Shared here are some fairly varied views on the world of money and payments. Some very different wavelengths from a seasoned politician, a seasoned banker and a seasoned startup founder.
Arun Jaitley – Indian Finance Minister Keynote
Arun Jaitley attracted a full house for his morning keynote. Covering topics from the famed demonetisation to the new Goods and Services Tax (GST) that took effect on July 1st 2017. As expected, he spoke to demonetisation being the catalyst what would propel India into being a cashless, corruption-free, parallel economy-free nation. Again, it seems as though it was a lot of talking/justifying with no statistics to show a genuine sea-change in the minds and spending habits of people. As I referred to in a previous blogpost, spending habits are like muscle memory, and unless you replace one system with a dramatically beneficial alternative, people will not swap one for the other. Proof of that (here comes a statistic) is that 98% of all currency is back circulation. That is no clearer a picture of demonetisation’s failure. Let’s park that. What about GST?
On the face of it, GST is a genuine and warmly welcomed change to an archaic tax code for businesses across India. Previously, there was no unified tax code, so raw materials as an example, crossing state lines were taxed according to state codes, then finished products leaving were taxed in a completely different manner. All this led to massive degrees of graft and cooking of the books. One aspect that I agree completely with [pre-PM] Narendra Modi is that the more subjective a government rule was, the more corruption that followed. So that in mind, the GST stands to be a tremendous success for the country, with the potential to reignite the now relatively exhausted flames of India’s economic engine (sub 6% GDP growth for an emerging market with 6% inflation rates is negative growth, period). There is a small issue though, GST rates still have not been ironed out properly. Until last month, a stand-alone restaurant bill had a whopping 9% State-GST and 9% Central-GST. When you couple that with a 10% Service Charge, your food bill was just shy of a third (28%) dearer than the prices you saw on the menu! That amount has since been corrected to 5%, but it’s clear to see just how damaging that would be to the entire F&B industry across the country. Now imagine every single industry needs to be reviewed and adjusted in time. On reflection, could the government have done some of the thinking before enacting the GST law? There is undoubtedly an issue of execution across the board that needs to be addressed.
In the past, as opposition leader, I was always a fan of Arun Jaitley. I saw him as articulate, knowledgeable and a great orator. I hope we can see more from him in the years to come. I think the Singapore Fintech Festival, with 25,000 attendees from around the world including compatriots from other governments and regulating bodies, would have been a great platform for an announcement on something special for India. Something really forward-thinking that could have been in the works. Imagine the buzz; imagine the follow up debates that would have taken place all week with his words and India as the focal-point. An opportunity missed.
Vikram Pandit – Investing in the future – Keynote
It was great hearing a seasoned banking professional speaking with such clarity of thought on how the landscape of the financial world is changing, and at a blistering pace. The availability of cheap capital with a decent risk appetite in his view has changed the way that startups are perceived these days. It’s no longer a necessity to have a completely proven model, although traction is still something every investor asks for, just a split second after shaking your hand!
The lack of synergy or perhaps the guarded approach to collaborations between banks and fintech startups often times is down to a misunderstanding of the market (my view, not Vikram’s). When you consider that the global P2P payments market is at roughly $530 billion today, and is slated to reach $1 trillion by just the end of this decade, it shows you how crazy the size of this space really is. We should collectively stop scrapping over pennies and realise the bounty is plentiful in this space. China as an example which is touted to be the keenest adopter of wallet technology have only 14% penetration across the population. Vikram summed things up well when he said, “Financial services is not a winner take all industry”.
The potential change, the tectonic shift in financial inclusion is the North Star that many startups are beginning to see with greater clarity. Banks would be wise to understand that the world (and therefore their customers) are changing; not from one generation to the next, but one-half decade to the next. Vikram stated the differing mindsets between banks and startups effectively when he said, “Banks generally are organized by product. They’re focused on what they can sell to customers rather than what they can do for customers. Startups… focus on functions. What are the jobs that clients and customers want done, and what are the best ways to get those jobs done”.
Taavet Hinrikus – Fireside Chat – Insead Asia Campus
After having caught TransferWise’s co-founder, Taavet interacting at a fireside earlier in the day at the Singapore Expo itself, I wasn’t sure what additional value would come from hearing him speak to a small group fo MBAs at Insead, but went along courtesy of an invitation from Karin Stephan and the Impact Hub, Singapore. I was pleasantly surprised. It’s a common thread that I appreciate in fellow startup founders. Clarity of thought, and determination to achieve what has been set out to accomplish, unapologetically, yet down to earth enough to connect with others who are now where they were less than a decade ago.
Taavet’s talk which he has done a thousand times before, ran through his journey from being Skype’s first employee to founding TransferWise with a focus on breaking down the monopoly of banks in the remittance space, providing a good service for a good price. This had substantial resonance for me given our focus in the payment space as well.
This candid talk touched on a number of hard truths and practicalities of the startup world often overlooked. It’s not about how good or new or groundbreaking your idea is. It’s all about execution, and that’s where most founders fall. The idea won’t build itself, sell itself, and evolve itself. With his estimate at last count of 50,000 banks globally, he was clear that he is entirely puzzled as to how he doesn’t have more competition from the startup space, and that really in my view is down to the ground up approach that TransferWise has taken. “Compliance is key to being successful”, he says. And I happen to agree with him wholeheartedly. Most startups are scared of regulation. Often times believing that they are not equipped to administer the requirements to comply with a financial regulator. This very frequently stunts the growth of a lot of companies, even global ones with paying customers all around the world. Ever wondered why some companies have a different app in app stores depending on which part of the world you are downloading their app from?
Most companies in the Fintech space are focused on band-aid solutions to payment fragmentation. Whether it’s trying to bring down the remittance cost or being more efficient with last-mile cash delivery, none of these are a game-changing solution for a mobile-centric world. In my view, TransferWise’s success has a lot to do with first-mover advantage and less to do with being a particularly novel idea, and that’s okay. There’s this misconception that you’re not a good startup unless you’re writing walls of code and developing a proprietary technology. It’s more about finding better ways to solve problems or a customer pain-point.
Perhaps the two most interesting and somewhat controversial stands he took were with respect to blockchain/crypto-currencies, and the value of an MBA in the startup world. His Insead hosts and current MBA students (he is an Insead MBA grad) seemed to shift uncomfortably in their chairs as he brutally debunked the marketed value of an MBA in the startup space. He spoke about how TransferWise has been largely unsuccessful in its recruiting of MBAs. Bloated salary expectations, desire for a “strategy” title and generally an inability to roll up their sleeves and get things done, were some of the criticisms he had of the ruling class of education (just kidding).
His view was, the real MBA achievement is getting into the school in the first place! I don’t entirely disagree with him. There was a time when every friend of mine that got into Harvard Business School would get forwarded an Economist article from me showing how HBS MBA’s were bad for the economy. My views on the subject of MBAs in startups vary to a degree from Taavet’s. It really depends on the kind of MBA school you pick, or a startup hires from. My Alma Mater as an example, The Cranfield School of Management in the UK, is a school for professionals who have on average eight years of work experience, and an average age of 33, with a focus on implementation and execution. Compare that to most ‘branded’ MBA schools who expect typically 3-4 years of work experience with an average age of 24-26. I was the youngest in my MBA class when I attended, at 26. In retrospect, I may have been one of the people to get the most out of my MBA, given that you learn more from the experience and lessons of your peers than you do from faculty. The top 100 MBA schools in the world are largely teaching you the same stuff from an academic perspective. What Taavet and I both agree on is the value of the Observational Behavior, which is a core module for all top-shelf MBA programs. It’s pretty simple, it makes you a better judge and version of yourself, and coaches you on how to manage your people relationships, something that is highly relevant for startups, and more often than not the diagnosis for failed startup partnerships.
Finally, to the topic of blockchain and crypto-currencies (we really should start calling them crypto-assets), which was that incessant, annoying, buzzing sound in my ear throughout the Fintech Festival, seeding its way into just about every discussion if it dragged on for too long. “10 years before we see something solid for remittance on blockchain”, was what Taavet had to say on the topic. The issue for the platform is primarily due to its slow rate of transaction throughput as of today. There is a substantial variance between how many transactions can be performed on the blockchain, when you view it through the lens of remittance which has substantial volume throughput. Couple that with every transaction needing to be verified by multiple nodes, and you have an understanding as to why a Distributed Ledger Technology (DLT) is not necessarily the most efficient technology, and should not be applied blindly to every industry or potential use case. The average cost of a single bitcoin transaction on the distributed ledger is estimated at $17 worth of electricity. That doesn’t sound like the Utopian world that people preach it to be in my view.
For crypt-assets, Taavet’s views were put out pretty plainly. “I think a lot of people are going to go to jail”. He is a big proponent of regulation in the world of payments, and makes a clear delineation in his thoughts about combating bank monopolies verses collaboration with regulators around the world. TransferWise is regulated in all the markets that they ply their trade in today, which is in stark contrast to the world of crypto-assets and Initial Coin Offerings (ICOs) which remain largely on the fringe of the regulated world. There is a fundamental trust issue that all serious financial institutions need to address and adopt as part of their core DNA. The anarchist perception of crypto-assets is one that is not being addressed, which has largely kept regulators from accommodating them or regulating them. If you think Bitcoin’s rise has been steep, could you imagine what it will hit if it is regulated within a major economy? The entire world of crypto-assets is still less than $200 billion, which is tiny in the scope of global money markets. “It’s about not being afraid of regulation”, were Taavet’s parting gift on the subject.
It is essential for me to point out, I think the ICO market has value. It has made an everyday Joe equally eligible to an accredited investor, so to speak. All the complexity of the financial markets that largely kept out the majority of the public from putting $50, or $100 towards the vision of some no-name founders is a truly novel evolution in ‘investing’. It does however need to safeguard people from investing their savings in the maddening frenzy of ‘FOMO’ that most ICO’s are champs at creating. This does not always have a foundation in real value, and perhaps the next iteration of ICOs (once regulated) will allow for crowdfunding to go mainstream. Can you imagine what this will do to capital markets, lending, venture capital?