Regulatory Sandboxes and associated frameworks foster fintech startup’s to innovate under regulatory supervision. How and what does it take for a Fintech to succeed? We discuss the experience of founders in Singapore, India & Africa on what they have learned so far.
Recently, it was a huge privilege to be able to welcome a major fintech influencer to the Fintech & Payments Club when Spiros Margaris joined us for a Clubhouse discussion.
Spiros is a venture capitalist, futurist, keynote speaker and senior advisor who has achieved “The Triple Crown” ranking of No.1 international FinTech, Blockchain and Artificial Intelligence (AI) influencer with Onalytica. I was joined in this discussion about how fintech has developed and where it is going in the future by my co-moderator Darren Franks, the Founder & CEO of TalentintheCloud.
If you weren’t able to join the conversation, here are the main topics we covered and the key learnings I took from it.
There’s much more to come from fintech
So far, fintech has picked all the low hanging fruit in terms of innovation that incumbents should have really done themselves. That is not to say that fintech companies haven’t broken new ground or achieved important things but more that we are still at the beginning of what can be achieved.
The most progress has been made in improving the customer experience across banking, payments and financial services in general. Fintech shook up the industry by providing opportunities to the masses that had previously been reserved for the privileged few. All of a sudden, services like sending money to relatives cheaply were opened up to ordinary people.
The fact that fintech has progressed so much can be seen in how little fanfare comes with the announcement of a new challenger bank or robo advisor. This doesn’t mean that fintech will not have any more ‘TikTok’ moments, where something unexpectedly huge appears from nowhere. These will come and the key will be cooking up the right blend of technologies to provide customers with what they want.
Embedded finance will win the fintech wars
In all likelihood, it will be a company that isn’t an established provider of financial services that will win the fintech wars and they will do so by using embedded finance to offer services that satisfy customer needs.
Identifying exactly who that will be is hard. Without doubt, the tech giants and the biggest mobile network operators will take some of the market from the banks, who will likely be the biggest losers in whatever new market structure emerges. Banks will be less visible and less powerful but they will still provide the pipes behind the scenes.
Unfortunately, this will mean many thousands of jobs are lost in banking and it will not be the career choice that young people aspire to, as they have for many years. The big banks know this too and are aware that many other players, including fintechs, are in the driving seat now.
Essentially, this major change boils down to the fact that people will care less and less where their finance comes from. Like with an iphone, where you don’t understand the complexity in the computer but you do understand that it gives you what you need, the same will happen with mortgages, loans and other financial services.
Banks must be brave to not lose out
Fundamentally, banks must be courageous in their approach and be ready to cannibalise their own business. The faster they do, the faster they will win. In fact, if they had done this earlier in certain areas, there would have been no space for fintech to move into.
Having courage to fail is important. Some banks are too scared to progress in this way because they do not want to bet the bank on these initiatives. However, they must at least be ready and willing to try and possibly fail.
Goldman Sachs is an example of a bank that is being brave right now by building its Banking as a Service offer. It’s a slightly unique case because it is starting from scratch but there are still many opportunities in Banking as a Service and Embedded Finance which other banks are failing to seize.
Just getting started can have a major impact and the future may look very scary for them if they don’t. Just look at how much progress Shopify or Grab have made recently. Two years ago, they were nowhere in financial services but now it is bigger for Grab than delivery and restaurants.
Regulators will always have a big part to play
Regulation should always focus on protecting the consumer but, if you overregulate, you may kill fintech innovation.
Failure happens but, as the Singaporean regulators have said in the past, you have to have room for failure. A clear example of where regulators have helped fintech is the UK, which has developed into a great hub because it allowed startups to flourish. If you overregulate, these companies just move elsewhere.
China is an interesting case study for regulation. Right now, they seem to be saying that there has been enough financial services innovation for now and that what has happened so far needs time to be digested. This seems like it might be a dangerous move.
If the regulators take away the innovation powers of people like Jack Ma from Alibaba it seems inevitable that the industry won’t advance in the future as it has up to now. We’ll just have to wait and see if China proves this wrong though.
Trust matters but so do great services
You can’t grow if you don’t have a brand that people can connect to emotionally. That’s because branding is all about trust and credibility rather than advertising and marketing. Furthermore, trust really boils down to providing great services that consumers need.
If you think of a company like Amazon, many people might be able to identify some ethical issue they have about privacy or workers rights. However, the same people will still buy from Amazon because it is providing a great service and they simply don’t care enough about the other things. The solution the company provides is the main thing and, with the finance of the future, this will be all about who can supply the loan or other product that fulfills the consumer’s dream.
When it comes to how this plays out with Gen Z consumers, it seems highly likely that a fintech rather than a traditional bank will serve their needs best. The big banks may follow but they simply aren’t agile enough to take advantage right now.
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▶️ James and special guests wrap the week in Fintech & Payments. Please raise a hand, join the stage, ask a question or share your perspective on the topics that have piqued your interest this week.
Recording available – see audio file and transcript below
Impact of real time (account to account) payments on card payments – thank you Alex and Dean
What will be the impact of real time payments in developing markets – thank you Sarah
What are the opportunities to fix for cross border remittance for the Nigerian diaspora – thank you Sean
and many more!
Start time 07:35 UK
Duration: 3hrs 30mins
Moderators: James Sherwin-Smith (@26Left)
Broadcast channels: Clubhouse (main), Twitter Spaces, Facebook Live
Recorded: Yes – Facebook Live and Audio file
Transscript: Yes – Otter.ai
James Sherwin-Smith 0:00 Okay. Do you type that into your internet browser. And I’ll just make sure this is set up for you use the code s s and one six M. So Sunday surgery 16th May. And that way, regardless of which platform you’re using, you’ll be able to choose. So this slide is quite, quite cool conference tool actually allows people not only to ask questions, you can type in your question and you can either do that in your own name, or anonymously. You can also upload other people’s questions and and
whatever copy over the. Any question on the previous week. I copied across to this week. So, I’d normally take questions from the top of the queue, on SLIDO so the ones that get the most votes, and to get answered first. Wha it also allows you to do is to run polls, and there will be a poll live in just a few moments, which simply asks, How did you discover the room today. It’s a way that people can get comfortable with the slido. It’s also really useful data for us as we build the club. Because, as you can imagine, as it’s such a new platform everyone’s finding our content in different ways, and we are constantly looking to improve the way that we can send out our notifications through different channels, so people can get hold of that. So we now have a part time Social Media Manager, Freya who works for us. And she’s just finishing up her degree in a master’s degree in social media, and she’s helping build our social channels, outside of our house across, LinkedIn, Facebook, Twitter, and Telegram, you name it, when are we getting there.
So, there is a poll now live on SLIDO Take a couple of minutes of the appreciated. Simple question which is how did you discover this FinTech and thanks for him today.
You know it’s
like do Event Code S S one six M That’s our hashtag for today’s event. And you can ask questions via Twitter as well. But what’s cool about SLIDO is it’s we get them all in one place. So a bit of background to me in the club.
So my name is James. I’m one of the founders of the FinTech and payment club. My day job is that I work for MasterCard and a division called new payment platforms, new payment platforms is the era of MasterCard that does everything but card. So we look after accounts or accounts. In particular, so that’s the ability for people to send money from a bank account a bank A to account holder a bank B. Most guys been investing in that area for over four years now, since the acquisition of a company called VocaLink in the UK. And recently, a part of the nets business in Europe as well. So that’s. These are all my own opinion and is what I, this is what I do for fun around the edge so this is not the views of my employer but just my personal opinions. Today that you’ll be hearing on this show that gets the line. These out the way anyone’s like on stage a little bit.
But the first question that’s been carried over from last week was left by Alex and his question was, one a little bit close to my own, my own employment so I’m glad I got the compliance question out of the way first, which is Alex asks, given the recent uptake in direct instant payments, which are very low fees. Can we see the MasterCard and Visa inverted commas cartel fees, be greatly reduced in coming years.
So it’s a great question from Alex, and it’s something that’s been on my mind for quite a while. I first worked for MasterCards consultancy business for advisors in 2014 2015. And it’s, I then stepped away, and was the CEO of a FinTech business called growth Street, in the UK. And then I and I actually joined MasterCard proper back again. In 2017, I joined the VocaLink business just after being acquired but before I’ve been fully integrated into MasterCard. And so for me it’s been an interesting personal journey where I’ve seen the transition from a company that was predominantly focused on card payments to be in the words of our CEO of a multi rail company. When we mean rail here we mean different payment rails. So different ways to pay. And that could be accounts. Accounts so moving money between bank accounts directly, it could be using card. It could be using digital ledger technology or blockchain those types of variants, and it’s been a big transition. I think for our company and I think for the world as we begin to realize that there’s other ways that we can facilitate payments. And my sense is that I’ve always seen that real time payments, direct from one account to another, and have a phenomenal ability to improve the flow of money. And the reason I say that is because in most geographies. It allows you to move instantly clear funds so as soon as I transfer money from my account to your account that account balances, ready for you to spend immediately, you can take cash out and use it to buy groceries, money, it’s available for you to spend in real time. As soon as I sent it.
Now that speed element is, is good for a number of reasons, because it reduces risk. So, the uncertainty of where the money will be received and won’t be available to spend. Typically these systems work in a modern, efficient way so it reduces cost as well, and cheap, if not free to facilitate these transfers, as an individual. And so it does have the ability to radically shake up the existing payment market where there may be fees and charges and delays and risks that are larger than than what he achieved and accounts Account Transfers. Now, what’s interesting though of course for me is that that capability has been around in the UK since 2008 2008 Sure, the introduction of a service called Faster Payments, which was effectively what I’ve just described, real time payments at no cost to me as an individual, that allows the transfer of money to have in real time and the recipient to be able to spend it immediately. And what we’ve seen instead in that time last 13 years and actually car payments have grown in popularity. They have increased in the amount that people use it as a replacement for cash. And while we’ve all got mobile banking apps which would allow us to organize a payment in real time. Very few of us use them through person to merchant transaction, we tend to use them for our payments for maybe making you sending money to a friend, paying off a gardener for work that’s being done at Park, whatever it might be. But we don’t tend to use them religiously, for most of our ecommerce transactions for the physical transactions at the point of sale. And I think that’s a lockdown to behavior and locked down to convenience because we find it easy to take a phone out of our pocket and tap it against a terminal or a physical card, and the rise of contactless transactions to be able to arrange a payment using effectively radio frequency rather than having to push your card into a terminal and or swipe it through it has made that even easier for people rather than potentially getting a mobile phone out fiddling with it, signing into your banking app, working out who to pay and all the rest of it. Now, that’s a lockdown to interfaces and is down to the underlying card relative problems. And I think if the interfaces were as good for counter campaigns that I think increase the adoption of accounts account payments in that particular use case or perhaps introduction, but it is, I think, going to take a long time for the interfaces to improve, and for the customer understanding and knowledge to improve. So I think it will be quite a while before we see a seismic change in the present and merchant transaction space. If people don’t account for account that’s coming from the perspective of someone who lives in the UK, where the card market is already well developed. I think you have to realize it and other market can make
Unknown Speaker 8:02 its presence and
James Sherwin-Smith 8:04 issuance and acceptance may not be as popular, but then there is an opportunity I think to maybe leapfrog to these new ways of paying. We’ve seen that in jurisdictions in Africa, in Asia, in Latin America by mobile, mobile money. So typically money, mobile financial services being delivered through a mobile phone network have allowed people jump straight from cash to that new method and. And that’s not necessarily go through the coefficients and acceptance stage. So I do expect that a different perspective, depending on where you are in the world, and I think that’s one of the great things about clubhouse is we do get lots of international perspectives on this topic. So if you’re in the audience you want me to say on this, please do raise your hand, just click the hand raise icon at the bottom of the page I mean more than welcome to join on stage as Dean has just done. Dean, hopefully you can accept my invite, welcome to the stage. Great to have you with us this morning. Thank you very much. This is a an earliest start for Sunday surgery in the UK at 7:30am, because I’m on some hours played cricket, but great to have you with us and perhaps you can give a couple of senses on yourself, sir, and where you’re joining us from and whatever your question or perspective myself because we’d be more than welcome,welcome to the stage.
Dean 9:12 Sure thanks James. So my name is Dean worked for Australia so later in the day not not planning merely stuff. I’m just on the top, he was really interested to hear in terms of some of that accounts in the local market down here as well around some of those new payments platform, following some of the UK lead in terms of open banking and the consumer data website does it really take off. The question asked a lot about in terms of the cost base and things like that as well. I’m just wondering if, and again, it probably varies Market to Market. But for some of those developers. Is there more of a shift that we’ve seen in terms of the fee structure on it, looking at the sort of some of the generational shift as well. This younger user sort of skewing towards towards debit cards compared to credit cards, just around the corner, the merchant side but also the convenience that.
James Sherwin-Smith 10:02 Yeah, great question, Dean, I think so. I think we’ve, we definitely do see a generational shift to increase use of debit cards. I think that’s one of the reasons why we’ve seen a big rise in the UK in particular and buy now, pay later. Because people are less likely to have a credit card and they want to defer payment or sorry to defer the payment for a purchase they’ve made, then that’s why I think we’ve seen kind of point of sale finance like buy now, pay later in the online domain, really pick up. So yes, I would agree that there’s been a generational shift in terms of my nephews and nieces who are turning you know, from leaving school into their 20s through university etc. I don’t think the credit card for them is the status symbol of perhaps was for me when I was at that age. So I do agree that’s been a generational shift there. I think also we’ve got more choice right I think a lot of prepaid cards are in existence as well which tend to go well with challenger bank, or new banking propositions. They’re an easy way to get into the market for fintech. So yeah, where there wasn’t the kind of that range of prepaid being available, where there wasn’t. Also, the same cache of holding a credit card, I think we have seen restricted data. Now in terms of the fee element to that. Yes, typically debit charges for acceptance, are lower than they offer credit it. The degree to which they are different depends where you are in the world, and in the European Union. There is more change and lateral interchange fee regulation. And what that effectively says is the amount of money that could be passed from a card acquirer for processing the transaction on behalf of the merchant to the card issuer, who gave me the piece of plastic that allowed me to go and by using that card that has been regulated in the European Union. So that now is where before that might be as much as one or one and a half percent but it’s being paid to the issuer, for the basic issue and the card that is capped at 30 basis points point 3% for a credit card, and point 2% for a debit card. So, in the European Union, for example that differential is much much more between credit and debit. And so I think the reduction has happened from an exchange perspective. Because of that regulation in Europe and I know in Australia and other markets, you’ve had similarly interchange regulations, been put in place. The complexity there is at the front end, the merchant discount rate the amount the actual merchant loses or pays the fees, I should say, for processing a transaction has kept relatively steady. So, typically, it’s around about two to 3%. So if I buy goods for 100 pounds from a merchant. The merchant ultimately only receives between 97 and 98 pounds, and the two to three pounds that are taken away the merchant discount rate, school, or merchant fees, effectively are paid in different actors in that process. To compensate, from the work that they’ve done. And obviously you have a client network like MasterCard, Visa or AmEx, that helps organize that transaction as the network in the center. You have the acquirer that provides the merchant with a terminal or the online gateway they use to process the transaction with the cardholder. And you have the issue where the obviously provides the card to the to the customer, which they’re typically that might be a retail bank or an independent organization like AmEx, it’s that way. And so while the regulation has impacted the amount of money that flows from the acquirer, to the issuer. It doesn’t necessarily impact the way that the fees are paid, amongst those players. And so I think what we’ve seen is some substitution effects where while interchange fees may have been regulated. The scheme fees are paid by acquirers and issuers haven’t. And so in effect, the net result is that the margin discount rate stayed relatively similar. So from, from my perspective I think in terms of how the card networks operate the fee situation hasn’t changed radically. Yes, one part of the journey has been regulated, but the rest of it is not. And so the merchant discount rate largely has stayed the same, that’s impacted from my perspective is that individual card holders don’t have access to the same benefits that they want to do. So, previously when interchange was in existence, and acquirers were compensating issuers by you know one one half percent whatever it might be.
often card issuers have passed that benefit on to me as a cardholder for transacting. So they were acquired in the past while lucrative offers on cashback on other forms of rewards like air miles. And what I think we have seen in, in it as a result of the interchange regulation is a lot of those benefits occurring to card holders have been reduced. And I think that would be one of the perhaps unintended consequences of regulation. At least that’s my experience in the European market, but then you’ve had interchange regulation for a while and Australia be interesting to know your take on that.
Dean 15:39 Yeah, no it’s it’s definitely been similar and looking ahead to some of the account to account for you touched on as well it’s, as you mentioned the, the end result doesn’t seem particularly different but you’ve got a lot more plays in a transaction now so you’re at the end merchant results seem to have changed a great deal but the merchants are now playing SOC II for those transactions or an MPI for 3ds transaction or an aggregator or sweet show, there seems to be a lot more slices of the pie essentially being taken some sort of economic planning to benefit those interchange regulations. The interesting side from the Australian perspective is we do also have surcharge regulations to regulate exactly what and then merchant can pass on to a customer in terms of the front end surcharge which is which, as he said certainly does even those cardholder benefit so again for now. We’ve certainly seen the similar sort of thing, it tends to be a slight sort of erosion in terms of benefits, but it’s been interesting looking at some of the market research and demographics and things finding out that the base really seems quite not necessarily as quite savvy or you know, it’s always seeming like the one always need to the price points are the best sign on bonuses are the most cashback. A lot of the switch towards debit and things like that seems to be driven by a sort of simplicity, which some of the account to account or personal financial management services seem to provide so interesting things from other perspectives from different localities in different markets as well as a little bit further ahead in that curve in terms of some of those parts as to where that plays into that shift across to card based rails but much more of an app to app transaction, whether it’s more of these, you know, more mobile banking type options that you see in other developing markets or it’s interesting to see which bits get picked up in which markets
James Sherwin-Smith 17:28 100% I agree with that and I was, I was surprised, I last visited Australia in 2012, I believe, and I was taken back and literally it was in the arrived picking up a bottle and it’s easy for you, obviously. And I was there on the counter was a sign explaining to me that if I use the certain father, I would pay a surcharge. And it was interesting to me because in UK that’s not allowed. It’s actually illegal. So the government is stamped out on surcharging particularly they were unimpressed with a number of online retailers who are effectively getting your way through a sales funnel with a stated price and at the very last minute would then snap on a surcharge. So basically, they think they’re possible more they said you couldn’t surcharge in the UK. I’m kind of curious to you in Australia now. Is it is it the old Carter surcharge or the merchant surcharge differently depending on the network or the type of card being used.
Dean 18:28 Yeah so, the regulation essentially allows for surcharge that again are always encouraged not to surcharge because as I said if you’ve spent 20 or 30 years getting someone through a sales funnel, it’s terrible to see a trap right at the very end and abandon a basket just because of some tech leads but merchants are allowed to surcharge only after the maximum cost of acceptance. So interestingly it’s changed a whole lot of the state meeting and things like that from the acquirer side so you have to be very clear and upfront intent the transaction process what the cost of acceptance is and that’s the maximum they’re allowed to pass on and again, the government sort of took a very dim view of some of the airlines and things like that which would have a flat, any flat new booking is a $20 fee for using a card, and using a debit card and buying an $8 flat something that’s a very high percentage of a surcharge and 10 times when they match it’s actually planning so that sort of bands a lot of those cap surcharges even due to not surcharge.
Unknown Speaker 19:30 I mean one of the defects that people typically get as a cardholder processing a car transaction rather than they might register an account to account transaction is protection if things go wrong. So if I, if I order something online the goods never arrive, or it’s a arrive and faulty or damaged. I can complain to the merchant office and say hey, you’ve sold me something and stuff, I want my money back or can you send me another one. But the merchant doesn’t oblige. When I have the protection right I have what’s called a chargeback where I go back to my card issuer and say, Hey, I never got what I wanted, it wasn’t, it wasn’t complete. Can I have my money back please with a merchant won’t give it back to me. And so you can process a chargeback and therefore get my money back. There’s the cost of cost of acceptances that take those sorts of things into account effectively it’s kind of inherent insurance that’s effectively provided to cardholders against their transactions each time they pay.
Dean 20:28 And that’s the idea. It depends on if you’re obviously a three party or full body scanning so I can speak multiple more there are certainly exceptions but again it’s part of the value proposition as acquire the employee to as noted to say that there will be these things that can throw it out that way you’re reducing the number of actual disputes you get showing up at your door we can handle some of the chargeback volume and it’s the benefits that are provided as part of an issue so it does tend to get bundled into one sort of rate, and depending on the bank for you’re going through wire or switch terminal provider where you essentially take your payment services from they’ll usually have to bundle everything that’s included into a sort of headline rate for you so you know you can charge for these type of cards point 2% And, again, different stores do different things you can get ones that go down to the local level, a plastic cover or something like that to be really specific and other ones a bit just a broad thing anything of this scheme or anything but their credit, debit, so they do different different options and you can charge less than what you’re costing certainties, you just never charge
Unknown Speaker 21:31 more. Right,
Unknown Speaker 21:32 wow that sounds really comprehensive, I guess it’s, it’s interesting because effectively, you start to get a signal of how risky this merchant is right as a consumer because effectively if lots of people doing chargebacks against the merchant then it’s going to cost them more for acceptance now following the prices up for a surcharge, whereas I guess if I go into a grocery store, you know the chances of me taking back my melon for being you know, full teeth having just eaten it is quite slow, it’s quite low right so that’s, it’s kind of very, very interesting to me that you effectively to get that level of differentiate and start to see those signals almost like as a consumer, very very interesting on the accounts account side open banking etc. I mean it’s going to be very very interesting space to watch obviously it’s still very early days, but I do think there’s a big consumer education gap at the moment, depending on where you are in the world and depending on the potency let’s say of the of the of the account to account. Steam is in the UK at the moment was famous, like I said, 13 years effecting a chargeback of Faster Payments isn’t anything like first of all, it’s not easily understood it’s not easily achieved. In most cases the banks will simply say, you send money to another
Unknown Speaker 22:54 investor,
James Sherwin-Smith 23:01 counselor, not to say a merchant account rather than using a card, even through some form of open banking transaction where a third party is effectively intermediating with my permission between me and my bank arrange that payment. The lack of permission. I think is not widely understood, compared to, say, a private transaction where I think the schemes and the issue is have gone out of their way to advertise the benefits of the protection provided by a car transact. And so, while I think for some time it may be attractive for some that merchants direct customers to maybe make an accounting account transaction or a banking transaction. It may be that over time, that market develops to include some form of protection, and therefore will include some form of fees for processing the payment in that way. Or there’ll be a stronger level of customer education which says this route gets protection and this route, does not. And therefore, are you comfortable organizing a transaction in this way. And I think that in certain categories. Open banking will be an over the counter account transfer will be far more attractive than others. For that reason, tend to extend the grocery analogy, it’s no surprise to me that one of the, one of the organizations that pushed furthest bar is a supermarket and Tesco also have their own thing, which confuses things a little bit but in effect as a merchant, because groceries is such a low margin such a high volume, low margin business. And of course the payments is, is a significant number for them against their profit margin. And so they are most I think so far with looking at alternative ways to pay that allow you to arrange a payment directly from your bank account to their bank account, particularly if it’s your own bank account with Tesco Bank into basically Tesco merchant account. And what I anticipate we will continue to see is the price differentiation, based on the way that you pay for, we will see kind of further additional incentives that are placed alongside the transaction to say, if you pay this way, then we’ll give you more points or we’ll give you more vouchers for future purchases or whatever it might be. And I think you’ll see some merchants deliberately trying to encourage customers down that particular payment choice, because it’s better for the merchant. And I think depending on how good the user experiences. If the merchant does a great job of making that user experience as good if not better than the existing alternative, and they could be quite successful in doing that. What’s interesting in the UK is that they can’t do that by surcharging they can’t say if you pay with a card it cost you 100 If you don’t pay the card, it’s 98. Because that effect, then says two pounds is a surcharge for using carts and kind of a complex gray area in my mind in terms of how to manage that. But I think what they can do is basically say, you know, if you use an Accounts account transfer points for every pound. When you do a card or one puff puff one two pound or something like that. And, and we’ve certainly seen that Tesco experimenting their own efforts, encouraging use of them in their own stores, and so on and so forth. So, I do expect to see more signals that way delivered, both in the physical store but also online as well where, if you look at the capabilities that are being built into the next set of payment standards for online purchases as a, as a international body called W three C, which effectively manage standards for the worldwide web. And it’s W three www that consortium is a combination of mobile phone manufacturers Internet browser makers, and so on. And I think they are now creating a set of code inherited PayPal payment API’s that be supported by your browser that will provide that when it comes to the payment page or the checkout online. It will provide relevant payment options that can effectively be engineered by the merchant, in a way to present you not only different ways to pay for different prices against those payment options. And that I think is probably the direction where we’re traveling in that it will be very interesting because it can lead I think tension a little bit like the Australian surcharging example of things. It could lead to confusion and quite a wide array of choice. And so it will be interesting to see how that snack complexity is managed or whether some of the choices will be taken away because merchants or delivery drivers to steer consumers into paying a certain way which favors them.
Unknown Speaker 28:01 That’s very interesting space Dean Thanks for Thanks for the extra perspective in Australia really appreciate it. Anything to add on this otherwise we’ll move on to Sarah who’s next up.
Dean 28:11 Now the only thing to say was it’s interesting that grocery space I know that MasterCard and ING were doing something in the Netherlands, sort of more than just the token trial they were doing, which again merges some of that online and offline WC three you’re doing essentially an online payment while you’re in the store utilizinga different token it’s interesting space to watch to see how it develops, thanks for the time.
James Sherwin-Smith 28:32 No problem. You’re most welcome thanks for perspective. Yeah, it’s not a it’s not the masculine energy example I’m not that familiar with but I’m sure there’s plenty of experimentation in this space going on around the world and I think there’s some very, very interesting space to keep tabs on Sarah, welcome to the stage, thanks for being patient. Great to have you with us. When you’re on mute, please, maybe give us a couple of sentences on your background and where you’re joining us from. And then step forward to whatever your question or perspective is, welcome to the stage.
Sarah 29:03 Yes, I’m Sarah. I have been working in emerging markets for the last 15 years, and more specifically on lending but with the arrival of fintech. We are IMC apologies that a lot of payment processors are also entering the lending space and so I was talking to you, floating into payments to the emerging markets. So I have a few questions regarding what you’ve introduced, James at the top of the conversation before the real time payment system, as in emerging markets, usually the cording population is very low. What I see is usually between 10% and 14 with the record and only have this very tiny portion being recorded with the credit card. And so what we’re seeing is the arrival of the virtual coercion by FinTech when they had sufficient penetration, to be interesting for the credit schemes, and I was interested to understand what are the applications, the wider applications that can come with the real time payment system but we also see sort of emerging countries to start set up and how which type of effort, does it take to build those real time payment system in order to CD digital payments for those that are innovate.
James Sherwin-Smith 30:31 Thank you Sarah. Yeah, great, great question. Great perspective, and I totally agree that in more developing markets card issuance and card acceptance is low compared to what we’re used to in InDesign like Switzerland or the UK, and that the ability for real time payments to make a meaningful difference in those types of economies is enormous, provided the population has access to some other digital interface as a way to pay because real time payments is electronic, by definition, and it requires a way to organize a payment. When Faster Payments was built out in the UK it’s predominantly thinking about online banking so sitting in front of a user or laptop signing into your bank, organizing a payment. And obviously, with the rollout of smartphones and apps on smartphones that radically changed the game, and I suspect the vast majority of real time payments today across the world are arranged now through a mobile phone, and not through a desktop computer. So if you have any legislation that has benefited from the rollout of mobile phones, and ultimately smartphones. Then, I think it can be a very powerful enabler for the economy. And what’s interesting to me is that there are very strong corollaries with the rollout of mobile money initially and now we’re seeing the rollout of real time payments today across the world, because the use case development and the pathway tends to be very, very similar, based on my personal observations. So, I studied the rollout of mobile money. First in around about 2014 2015. At the time there were a few obviously standout successes that most people have heard of like M PESA in Kenya. That then started to spread to other African nations and other mobile telephone network operators started to replicate that success in other parts of the world. And initially, I think a lot of it was achieved on quite simple market phones so there weren’t smartphones, they weren’t running apps they didn’t have large screens they didn’t have, You know, that kind of internet based technology that we are so familiar with that they, they use simpler connectivity through different GSM standards. So GSM is the, the international standard for global mobile communication and effectively a lot of those early use cases for mobile money were developed, effectively with text messages and and simple text based interfaces using things like whap, which are the wireless access protocol in the early days of what mobile internet could support. And that’s been suitable in many parts of the developing world for some time. It allows you to facilitate just quite simple transactions like sending money to a specific mobile phone number, or shortcode. So even with kind of non smartphones. A lot of its mobile money effects can be achieved. And PISA grew up originally because Vodacom, the Vodafone subsidiary that were running it recognize that people were using their ability to transfer, add time between users in effect is a form of currency, a way of exchanging value. And so they quickly cottoned on to the fact that people were using this very simple ability through text messages to to effectively send other people airtime credits, measured in minutes nine shillings or anything like that. And that’s how the kind of mobile financial services that started to develop. And so it wasn’t really, they built a specific real time payments. Switch wasn’t they built that particular capability, it was kind of what was inherent in the way that the mobile prepaid accounts are being managed by those mobile financial services providers. And so they went from being telcos to mobile financial services providers and never look back. And what we saw what you see to begin development part is you start with person to person payments. Then, when individuals get comfortable and they have trust in the system.
They then start expanding to other use cases, you know, entrepreneurial kind of micro merchants start realizing that well, if I can be paid or I can pay someone else using this method, then why can I receive payments for the goods I sell at a local store or whatever it might be. So you begin to see persons imagine payments at the micro level. And then, if the adoption becomes quite widespread. Then larger companies and governments start to get involved in this space as well. And they start to use it as a way to send and receive money. And at that point suddenly you find that you’ve got to kind of a whole mobile financial services economy. And then the government and the regulators get involved and realize because so much value is being exchanged anything No, think about this carefully and understand, you know, what role this ecosystem has relative to the additional banking sector. Now, how it should be governed and potentially actually be taxed, etc. And so that tends to be the development, the use cases are Person to Person person to merchant bill payments b2b payments government disbursements and there tends to be quite a linear process. With the rollout of real time payments, what we’re finding is that it can be used to the counter account, it doesn’t have to be a bank account or bank account as we’re used to doing, in the developed world, there’s nothing to stop that being a mobile money account on either side, provided the the rack interfaces and integration points of build, then you effectively can can do that and you can, doesn’t matter if it’s a mobile money or bank account on either side of the transaction, it will work. And one of the ways to do that is by having a proxy service that sits in the center as well as a real time payment switch from what the proxy service says is that, I will resolve, if someone wants to send money to a mobile phone account number. So, I don’t need to know your bank details, I don’t know, need to know the string of digits that represent your mobile money account, I just need to know your cell phone number, and what the proxy service does is say you want to send his mobile phone number that mobile phone number equals this institution and this string of account numbers or letters whatever the system uses in your country. And so what that means is it makes it a lot simpler to address the recipient for funds, because it just happens to be a mobile phone number which is probably in your mobile phone, address, and so you don’t have to have all this complexity around routing numbers or iPhones or whatever the system uses to address an individual account whether that be a mobile money account or a bank account. And so that proxy servers, title, the real time payments which really makes the difference for me, and the leading example that we have as MasterCard is is prompt pay in Thailand, where I think over 16 million people use that service. It’s been built in, in less than four years. It’s got to 1.7 billion transactions a quarter so it’s running at just over 7 billion transactions a year. And it’s doubling every year. It’s an extremely successful scheme. And it’s largely been drawn, because the government had a strong e payments 4.0 is what they call it a strong policy agenda was that they wanted to digitize the Thai economy. And they took some steps of government, not only in terms of customer education and literacy about this new service, but also by saying that certain government use cases were only used as method by you, if you want to receive a tax benefit. They will only pay it out through the front pay system, which obviously drove millions of people to sign up for the service and then receive the benefits. And it’s been, it’s been very successful in a very short space of time, it outstrips now it’s over two to one in terms of volume, even though it’s been running for years and fast payments in the UK as we’ve been running for 13 years. So it just goes to show how that can be done quite quickly. But I think what we find is you see this kind of real time payments evolution in developing markets from traditionally existing and mobile phone. See scheme, which supports mobile financial services, and what it tends to be, it’s not always but it’s often what’s called a closed loop ecosystem because effectively it says that if I’m with this one mobile network operator. I can only transfer between other people on the same model find that work. And so if I’m on Vodafone bus I’m on both two bands I’m on e and UK Data it says the recipient has to be a mobile phone number on the same network as me.
Sarah 39:49 Yeah, but when we’re seeing governments that are forcing the term for a BT CMP in Southeast Asia. Our kids are starting to see that.
James Sherwin-Smith 39:57 Yeah, I think that’s right and I think you’ve got two ways, is what I’m trying to say is, you can either force it purely at the mobile financial services level and say you three for whatever mobile phone networks you have to achieve interoperability, and again, something like a proxy lookup or something with mobile phone resolution service in the middle that says, you want to send this mobile phone number, I know that split vote upon not with MTN on my B. Therefore I’m gonna send it to them and they will resolve it right down to the right account money mobile money. So you can either force interoperability and mobile phone manufacturer services that opportunity operators, or even look for interoperability which basically makes banks, and mobile phone operators work together. And I think that’s really for me that holy grail, because then you get true ubiquity and true use cases. And it means that mobile money isn’t seen on the mobile money account holder isn’t seen as like a second classes. It means they get to participate in a full financial services network and I think that’s what’s really important. It’s not interoperability just between mobile financial services operators because actually, there’s more financial services operators. And that for me makes a real difference and that’s where I think a real time payments which is independent, whether it’s a bank account or mobile money account on either side of transaction is what adds real value. But it would means that it has to be able to cope with the full volume and the full value and the full set of use cases, to support that.
Sarah 41:20 Technology pretty close discussions are technologically difficult to have these real time payments, which is what’s the services described,
James Sherwin-Smith 41:28 it’s, it’s not. I wouldn’t say it’s difficult. I would say
Unknown Speaker 41:32 expensive.
James Sherwin-Smith 41:33 It doesn’t have to be expensive. I think it depends on how and how its funded effectively have two obvious models, either a central body procures that and runs it for themselves, and therefore they have to do, you know they have to procure whatever the technology is they have to build out the infrastructure they have to invest in that way, they own it and run it for the benefit of the economy, but it requires investment by the national bodies to do that. Or you can effectively procure it as a managed service which basically says someone else, someone else will. And then you pay a small amount for every transaction thereafter. And that managed service model. I think gets a lot of traction in developing economies because they don’t necessarily have the capital and investment available to you know, pay the ultimately 10s of millions of dollars to build one of these things from scratch. And instead they look to other people, provided as a managed service and then pay us for every transaction thereafter to that managed service provider, and so I think there’s, there’s different models that can be done but I mean it’s not difficult it can be complex because it depends on the existing ecosystem, or the different players involved and what you have to do is effectively build one central infrastructure that works for everybody, every institution, every use case, and the complexity and the difficulty can be because you have to replicate what’s already existing as a national standard or the National way of doing things. And that means that you can’t just take an off the shelf solution because it has to be customized to fit the local requirements. So that can be that can be a source of complexity. The alternative way to do it is to say you take something off the shelf that works the way it does in a standardized way. But then all the foods around that network then have to adopt that standard and have to change their systems around the periphery, to make sure that that central infrastructure doesn’t know what to do. And so that’s where, you know, it requires a good understanding of what the trade offs, I would say are in that situation. Typically my view is what happens is that the central infrastructure is installed locally to fit the local requirements, which perhaps elongate the process to build it initially with essential infrastructure, but it means all the participants don’t have to do as much work. And then what happens is, in a later stage, he will recognize the benefits of perhaps being part of a standardized system, which is also the same is used in other parts of the world, and that allows for cross border transactions to happen, benefits from greater economies of scale, because there’s one system that’s being supported by many different countries. And so what you find is that over time, the customized localized solution matures into one that’s more standardized with the rest of the international community.
Sarah 44:26 So what you’re saying in essence is that the model that India has adopted within PCI seems to be a viable model for other emerging economies should governments, be willing to take at the initial investment.
Unknown Speaker 44:39 Yeah, I don’t see why not. I think there are, There are different ways to do this. I think India has recognized with a an extremely popular and successful rollout of mpci that it’s time now to have an alternative I have a second option as well which is why we’re now going through the kind of umbrella into the new and better entity dialog in those countries in the country right which is to say, you know, the first system may not be the only system, it may not be the best system, but it’s been good for what we needed, up to this point and now we should look to the future about what we need that. Okay.
Unknown Speaker 45:18 I’m assuming these real time payment system is only necessary if the mobile, mobile payment inductive adoption is not very deep, because as an experience, it comes to complement, in order to facilitate payments between mobile accounts will also between mobile and data types.
James Sherwin-Smith 45:39 Yeah, but it could be that the original genesis of it is just to satisfy bank to bank account, it needs, you know, I think it, you can have different, different journeys in economy right. It might be that it’s there just to do bank accounts, bank now, it might be there, let’s just do mobile accounts mobile accounts, or it may be trying to bridge the two. And what I, my personal opinion is the one that bridges the two is the one that’s the most successful. It’s perhaps more complex initially, but it drives far greater financial inclusion because it brings mobile money and bank money into greater proximity. And I think that means that, more, more of the population get to participate in the real economy, and the opportunities that they have available to them are much greater as a result.
Sarah 46:27 Lastly, thank you very much James for taking the time for such a detailed reporting as we move now back to the audience to use basically
James Sherwin-Smith 46:33 no problems. Thank you Sarah, appreciate it.
I’m going to butcher this I’m sorry, is it all of the same. Please correct my pronunciation lovely to have you with us. Thanks for being so patient, and please let us know a little bit about you and where you’re joining us from and your question on perspective certainty.
Sean 46:51 Thank you, you actually can improve your financial life. Pretty much as an investment as well was lovely to see where it is in Africa. My question is, you don’t really FinTech on the rise, and thriving like last year in 2018 was 2021, there’s a little things they’ve
asked about offering rising to in Africa. So my question is centered around the fact that, taking a look at this picture.
James Sherwin-Smith 48:09 Think that’s there is real opportunity to improve how trade and trade finance works. And I think it happens, think the opportunities exist on multiple levels. It’s not, it’s not an area I’m particularly knowledgeable in I’m honest with you, but I from the outsider I see a few challenges. First and foremost for me, because of where I work and how I think about
Unknown Speaker 48:37 payments.
James Sherwin-Smith 48:41 The existing model for arranging payments, typically cross border in the in the context of trade for me is fundamentally broken. The way that transactions are typically arranged cross border is through what’s called correspondent banking and correspondent banking as the name describes is a very manual process and what it requires is a number of banks to basically communicate with each other across a chain of transactions that allow money to move from, let’s say you’re in Chicago to my accounts in the UK, and it can take days, the amount that is received at the other end is often uncertain because of fees and foreign exchange, that’s, that’s, that’s achieved across, across the transactions. The data that should accompany that transaction might get truncated or loss,
Unknown Speaker 49:51 and
James Sherwin-Smith 49:53 ultimately for me that part of, of trade finance and international trade is very bad. And I think there’s a huge amount that can be done from preferred payment, Part of that process. Second of all, my take it up a notch. I think there is limited understanding and public information about trading partners, which means understanding the risk involved in a international transaction between two entities two organizations you know one buyer one seller means that actually understanding what is the risk to this transaction or the risk of doing this trade is often poorly understood. And people end up having to buy insurance or some form of natural credit, some other method to effectively prepare and protect an international trade transaction. And then the third element for me is all the logistics that typically go alongside trade. And when they’re all the difference between shipping and customs and organizing, you know, transport from point to point. That also strikes me as something that is still quite a manual and intensive process. And I know a number of tech firms central FinTech firms to solve for for that part of the process as well. So for me it’s a, it’s a rich space with lots of opportunities within it. I think it doesn’t get as much attention, and potentially not as much investment as it deserves. Because it’s not a space that is well understood by entrepreneurs, or by investors. And it’s also very complex, because you have to manage multiple jurisdictions, effectively to be a universal and valuable player in that space, you need to kind of be able to support anybody anywhere. And that makes it very hard because you have to be able to cope with multiple market regulations jurisdictions laws, customs, practices, etc. I think it’s a very difficult space to to penetrate. And I don’t think there are as many people that feel confident or as competent as perhaps we need focused on this problem. But then if that helps to start with on screen, I’m very happy to go deep on, on a those aspects but that that’s kind of my initial thoughts on that.
Sean 52:44 Yeah. What do you think the bonuses are in that space when countries are looking at for African Angeles was to visit currently doing, like we mentioned earlier, is too interesting to see the bigger picture. And that’s the second is for what she said. I feel like the branding. So, we saw the space, which is replaced with our soldier retirement and manages that for them. We are thinking. He was right when he said was, on March, savings to the COVID of China. For
James Sherwin-Smith 54:53 sure, yeah sure so I think. I think there are a lot of people focused on challenges and diaspora and it’s a natural place to start, I think, if you, you experience those challenges of yourself, you can understand that you have a community of people that suffer the same challenges, then I think, looking for specific corridors that I can call them that, between a market you know well and the main markets in which the diaspora, live today. Then, then those are the natural places to start to build a business. And I think there are some very obvious corridors that exist that you can probably go after. So us to Nigeria, makes a lot of sense to me, for example, as you will find similarly US Mexico would be one, you probably find some from the middle east towards Southeast Asia, for example, and so on and so forth. So I think if you have a good understanding of
specific challenges and a specific set of markets. It gives you a firm foundation to try to try and solve that problem. And, you know, if you’re going to build a global cross border payment capability or some engine. You’ve got to start somewhere. If you try and do everything at once. I think you’ll struggle. If I look at some of the existing fintechs in this space that have started to tackle these challenges TransferWise on Apple wise in the UK is one familiar with as world remit, or remitly or well first, there are a series of fintechs that are focused on this problem. And similar to the mobile money and real time payment rollout example I gave earlier, they tend to focus first and foremost on the person to person, market, because it’s probably the simplest and easiest to understand, it’s probably the least complex has been living and those businesses I think have been built largely on solving for Person to Person remittances cross border, which over time they then got to a certain level of scale and understanding, and they’ve started to then move into solving some of these cross border challenges for businesses. And so there’s a kind of natural, I guess, progression. In terms of the degree to which this is being looked at and solve for holistically, there are signals that that is, you know that people will be able to get organized. To do this in a bigger way. Visa, bought a company called passport. MasterCard for business will transfer last. And I think the fact that the global networks continued to invest in cross border assets suggests to me that they’re thinking about how can they solve for some of these cross border challenges in a way they’ve not been able to solve for them so far just by using the existing card infrastructure.
And you also see some efforts from the industry as a whole, to start thinking about this as well. We mentioned earlier that often how payment systems grow up, they tend to be built by national governments and regulators and central banks to solve domestic needs. And so, bit by bit, they will build their own thing, do it their own way to reflect the local situation, cultural norms around payments, whatever it might be. And so you end up with every country having a slightly different payment system doing that thing where we have increasing degrees of standardization creeping into the payment markets, both at the domestic and the international level. And we talked about last week show the standard called ISO, 22 two so ISO international standards organization fighting number is 200 to two and level four is a set a set of financial messaging standards for payments. That should be ubiquitously adopted by everybody around the world. And when we’ve done that, then I think the ability to process payments cross border, and some of the challenges that we mentioned,
will begin to be eroded, And we’ll have the opportunity for much greater coordination and collaboration between individual nations to facilitate, but I hope for me it’s in Atlanta, but I see the signals ready for real time payments cross border. In fact, it should be possible with I can send you a message in Chicago using WhatsApp, or I can place an order in Amazon house and enter them into a house, same day. Why can’t I do the same with money. And I think that’s what we’re working towards the moment is a lot of those cross border networks are being built, again, like the mobile money example closely. So, I could facilitate maybe a whatsapp payment with a user in one country to a whatsapp user in another country, but I don’t necessarily have the ability to do it from WhatsApp to signal or to some other messaging app and I might use it’s got a different company. And what ISO 22 should be able to achieve is that we can have interoperability between lots of different payment systems, using the same standard messaging. And effectively, achieving greater liquidity and greater movement of money across the globe. The fundamental challenge remains around foreign exchange. And the other key issue in this space, as well, is compliance with laws regarding anti money laundering and counter terrorist financing, also called Know Your Customer KYC checks. And what we also think we’ll need is not only the ability for the money to move. But it’s the move, but the money to be moved with some form of assurances around identity, that allow various checks to be performed in real time, so that people are comfortable that the system is being used for good and not for bad. And I think that’s the other element to this that will need to be worked on holistically to to question. To achieve this, I think we are going to be working on that for most of the 2020s If I’m honest with you. And I think that creates plenty of opportunities for fintechs. Some of that problem and demand potentially big and bold enough. But there’s a number of kind of intrinsic issues that exist, have to be solved for. And I think there are players looking at mystically, but I don’t think it’s going to happen overnight. And I think in the meantime there’s many opportunities for FinTech and payments companies to start and some scale. I hope that helps you
Sean 1:02:25 Absolutelty well that really really actually hit the nail on the head and some of the photos. Actually, that wasn’t and we also want what is the scope of the water painting. I use it on the faces as well do the same thing, been able to send you finally user WhatsApp, I think that question or concern that the ongoing developers and. Have you ever considered online. When I see that in the near future. And I’m glad that you know the future offers in the future.
James Sherwin-Smith 1:03:25 You’re most welcome. You’re most welcome and I obviously we haven’t talked about digital currencies here, which is the obvious elephant in the room. Right. But I think digital currencies have an opportunity to take away some of the friction, but it is they have the potential to create more liquidity in corridors, which are otherwise known as exotics. So, if I want to move, for example, I use this example I’ve shot me down because actually it was quite popular example but anyway I’ll use it anyway. If someone wanted to send for example money from Peru to Kenya. You might find that the market for the exchange in Caribbean sold into Kenyan shillings was now applied many trades, without many trades and then the bid ask spread the amount of money I get for buying less than I get for selling are quite far apart, which means that I lose quite a lot of value in the exchange because it’s a very it’s not a if there’s a narrow spread then I use very little in the FX exchange that is a widespread and potentially lose quite a bit of value in doing that trade. And so one of the arguments for some of the early digital currencies was that they would be the kind of de facto liquidity provider, instead of having to find a market to exchange, putting themselves into Kenyan shillings. I find one that, that, you know, converts friggin souls into ABC, whatever the ABC is. And then I ABC is amaze us, you know, universally, and then i i Then do ABCD with Kenyan shillings. And so, in so doing I would narrow it and I was now doing two transactions rather than one. This was now gonna be cheaper and more efficient way to move on. And I have a lot of sympathy with that view. I think there is quite a bit of potential for digital currencies to do that. But there’s quite a wide spectrum of digital currencies as you can imagine, with proponents and detractors across the spectrum. And for me, I think as a medium of exchange, you probably want that, that kind of middle currency the ADC. Probably to be a stable coin of some sort, which gives you some stability and pricing and allows that transaction to be arranged more readily.
Unknown Speaker 1:05:48 But what it does.
Sarah 1:05:50 If I may, there’s, there’s a company we could look at, that’s called bit PESA, you probably know at operating in Africa, and is the largest not the bank Forex remittance players that is using Blockchain, and cryptocurrencies,
Sean 1:06:05 and arguing about it in different countries with different methods of accessing funds out in nature, the idea to use Bitcoin cryptocurrency, was, was lacking in the system for three months and then six months, but the government has moved on. As soon as you say everything we are not using differences when it comes across. And now, You know, these bands are
James Sherwin-Smith 1:06:55 going.
Unknown Speaker 1:06:58 You know, I think about what my district is going to be. Want to go to
James Sherwin-Smith 1:07:30 showing yeah so I’ve just been with another sort of lens and to me this this in Nigeria is an example where effectively. Some of these early efforts in bringing digital currencies and maps have been frustrated because they’ve not been they’ve not been received warmly by God, and regulators in the market.
Unknown Speaker 1:07:59 And so you get some
James Sherwin-Smith 1:08:00 false starts, if you can get in that way it might be smarter to explore the opportunities and then being frustrated because it affects both
Unknown Speaker 1:08:11 sides, I do
James Sherwin-Smith 1:08:12 feel we’re going to be in potentially in this kind of stop start to change as new labor is hit the markets, and then new regulations catch up. I think it’s, you’ve got different attitudes clearly to currency, more broadly across the world. Then you’ve got some examples where governments and central banks are actively promoting this currency, actively researching it and identifying the opportunities and the problems that could potentially solve. And for me, I think what you need is you need a established sector with regulatory approval that provides efficient and useful kind of on ramps and off ramps that we can use that analogy. Effectively what you need is a series of competitive, and well regulated exchanges that can bridge the gap between fixed and digital currencies,
Unknown Speaker 1:09:23 and I
James Sherwin-Smith 1:09:26 see the beginnings of that in different parts of the world, but it’s by no means universal and ubiquitous. And I know that some governments, really do fear. The challenges created by digital currencies where they are not in control. And that may be when they have concerns about existing currency controls in their market but they’re trying to stem the tide of movement of money, cross border. It may be because they fear the impact it may have on their ability to affect the monetary policy, because effectively. If more and more of their citizens, businesses, etc start to use the currency which they don’t control, and Americans up regulate their ability to tax the ability to effectively observe transactions in the market began to diminish. So, I, I sympathize on some degree with governments and regulators in developing markets, because they may fear that that loss of sovereignty, but in a different way. Because of the inroads that have been made by digital currencies and I think this is going to get harder before it gets easier if I’m honest with you, with more central bank digital currencies being creative and more digital giants, acting and entering into this space, because the relative, the, the amount of influence they could have externally on a, on a developing market could be considerable. So, I do have sympathy with that bigotry and dominant perspective. But I also, I’ve done that as a sustainable position, an outright ban I just don’t think it’s practical. I think the best route forward is to actively engage and to regulate this industry, not ban it,
Unknown Speaker 1:11:21 and
James Sherwin-Smith 1:11:22 think it’s just a step, it’s a stage of maturity. And I think it will take time, as people would not accept. And I think it will be something that gets solved. Overall, I think the I Am. I’m personally, I am bearish on some of the existing cryptocurrency typically crypto assets that are in the market today. But I am bullish on long term like digital currencies particularly stable coins. I think they can solve a number of payment problems that exist today. I’m just not sure the ones that people are speculating on today.
I see a long term future with digital currencies, but I see them more in the realm of stable coins than I do in decentralized, and fluctuating crypto assets, so short I think it’s due to no problem I’m, I wasn’t going to go down a deep crypto rabbit hole on this one but I do. Id IDs, I do see the challenge that is popping up around the world that I think the best way to go forward is through regulated on ramps and off ramps, and I think the benefits that those will bring to the national economy, ultimately will be more than the costs, but it does take a degree of regulation and regulatory maturity to get to that mindset and to find out how it’s most going to work for you, you know, for a given global economy. But I think the opportunity will continue to exist to kind of do it, unofficially. It’s just going to be a question of, to what degree can those if they go off Route on the Rams you get back to the closed, closed system from, we’ve talked about earlier. And then it’s just a question to what degree system begin to grow, because it becomes its own right and therefore interoperability becomes a secondary concern, Because everyone starts to accept and trade in whichever popular digital currency emerges. And at that point, I think, regulators, realizing probably lost the battle, and therefore you need got adopted, rather than ban it, and I think the same experience we’ve seen in African mobile money will probably come through in the digital currency world I think I think we’ll probably see the same pattern repeating
Sean 1:13:57 actually nailed. Most people. And, Yeah, those are looking forward to that. You know, the resignations. Of course, if I see that. So it’s just gonna take a little more time but thank you for your insights.
James Sherwin-Smith 1:14:24 You’re most welcome. I’ll do a quick reset, and then David,
Unknown Speaker 1:14:29 can I ask a question related to what you just said,
James Sherwin-Smith 1:14:32 yeah, if you call five months I did reset and we’ll come to you if it’s related to this question but also I think David Amina also joined during this period so I want to make sure that if they’ve got something on point, that they want to have the opportunity as well. So, good morning or good day everyone wherever you are in the world. Welcome to FinTech and payments club. This is Sunday surgery, officially running for about 18 minutes so far. It’s an Ask Me Anything style show anyone’s Welcome to raise a hand and join the stage, and will hopefully come to, in turn, FinTech and payments, a top 40 Club ranked by members on clubhouse with 34,000 members and followers growing every day. The membership is open and inclusive, and anyone who’d like to be a member is more than welcome to be one where we do it’s as simple as asking you visit our website FinTech and payments dot club, and just click join and register with us. And the benefit of registering with us is we get to know a little bit about you and what your tastes and preferences are. One of the challenges we have in running a club and club house right now is because it’s an early stage product with Meishan about who our members and followers are, and what they’d like to participate in, in the future. We don’t know where, which time zone you’re in which country you’re in which language, which areas or FinTech and payments really interest you. So if you’d like to help us put on interesting events for you. We’d be enormously grateful if you register with us, and you go through that registration process we’ll, we’ll invite you to be a member, because at that point we’ll know who you are. And that’s, that’s the skill piece for me. We are at a team of 20 volunteers giving back to the community. We do this really just a quick discussion and learn more about the world. The snap between a behind FinTech and payments club is really just to help people learn more about money and how money works. My personal interest is in passionate about completing financial education and literacy. More people where money works for them rather than working for money, and we cover. Currently, we have a team members all the way from the West Coast of the USA, through to Singapore to Australia and all the places in between. If you are interested in touring with us, We’d love to hear from you, also, again, just check out FinTech and payments club, look at the join menu, and it’ll be something about joining the team. You can learn more about the team ethos, and our moderator guidelines and how to become a moderator through that web page. And if that’s interesting to you, or application form and we’ll be in touch. That’s research, other than say, if you have a burning question but you’re in a noisy place, or you don’t want to come up on stage because you want to ask a question, anonymously. It’s called slideshow. Just go to SL by dot d o on your internet browser and use the event code which is the hashtag at the end of the room title, hashtag SS one six M so Sunday surgery 16th May, and then you can find the specific pages as a live poll says, How do we find the room today. We’re all about discovery and learning how our social media efforts, helping people find our room. And then separately, there’s a q&a tab where you can ask a question, anonymously and you can vote on any other questions in the queue. And we’ll come to those in due course, depending on how many people we have on stage. We love live participation on stage were available, but I will oscillate between the slider, and the question stage where they will. That’s the reset for me. And so Peter, you’re kind of seven kids in upstate New York. Do you have a question related to this particular topic you wanted to bring in, otherwise we’re going to get a pizza as it’s live, against this exact discussion,
see you’re using. Please go ahead, couple of sentences about yourself maybe where you’re joining us from the world and your question or perspective.
Unknown Speaker 1:18:27 Yeah, agents
James Sherwin-Smith 1:18:29 from China and
Dean 1:18:32 my question is,
Unknown Speaker 1:18:34 I have been listening to you see. So my question is really easy you that the account based in existence will have lots of advantages. The size of the business values to customers limits to a shopping body. The delivery service designed for velocity of education most areas. And now if you look at today the markets still offline as mostly. So, how, how do you think the main issue to this end was her must have been having ISO 200 22 in this form that addresses you, or it’s responding to his phone. Money Transfer. His acceptance, there are going to be the merchants settlements issue. So, this is the first question. Second question. So back to the recently the stock price has been quite hot to the banks. So how do you see the salt, pepper,
Unknown Speaker 1:20:06 going. I see the the recertification cost is quite high, some of the small banks, now that’s my questions.
James Sherwin-Smith 1:20:23 Thanks David. Yeah, quite, quite a few good questions I’ll try and unpack them as best I can, and maybe do a bit of explanation for different people in the audience, depending on how familiar with these terms. So, I think we kind of have to think about payments across the different layers that make it happen. One of them is the interface, which is the other way, as a, as a payer interface with the payee, whether I’m a customer buying from a merchants, or, you know, a business buying from the government, whatever. And so the interface pieces one is one element to this, which so it might be using something optical, so I could be for example using my smartphone camera to scan a QR code or vice versa. It could be through a physical interface like me putting my car inside a terminal where it needs to chip or I do a magstripe transaction. If it’s old school like what exists in the USA still today. Or it could be through some form of Near Field Communication NFC, which is like a radio frequency exchange between devices. Or it could just be the simple Internet where I’ve got some way of interfacing directly over the internet, to present transaction. So interfaces, kind of, for me the kind of top layer, how do I, how to have these kinds of consumer merchant communicate initially to initialize the transaction and facilitate the payment. And you then then potentially got a couple of layers in between I think the most important one. Next important one becomes, what are the inverted commas the rails, which is you know am I going to use the card network, am I gonna use an Accounts account network, and I use a blockchain or something like that. And then underneath that then is data standards and messaging. So, you know, if the cards network and the pipes, what is the data that goes through those pipes. How is that formatted and how is that constructed in a way that participants at either end of the pipe can can understand each other and kind of speak the same language, so to speak, and soft pause if I jumped in that one first and foremost,
Unknown Speaker 1:22:47 Socrates
James Sherwin-Smith 1:22:49 said I need to have a specific piece of hardware that’s configured only to do say car transactions. I can just use my phone. If my phone has ability to
Unknown Speaker 1:23:02 transfer through
James Sherwin-Smith 1:23:03 an interface via internet, or maybe the nature of communication like contactless cards use, or using Bluetooth or whatever it might be, right, effectively, there is a method by which you know, we can bump, smartphones, and one device becomes the sending device, one becomes the receiving device for payment for a transaction we can be arranged in that way. And that’s obviously attractive, that means you don’t have to have the expense of specific physical hardware that hopefully is played to the ubiquity and the fact that, you know, increasingly, everyone has a smartphone in their pocket, and therefore every smartphone becomes effectively a payment terminal. And that’s quite exciting, I think, because it allows a variety of different ways to pay that puts it underneath it. So we can kind of nail the interface, you know, which is us, bumping phones and doesn’t really matter how that mechanic works, and just have a way of communicating with each other to arrange your payment. For me, then allows a much richer set of interaction can occur between the payee and the payer, the sender and receiver. Because our phones in proximity could exchange a vast amount of data that’s what we want them to be. So, that that’s exciting. And I think what really comes down to what can be supported by when is going to be a question of sameness of participants, adhere to a set of standards. And for a set of standards to exist, that they want to adhere to. And the card networks are the bastions of speeding rules, sets of standards that say, This is how a transaction, because these are all the ways that things should work on our happy path. And if things go wrong, these all the time something goes wrong, to provide trust and safe and safety and security within that system. Now that’s not to say that someone else can’t serve position of the card networks, and we only have to look to China, for examples of that, with Alipay and wechat and things like that where effectively a large network of buyers and sellers have been created, that allows that network then to create their own steamrolls their own sets of standards that allow transactions to happen. And there is authentic. Digital giants to do the same, whether they be in China or anywhere else in the world. So I think there is the opportunity is there for the apples, the Googles, etc, as well, to also step into this space if they want to.
And I think we work
in markets when there isn’t an existing set of very well established payment methods, where they have the opportunity to be the de facto payment method because nothing really is there, there’s a bit of a void for them to step into. And I think we can see that in certain parts of the world in the developing
Unknown Speaker 1:26:23 world, where
James Sherwin-Smith 1:26:25 effectively defensively, they can quickly establish themselves as the way that people pay in other markets. They’re already very well established ways to pay. You see them, partnering and using existing methods and piggybacking on those to start gaining relevance, and experience in consumers minds that they are another way that you can pay. I think you only have to look to Google Pay and Android Pay and Apple Pay and all the other expats, that exist around the world which are largely. Step one is multi step
Unknown Speaker 1:27:08 allows him to
James Sherwin-Smith 1:27:10 build something from scratch to educate consumers, and based on existing behavior, very well held and deeply held, it’s probably easier to partner with what’s already exists, and trying to establish something. And so, I think that’s what we’ll see developing in the sauce.
When you write
any QR code based or it’s NFC, whatever the change will be. If there’s a voice to be filled, I think we’ll see digital giants fill that void. If there’s already instancing way to pay that’s well entrenched in the market and it’s highly popular, then I think we’ll expect lots of money there and use that as their opening stuff expected much more 4%. So that’s my take on, on softballs day that I think the process of certification and all those sorts of things I think will be probably quite cumbersome and quite difficult and maybe expensive to start with, as new standards get established and new understandings establish, but I expect that to be quickly competed away. And ultimately, if it’s not, then people will choose alternatives that will bypass any cumbersome regulation or certification processes because there’ll be another way they can do it, which is far easier and pain free.
Unknown Speaker 1:28:47 Full county give the small amounts that this large amounts are required. So, yeah, all the scenarios
James Sherwin-Smith 1:28:59 that again depends on rules. So, for example, in the UK at the moment when contactless first was available, and I was tapping my card on a terminal. Only transactions up to a small value are allowed, bit by bit, that transaction value has gone up for my card. But now I’ve got a stage where if I’m using my smartphone, and I’m using a Bible, some form of additional security to log into my phone, whether that be my thumbprint the touch ID in an Apple System or face ID or whatever the problems are and other ecosystems that often provides purity and certainty that I am who I am, which allows an unlimited transaction value to be processed, so I can do any amount using my smartphone much in terminal today. It’s a merchant support, and I’m comfortable doing that, I can vising over 10,000 pounds or higher, using a contactless transaction and that’s what I’m going to do.
Unknown Speaker 1:30:06 Right. Sorry, I missed your answer, which is for the masseuse, is making that the ISO to do compute that I mentioned that in this one going to be a platform is the transfer was most useful. Most examples. Sure, sure, sure,
James Sherwin-Smith 1:30:32 yeah. Thanks for the reminder so 8085 83 ISO 8583 was the original payment standard for card transactions recently for eight existing accounts within. So 8583 is the ISO 35 industry has been the dominant standard in payments today accounts or accounts systems are now, the modern ones being developed to provide today. Support went
Unknown Speaker 1:31:07 to study is extensive.
James Sherwin-Smith 1:31:13 It’s far more structured, it’s much larger. And it’s essentially investment in size, in a way that you.
What you do is carry,
like a URL in the message and the URL could then access a much bigger data set, but that’s what you want to do in the UK for example, ISO 22 Two is used as the datasets, behind what’s called ICM based check clearing system. And effectively, alongside the payments. When you take an image of a check now using your smartphone to pay attention. Not only is fully encoded data from the check being passed in the message, but also an image of the check itself. So it’s a much much reliance on data format. You can be measuring in kilobytes or megabytes, versus a few 100 bytes which is supported by 8583. So it’s a much richer data set. And that’s going to be I think largely deployed on new rails like accounts account rails, and there are some coins some blockchain and digital presence, also support ISO 22 Two today. And so this is going to be. I think one of the advantages of these systems as they are rolled out, they will support the greater more data alongside the message, and what it means is that payment networks I think will evolve into value networks in the value is made up of both money and data. And I think what’s going to be interesting here is that the exchange of data I think it’s going to become increasingly. And from my personal perspective I think right journey to where, actually, instead of me paying for an account account system to move money between my account and someone else’s account. In some parts of the world we’re already free points from an end user perspective, I think we could potentially start entering a world, in due course, where I am paid for moving my money with a chosen network, Because that charging network wants to see my data and incentivize me to use them instead of somebody else. And so I think we’ll get when the cost of payments will go negative. Because people will be subsidizing networks and paying me to move my move money from me to somebody else, through their network because they want to see the data, the data will become rich and data become valuable, and further these value networks could also work as exchanges of data without actually exchanges of money. So they’re already messaged types have been created for these standards, which support requests for information or requests for payment effectively they are messages being sent through that infrastructure to say, I need to know something, I’ll do something else, and they become a kind of If This Then That type network that allows structured data to be passed for almost smarter VRP systems we built essentially contract smart contracts that we built for using the ICMP message format because they just support a much wider set of use cases and support a much richer set of data.
Unknown Speaker 1:34:31 Roll out to you afternoon, which region, and when you see this already.
James Sherwin-Smith 1:34:37 Yeah, so, so, it already exists in different parts of the world. So, as I mentioned, there’s the interface blackjack game system UK or US 2002 Two. And there are a number of national domestic accounts and councils and bodies of thought in here today. So, some examples would be real time payments through the clearing house, in the United States of America. They have a ISO 22 two real time payment system, same in all four so fast, they use ISO 22 There’s a whole host of different countries around the world that already support domestic accounts account payments using the standard. I would say in most cases it’s still early days, they’re still developing their ecosystems in terms of what they can do with this technology is becoming the de facto standard for real time payments. And as more countries choose to modernize their payment infrastructure. It’s not just about speed, real time payments but it’s also about the depth of data that can be carried through those networks through the other key points of eraser David is that Swift, which is the interbank messaging service, which supports correspondent banking and they are on a journey to 2002 two, and so they will be adopting this standard. And so doing any bank that wants to participate in the SWIFT network which is pretty much all the banks that want to do cross border payments will have to be 22 to comply. So you’re not only going to see 22 being established at the domestic level. You’ll also be co established by international cross border level.
Unknown Speaker 1:36:20 Okay, that’s a very quick thank you.
James Sherwin-Smith 1:36:23 No problem at all. Sara so he wants to chime in briefly.
Unknown Speaker 1:36:27 Yeah, I wanted to comment on on very briefly to leave space for others but on the fact that you might end up being paid and because the payment might end up being negative so that depending carry your processor might see your data. I think this is this is exactly the point that I was tending towards by your your question, we see in emerging markets, we see that the payment processors are slowly starting to monetize their data, first by partnering with lenders, not necessarily banks but more generally FinTech then monetize the data, and some of them are starting to raise money to start their own parts with small merchants, or high end consumers but we very much see these trend because, And this is a point to touch upon earlier, the, the margins of processors are getting very compressed due to regulation or have an incentive to digitize the economy generally in emerging markets to reduce the cash in the system. So I love this idea that we use, put it in the negative cost for payment. So thank you very much for that.
James Sherwin-Smith 1:37:36 And I know you’re most welcome and that’s I think the I think that is the reality and I think we’re seeing it in the developed world as well. You only have to look at somewhere like Paypal or Amazon to see that,
Unknown Speaker 1:37:49 you know, they’ve been building off for a long time in the free region.
James Sherwin-Smith 1:37:58 And then in our data they can start extending finance. Increasingly, I guess the point where, you know I might go to pay with PayPal and they’re saying, Hey, you want to use our PayPal credit service. And I’ve tried to get me to use that as a way to start me on a stepping stone towards borrowing spoken margin through that process instead. I suspect they feel comfortable, because I’ve built up a profile of transactions which gives them some insight in terms of saying that I might do a good credit press. And so willing to do that.
Unknown Speaker 1:38:34 Exactly, exactly. Another point I wanted to quickly add on, I think what David said regarding the limited amount that you can pay through an impulse acceptor, is the combination of the impulse, with a some reader for those countries that have a digitized identity database that allows to uniquely identify someone with its imprint so I’ve seen that immediately you get numb for it, for example, and that allows you to increase the amount to be paid for application at the budget.
James Sherwin-Smith 1:39:11 Yeah, that follows. It’s kind of the corollary to, you know, me using my touch ID or face ID on my on my smartphone right that basically says, I have created confidence, this person is who they say they are they are originating this transaction. And therefore I’m comfortable as, as a merchant for accepting a payment of the higher value,
Unknown Speaker 1:39:29 yeah exactly and obviously because the dongle temporary reader is very cheap, that that seems to be, again, in countries where most of the population is accorded, it seems to be a very valuable position, at least for the next decade to accelerate digital acceptance.
James Sherwin-Smith 1:39:50 Yeah I think so. I think there’s there’s still a lot of room to travel, I think, you know, 85% of the transaction is done in cash. So there’s a lot of, there’s a lot of opportunity here for these methods to grow and not only in the amount that they can do as an individual transaction but most important in terms of the number of individuals that they can serve. So now I totally do
Unknown Speaker 1:40:13 this standards that you’ve mentioned James. I’m assuming is not a big deal for the, the agent network in the acceptance networks to play into providing those tenders exists.
James Sherwin-Smith 1:40:28 Yeah, I mean, for them it should just be something that’s happening in the background, rather than write it. There is nothing inherent, I think in the interface or the terminal
Unknown Speaker 1:40:39 for the date method.
James Sherwin-Smith 1:40:41 It’s really just a question of what you want that data to contain and therefore is it being captured readily at the point of sale. And the, the only thing that in the back of my mind would make that harder to achieve would be, if it’s not just going to be about encoding the information necessary for payments but for some wider context around the payment, then you may need more inter-terminal Will you continue to process, no amended separate truncated data. So, for example, if I was an E commerce journey and I put a load of different goods in my basket and I go check out my whatever my my shopping cart, there’s nothing to stop my shopping cart being encoded, some of the transaction through the messages, right. Like, what’s called skew level data right stop controlling your data, things like purchased it maybe their individual prices. Maybe the even the serial numbers of the items I purchased right, it all goes through in that encoded payment message on the ISO 22 Two standard. That’s easy, maybe to achieve an E commerce transaction is a commerce transaction require probably greater than blend between the POS machine that does the payment, and the actual cashier’s register, so that instead of all that data only being printed out on paper and
Unknown Speaker 1:42:07 carried over
James Sherwin-Smith 1:42:08 and encoded in nice attributes do messages sent out that way so it may be that, that sort of information or if for example it was a, a secure hashing of my thumbprint for example to put my phone on the terminal and send that with a message that obviously requires a certain level of greater software integration didn’t say that but it would, it was one of the one of those things I think that would only increase over time. And people realize the value of doing this, there is a mechanism mechanism to achieve it, without just the natural evolution of the technology as tunnels get upgraded.
Unknown Speaker 1:42:43 Yeah, absolutely. Against
Unknown Speaker 1:42:47 origins. And here I’ve seen that Indonesia and India have a digital ledger that would allow exactly what he said, which is when there is a digital sale to know what is in the shopping cart, of the buyer.
James Sherwin-Smith 1:43:02 Yeah, that makes sense.
Unknown Speaker 1:43:12 I was looking at the problems at unforseeable. As I said, even processing the transaction layer on us. Can we also think about bringing this down a layer deeper, which is more like a credit worthiness or credit scoring. For example we have skill level data. We can almost use that hash function. Create a unique identity for everyone, without needing them to be having a credit card or Bible KYC type scenario, which is by the fact that we build a credit scoring system, not require someone having a specified. Yes, we already know the beginning, like,
James Sherwin-Smith 1:43:58 yeah I think that’s, I think that there’s a couple of things that have to happen to make that work. I think one, you’re right, don’t have to be something that identifies the individual that’s passed along with the transaction and again this is necessary saying specifically is that this is a string of letters and numbers that represent Govan uniquely and so that anyone having that data doesn’t need to know that it’s going they just need to know that tokenized identity. But COVID has the ability to then go and access or go into transactions regardless was who the merchant was which payment method he used, doesn’t matter. There’s now a cluster of data that go and put his hand up and say, That’s me. And this is my token methyl unlock so that information can be extracted information that would then allow to create a credit profile based on your transactional history. So I think that’s that’s entirely feasible it requires a couple of things to work. One is creating a standard that says, Whenever anyone someone pays. This is the tokenized identity information that we pass along with a payment message so, all of gogans transactions in the future can be reassembled. Second of all, it requires a open data method that allows them to present themselves and say, hey, I want to see all my data and my transactions please because I want to come to a view with a third party about anyway. And so you need effectively some form of not only central database of tokenized transactions, but also an interface that allows them to present those to me and that will give me my data. And then, obviously, then that you need, all the organizations participating to recognize that is not theirs, and the COVID should have access to all that information on demand. And the last thing of course you need is for an independent third party. Here is all my data, striking from the payment systems use all my transactions matalin my feelings. I think that’s all possible technically organizationally and politically is probably where the challenges lie.
Unknown Speaker 1:46:08 Exactly. And I think this is where challenges because my conversations with insurance companies buying some India have been around, they’re bleeding money to pay very high level subscription fees to the third party data collectors like LexisNexis, an extended, and they want to get away from it, but there is no central mechanism, because there is a there is a fear that even a single party starts this type of consortium or some initiative where they start sharing the data on a collective basis, where every class that the start the field starts. The party so I think this has to be a bit of a regulatory mechanism that seems to place a lot of some business structure, because I am from insurance to India. It’s a great opportunity for insurance because at the moment is just 3.8% of population have access to that. And the reason why others do not have access is because they don’t have the capabilities and they might have given identification and bank account but they don’t have the economic ability to normally KYC. A lot of people all sorts of scams because they are told to provide their KYC information. And so if you have the same system which, as you said, it’s most important James You said that it doesn’t have to identify me when I’m transacting online check the data, I should be able to prove that that item belongs to me, to my thing, so that you know it’s not, it’s not be the case where, if I have an expiry date or I use all my personal things. It’s that separation of reality. Use Well, that’s possible that can enable the next class form that can bring the remaining 96.2% population, access to products like.
James Sherwin-Smith 1:48:13 Yeah, nice total sense of the government, I think that there’s a, there’s a degree of political will and foresight is required I think to achieve a model like that. I think the idea that identity is tokenized is kind of essential from a privacy perspective and also from a security perspective, so that you know that that, that mechanism is kind of crazy by design. From day one, but it also it also in my mind. It requires a level of maturity in the ecosystem, either for you to be almost self sovereign or understand the power of your own identity, and understand how you should manage that and keep that secret, or you have a third party ecosystem that helps users which I think is perhaps more, more likely, but for me it’s a natural evolution of open banking to some generic Open Data Initiative that allows not only this information to work within the constructs of financial services, but more broadly across payments, which means a whole host of different institutions, because, in effect, there are some very, very valuable data sets that exists by. So for example, payment of utility bills is very helpful in understanding that someone lives in a certain address and has been living in that address for some time. And so I think if you can create an initiative that is cross industry, you end up with a far more powerful ecosystem. And I think this is where initiatives currently are heading with regards to digital identity. Because effects. What you need is someone to walk the streets in the middle, potentially, it’s I’m not sure it necessarily works in a decentralized model, but perhaps I could be challenged in that way. I do feel that some form of open Consortium, which allows people to provide reference data, but also consumed identity data is what’s needed to combine some of these challenges, you see the beginnings of that in different parts don’t see it as quite a long way off.
Unknown Speaker 1:50:40 Yes. James, this is when we definitely need the next phase because either respond the team will start to pitch these hands initiatives to. And I said that sector needs to the largest insurance companies in India. Coincidentally, because they are reactive. Banks basically owned most of the data, because it’s great, because there’s a lot of, there’s silos and stuff like that, unless go to LexisNexis and data centralize shops. They have been struggling for the leader, the banks. I think everybody knows. These fans are dying.
James Sherwin-Smith 1:51:29 Yeah. Yeah, and I’ve, you know, I’m sorry we both so I think I must you know go into the signal dropped
Unknown Speaker 1:51:36 out. Well, sorry, sorry. Basically what I’m trying to say is that
James Sherwin-Smith 1:51:43 the,
Unknown Speaker 1:51:48 that what happened,
James Sherwin-Smith 1:51:48 I think, you know, I know you’ve been very patient, we’ll come to you briefly sir, I’m sorry but the jumper cables about here but I think it’s because the triangle is consistent. Go and I see you back I think you’ve had a bit of reception issues. Dean and Sarah saw you unmuting to do have something joining on this issue.
Unknown Speaker 1:52:12 Yeah, wanting to be done what you have in a second or where is the data that can allow for credit worthiness to be assessed, outside of the ICICI bank. If you’re looking at what the Lord is Korean companies. Here I’m thinking experience, experience or Equifax and TransUnion for looking at the receipt on the acquisition or the investments they’ve made over the past five years, which is an exercise I did a few weeks ago, they are clearly in need. Indeed, the credit scoring that they have been running for a long time based on the big data is not sufficient because it needs out of the, of the market, and the vast majority of the emerging market population and so they are starting to work with companies that either are in the digital identity phase or identity verification space and then totally pleased
Dean 1:53:09 to partner with
Unknown Speaker 1:53:10 those who can create a credit score based on your mobile phone records. So whether that could be your payers, you know, such as mental trusting social signified, so all the guys are using the telco data in order to create a score so that the entirety outside of data allows to, to assess the creditworthiness will be unbanked or directly with layers or a traditional credit score
Unknown Speaker 1:53:45 patterns that you were making but the, the number of applications that are on your phone. when you use, you have to think.
Unknown Speaker 1:54:13 Credit girls are
Unknown Speaker 1:54:16 spending a lot of money to be space.
Unknown Speaker 1:54:23 There’s a lot still to be done here,
James Sherwin-Smith 1:54:25 but it’s nothing more useful than the past financial services implemented stablishing but anything in the absence of that, then we have to look for other sources and what we can infer from
from Dave Hansen. Another
thing there’s another photographer is operating in the state of the zip file often file problems with the credit bureau. I do find that their efficacy is secondary compared to the process, financial services back history of credit information, but they do gap and they are better than nothing. I think that’s certainly true, Dean, wants to know.
Dean 1:55:05 Yeah, it’s probably a whole topic in and of itself, but interestingly from a local Australian perspective when we launched our open banking sort of thing and actually came about legislation called the consumer data right. It’s got a super high level ownership of the data on the institutional back in the individual consumers hands and they have a mandate to provide guys that data. It’s made it very interesting sort of like, he discussed the ecosystem. Banking obviously was first cab off the energy sectors and contestation at the moment and telco minds being some of those together, they’ve been very clear to step away from children right body doing much for us St. This is a patient that crosses your patient
James Sherwin-Smith 1:55:52 that is reaching like that.
Dean 1:55:56 But it’s interesting a whole lot of that sort of aspect so definitely worth looking into if that’s an area you’re interested in,
James Sherwin-Smith 1:56:01 who will thank you for that. Okay, interesting. We, we haven’t attempted that in the UK. Some time ago I think it was around 2010 2011 It was called my data EMI data. And again, it set down some standards to say I as an individual can go to various types of organizations, you know, across different sectors and say, good idea. And the. They had to basically provide that to you in a certain format, what we expected to happen was a whole ecosystem to be created of data custodians that effectively would go and gather that information for you, make it useful in some way, didn’t really happen and there was massively superseded by the Open banking initiatives in the UK, but I do anticipate that it will become relevant again, as more people engage in the kind of privacy debates, and the influence that digital identity can have on our digital lives. So I do expect. I do expect that that will get a go through some sort of renaissance in this decade. As more people recognize the value of an action solving person in a sensible and realistic way. But thankfully Australian examples very interested to hear and I know that there have been some digital identity pilots with Australian post and think that
Unknown Speaker 1:57:25 if,
James Sherwin-Smith 1:57:27 if we solve the digital identity fraud. It is a massive win for society as a whole. In my personal opinion, I know there are lots of people that fear. The invasion of gravity or the potential for government to monitor their behavior by having a central identity that’s not official identity should work, digital identity should not be the digital equivalent of our passport or driving licence.
Unknown Speaker 1:57:51 farmos allows for them to
James Sherwin-Smith 1:57:54 see. And that allows us to be controllers of our own day. And I think that if a person were not into the door for mass surveillance instead seems away and an individual can take control back their identity and their digital information away from large corporates, then I think it could be enormously popular. Absolutely.
Unknown Speaker 1:58:20 Like for example when we see the China example, it’s not that big, they literally did the system with the credit scoring, which is similar to pass on any public theory is because the Chinese culture is like that, it’s very open Confucian ideology of it. Why, why it should not be a failure. So that’s pretty much the points at both the Chinese credit scoring system, and it fits a certain use case, construct that they have, but you’re right that. Basically, there has to be that very clear control in terms of the sovereignty of the data, some type sense, is the control the Accessing pulling back, pulling back from places where you don’t like it to be unwanted. And this can be enabled by technologies like confidential computing, which I was even recently alteration computing is going to bring in systems, where, especially when companies like, for example, a company X wants to check, they can ask you to provide data, they will have their creditworthiness algorithm that will run and get temporary score so the company’s marketing system will make sure that your all your personally that goes in and gets the score calculated and approaches, any data without sending any other party, which means the requesting party only gets a credit score. So that’s the functionality that and this is something that’s already done enough so I suggest you to read up on confidence computing, I’m sure that the most important foundation and scholar
Dean 2:00:18 identity.
James Sherwin-Smith 2:00:19 Very cool, very cool yeah I love that. Thanks for sharing on identity at Euro and things like that, and topics in DC. And I think needs to be explored and to get some new range of voices in to argue those because I think they are. They can quickly become quite emotive debates about who we are and who gets to, they want to know and why I think there is a level of understanding and sophistication in this space,
Unknown Speaker 2:00:56 which I feel I am
James Sherwin-Smith 2:00:59 miles away from from getting a better understanding of how to play out, I would love to be a participant in one session, I’m going to change taxes I cannot do a quick review certainly enough, you have been extremely patient, I’m so sorry. You’ve always had a key jump there so apologies for that. We’ll we’ll come to you immediately after the reset. So welcome everybody, thanks so much. This is Sunday surgery with me James in the red one of the founders in the club. And we run every Sunday and asked me anything show this is episode 15 We’ve been running for 15 weeks in a row. If you are interested in this topic, topic please go ahead and give us a follow up the green house icon at the top of the page, you will load up the FinTech and Payments page on clubhouse. For now you will have the option of following the clock which means you’ll receive notifications whenever one of my colleagues. If you’d like to know more about the club you can read a bit of a balance in the about section on the page, but there’s a lot more information available on our website FinTech and payments club.
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Unknown Speaker 2:02:26 and from evermore. And then
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Unknown Speaker 2:03:18 and co founder Patrick.
James Sherwin-Smith 2:03:20 Patrick space on the east coast the media here in London, and it’s helps those that are getting started in efficiency to establish themselves, and network further and that’s typically at 8pm. UK time 3pm Eastern 12 noon Pacific. And that very much popcorn style show you’re more than welcome to join on stage we have women and payments power add ons with sound and Laura subpoena powers for over a year she’s by far and away winning in the states of number of followers and once the team. And this was the first name showed by the New Yorker magazine and they work very much in Silicon Valley, all about clubhouse. It’s a winning payments Power Hour it again like Madison show is open to women and allies, anyone can join, and that’s an hour of starting 11am Pacific 2pm Eastern 7pm UK time on these days. And then there’s a whole host of other shows in between. We do ad hoc shows, I think, on Friday, next week we’ll be talking to Ashish Birla who’s the general manager of ripple net. XRP as used to be working on We’ve sometimes seen it through various stages of evolution. So we’re having a fireside chat with Ashish on Friday on Friday.
Unknown Speaker 2:04:35 So do check out for that. They did. They will be as up
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Unknown Speaker 2:05:21 And on
James Sherwin-Smith 2:05:22 Thursday we have a whole session on ESG. So why now and not later, not be at 2pm on Thursday UK time.
And Thursday 7pm We have an excellent series from Sophie talking beyond fintechs how the world’s biggest brands embedding FinTech in their customer journeys and processes to deliver a better customer experience. Slice and dice number top VCs in the FinTech sector. That’s Thursday 7pm
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don’t worry, Canada’s got you covered. Just go to FinTech and payments.com click calendar. You can either see it as a grid, or as a list, you’ll see a weekly pane on the right hand side as well. and that’ll give you all the information you need. Again, in future. So, you know, thank you so much for your patience, really appreciate you hanging out with us this long. Please, go ahead and unmute gives a couple of senses about yourself, where you’re joining us from. And your question.
Unknown Speaker 2:06:19 Yeah. Yes, thank you. My name is Xena again. I’m the founder of dinar. Dada, focused on digital currency to Ico payments to penetrate Ghanian market, and quick references exceeded 30 40,000 users. Now, we’re able to venture out to other pieces of our clients.
Unknown Speaker 2:06:52 Very
Unknown Speaker 2:06:54 well, building the company and being an observe African FinTech landscape. When it comes to digital currency Elsworth first. You guys just check my Twitter, I have an article as well the first to realize also, when it came to cryptocurrency in Africa. And so, I’ve definitely been following the FinTech and payments. Very very fast topics that really get to the point of issues that are, that was so hats off to the whole time. It was called the name Michael stage. It is a very, it is an important skill. And so I really wanted to pushing some feedback to also ask questions. Well first of all, the biggest issue the biggest ones that we realized we asked ourselves, how is it that Alipay was able to reach the point where we got to
Unknown Speaker 2:08:07 China over a trillion dollars worth of payments, everybody has at least
Unknown Speaker 2:08:16 worth one. Realize that okay, we’ve been able to get there because of the need to tie their application to identity. So, with that created this voluntary secondary, tertiary layer solution to be able to provide based on the simple fact that they were able to leverage the power of a QR code to extract consumers mobile data, and additional information on the consumer was pretty interesting, right, because here we are we’re in Ghana, and our, our environment. The Kenyan market is trying to leverage. We tried to push for God to be the next. When the trend, push for a wave of QR code adoption is where possible. Whenever we realize that. Going back to the AAA. I do believe it’s possible probably through this program via FinTech this solution, or something’s gonna have to be open in some form. However, in regards to credit, emerging markets, there’s gonna have to be an identity solution that is not too cumbersome or too complex, that’s the key thing. And then after that, the outside of, you know, one of the biggest ticket crates is risk right also yes there are from cellphone context and mobile money, average word allowances to airtime you know they do different algorithms that you can definitely abstract to buy with the with the one of the biggest risks that I realized it’s for a reason why we’re not going into lending markets at your stage. But one of the biggest things is income. Right, you need to make sure that people are default, when you are in an apartment with every sector. So, India for a lot is in Africa, with large population. It becomes this way. Like, my question becomes, okay we’re gonna do lending risk and decrease the risk, there is definitely an ideal niche for for credit of these emerging markets. Well I don’t think that Experian or TransUnion, or Equifax multipass solution, I mean they could invest it, probably. But the complexities around a lot of these info markets. The telecommunications was more money wallets that are necessary to vital, the rest is the risk and also proved to be influential over in a very simple manner. It is multi layered on So, Yeah. You know that’s that’s up. Okay, cool.
James Sherwin-Smith 2:11:46 There’s a few things that pop up I guess the. Your first question we got David on stage and whatever, which is start with, which is, no. David, you understand the Chinese market, Because
Unknown Speaker 2:11:59 you understand the previous stage,
James Sherwin-Smith 2:12:02 what you saw, to the success of value pay Why do you think that that was so successful, as a startup return and I think, you know, maybe we’ll come on to talk about the lending opportunities and how that consider alongside payments and other types of emergent development.
Unknown Speaker 2:12:22 Yeah. So, trying to pay and wechat pay these, these, these are really very stressful. To me,
Unknown Speaker 2:12:33 but I think it’s not easy to replicate that success about important issues. So, firstly, Ali pay which they, They believe promotes the payments. Lots of money and to sell. So that’s, that’s one second things. From a technology point of view.
Unknown Speaker 2:13:07 That’s not a complicated system. There are lots of providers in China, we have
Unknown Speaker 2:13:18 humanity they have similar things to their health things. Some of the hoovering show from, from the, from from the government, etc. So, that speaks to the advantages. And once this is rolled out next month. So, so this platform we have open API provides enable the payments for from different industries. These people have gone to hourly pay anything beyond 60 of your daily activity simply wanted by some simple. It’s moving. It’s always there are things reading. So that’s why it’s the transaction volume. So, yeah, that’s the back I have.
James Sherwin-Smith 2:14:52 Thank you David and I guess the other thought that I had immediately was obviously Ali pay built up alongside
I mean, isn’t the whole point here this is a payments that grew up alongside a massive
Unknown Speaker 2:15:07 online market
James Sherwin-Smith 2:15:08 and kind of inherent reason why it was kind of like a natural segue from building a massive multiplayer online payment method to support it as much in the same way that paper was created to support, eBay, Ali pay I think was originally to support Alibaba is that fair to say
Unknown Speaker 2:15:36 yes.
James Sherwin-Smith 2:15:38 That’s okay. Is that Is that correct, am I right in saying that that because, Annie was built up as a way to pay to support an existing massive online marketplace.
Unknown Speaker 2:15:50 When pay was beautiful. Sannyasi comes forward. All right. Chinese conveyancer today, y’all, I’m all in payments is still dominant. For the second impression acceptance, which I’m paying.
James Sherwin-Smith 2:16:16 Got it, got it. Okay, thank you that lets you know did you want to reply on this one.
Unknown Speaker 2:16:21 Yeah, yeah. And it’s interesting because, you know, when you look at history, and when you ask that question when you look at it, it really shows a pattern. They start somewhere, especially when it comes to dominance. They start somewhere. And over time, they, they, they tend to pivot, because they already have an existing base already. The transition. People in my next question. Looking at some industries of Africa. But then again, Latin America as a huge FinTech middle resource, a huge FinTech group I love them. I mean, Each of these that you guys see you buddy. That’s on the stage. Do you see this I don’t want to take too long, we’re looking at how Asher and Venmo, have, have really taken off the majority of the share when it comes to the consumer market payments in the US, see the same thing happening within some of these different emerging markets, where, for instance, ATM has rejuvenated the consumer pain in the chair, or will it be an oversaturated environment. How long have you guys this group, please. I mean I mean, I know a lot of banks in Africa are really big try to emulate the pizza P experience that they can’t do because they’re a bank. Also, me. I do see a wave of fintechs entering that was a huge opportunity. And I also questioned myself with it, is it getting a little bit to become saturate routing. How will this play out yes there are several use cases in which people are tackling right. But how long will this last is will it eventually becomes active you guys see looking at the respective markets on everybody comes from looking at the history and you got to see this typically that also mobile money right, we had the situation. Obviously you have these juries have taken place in the US are allowed to fill up the columns where now because of COVID. It’s created this new way of branchless banking, you know, being able to. It’s not about being on every corner new ones well being for people don’t want to go out transact from their cell phone. And because of that it has led to a larger popularity of apps. Similar to cash. Where now, people are relying for Cash App in times a bank now is evolved similar to what Taobao and Ali pay, how you evolved from TaoBao. And so you see that thing with Facebook, then again, that that’s those parallels are the same problem on which mobile money will evolve as well we launched, while I was, was accounted for about 16 months back. And so we realized that okay.
James Sherwin-Smith 2:20:22 Please stick with.
I guess from my sweats, you know, Right, we’re gonna see ebbs and flows,
Unknown Speaker 2:21:03 just told us won’t happen. And there appears to be a definite scene to carry on stickers they solve process,
James Sherwin-Smith 2:21:30 then actually, You know,
when I go into my room or else
outside my country, I’m not going to carry piles and piles of cash and the foreign currency. They don’t have to go to a bank and get traveler’s checks or whatever methods we used to have, you know, it seems far more fun to be able to concrete.
clearly there was always going to be space for domestic innovation and domestic schemes to be developed for sporting payments. And I think that will continue to be the case. We have new methods, and I think it’s particularly Lamont. It’s where the existing payment methods don’t reach the entire collection.
Unknown Speaker 2:22:22 So we’ll find more innovation to do is when there are problems to be solved. And a lot of those problems can be
James Sherwin-Smith 2:22:30 nothing exists today that satisfies that need. So that’s that’s the first and foremost, then there’s a second wave competition which is some exists, they’ll build better,
Unknown Speaker 2:22:40 and further relation competition that way.
James Sherwin-Smith 2:22:45 And then eventually things get to a certain degree of scale where, you know, if that company wants to continue to be
Unknown Speaker 2:22:51 successful.
James Sherwin-Smith 2:22:52 It needs to expand beyond its domestic orders,
Unknown Speaker 2:22:55 and, like, replicate the same
James Sherwin-Smith 2:22:58 success in different places in different parts of the world, all these new to expand on successes they’ve made, rather than replicated somewhere else as a new silo, they use an opportunity to expand out from the place they are to kind of
Unknown Speaker 2:23:12 take on the
James Sherwin-Smith 2:23:12 natural adjacencies to where they’ve already established. So for example if they’re in one African states, it might make a lot of sense to trade within my African state, and after establish themselves there. As a next step, I think you get lots of growth, you get different modes of innovation and competition. I expect there to be international competitions and that
Unknown Speaker 2:23:35 was in terms of how money can move,
James Sherwin-Smith 2:23:38 and, and the ability to achieve ubiquity. If you get to that sense of scale, you can be enormous ly successful and those, those networks have only been able to do that over a 50 year time horizon.
I think the opportunity to do that faster, given modern technology is certainly there. But it does take a concerted effort and investment to do so because it’s not just about the technicality of issuing a payment instrument and accepting a pendant.
Unknown Speaker 2:24:16 It’s also about the edge learning about
James Sherwin-Smith 2:24:20 safety and security, it’s about the rules that go around it.
Unknown Speaker 2:24:23 And so I think that
James Sherwin-Smith 2:24:24 does take time to establish, especially if you want to establish it as a global
Unknown Speaker 2:24:30 brand. So
James Sherwin-Smith 2:24:32 that’s kind of my take on it. My My view is that we will see absent flows, we will see local and domestic competition. See more international competition, but to become a global brand of international relevance and ubiquity in the payment space. That takes decades not years. Okay,
Unknown Speaker 2:24:58 talk down to the build response. Question Mark James. I see that I was listening. Thinking about online programming, and be able to establish
Unknown Speaker 2:25:24 rules of
Unknown Speaker 2:25:25 cross border in real time. Do you think like rule establishes this huge lightning talk in this emerging markets. While have left me with lightning. The Lightning Network. And look it up. Pretty much just.