I mean, I, for one, have too many cards, you know, and it’s very hard to differentiate the spending sometimes on which card to use. And sometimes you have a business card, sometimes you have a Best Buy card. You know, the point systems, the flights, you know, I, you know, it to me, it’s a little bit confusing the day the truth. And I just try and keep it to as little as possible, you know, quite honestly. But, um, you guys are at the core of the ecosystem for these cards, right? Talk to us a little bit about that ecosystem, you know, how big is what you do as a marketplace.
Jon Wilk 06:03
So if you think about the payment card market today, there are, we believe, more than 13 billion payment cards in circulation. Last year, we produced 22 million metal cards. So roughly half a percent penetration—I’m sorry, and last year, we think there were roughly 4 billion payment cards issued. So 13 billion in circulation, 4 billion that may have been issued last year. So of cards issued last year, you’re talking about roughly a half a percent that were metal. So we still think we have a huge runway, with a total addressable market, both in the US and globally that is huge. And our global story, we think, is a terrific one. When I started, little over five plus years ago, it was, you know, almost nothing in our business. And last year was roughly $50 million. So, you know, we’ve grown it really nicely, in addition to the domestic business.
Dan Weiskopf 07:09
Yeah. Now, you’re expanding, right? With the Arculus card. It’s right, right behind you. Um, you know, obviously, I know a lot about the blockchain and about the crypto market in general. But it’s not always clear to a lot of folks, right. Talk to us a little bit about, and maybe Adam, you can chime in on as to right, you know, cybersecurity why that’s important. Talk to us a little bit about, you know, why a wallet, cold storage, and why a wallet is important. Right, and hot water wallets.
Jon Wilk 07:50
So Dan, let me zoom out for a second before we drill into crypto in the crypto story with Arculus. So think of Arculus from our perspective, as a three factor authentication solution. Crypto is one of the applications and we’ll dive into it. But also think about just core banking and investments. And the ability to lock down your banking account with three factor authentication so that no one could get into your bank account. But you think about applications in the gaming or gambling space. Think about other fintechs that need, you know, better authentication. All of these we think are great examples for where Arculus has applicability. But specifically, the first product that we tapped it for was in the crypto space. And when we think about what’s happening there, and you talk about this all the time, and, you know, in your broadcasts, the growth in this space has been exponential, right, the number of users of crypto when we started this process, we estimated there were roughly 80 million customers that were using crypto wallets, and the projections had it at 200 million over the next five years. Fast forward, there are projections out there that would say we may have reached 200 million already in 10 months, not five years. So the growth has been exponential. At the same time, we’ve seen the amount of hacking and theft and security issues growing exponentially as well. We’ve seen hacks in you know, exchanges in Turkey. We’ve seen, you know, major exchange customers here that have lost their crypto because their phones have been compromised. We’ve seen all of those examples. Most customers today store crypto in what we call a hot wallet. And what that means simply is that the exchange controls your private keys to your crypto. With the emergence of the hacking, we’ve also seen cold storage come about, which very simply means that the customer controls their private keys to their crypto. In the hot wallet example, Dan, if the exchange is hacked, or if your phone is compromised, or if your username and password were to be compromised, your crypto can vanish. In the cold storage solutions, if done right, the customer controls their keys, and no one can get access to that. And specifically, how Adam developed and design the Arculus system was aimed at addressing some of those concerns. And Adam, I would love for you to go into you know a little bit more about Arculus and what it’s trying to address.
Adam Lowe 10:54
Sure. So Arculus was designed to have the ease of use of a centralized exchange or hot wallet with the security of self custody hardware wallet. So you know, Arculus uses a three factor solution: something you have, which is your Arculus card, which stores your private keys; something you know, which is your PIN; and something you are, which is your biometric. And you know, we’d be happy to show a demo live here and be great. So this is live on an Android phone. It happens to be Android, but we also support iOS. So here, I used biometric, happens to be a fingerprint scanner, to go ahead and open my app. This is live on the main net. So this is all real live crypto. So here, a user can see all their assets. As an example here, let’s say we wanted to send some XRP, I could just scroll down and select XRP. Dan, if you wanted to send to me, send me some XRP. Now I can hit receive, there’s a public address, you can scan that and send it. I could also share that with you via slack, text, email, whatever is convenient. I can also grab a previous transaction, it repeat transaction goes ahead and pulls in the address. Now let’s say I want to send $1 of XRP to that address. You can see it has the fee listed and what the total. I can hit Next. Now I’m going to, it’s going to ask for my second factor of authentication. So I’m going to enter in my PIN. This is separate from the phone PIN. So it’s unique to the application. And finally, it’s going to ask me for my Arculus card. So I simply tap my Arculus card, which holds my private keys and a secure element to the back of the phone, signs the transaction. And we’re done. So just like that 123 We sent crypto from cold storage, to an address. And if anybody’s used, maybe some of your listeners have used other hardware devices, I think they’ll know that they’d still be turning the thing on in the amount of time that we’re done.
Jon Wilk 13:20
So Dan, we’ve tried to make it simple and easy to use, you know, extremely secure. And, you know, at the same time, we leverage all the things that we’re really good at, in terms of manufacturing and scale, to be able to do this with some really strong synergies with our core business.
Dan Weiskopf 13:44
I’ve got one, you know. And you know, to me, this is the up and coming generation, right? I’m trying to be cool with my Arculus credit card. We’re not quite there yet. I know, it’s still just a card, but kinda like, who wouldn’t want to whip that one out, right? The card? You know, so I think you’re offering competitive advantage so that some people don’t need, you know, so many cards, as I like to say, but you’re not just about crypto, right? You’re also, you know, thinking about, or have already, expanded into NFT’s too?
Adam Lowe 14:23
Yes. So, you know, Arculus can already secure your NFT’s. So in the sense that if you send an NFT to an Arculus Ethereum address, it will be resonant at the address. You know, we have squarely on our roadmap and are in the process of adding a viewer for NFT’s. You know, we heard that feedback from the community loud and clear that it’s important to them. So we put it to the front of the roadmap and our, you know, that will be live soonish.
Dan Weiskopf 14:48
And, you know, you’re not the only one doing this. So can we talk a little bit about the competitive landscape as well?
Jon Wilk 14:56
Sure, so there are a number of competitors out there, some that have built, you know, great businesses over time in this space. Ledger is probably the market leader out there in terms of number of units sold. And, you know, they helped create the market here. So we think Arculus just takes a couple of leaps forward in terms of, you know, the user experience and ease of use. As well, we think from the security side. So you know, with Arculus, the card doesn’t have a battery, it doesn’t require a charge. So it’s a passive device. It’s only connectivity is when you are transacting over secure NFC in ultra short range. And what that does, Dan is it just limits the threat vectors, right, you’re not plugging this into a laptop, which many people do with competitor devices. You know, you’re not connecting via Bluetooth, which you have to do with some of the competitor devices. And we think that foundationally provides enhanced security, at the same time with greater ease of use, because we have the phone doing what the phone is good at, in terms of, you know, doing certain inputs on the phone, where your keys are stored securely on the card itself. And then that’s one of the things that, you know, is a sort of misnomer out there, right? It’s not your crypto that lives on the card, it’s your keys, and those keys unlock your crypto and enable you to transact to be able to send that anywhere out there in the marketplace. And, you know, certainly this market is now attracting others, right? This summer Jack Dorsey came out and, you know, made comments to the fact that he believes the future is that every consumer should control their private keys to their crypto. So if you think about what the market projections were, it was cold storage would rise perhaps to 13 to 15%. of you know, people using wallets out there over the next five years. You know, Jack Dorsey’s comments would say that shouldn’t be 15%, it should be 50 or 70% of people out there. And so we think, you know, well, competition, you know, will arise and will emerge in this space, we actually think that’s helpful in terms of lifting all boats towards a common goal of better security out there on the blockchain and digital assets.
Dan Weiskopf 17:44
Yeah, I mean, because people are so used to, as an example, you know, holding their assets at banks, or, you know, brokerage firms. But the whole premise here of crypto is for it to be decentralized, right. So you want to have it in your possession, right. And that’s the premise behind the cold storage, right, you’re in control as opposed to somebody else being in control. And, you know, that makes it more secure. And people can feel good about that.
Jon Wilk 18:22
Yeah, I’ll build on your comment, though, Dan, to say that with your bank account, right, were you to have a problem with your bank, ABC account, right? There are regulations in place that govern, you know, the bank, you know, replacing those funds, if there was a security breach. There’s a regulatory framework out there that helps address it. What people are finding is in the world of crypto, when your crypto vanishes, it’s gone. And you don’t get to call bank ABC and say, Hey, I’m missing 50 or $100,000, it’s gone. Please put it back, right. There’s no safety net out there. That’s why we think in this space, it’s even more important. But then I’ll come back to the point I made earlier, we think your banking and investment account should be locked down with digital keys instead of a username and password. And Adam and I have been espousing this for a while, but there have been others in the industry that have been, you know, pushing these concepts for a number of years. But if you just think about how many times you’ve heard about password hacks, right, where your username and password is out on the dark web, and, you know, it’s being used for certain things. It’s happening a lot. And, you know, we think this, you know, Arculus, would be a better solution for people for just logging into your banking and investment accounts. So we have the ability to combine that with a payment card. So imagine your debit card could double as an authentication token, so that you didn’t have to carry a separate dongle with you. But you could use it, in an example to either log in, or what we call step up authentication. So maybe you can log into your account, but if you want to transact, if you wanted to buy or sell a stock, if you want to send money out, right, you would need to tap your Arculus card. Or, more importantly, and we didn’t touch on this, we would white label this for a bank or an investment firm or a crypto exchange so it’s their card that they’re providing to their customer, and delivering that kind of value.
Dan Weiskopf 20:44
And that’s a great point. I’m glad you brought that up, because your value proposition is important on both sides, right? And the companies with a card need a competitive advantage. And you guys are offering that. And then there’s a recycling process, right? Where there’s an upgrade cycle. And you guys can participate in that as, am I, I don’t know if I’m overstating, but, you know, as leaders in the industry.
Jon Wilk 21:21
we certainly believe so. You know, if you think about the priority for banks in terms of making sure their high end customers have a great user experience, they’re well taken care of, many of them look to continue to innovate, right. To continue to bring these customers, the newest, the latest and greatest. And so we think this increased security falls right in line with that, right? The ability to turn your card into something much more.
Dan Weiskopf 21:52
So on all these calls I always like to have a little fun with the guests, right. And we’ve heard the Composecure story and the Arculus story. And I’d like to ask these questions away from financial services, if possible, right. And Adam, your innovative mind will probably push the envelope here. So from an investment perspective, looking at blockchain, particularly what are people not paying attention to that like, three to five years from now, they’re gonna look back and say, Wow, that was so obvious that change was going to take place.
Jon Wilk 22:39
So, Adam, you want to take that?
Adam Lowe 22:41
Sure, I have two thoughts. And Jon, you may have the same or different. You know, I think it’s two things. One is, I see you’re going to, you know, people kind of joke about the tokenization of everything. But it’s kind of true. Anything you can digitally tokenize split and adjudicate in a reasonable way, is prime for the blockchain and monetization that way. It’s accessible, it’s fully lockable, it’s automatically adjudicated by the, you know, Ethereum virtual machine or pick your favorite chain. And I think anything you can tokenize in a reasonable way, is up and coming. So I think you’ll see that and I think new ways to monetize data on the blockchain will be really interesting. You know, right now, you have web two, there are these big central hubs of data and you go to them, and they provide it to you for a fee. You know, you’re seeing really interesting new models of monetizing data, either in a private or public permission way. That’s really interesting on the blockchain. So I think those are two big sea changes that you’ll see within the blockchain space, and it’s already beginning to happen.
Jon Wilk 23:50
And Dan, I’ll add to that, my, my perspective, which is the enabling of global commerce, right, when I think about the use cases that are most interesting, most exciting, it’s bringing together sort of blockchain technology with the right underlying, you know, crypto or coin structure that is smart and enables future commerce. And I think when we look back five years from now and look at how we do global business, I do think it will be fundamentally different.
Dan Weiskopf 24:27
My mind is like spinning a bit on certain things. Because, um, you guys are at the heart of cybersecurity as well. Right. I think that’s perhaps underappreciated. But very interesting, right? You know, and anything important, needs to be secure and having the card can help with that. am I overstating what may be obvious to you but not so obvious to other people? I mean…
Jon Wilk 24:59
Not at all, from my perspective. So with more and more going digital, right, whether it’s your health records, whether it’s, you know, things that you want to store, and you know, Adam and I have had conversations with different players in the industry where, you know, imagine that, right, you have pieces of data, like your health record, and other things that could be stored in such a way that, you know, you are using an Arculus type solution to permission who’s getting what out of that data. So that, you know, at your doctor’s office or at the pharmacy, you would tap your card, and it would essentially release that data and the pieces of that data that they need. To us, that’s looking down the road, as you think about more and more things becoming digital, the need for security becomes even that much greater. And I’ll use a second example. You know, there are players out there that are aggregating data for you, where you’re giving them multiple logins, so that they can bring together one picture, right. In general, you know, there’s a lot of utility there. But there’s also a lot of security concern, if somebody’s got, you know, multiple logins to be able to give me a complete picture, I want to lock it down with three factor authentication. I want to make sure no one else could get into, you know, that kind of, essentially, honeypot of data in the inaccurate world, so.
Dan Weiskopf 26:32
Yeah. What other industries might be, is always my second part of the question, what other industries might be affected in your mind about blockchain? You know, putting aside Arculus for a second, just, you know, we often talk about real estate as an example being affected by the blockchain. Certainly gaming is going to be affected, those kinds of examples.
Jon Wilk 27:01
So we certainly think, and I’ll get out and talk a little bit about the gaming space in a minute, the gaming and gambling space, we think are both ripe for kind of increased security, to help manage what they’re seeing in terms of explosive growth in the space, right. So imagine, you had your online account for gambling, and, you know, for you to make a bet anywhere over $1,000, right, you needed additional levels of security and scrutiny, right? You needed to have a card with you to authenticate who you were. At that point, you could authenticate both age, you know, you can do geo location with phone, and, you know, the ability to sort of authenticate that it is you making that transaction to avoid any kind of, you know, litigation down the road that hey, it wasn’t me that made that $100,000 bet through whatever platform it was. Adam, you want to talk a little bit about the gaming space?
Adam Lowe 28:01
Yeah, I mean, I think blockchain is absolutely exploding in the gaming space. So there’s no natively blockchain games, right. There’s the metaverse and we’ve seen explosive growth there were new games that are natively blockchain enabled and focused on that. And I think that’s a very interesting and growing space. But I think you’ll see a lot of the legacy gaming space also integrating blockchain. So right now, in gaming companies monetize a lot of downloadable content or ancillary content in their games, whether it be you know, skins or battleships, or whatever it is, that’s kind of locked in their own ecosystem. You know, here, people want to be able to bring it out, trade things with their friends in an easier way, sell things to their friends. And you know, you can do so over the blockchain in a very accessible way, and a very documented way. So I think that will be very interesting as people are able to get their digital assets out of the game and into our commerce enabled space. And of course, all the big gaming companies will take their percentage on that, rightfully so.
Dan Weiskopf 29:04
Guys, thank you very much. It’s been a lot of fun for me. I’m looking for my Arculus card. Oh, dear. I’ve got it right here. So thank you. I’m gonna continue to use it. Keep my crypto secure in the cold Wallet, so I don’t have to worry. Have a great, great day. Jon, do you have another comment?
Jon Wilk 29:32
No, I was just gonna say thank you. It’s been enjoyable talking with you and getting to know you.
Adam Lowe 29:36
Absolutely, thank you.
Dan Weiskopf 29:37
Thanks.
