▶️ James was a guest speaker with the All things CBDC club.
Recording available – see audio file and transcript below
Start time 19:00 UK
Duration: 1hrs 20mins
Guest Speaker: James Sherwin-Smith (@26Left)
Broadcast channels: Clubhouse (main), Twitter Spaces, Facebook Live
Recorded: Yes – Facebook Live and Audio file
Transscript: Yes – Otter.ai
Unknown Speaker 0:00
Basically, Blockchain work solutions,
Unknown Speaker 0:05
doing the controls for really complex systems what
Unknown Speaker 0:07
the agency's been doing some work as well with banks, predominantly central banks look into the digital currencies and
Unknown Speaker 0:18
think about how to apply cases reflected applications or re platformed applications. Embrace. Central banks. So I'm really excited for this conversation. So thinking back to what Camille just mentioned around security and privacy considerations that central banks need to think about as they walk upon the space, but definitely a nutshell excited I'm looking forward to this competition, thanks for self registration,
Unknown Speaker 1:03
I'll take it.
Unknown Speaker 1:08
Hi, everyone. Good day to you. Hope you're having a great day wherever you are. This is James in the red. I'm based in the UK. I work for MasterCard, in the new payment platforms business, which is a part of MasterCard that focuses on everything that isn't card, and the any opinions today are going to be mine and not those of my employer, because that's a social media policy that abide by, but really looking forward to discussion. And I have only recently, kind of gone deep into Central Bank digital currencies and start thinking about that, and it was, it was prompted a month or so ago, Lyrae a blog, of a kind of really intuitive thinker in the payment space that I love reading about. And it really provoked thoughts in me on a Sunday morning as I was waking up and scrolling through my phone, and got me interested enough that I then started writing a comment on that blog which then turned out to be so long I had to go and write a blog about it so that was my introduction to Central Bank digital currencies. I've been thinking about blockchain and digital ledger technology for a few years now, I was first thrown that question by my employer, seven years ago and got locked away in a room in Dublin with some colleagues to think about blockchain and digital Ledger's and what that might mean, and what we should do about it as a business, and it's been, it's been very influential for me in terms of thinking about holistically, what are the challenges and payments. And what we need to do to make things work better. And I always like to start from that I like to start from, what is the problem and therefore, is this a solution. And, and that's hopefully some of the thinking I can bring to the conversation today. Thanks very much for the opportunity come out of everyone. Great to be on stage with you today, and looking forward to discussion, back to you.
Unknown Speaker 3:06
Alright. Hi everybody, my name is Daniel Lee Dan. I'm a solution architect of our three but I'm actually transitioning between roles, so I wrapped up my job at R three and I'm about to start a new role with bank, the Bank for International Settlements out in Hong Kong for their operations there. And to spearhead some of their cbdc work. Carmel thanks for having me back. It's a pleasure to be, to be with everybody again. Rock star lineup. So I'm excited to see where the conversation goes. Of course, I guess maybe just quick, quick intro on my work I've been with. I've been working with R three for just over three and a half years now, and I guess my intro CBBC was with Project Jasper that was back in 2017. Since then, I've been kind of doing cbdc work with various central banks around the world. Most recently, and notably was probably the work with the banks to France and Swiss National Bank. That is an ongoing project right now. And over the years that comes from work in retail and wholesale services across craft. So we're very excited for the competition.
Unknown Speaker 4:18
And Daniel, I'm so sorry I didn't see you joined the thought I was the last person on stage so quantities.
Unknown Speaker 4:24
Nowhere from Toronto. I have to represent the committee.
Unknown Speaker 4:32
Thank you, right before you had to pull Hong Kong.
Unknown Speaker 4:35
Yes, represent there as well. All right, good. Well,
Unknown Speaker 4:41
I'll kick it off by asking a generic question, and Daniel, I'm going to start with you just because I know Arthur B has a lot of work with DOD. What is a wholesale cbdc And how does that fit into the broader payment system that we know today.
Unknown Speaker 5:03
That's a great question. I guess that's a good question to start off with because it's kind of definitional in nature and I guess zeroing in on what exactly we're talking about compensation will be very formative, so I guess I would say maybe I maybe have a final subsidy etc but what it isn't. It isn't generally accessible. So, I refer money flower was a great piece of work that was actually got that idea asked I think in around 2017. And in that money flow you can see the different attributes of different payment instruments if anybody's sitting in front of a computer right now listening to this and you want to want to Google the money flower. It's a very limited digress. I digress. So you can see. Oh, amazing, thank you look at that, multi channel. Twitter. So what's interesting about that is because when you look at that diagram you can see that a general purpose, etc. And, and a wholesale cbdc There are only distinctive difference in their attributes, is that one is generally available and the other one is not. So wholesale CPC is not generally available to the public, which is what makes it first and foremost kind of a major bank payment. I think what's interesting with it. What's interesting is, as a consequence of that, the way the instrument is used is very very different you know if you think about a retail payment system, you know the trivial example to say you know how do I how do I use this to buy a cup of coffee or, you know, a carton of eggs at the grocery store with wholesale cbdc The use cases are very different, you know, it's often. How do I use this to settle payment for security, or how do I use this for large volumes of money over courses, or for cross border payments of large value. I think one figure that I'll just put out there to contrast between general purpose, kind of retail CBBC versus wholesale CVC or just retail payments versus wholesale payments. This is an interesting statistic that sat with me and I think will maybe help kind of anchor the conversation is that when you think about retail payments like buying copies and cartons of eggs and any payment that you and I make digitally or physically in cash. That's usually accounts for 10% of the value of any domestic system, and about 90% of the volume of transactions is counter to the wholesale system, the whole system Canceler 90% of the value. So very, very large sums of money are only 10% of the number of transactions. So maybe just kind of for our listeners, you can keep that in mind as we go.
Unknown Speaker 7:43
Well thank you, teams, any, any thoughts from you on the web, how do you see this space, how do you see, based on what Daniel just mentioned. What is a wholesale cbdc to you based on your research. And given your relationship and I, your knowledge of the banking system. What are the potential impacts
Unknown Speaker 8:02
Unknown Speaker 8:06
that you see.
Unknown Speaker 8:08
Thanks come out. So yeah, Daniel thanks for bringing people's attention to the to the money flow I know how to describe that way but I think it's a good defined nicer name than a four way Venn diagram. But yeah I agree I think it's a really useful tool and. Thanks. Come out and popping it up on Twitter cuz it's reminded me, has saved me going searching on, on the, on the website for the right paper. So what a wholesale CBCs for me. Well, effectively for me it's a way to increase the level of access to the payment system for non bank entities. So the way I think about this is that the way the way it works, I use the UK in the UK as a frame of reference, because that's the one I'm perhaps most familiar with is a UK citizen is that in order to arrange payments today, you typically need to be able to play in the space in the wholesale space of central bank money. So, we have different payment schemes in the UK which fulfill different objectives. One is a batch service, which is used a lot for Bill Payment it's used a lot for salary disbursement. And we then have a separate, separate scheme which is called Faster Payments which as the name suggests, allows you to make payments in almost real time. But both of those still require money to move between banks. So while I may be an account holder at Bank A, and I want to send money to Daniel, and is an account holder at Bank B. It's very rare that that money actually moves between banks in real time and is cleared and settled in Central Bank currency, typically what happens is, at various points throughout the day all the banks, basically tally up all the movements, and then they decide that wholesale amount of money, move between them, depending on all the movements that have happened between their respective account holders underneath. And they typically do that by being part of the central bank. Real Time Gross Settlement system RTGS. And that's why the RTGS typically as Daniel was pointing out, moves very large transactions, but in relatively small amounts of one. And if you are a new participant in this ecosystem if you are a FinTech, or a non Bank Financial entity or potentially even a new bank, you're affected effectively you need to be able to get access to the payment systems. And it means either you have to be big enough and bold enough to get an access or get an account with the central bank to move money through RTGS so you can then participate fully in the payment system and your account holders can receive and send money in the same terms as other institutions, or you need to be sponsored by a bigger bank who says we will do that on your behalf. And it affects the ability to use the RTGS and become part of a, of the central banking system can be potentially a barrier to entry for new companies that want to participate. And so one of the things that I think's interesting about a wholesale CBBC is that it could create a lower barrier to entry for new companies to participate in the payment system. And so effectively will allow more competition and more innovation to flourish. And so that for me is what's quite exciting about a wholesale Central Bank, digital currency is that it could create a totally new pool of liquidity that allows people to participate, allows me, people to organize transactions without having to be a big bank with all the capital and liquidity and all the other restrictions that come with the regulation of becoming a clearing and settlement bank in real in real time gross settlement in central bank money. So that's what I think about interesting at the kind of the top level, and there's probably a whole host of challenges and problems within the system that also wholesale central bank digital currency could consult for, but that's the first one that I go to when I think about this problem. This is James. I'm finished. Right. So
Unknown Speaker 12:48
you said you suddenly go world with the L word, it's all come back to Wiley any thoughts on that. Before for the wholesale CDC what you're seeing here given your work with the banks to what's happening because the wholesale cbdc And there's a component of a stable point as well but we'll talk a little bit more on that, but what are you seeing from a wholesale CDC,
Unknown Speaker 13:14
the perspective that I have is the bank. Back to the liquidity out to the ecosystem, I think, generally, banks in general, traditional regulated ecosystems. The reality that they're all encumbered by their ability to engage and participate in the entire crypto space. And often I think when you think about it it's the lack of clarity of regulation standpoint, and thinking about all the enterprise grade, like, governance, risk frameworks and all the traditional handhold and that we have to do for them. It seems engaged in the space. So to me that's been the biggest challenge from an adoption standpoint, we're given, or empowering, banks, central banks with things that we've done in the traditional traditional set right where we scan and we give them enterprise grade infrastructure where they're not necessarily messing around with Metamask wallets wallets that we use thinkable individual investors, but given them this framework on governance, risk and compliance. Well clearly delineated things from our enterprise standpoint. And ultimately, thinking about the work that you were doing with FinTech where it's it's really a solid enterprise grade sandbox where banks can go. Experiment with pilots and start to look at this notion where currency isn't necessarily a traditional paper, how can we tokenize safely how well guard guardrails around our approach to start digitize currency and enable access and different activities with more flexible, where you can do payment settlements transactions on a near real time basis where they're not necessarily all kind of technical gymnastics legacy systems. So that's the that that to me is really the exciting space. And those are the kind of compensation that I that I'm seeing going on right now. Where now, moving away from the days where it's just not entirely clear the intentions there. Think about the bank. But given the guardrails we're heading into the safely. Security Solutions infrastructure solutions where cloud native gives them to some of their workloads on prem. Looking at the flexibility is really what I'm seeing.
Unknown Speaker 16:39
All right, so we've talked, we've talked about a few things here, so the liquidity aspect of it is something I want to come back to, and Daniel maybe going back to you. The concept of a central bank, issuing a central bank digital currency that is only available to institutions to banks, but on the other side. Still holding those institution with the concept was still using traditional Swift or bch or any other correspondent banking mechanism. In my mind, there's a disconnect of course in a technology perspective, that if the central bank were to issue a wholesale CBC, it would make it very difficult for banks to continue to operate on the other side so have one accounting system that's traditional versus on one side you have digital currency that the central bank, are there opportunities, you know, that we can talk about, whether it's for the banks, on the, you know, stable coin slash, I don't want to say define too much but the stable coin aspect of it that helps harmonize and tapping into that liquidity that we're talking about here because, just for everyone's benefit the concept of things mentioned today. It takes an average of two to three days, didn't really, for a transaction to go from one to the other apps and service providers make it look like it's real time
Unknown Speaker 18:25
but the real settlement
Unknown Speaker 18:26
the backend takes days, and therefore, if you imagine that you know if you send money to someone at the money comes out of your account, but they have not received it. There is a middle middle world and actually the cloud, but now we can see the cloud, but the money, it disappears and doesn't exist really for for use. You can't purchase anything with it because you actually send it to someone else. That person did not receive it, therefore they cannot get paid or recommended, and the because of float, some people would say, and there's a lack of liquidity at that level. That happens. Think about the opportunity, the opportunity of having real time settlement, if you could provide a digital currency, a digital a distributed ledger, where the transactions are settled,
Unknown Speaker 19:19
almost in real time,
Unknown Speaker 19:21
you have real visibility of your liquidity positioning, you have no visibility on your partners, and what's coming in what's coming out your ledger is up to date, can you do more transactions in a day. Can you move more money, so there's a concept of the velocity of money as well. So, Daniel, bring it back to the question is, what does that look like if, if that really is an opportunity to create liquidity in my mind on the one side you have cbdc on the other side you have a sniff or typical a CH are stable coins the way to go and opportunity there on the other side of the coin on the interbank side.
Unknown Speaker 20:10
Interesting Placement courses. I'll try to answer. I'll try to hit on as many of them as they can, as I was listening to James and well, what are we talking about what is what is wholesale CPC I realized that I didn't even answer the first question I think I spoke more about wholesale payments in general without really talking to CDC, you know, listen, you were you were referencing the word stablecoin, quite a bit and I think it's interesting to kind of just to make sure that we speak clearly about the difference between a central bank digital currency and a stable coin stable coin, you know, has the, you know its name implies, that it's some type of tiered instrument, where there's an asset, there's a stable asset if that makes sense a Bitcoin that's pegged to it. So, leaving that aside, I think I would think about cbdc as an instrument that, that bears the liability of the central bank without thinking about what the actual kind of implementation structure itself is, I wouldn't really call stable coin a cbdc Unless it's pegged against fiat currency stable coins issued by a central bank in which case, you know it's probably more of a cbdc than a stable coin. So let's talk about wholesale CBDCs I want to talk about kind of the issue around liquidity and I think it's interesting talking to you talking those settlement time as well. In the context of liquidity because when you think about that settlement time which in general is usually you know t plus two. So from the time of the transaction, two days until the transaction actually clears, you know, of course, having that money kind of trapped in the system, existing at the at the center and not existing with the recipient creates liquidity issues because the money is otherwise kind of missing so when, when we think about, you know the value proposition of wholesale CBD easily can make. I think you're, you're on point and you say, you can do so much quicker. Using CDC, you can offer a settlement quicker, in general, you know, even using, you know, not necessarily central bank digital currency you can do so, quicker through many different optimization tricks, the issue is that everybody used to do it all at the same time so it's going to be the weakest link in the chain that is going to determine that people's to settlement time and even when we will work on Project Jasper, you know, three years ago, we could show that we could do some t plus zero, the issue is if you can determine that people have zero within Canada, you know if most of the trades are happening between Canada and the US and the US is t plus two. Well, the fact that you can do t plus zero doesn't doesn't even help you. So there's always that tricky issue of, you know, trying to get settlement time quicker and quicker but at the end of the day it's a network effect so you really have to move the market together and incentivize everybody to settle faster, and everybody to kind of upgrade their settlement tools and things like that. The interesting thing about liquidity I mean, potentially because I guess, the holy grail thing, Everybody wants to have liquidity and really wants to have liquidity, because without liquidity, you can't really do anything you're you're stuck in what's called gridlock, but the, the interesting thing about liquidity is that liquidity. It stands at odds to some degree, with, with real time payments, and what I mean by that is, when you think about RTGS systems as the name is Real Time Gross Settlement. Most RTGS systems, they actually aren't pure RTGS, they aren't RTGS in the sense that I only send a payment as as an institution that participates in RTGS system. I don't only send payments, when I have the liquidity to execute. In fact, what happens is a lot of these RTGS systems they have liquidity provisioning mechanisms, so that I can send the payments without really having the liquidity, but they give me intraday liquidity so that I can execute my payments during the day without actually taking any loans. But intraday period. So it's interesting kind of thinking about this holy grail. We want to have liquidity on the one hand, and on the other hand, we also want to have real time payments if you reason about those two things kind of closely realize that they actually have to kind of contradict each other because if you're sending real time. You must have the liquidity to do so. As always, you can't stop the payment, but you also want to be able to send payments, or you want to be able to make that introduction you don't, you don't have to preserve the liquidity buffer all the time. And it's interesting I guess maybe to ground the conversation again something a little bit more intuitive.
Unknown Speaker 24:41
The average wholesale institution that has access to central bank balance sheet, usually transact X their balance sheet, in any given day. So, you know, the equivalent of that is saying, I can I walk around with $100 in my wallet. But I spent throughout the day. In build an outbound over $1,000 On average, that emphasizes the point that liquidity is really important to the system. Because, if I can only make a payment when I have enough money to make it. If my balance is only $100 but I'm sending $1,000 sending and receiving $1,000 worth of debt. I will rarely have the liquidity I need to execute real time payments. So on one hand we want real time payments with Quiddity volumes, they kind of contradict each other. Almost, almost by definition. I'm not trying to answer the question directly, but what I would like people to maybe leave with is the tension that exists between real time payments, especially on a wholesale level. And this notion of having liquidity. Liquidity provisioning and that's why when you look at a lot of the work that's been done in the wholesale payment space, you see this liquidity provisioning mechanism and good luck resolution algorithms and things like that that kind of pop up all the time, because that's the significance of that because without these maps, without these things. You ultimately have to go to deferred med payments, all over. I don't know if there's any follow up on that. Happy, happy,
Unknown Speaker 26:19
actually before somebody to observe these are all great points so sorry to interrupt, I just want to reset the move really quickly. Thank you to everybody in our audience. I also want to acknowledge that we have some past speakers in here Nita and caress they talked at our retail and financial inclusion event so thank you for that and then Diane was here for policy and technology. Day, who also just joined us on stage. I recall you attending a previous rule, get some great points on wholesale CBTC so welcome to the stage.
Unknown Speaker 26:54
Great points. Honestly, I was not I did not have a continuation for what you just mentioned, so thank you for for clarifying that. Because in my mind. And maybe you've throughout the literature as well and the research that I'm talking about settlement in real time, making room for liquidity. So the quicker you can get money from another bank, the quicker you can actually send money to another bank but your way the trading kind of the, the credit that gets issued against your reserve at the Central Bank, maybe this is where we'll transition and talk about, I mean when we look at what's happening at the stable coin level and how some business models are evolving and emerging right now, as far as how they create liquidity how they earn yields on deposits. I think there's something there that's, that's worth talking about. But Dave do want to jump in. Welcome back, Dave.
Unknown Speaker 28:02
Dave I'm I'm humbled by your presence, if this was the day presented. It's a pleasure to share the stage with you, my friend, for joining, it's very kind of you to save so thank you. I just wanted to, I just wanted to say two quick things but I wanted to really argue with you because I missed the conversation. James You know earlier on, you said that wholesale cbdc was a way of extending access but of course I don't think that's true. The opposite is the point about wholesale cbdc is it's the financial institutions. And I think one of the things that is not helping the conversation, which I think confuses some of the people that are listening, is that we're calling the two things digital currency wholesale digital currency and retail digital currency are two completely different things. They have nothing to do with each other at all. So I think this is an experiment. I'm going to call retail central bank digital currency fish sticks for now or six in people's minds. So the issues that you were talking about about, you know, I sent the money to my friends at the bank sit for three days so my favorite examples that was in the US, a woman who went to visit her friend's, friend's house for her baby. So her friend. Her friend ordered map is on Amazon, and seven o'clock next morning the map is store. He said to a friend who happens to you, whatever it is cost $30 So she looked into her online bank account and sent her friend $30 Right. How can that how can Amazon, anywhere in the continental United States, within 12 hours. It takes five days for the money to get. Why don't we get Amazon to send the month, I mean literally wait a week to get Amazon verbals and $100 bills passed that will be quicker. So that's the problem is systems. Okay so fish sticks. The exact problem, because if I send my fish sticks, remind one it's your wallet. That's the end of the story. They go from my wallet to your wallet. There are no banks for faster payment systems are meant to meet credit accounts or credit, or anything else, just go from me to you. End of story. It's nothing whatsoever to do with wholesale central bank digital. And I think that was confused some of the people listening but I might be misinterpreting a little bit of what the second point is that why do we want wholesale central bank digital, and why do these financial institutions want this. Well, the answer is. And actually, I think, one of 10 Again, I'm criticizing and only half of the conversation. I think one or two people said settlement, sort of slightly. The point about wholesale bank digital currencies, there is no. So So, when the wholesale bank currency goes from where UBS sends the central bank digital currency dollars to bankers, that's it, that's the end of the story there is t plus anything. The reason the money just goes from a to b It's not crazy. it's. So, why do they want this. This goes back to the very early days, when people started messing around with Blockchain, and started to think, you know what, shared Ledger's of some kind, might actually be a more efficient way of doing some kind of financial transaction. Right. If I'm going to put shares on the blockchain. And you're going to buy my shares. It doesn't really help me to share from one, a theory of wallets or core wallets to another quarter of wallets. But then we have to go and phone up the bank to get the money. We need that money on the blockchain, because we can't put bank credit. I can't put my bank account. I need some money that I can pull out wholesale central bank digital currency.
Unknown Speaker 32:53
Yeah. Interesting. That's an interesting statement, because, I mean, what about the fact that we can put our fist sticks on the blockchain.
Unknown Speaker 33:08
And I don't think you can move a stick on the blockchain. That's a completely separate issue. Let's say we're influencing you know whatever some sort of wholesale bank digital currency, and we're implementing it is pretty standard way so we're implementing isn't a theory of smart contracts, and we're going to do delivery versus payment. Okay. We have no wholesale digital currency. So I'm going to use money that's in my Barclays accounts to carry out this transaction. So there are a million nodes on the network. And the smart contract gets executed a million times simultaneously on all of these nodes. And there are a million requests coming from all over the blockchain to transfer money from A to Z. That doesn't really sound right to me. Because the smart contracts can only can only move value that's on the blockchain. Right. If you want to move value this off the blockchain and actually do interbank just Bundesbank is probably quite good reports about this. There's the Swiss one as well but they either need wholesale digital currency to do this you can't do it in another way, and actually I worked on a system to do this in Belgium about five years ago so what you can do is you can have an Oracle, which is looking at the bank. Posting into the blockchain. You can execute on the basis of that then you have a stamp, which is monitoring the blockchain. And then moving the real money across the RTGS so you can't do it without digital currency, but there are some rubies, to think also digital currency might be a better way of doing. So my 2.31 retail digital currency and wholesale digital currency are entirely unrelated. And secondly, and this is probably the secret. The point about also digital currency is anything to do with existing speeding up settlement has to do with this technical issue, how do you how do you process transactions on blockchains are some of the shared ledger. When you don't have any money on that shared ledger. It's a solution to that specific problem I think so that's my two cents. So thank you.
Unknown Speaker 35:36
So Dave, your your dinner sounds pretty good, You're actually cooking while you're talking, which I appreciate most.
Unknown Speaker 35:45
You're absolutely correct most relaxed. Dating welcome entry good
Unknown Speaker 35:59
solid multitasking. So, so first of all, I think, you know fish sticks versus wholesale right. Completely agree they're two different things we said that up front and that's why the title rental sells so yeah, they are different things we're not talking CBBC general we are specifically talking about wholesale, and to the point about liquidity and does it speed up liquidity. Yeah, not, I don't think it makes a blind bit of difference for monitoring, because the way I look, think about payment systems and how they work. That whole problem of managing liquidity I think it's been pretty well managed and obviously it depends where you sit and ecosystem which country you're in, and what the challenges there are right. But I do think that wholesale CD VCs Cancel for access in that I think it allows less mature, less, less robust institutions to participate in transferring CBCs wholesale between themselves than then having to join into the full clearing and settlement relation and being a fully regulated bank with an RTGS account at the central bank, that I think is a diff That for me is the big difference but sound like you disagreed so I was kind of curious as to why.
Unknown Speaker 37:26
The only people that, that were accessed wholesale cbdc financial institutions. So what the what the Bank of England has done, which which is very good. I think it's a template I think other people do something similar. The Bank of England have created a new type of the omnibus settlement, which will allow institutions to hold CBDCs on behalf of customers, but the customers don't have the cbdc. It's the financial institutions.
Unknown Speaker 38:02
I don't see that what I'm saying is it could be a different class of financial institution, right, Or, you can be a non bank loan institution, it could be a FinTech it could be a payment situation, etc. Right. And that's
Unknown Speaker 38:14
the settlement accounts the non banks and as a settlement account.
Unknown Speaker 38:19
Yeah, but you're still measuring in 10s Not hundreds or 1000s Right.
Unknown Speaker 38:25
And the reason for that is obvious because you have to pre fund separate accounts because, as you pointed out, there's no credit. If you're if you're going to trade one of the settlement accounts through the day. You have to pre fund it, you can only trade up to the amount that you put in, Because they're not gonna grant you any credit. And so actually if you if you're going to, if you're going to spend the day moving money in and out of these cats or get someone to transfer wise, let's say, the maximum amounts, negative, if you like that you go during the day is 100 million that you've got to pre fund with 100 billion. I mean they don't, because obviously, companies and we'll get back to them during the day. But, yeah, you're right, no credit. So, it's not for everybody. That's why the banks brought in these Omniverse accounts for people, but I think we're agreeing on the central point which is the users of financial institutions. So, it doesn't help me. Speed up transferring money from me to my friend, because it has nothing to do with that application.
Unknown Speaker 39:39
But one thing, one thing I will challenge here is, I do, I do see a scenario for the liquidity assets. Because, when, when you think about when you think about the access to the central bank and maybe that differs from jurisdiction to jurisdiction, but like Daniel was saying something some intraday liquidity. If you are JP Morgan or if you are Standard Bank of South Africa for example, you can probably command issuing credit against your reputational credit rating right against your credit rating, and say, I have 50% of the volume on the transaction with the liquidated I have I have been in reserve, but the other 50% Because I'm going to have to trust me that I can actually settle. When there is a settlement. And that can create and now, today, the way that folks is that banks can actually create that and extending credit above their liquidity ratios,
Unknown Speaker 40:49
but in tomorrow's world,
Unknown Speaker 40:52
assuming that you had a himself CBC, the same way we're seeing right now in the retail space of what a stable coin can do which is the commercial stable points we're talking about, and a bit around, you know, Someone mentioned the
Unknown Speaker 41:05
Unknown Speaker 41:06
Is there a positive view here of how that can be addressed on a blockchain because I think that liquidity can be very powerful, at the wholesale level. Sorry, I think you're going to say something
Unknown Speaker 41:23
yesterday but if you want to answer criminals question I can I can jump in on that. Please go ahead. I think I was gonna you know I was gonna talk a little bit more about the access and I think that on the one hand, you know, we've been talking about wholesale CtbC is to go back to the to the earlier part of the conversation. You know I referenced the money flower and I almost said my definition wholesale CPGs are accessible to the general public, so. So this notion of access. If a central bank. So I agree that in a sense you know if we say, hey, sacrament wants to do open accounts for retail individual challenges which operational as opposed to you know Policy and Governance and so on. So even if the technology of wholesale cbdc could enable that I think that, you know by definition we're talking about wholesale CBD something that's made for regulated financial institutions, regardless of whether we're talking about reserves or if we're talking about a distributed implementation or cbdc Like, I think the thing that I have, and working on is, is when you think about how these things scale up as as systems, and if you think about like let's think about open banking as maybe as maybe a counterforce to CBC that's built on top of a distributed ledger. And when you think about open banking and you think about how a system was in participants, all with API layers, integrate into each other well for everyone to integrate into everybody else, you need a unique set, you need some number to the end of common rhetorical integrations for for a group of N participants to all communicate with each other, each one with their own API spec of how you talk to my friend. On the other hand, if you think about a distributed which could put a distributed system where you have bearer assets on the network. I don't need everybody to integrate into my custom bespoke API creating this exponential combinatorial chaotic framework, I can simply say, This is my representation of a liability of my wife and assuming that I'm a central bank. And now anybody that we custody can claim to make a claim against this instrument. And I think that when I think about tech technically how to integrate different components, this loose coupling, that's enabled by the technology. In my mind, does lower the barrier for integration and access, and maybe to make this example come to life. When I think about dollar liquidity swap lines that the Fed is running. You know, I would prefer. How come the Fed does have $1 liquidity swap lines for every central bank in the world. And the answer to that is, is because of the operational logistical nightmare. And if I'm not mistaken. They used to run nine and then after the COVID crisis, they upped that to 18 and doubled the number because these this the liquidity was needed. So how come that ATM doesn't double again and again and again. So ultimately, everybody knows every central bank in the world with access with liquidity and they don't have to go to interviews, and I think this is this is an assumption that I would love to either validate or to have somebody oppose that is challenging, you're getting access even when even when you would like to give that access using today's practice there's my intuition, over the over the last little while it's the system's up close and personal, is that it doesn't enable that type of access. When it's desirable in the right kind of circumstances. So, any comments on that would be valuable. Well, I mean, you think maybe first, because me. You know the banks don't have a competent competent tutorial connection now I mean if I send money to Jay. Let's say I'm involved with taxes that way. It doesn't go from Barclays to. Where's Jake. It goes to Barclays send it to the faster payment. The faster payment networks and to net worth actually picked up because it's jacked
Unknown Speaker 45:55
up. Get out of Java, and want to extend that to cross border banking relationships that don't share a common RTGS manual treading into different carriers, because I've already in trouble on food extra
Unknown Speaker 46:19
that was going to be my next question.
Unknown Speaker 46:23
Tell us about the trial. again for a second. If we will use in retail CBBC, but it's not obvious, is going to have any different ways. But the point is I'm sending money from. Let's let's use Facebook as an example right so Facebook today announced that they're pulling out Europe, and they're launching their US dollar stable coin with the bank. If I if I've got some dollars in Stargate or something like that it's something like that was a real bank. It's an entity with a banking license. But the point is, if I send money for my whatsapp, what if I send one of these dollars my whatsapp wallet to your Instagram wallet, and then you send it on to Facebook. It doesn't matter near the banking system Swift, don't even smell the transaction has nothing to do with. So I found by what I said about. Now if you're talking about moving wholesale CBDCs in the same way as swap. In other words, with the Bank of Japan, be able to hold us dollar wholesale CBDCs for transacting between Japanese institutions. I'm not sure. I don't know enough about the topic to know yes or no, there's an obvious reason why not, but I don't know enough about. I think today we bring up that Japan buying commodities that other Japanese banks in US dollars, you know, their, their, their, their access to the dollar system is is limited, I think, by real operational. And maybe I'll comment on that point again about swit the retail payments, and I said it earlier. Again, love to hear your couldn't get but you know that 10% of the value that exists in retail systems roughly, you know, maybe that's okay that doesn't touch the banking system and it's not the biggest deal to, you know companies that are targeting companies that are that are providing value for, for wholesale. So yeah that 10% doesn't get aggregated into the wholesale and some settlement later settlement but you're right it's a peer to peer transaction instantly gets you know there is a settlement, the IOU is a transaction and so is the settlement. You know I don't know I guess I just don't feel like it's that big of a deal. Maybe if I was sitting here with Swift hat on, I think, you know, so maybe maybe we have to fight a little bit harder for that type of sense of urgency. Maybe safe and secure. I don't know
Unknown Speaker 49:16
if that's still the case, if the banks decided to do peer to peer, the stable coins. They had their own stable coins.
Unknown Speaker 49:25
Well, you're absolutely correct, we wouldn't even need to be their own stable coins because I think I've got a wallet. So let's take a look. So Barclays now needs to pay some other bank or some other company on the other side of the world, so they could make a dress up to messages in ISO 222 and they can send them off to Swift GPI. And then the message will get through and then the third one goes and then you get a response. And then, later in the day you instruct settlement transfer from your nostro account to their boss draw account. And that goes through a correspondent bank and blah blah blah blah blah. Or you can email the coins for your wallet to somebody else's Wallet. So, I don't think you have to wonder what Swift is going to do in a world of digital currency, irrespective of whether those digital currencies. Central Bank digital currency or Facebook's, or anybody else, right, because the market just goes from wallet to wallet, there is no, there is no system in the middle for swift to manage and organize the message, right. So maybe immediately a little bit controversial and just interested. I'm just interested you know having James on the line. I also see Harold boss in the audience as well from domestically, so I'm just interested to know what you think about Smith as a network as a payment network, can you extend the same logic to MasterCard and Visa, of the world or is there something kind of fundamentally different controversial.
Unknown Speaker 51:08
It's interesting, right
Unknown Speaker 51:08
because Swift is a messaging network that supports a broken system is called correspondent banking, right. It doesn't exchange any value. It works in a limited way. And, yes, it's been enhanced from what I can tell with GPI and other things like that, but try and make it a bit faster and a bit better. It's still for me the kind of Polyfilla fill in the cracks in what is a broken system. I don't feel the same way and honestly I would say that about the broader kind of MasterCards visas, etc, as well because I think they do a lot more than what Swift does, and I think they provide a lot more value to the people that participate in those networks than Swift. So I think they come from a totally different perspective on that. So I don't feel they are subject to the same threat, I will be the first to admit that they are. They are a legacy of a time when you wanted to connect billions of consumers with millions of merchants through 10s of 1000s of banks. We had to use a technology which required you know phone lines and people to connect up switchboards and things to join from, you know, a switch in the center and now that we have the internet and we have peer to peer technology, you know, that technical reason for being, doesn't exist, but in the 50 plus years that those networks have been built over, they have established significant brand presence they have huge issuance and acceptance networks. They have realistic rules that provide trust and safety. And they do it in a relatively efficient way, compared to some of the alternatives that we're looking at today in terms of how blockchain works and distributed nodes and proof of work whatever else might be used, right. So, when I first worked for MasterCard in 2014. I was kind of like why does this thing exist, we've got the internet now we've got, you know blockchain blah blah blah blah blah. Now I'm looking at it seven years old I'm going. I have a huge amount of respect for having a unifying brand, that means this will work wherever you are in the world. And if something goes wrong, You're protected. And I think that is phenomenally valuable I think that's why Wall Street values and associative. In the same way. So, I think they're very very different things. I think if you were trying to put swift and mask on visa in the same bracket I
Unknown Speaker 53:37
think would be very wrong. I agree, James, I think, to pretend it is obviously wrong because it will fix the price point. But the point is correct people think of these remarks guys, but actually payments is only one part of the proposition. And, you know, when I when I when I when I walk up to a store I see a MasterCard sign in the window. That's not just telling me, you can pay. It's got all this other stuff behind it which you don't think about. So I'm not here to shill these appointees they do make. They do make the whole thing. Click. And as James said if something goes wrong, it will get fixed. And, you know, if it turns out the merchant is actually rook front for a triad gag that discipling getting a hold of my cash. And for some criminal enterprise, I don't care, because the system will get my money back. And I think that's pretty important people, people will get taken advantage in a retail, wholesale CVTC, with a retail cbdc I mean you see what goes on using the forms that go on at the moment, you know, through, through bank accounts where your KYC that was, you know there's 20 billion in AML CTF, and people still don't. Imagine how you would remember the general public and then get ruthlessly exploited. When there's, when, when you go into sort of central bank digital currencies, which are whisked off abroad and you never see them again. So, these are MasterCard. Yes there are valid complaints about some of the complexities and costs, blah blah blah But games actually right, it's because they don't just do payments.
Unknown Speaker 55:42
You're right. If I can agree with you, I just thought it was also important
Unknown Speaker 55:52
with MasterCard payments. We've been earning wealth from the stable coins. The dish. Fi situation where there are multiple. And that may, you're referring to a scenario where from one to another, that has to do to set the font in the right format. And we know that this
Unknown Speaker 56:39
is going to be the back end because of the regulatory compliance screening. I think we can all agree there is. Beyond that there's value in reinforcing. And I think that's something that others cannot offer, And there there are many, many ways, rising on the horizon for all of us. Institutions shifting, shifting quite rapidly. But historically, we know that large very large actors have successfully secured.
Unknown Speaker 57:40
Right. So thank you forgot the arrow that was, that was a really good point D, welcome to the stage, I think you had a question or comment,
Unknown Speaker 57:49
please welcome. Yeah, I heard the, the statement of liquidity isn't really an issue when you're talking about doing transactions, cross border payments, barring the FTC case, what do you guys payments industry back end paid finish etc. Ripple and XRP are they playing a role in the real world to solve the liquidity issue that the banks are having, or is there another system being touted, I know that the Fed now system is about to roll out next year. How do you guys see that playing out as well.
Unknown Speaker 58:40
Okay, I'll kick it off and then James, do you want to jump in, maybe you can do some context so that doesn't get to any trouble. but I'll take a stab. I, I do see a need for, or maybe a demand, even for other players to come in and fill in that liquidity need. I think there are certain markets, easier not a financial institution that has direct access to central bank money that it makes it very difficult for you to create money. And the beauty of blockchain or digital currency and this base. So this is kind of a hybrid, you know what you would think as retail slash interbank liquidity payment. I think there's an emerging business model here, that fills in some gaps, but that does not particularly require the large payment system that we know today like RTGS which ironically they've asked for settlements and RTGS but there's no real settlement. But I do think there are other players that will come in to address the to address the access problem. And if the Fed continues or if they're indication of giving access to FinTech to the Fed system is successful. I think you will see syntax, and stable coin players and digital currency players, whether it's XRP and others I don't have a crystal ball on XRP specifically I know it's a sensitive topic, but that role of a stable coin to provide that liquidity and that new emerging place, I think there's a role for wherever MasterCard or Visa or, you know, partnering with stable coin issuers CVC issuers, now you hear people saying that they want to BCC distributors, there is clearly a need for merging liquidity and putting pooling and access mechanism and I think stable coins can do that, that's my view. Dave
Unknown Speaker 1:00:57
Well I think that has to do first point RTGS it does in the UK RTGS fees for the final settlement fees if you send money from one RTGS capital did us account. That's the end of the story, there is no, there was nothing after that, that is the full setup, so I didn't I didn't quite catch the point.
Unknown Speaker 1:01:26
You mentioned there was no set no real settlement, which I happen to agree with you but I thought it was ironic that RTGS are the real close
Unknown Speaker 1:01:38
payments they have a deferred net so they have three settled on Windows a day so intraday if you're sending up to, I think it's 250,000 management James I can't remember exactly. If I said James 2000, as part of the conditions of membership ski is back as to give him access to that 250,000 immediately. Although they will actually themselves. Get the 250 1000 until it's connected up in a silver window later on which to consider. Feel free to major point where I agree with you. Although XRP or stellar or anything else, but accept Bitcoin because I'm just curious because Because Mr Martin said he liked the board's analysis because like is every soul that seemed like a sort of standard basis for future. And also I was just reading. I mean Bitcoin, in essence is actually a tether derivatives, and I've just, I've just read the roadmap to disclose that they're 100% US dollar reserve is actually 3%, which is a little bit different. So that might be another reason. But without coming to me that that was somebody said there was tether tether is supposed to be 100%, backed by cash 3% back on cash. People are all complaining about Twitter. But the point is the existence of those things I think to your point, is they show that the market wants the solution. And whether that solution in the long run will be XRP for US Dollars or some other dude who knows digital gold. I don't know what the answer is gonna be. It demonstrates this clear market nature solution, people want to save money. Around the world, like it's 2021 not like you're dating certain people, there's a real need for it has to be satisfied, and the markets getting dissatisfied with cryptocurrencies, is that the long term solution. I couldn't say. I mean, for all I know somebody tomorrow we'll come up with our oxygen base stable coin and
Unknown Speaker 1:04:05
by the way, that was acquired for everybody, I realized is a dog coin
Unknown Speaker 1:04:20
story. You've got a, you've got a few people who are retiring with hundreds of millions of dollars in Dogecoin, and then you've got millions of people around the world, taking a complete bath, because it's like it was in like the 1890s, you know, when when people were out shooting railroad stocks and stuff like that. People get super super rich but most people, they're going to lose their shirts don't trace down what two thirds of
Unknown Speaker 1:04:58
the whole thing was created as a joke. It has no value whatsoever
Unknown Speaker 1:05:10
to bring it back to the CBBC and go here to use that that kind of the Case in point, right, it's like these, these instruments, their power of their existence has opened up opportunities and and they are targeting a need, that is being slowly crystallized over time and something that the market is expecting, right 24 Seven instantly settled cross border cross currency transactions both at a retail and wholesale level, are you put in something like a dose coin or or whatever it is. And, you know, it's very easy for people to kind of get sucked into the narrative and I think that, you know, bringing the central banks into the picture with a mature regulated market perspective I think is, is incredibly well placed and I think it's gonna be fascinating to see what the what what the what the central banks and the regulators, bring into the system, to ultimately satisfy, you know, not take one person region, and a million others core, but you know this to solve the solve the real core core issue of storage and transfer of wealth, like we're in 2021 and not we're in the US. I think there is one point that I drifted off. Actually, it's actually an interesting characteristic four exercises. I think would be the same for you is about. But it is definitely token, accounting, and if it's either or. It drives certain decisions on mitigation. We don't choose a decision and decide how to decide how to deal with central banks, there's one aspect of that. Worst of the institution will eventually flew away from the actual type of scenario that quite nice and assess risk is not in control of money or another's, but we all have restrictions in house we can leave the country with our pockets, banks, banks have to report, but at the end of the day there is no parallel. So, if nowadays that can live in what makes money that actually need outside threat or risk and potential malfunction. Okay.
Unknown Speaker 1:09:15
Now one thing I'll say, I mean I do, I do have a fairly strong position on on cbdc Being on blockchain, and the reasoning for me is the reason we're talking about TBC during your presidency these days have been the thing is because of Bitcoin. And it is because of the breakthrough technology that we're talking about here which is blockchain. True. Do you need blockchain to do cbdc No,
Unknown Speaker 1:09:43
but would you want to Powell said. He said there's a debate about whether there's a Chinese digital currency will be on a blockchain. There's no debate whatsoever, they've already, they've already launched, not on a blockchain
Unknown Speaker 1:10:08
visible but, but the interoperability aspect of it so how, how do you help. If you're issuing a CDC, because there is a change in the ecosystem that is purely technology driven. What we're talking about here is a technology, just by other people and different ways, but it isn't technology driven change, and for me I'm struggling with, you know, what do you tell a central bank five years or 10 years from now, where everyone is using a stable coin or cryptocurrency to do payments.
Unknown Speaker 1:10:43
If you're bringing up some really interesting points so. Just two very quick points about that. The reason why no retail CPC will be on a blockchain is because it will be a fundamental requirement retail central bank digital currency that is that it has to work offline. And you can't do blockchain transactions when you're offline, So, it will be used for retail CPVC, but your interoperability. I think that's an interesting point, but particularly what it has to do with Blockchain if paintball go to the Chinese, and say, We would like to add DC to our paper wallet. Then the Chinese government will say fine, is the API. They're not going to say okay well we'll change the CP. Six with paper samples or something else so it turns into microfilters say, is our API, go right ahead. So the interoperability problem. It's that's not a blockchain. Right. And I completely agree with you, I think it's quite interesting. I want to briefly with you at the baseline. I think there is, there is more. And I think that's why for wholesale central bank digital currencies completely gets an issue, because this point about re implementing financial intermediation through some form of D fi, you know, whatever. That, that makes a lot of stuff. I didn't want to go around the corner to buy something
Unknown Speaker 1:12:41
and discovers that because they can't get a month for because the power is gone. I can't buy it. That's not right.
Unknown Speaker 1:12:54
It's not, but there are ways to have a hybrid. That's something we'll talk about more and
Unknown Speaker 1:13:03
share some thoughts with you on
Unknown Speaker 1:13:07
this specific problem. Given the focus on emerging markets
Unknown Speaker 1:13:17
is another TV point that you have to take into account before you were saying earlier, which is my dinner.
Unknown Speaker 1:13:31
You said it with such sincerity, so I always believe.
Unknown Speaker 1:13:45
It's such an interesting discussion.
Unknown Speaker 1:13:49
Dinner and quickly for me as a question asked about ripple. We've got Ashish Birla the ripple net GM. He was due to speak tomorrow he's actually just off so you can move back to next Friday, but if you're interested in learning more about how he sees the world. be more well join us. Now the FinTech and payments club. On Friday, the 21st of may.
Unknown Speaker 1:14:12
Thank you for the invite. Thank you to everybody that joined us. This is a wonderful conversation I, I hate to interrupt but we do have to go ahead and again this was CBC 103 wholesale CPC and interbank settlement, definitely got into the details there we had our speakers are Wally from IBM, are three, and James Sherwin-Smith, Smith from masuk I thank you so much for joining us. and of course we have our host Carvel today. This was organized by M Tech and we will be continuing the conversation. Next week we are going to dive into privacy, security and fraud surrounding cbdc So Carmel is going to hand off to you for any final words and we hope to see you all next week. Yes, thank you, thank you everyone for joining the conversation we wish we had more time, and we're thinking about Bobby sizzling a follow up to this conversation and hopefully others will join
Unknown Speaker 1:15:13
to follow the group all
Unknown Speaker 1:15:15
things etc so you can be alerted when we're actually scheduling events. And join us again next time. I'll pass it on to James last words and Daniel de Aeroflex.
Unknown Speaker 1:15:28
Oh, very good for you. Thank you. The convenience room great conversation enjoyed the debate. It's always nice to actually have some contrarian views and see what people think and different sides of the spectrum. So, thanks the opportunity really enjoyed the chat.
Unknown Speaker 1:15:45
Thank you, everybody. Nice to see familiar faces and I even see some new ones. That was a great candidate by virtue. Pleasure to see you're surprised all of us everybody thanks for having me.
Unknown Speaker 1:16:01
Thank you very much. Thank you everyone. Thank you carve out for the group here. Last question, was great refreshing to where CBT is now and in the near future,
Unknown Speaker 1:16:22
a call with my boss will be honored to be on stage with the sequencing panel on my brother quite a bit. really excited about the future of the space. Looking forward to the next conversation.
Unknown Speaker 1:16:36
thank you take care, See you next time.
▶️ Join us to discuss how Fintech’s can take steps to identify and better understand how to attract, develop and retain female talent in order to narrow the gender pay gap. This week, we talk with Stacey, Kamogelo, Anneri from TalentintheCloud
Given the recent uptake in direct instant payments which are very low fees, can we see MasterCard and Visa ‘cartel’ fees be greatly reduced in the coming years? – thank you Alex
Start time 07:35 UK
Duration: 2hrs 30mins
Moderators: James Sherwin-Smith (@26Left), Monica Jasuja (@Jasuja) and Anuradha Kumari (@AnurahdaKumari)
Broadcast channels: Clubhouse (main), Twitter Spaces, Facebook Live
Recorded: Yes – Facebook Live and Audio file
Transscript: Yes – Otter.ai
Jay 0:01 I’m not invested in Dogecoin but I am invested in cryptocurrencies.
I am. Again, super tired right now but I just feel like it would, I would be remiss if I didn’t point out anybody in this room who does not know what an ISO, 20022 is, I suggest you write it down and do your research. It’s, it’s the future of payments, IES ISO 20022 i s o.
And that includes, you know, crypto currencies like XRP XLM XDC.
These are the future. They are the future. As you know, not, I’m not just saying this, this is like the World Economic Forum and all these other players that are that are sitting at the table with these guys. So, yeah, that’s, that’s my two cents.
James Sherwin-Smith 1:06 Thanks for that, Jay, I, I’m, I’m intrigued. I’m intrigued by someone to come and raise ISO 20022 as the first topic for Sunday surgery today.
What what what tipped you off to the power of 20022, and I’ll maybe give a couple of sentences to explain what what this is so.
ISO is the International Standards Organization. It’s a body that sets standards for various things around the world, anything from how security standards should be managed to know how you should run a project, it’s a really wide, wide library of international standards, and ISO 20022 is a standard for financial messages, effectively it’s a library of how organizations can pass financial messages between each other. And it’s what’s powerful about it in particular it’s, it’s an extensible standard. What that means is effectively it uses a form of technology typically XML or JSON, which is a file format which is a structured file format, but it’s infinitely extensible and what it means is that all the data that goes inside a financial message can be structured in a way that it’s very easily machine read. So you may have in your time on the internet, maybe seen maybe by mistake or maybe just out of curiosity that web pages are built in a structured way it’s called HTML hypertext markup language, and what it means is that when you for example, want to put the title to a web page. You start with a tag. It’s a thing the title tag so it’s a chevron with title and close Chevron, then you put your title and the end of it you say close title. So it means that your internet browser. When it finds that piece of data it goes, Ah, This is the title of the web page. In effect, ISO 20022 allows you to do the same with the financial message. So it could be that I could put first name in brackets and so I know that someone’s first name, it could be last name that could be their address it could be the invoice number, it could be the currency code, it could be the value. It could be all the SKU level data about what makes up that invoice It’s a very rich and open data format and you can even embed in images and things like that. So it is, I’m, I get very excited about this stuff that’s kind of my day job, but Jay I’d love to know more about how 2002 to cross your path and and why you’ve become such an advocate for it.
Jay 3:40 Absolutely. Well, when you compare. When you compare ISO 20022 to what we have going on as a whole, I mean just compare it to SWIFT. I mean, it’s not even in the same ballpark, not even close. And if you were to compare some of these ISO coins projects I should say, to, to Bitcoin or Etherium even, not even in the same ballpark. I mean, the, the frictionless, it’s the speed, the security, the, the mean, lack of fees really fractions fractions of a penny to get something like even physical assets from A to B.
In a matter of seconds, I mean this is the future people, This is it. And so yes I’m very bullish on on ISO.
I wish I owned more actually.
But, but yes, I, the two projects that stand out the most right now is, Well, I’ll say those three.
The X coins I like to say XDC XLM and XRP.
Those are the ones that I’m most invested in right now. And that’s not to say that, you know, there’s not going to be something better in the future but at the moment, when we talk steady tech. Those are the ones that I’m invested in and long term, I mean, long hold long holds. I’ll be surprised if I ever sell my position on my XRP and ex Dc. Now that there’s opportunities popping up, to be able to farm these, and to be able to, you know, within decentralized finance to be able to leverage those assets in multiple ways. So, so yeah that’s that’s kind of all I have energy for right now I think I’m probably going to go to bed now.
James Sherwin-Smith 6:01 No worries, Jay look thanks very much for sharing and before you do go to bed. If you’re a. If you’re keen on on XRP or ripple more broadly. Note that we’ve actually got a fireside chat on Friday with Asheesh Birla who’s the general manager of RippleNet. So he’s been with ripple I think just over 13 years so he’s been with the company a long long time he’s been investing in this space for a while. And if, if you’re interested in learning more about the future of Ripple and XRP, I can’t think of anyone better than to be able to quiz live on stage than then Asheesh so
Jay 6:37 no I I’m aware of, and thank you so much, I’ll follow you guys right now,
James Sherwin-Smith 6:42 no problem. Yeah So Friday 7pm UK that’s gonna be 11am Pacific if you’re the Pacific Time Zone J.
Jay 6:50 Okay, excellent. I’ll go in. If it’s in your, It’s in your bio here
Unknown Speaker 6:55 the
James Sherwin-Smith 6:56 checkout FinTech and payments club hit the greenhouse like on top of the page, you should find on the carousel we’ve got that session set up for Friday. If not, then at least give me a follow and you should get the notification because I’m going to be doing a chat with with Asheesh on Friday.
Jay 7:11 Excellent, Thank you so much less evening.
James Sherwin-Smith 7:14 Thanks take take care sleep well. Thanks for joining us
Jay 7:17 Thank you so much,
James Sherwin-Smith 7:19 Linda, welcome to the stage Lovely to see you again. Thanks so much for joining us. Please go ahead and unmute maybe give her just a reminder that other people in the room have haven’t come across you before where you’re joining us from and what with a little bit more about you and step forward with your question or perspective, happy Sunday to you.
Linda 7:37 Hi everyone, thank you so much, James. I’m Linda from Stockholm, Sweden, I’m in the payments industry here the infrastructure in the Nordics, and actually I wanted to ask Jay to elaborate on, on the ISO, and how it’s, I mean it’s already in use and SWIFT is slowly but, I mean they’re aiming at doing a shift as well. and I was just curious how to.
Yeah, like, like what, how is the connection or how is the how he saw the transferring into the with the FinTech and also going for further with the, with the blockchains and crypto but I really don’t want to stress, stress him anymore and you also did the calibration a little bit yourself James so maybe that’s enough, if any, not anybody else have maybe insights on that matter
James Sherwin-Smith 8:39 well let’s, let’s get going else wants to engage with us on the room, Linda, thank you for the thank you for sharing. I mean, yeah, so, so you mentioned swift and I think that’s a fair shout out right which is swift. For those that don’t know Swift. Swift is the international standard for moving messages between banks, particularly on a cross border basis, so swift, on the, on the pins really what is known as the correspondent banking network effectively how you can move money from a bank in, you know, bank A and Country B to, you know Bank C and Country D. And it Swift is a standard messaging format that the banks all adhere to. And it allows messages to be passed between them that effectively govern how money moves cross border. And so in Swift is just a messaging network it’s not a payments network it’s just a messaging network, but it is used its own proprietary swift message formats for some time. And, and now is embracing 20022. So this new international standard that’s going to be common. I guess as a framework across many banks and different payment networks across the world. So, so, so yeah, Linda. Thanks for referencing that because I think it’s a really important evolution, unfortunately I think SWIFT have delayed their, their rollout, but it is something they’re working on, I attended this international conference they run called SIBOS. That must have been thinking about it in 20 late 2019. So, over almost a year and a half ago now, it was held in London in 2019 and there was a lot of conversation at that SIBOS SWIFT conference about the rollout of 20022 and the fact that many central banks in different jurisdictions are moving to this new standard, and that a number of networks like swift were looking to do the same but I think the pandemic has maybe stalled and some of them to some degree, I think complexity of what it takes to make this real has also stalled the progress, but Linda I’d be fascinated to get your perspective from the Nordics to see to get your view on how it’s, how it’s being managed and where you’re seeing applications of 2018 already.
Linda 11:02 Well of course we have their platform the real time platform here in Sweden, doing the switch payment.
Then you have.
I mean, it depends on that’s why I was little bit curious because I mean it’s already in motion when with the pain of the packs of the camps, etc.
So I was really curious about how it, how what how we take it further and what’s the big shift as we can see all over the world. I mean, the SEPA as well as is built up accordingly. Right, yeah, in, in a lot of ways. But when it comes to the overall messaging on Swift I think it will take time. They have the GPI, of course, that is, in a way already doing that, but I think it will take time and I think here in the Nordics, I mean, with the P27 I don’t know. I’m not so familiar around how they are thinking about actual settlement being done, but I mean, the setup for the platforms of course are going to be an AI, of course you know more than this worry about this, James I think than I do actually, at the moment since I’m on maternity leave, but this will be of course completely compliant, on, on, on the ISO standards, the new format, I don’t go into the numbers because I wrecked my tongue on that one.
But I think everything is going to be basically in ISO. In a few years, I will have the old legacy platforms, and they will continue in being induced but they were will find some kind of conversion.
Slowly, slowly. Phased them out, because today we have pure flat files and bulk, apart from the real time payments, of course.
I always get so curious and I want to add and I want to participate but I’m so sorry I’m here with kids and I will mute now. Ask me anything if I can contribute
James Sherwin-Smith 13:19 Not at all Linda, thank you, thank you so much. And, yeah, there’s, there’s so much to unpack there we’ve gone super geeky on payments today, which I’m really enjoying but I’m going to watch myself because this is being simultaneously broadcast out on Twitter spaces and on Facebook Live, this morning, so this will be recorded. So fair warning to those speaking today. And this is where I get my usual disclaimer in. Yes, I work for MasterCard, but these are my personal opinions and not those of my employer as anything I’ll be talking about today from my perspective will be things that are in the public domain and won’t be anything that is nonpublic information, but it’s
Linda 14:03 just so amazing to hear your visions, just did that and it would be great.
James Sherwin-Smith 14:10 Yeah, totally cool and then thank you thank you for joining us and I really love the questions so I mean take a couple of steps back, do a quick reset and then we’ll dive into Linda’s perspective, I think it’s actually a really important thing that I hope more people can understand because it will transform from my perspective, the nature of payments, and, and what you can do across different payment instruments, it doesn’t matter if it’s crypto and digital currency or its account account, or even card I think in the future, understanding what the power of this technology can do and it is a pretty geeky thing but I do think that a good a better awareness of this game is consumers, let alone if you’re in the industry you’re building a new technology or platform that has any form of payment connected to it, which, let’s face it all of Commerce does, I think it’s really important you understand what this is and it is going to change the nature of what’s possible. I think it’s deeply exciting but then I would say that because I work in the industry so quick room is that you’re listening to FinTech and payments club this is Sunday surgery. Now the earlier time of 730 UK as a start time.
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We know that you can join us either on Facebook Live, or on Twitter spaces today. So Monica Have I missed anything anything I should be doing in my room reset, do you think, otherwise I think we should dive into Linda’s question and get going on that because it’s quite a rich vein to tap there.
Monica 18:38 James only on thing which is Seido and the fact that we can enter questions.
James Sherwin-Smith 18:45 One question here already, which is where a 2002 two messages deployed today which is a nice neat question that we can take in this segment. But if people want to direct as off 20022, and go to the next topic cue it up please on slider or come and join us on stage. Daniel I can see has raised his hands now but we’ll get. We’ll get cracking with with Linda’s question and start to unpack that because it is a it is a fascinating one. So, so Linda you mentioned the fact that in Sweden.
You obviously have a thing called Swish. Swish, for those that are not familiar, is a mobile payment app that is used by lots of people in Sweden to arrange real time payments from their mobile phone. So, it switches is your get switch is the holding company getswish.nu is a web address, and it’s a phenomenally popular way to arrange payments in Sweden not only person to person, but also person to merchants and person to business, as they’ve got these three different things once called Privat which is obviously person person I apologize for my terrible pronunciation and another is Handel which is about trade and I think the other one is Commerce or something like that. So you’ve got three different ways that I can pay if I’m sitting in Sweden using my mobile phone, and pay another person like Linda I can organize a person to person transfer that happens in real time for free from my bank account with say let’s say Swedbank and Linda’s account let’s say, Handelsbanken, and the money moves instantly, and as soon as it’s there in milliseconds, it’s cleared funds that Linda can spend, and she can take it out the other wall at an ATM if she did that but no one in Sweden seems to do that anymore because cash has largely died. There is something that you could undo by you know using a payment card or paying someone else using Swish. So Swish phenomenally popular I think in 2020 Did over 700 million transactions which were a population of around, I think around 11-12 million.
Unknown Speaker 20:49 Sorry Sagan 11
Linda 20:50 Yeah, I don’t think we reached 12, or 11 even around 10 plus something p
James Sherwin-Smith 20:56 Plus or minus 10% I’m in the right ballpark though which is good. So you’re getting around, you know, sixty or seventy payments per annum per every person you know, let’s be clear, that’s a man, woman, child of any age. So, you know, it’s becoming an increasingly popular way its growing about 25% per annum. So it’s, it’s definitely growing faster than the economy. And it’s becoming an increasingly popular way to pay.
But the way that swish works is that effectively as Linda mentioned, it clears and settles through a company called Bankgirot, who a payments, business that’s been in Sweden for decades, and it uses a system called BIR – B I R is the acronym in Swedish, which is pronounced “Beer” which I always enjoy mentioning, and it’s effectively it clears and settles privately between the banks, it doesn’t actually use central bank money.
And because it’s become such a popular way to pay.
The central bank, the Riksbank has decided actually it’s going to be far better for Sweden.
If actually that all clears and settles through the central bank the Riksbank. So they’ve created a new settlement system called RIX inst, which is a carbon copy largely of the euro INST service run by the European Central Bank, that will allow immediate clearing and settlement, through the Riksbank using this service called a RIX inst, and it’s, it supports different settlement nodes with a window into an effective means that for the safety and security of the system the Riksbank have said we’d like this to go through us please. So it’s a, it’s a big change to this to the system, the Riksbank has said we want to be live in May of 2022 So only a year away of having this entirely new way of clearing and settlement in real time, in, in Sweden, and effectively what will happen is, you’ve got Swish at the front end which is the mobile application that people can use to arrange payments, and then you’ll have some stuff in between. But then at the back end, you’ve got clearing and settlement happening in real time between the banks, using the Swedish Central Bank, the Riksbank. And the goal here with many payment systems around the world is now you’ve got the opportunity to change your payment system. Yes, a lot of the appetite is making it real time, which means things happen immediately. And the benefit of that is it’s lower cost it’s lower risk, people get their money straightaway, that’s all fantastic. But then the big, big thing that’s mostly underplayed in terms of its importance is the fact it’s going to use this new message standard called ISO 20022, and ISO 20022 is this huge rich format like I said before, and it’s not only a format for payment messages, ie financial messages, but it can also be used for non financial messages as well. And to give you a sense of what that means. Effectively what it means is that Linda using her mobile phone.
It basically set up, say, a request for payment. So instead of sending James, you know 10 Swedish kronor. You can go. James, you owe me, you know 10 Kronor request for payment through the system. To me, it will pop up on my app and go James, you owe me 10 kronor. Please pay Linda, what can happen there is that I get the prompt, I can just click Yes and it will automatically orchestrate the payment directly from my account back to Linda’s account. And I don’t need to know anything about Linda’s account because effectively what can be is it can be what’s called tokenized, which means when Linda sends the request, the, the central infrastructure goes ah!, that’s a request from Linda, I’m going to give it a unique reference, I’m going to store the Linda’s details away in a database. I’m just going to present them, the unique reference to James’s bank, and to James. James can read it and go, Yeah, I agree I do owe Linda 10 kronor. I click Approve. And then it goes back with an approval against the unique reference the token, to say, James approves this transaction, and therefore the central infrastructure goes, I need to move money from James’s account at a lender’s account B, and it gets taken care of. Now, that may not seem very intuitive to people that use Venmo, or Zelle or various applications around the world until this is normally where the penny drops for people, that type of capability, only works within a closed loop ecosystem today, ie, we’ve both got Zelle, or we both got Swish, Or we both got whatever the power about 20022, is that he can work, infrastructure wide, independent of the application. So if you’ve got networks domestically running 20022 You’ve got two networks running internationally using 20022. If you’ve got networks using coins, a digital currency like XRP or whatever it might be that, that, that Jay referenced earlier, or if it’s just using the account account now or if he’s a card rail, or the fourth rail we hadn’t even thought about yet today, it will just work. And that’s what’s super powerful about this technology because, yeah, I can get behind the use case of you know we had beers last night and I owe Linda my bar tap short fine, but when you move it out of the realm of just consumer to consumer. And think about the fact you’ve got, governments, businesses and consumers, potentially on both sides of transactions, and all the permutations in between, you suddenly realize it’s not just about James getting paid 10 kronor for his pint last night. It’s about commerce in the round, it’s about businesses, making sure that they’re getting their tax rebates, it’s about governments making sure they dispersed funds correctly to the citizens based on eligibility. It’s all the ability to process data in a way that doesn’t require manual intervention, and can be highly automated and highly efficient. And that for me is what’s going to be fascinating about the rollout of 20022. Now, the challenge I think we all have, is that it’s dependent on a couple of things working. One is to build central infrastructures like some of the work that’s being done in Sweden with P27 Say, Let’s upgrade entire payment system, the central infrastructure to be able to do this stuff, and be able to messages the other path between participating institutions. That’s one thing, fix the central infrastructure, fix the pipes make the pipes, bigger and better and smarter.
But then at the end of the pipes. All the participants that connect to that essential infrastructure, also have to do the work, right, they have to say, Okay, now I’ve got this phenomenally powerful pipe I can connect to and I can send all these amazing messages with all these different use cases across the network. Well, it only works if I, as an institution can send and receive and interpret these messages correctly and that the people I’m sending and receiving messages from do the same. So requires kind of a lifting of all boats to really unlock this functionality and the power it can deliver for us all. And, and that’s where standards being kind of implemented at different authority levels is so critical. So it’s either because someone like swift says, right 20022 is now the future we will do that for all our messages so that all cross border payments work this way. That’s one step. Another step is domestically, someone like P 27 the Nordics or a central bank or regulator or a bank Association going right, all banks, we’re now going to do this, as of this date, because it’s going to make everything so much better for all of us, it’s going to create more value which means we can share more of that value with our customers. Our customers get to use all these exciting use use cases and us as banks get to participate in that value chain and so we get to make more money too Everyone’s a winner. Let’s get this done. And we’re not really there yet, bluntly, right we’re doing the central infrastructure work in different parts of the world, but all the participants mostly the banks but it could be fintechs too. Well, it gets to participate in the ecosystem. They need to interpret these messages correctly they need to start thinking what are the use cases that I should build to help my customers get the full value out of this new technology. And that’s where we are right now We’re literally at step one in my mind there’s loads more work to do, but I’m hoping more companies start embracing this capability, because it’s going to make all of our lives so much easier. So Linda. How has that been as a bit of a reset and kind of exploring the landscape I know you’re in a noisy space and you’ve got kids first thing on a Sunday morning, of course, look after, but give us a brief shout if that was kind of fair treatment of the question / perspective if there’s anything else that you wanted to roll into the debate at this point.
Linda 29:35 Thank you so much, James. No, I think.
I think there’s this extra what’s going to happen. and then again we will have the blockchain and we will have the crypto space. But that’s sort of it can be sort of intertwined, I think. But I mean, when it comes to the standards, this is already happening. So I mean, it’s not like it’s a big shift, but it’s also already structure all over the world between the banks and especially Swift, although it will take time, and then we will have some kind of organic development alongside with the DeFi and the crypto. So, I think, I think, yeah.
If that’s already done when I’m asking for my money to another business, I already already said, the reference right, asking, and that’s where the ERPs come inside, and that’s where the gateways come inside that can do this outside that the actual payments rails, because that’s the only information but it’s still going to be ISO. Yeah, so, so the and that’s where the FinTech space is. That’s where those companies can come up with brilliant ideas to do that and that’s where we should be kind of thinking, and trying to collaborate in this area, I think, because there’s so much to be done. We didn’t have to OCR, for, for asking for money. I mean, when, when, when we’re invoicing, and then it’s easy but it’s still that I, as a product person I need to put my number right, even it can be optimized and so on. But when you have the request to pay in motion. I mean I don’t need to do anything, I just need to click as you said before, just accept. I want to do this payment. So that’s one thing, and maybe Daniel wants to chime in on that, but that also I would like to raise the question about aliases or proxies.
Unknown Speaker 32:30 You mentioned token, as we have it now it’s a loop with, with a payment system in Swift. So yes, it needs to be on the same loop for it to work, but it’s still not, I don’t need to do anything if I send a request and pay. It’s through alias I just need a phone number, but it still need to be as to the same system yes of course, but when it comes to the ISO and we have, as you say these words utopia, but still would need some kind of proxy, or can you elaborate on the tokens. Do you have made it.
James Sherwin-Smith 33:13 Yeah, no, no, you’re happy to do so and Daniel welcome to the stage, maybe a couple of sentences of background to yourself and where you’re joining us from but please if you’re if you’re willing to chime in on this question of all the integration work that’s gonna have to happen and very much financial technology to make it all work the way we want it to work, be delighted to hear from you and then happy, Linda to talk about the the alias and proxy issues. After that,
Daniel 33:40 I want to thank you James thank you for the space I’m really lucky, I thought it was this afternoon but yeah I remembered you said it’s gonna be earlier so thank you for the space.
I’m Daniel, I’m from Oslo, Norway. I’m a former ERP consultant so I worked a lot with two different payments, especially in the Nordics.
So I actually wanted to chime in when talking about the ISO, because you know it’s it’s a quite the old certificate, but it hasn’t been really adopted yet so when you ask them how is it in the Nordics I wanted to give a shout out to the Finns because they already adopted this since 2012, and it’s already rolled out about their banks. And, you know, that’s actually when we came into a tour, I actually am personally when we try to do integration through the week of banks into the Genesis, we were, we were so way behind, and we’re still lagging behind, but there’s some progress coming in, in Norway, but the swish issues but we have a competitor in Norway, which is VIPPs ipsas Which sounds a bit similar.
Lips is truly amazing when you when you talk about, you know, the things that we had here and it’s just become normal. But all the things you mentioned, is basically already implemented in Norway in Lipson websites, and adoption rates of the 3.9 million regions, having it today. And in a population we already we are 5 million so it’s, it’s basically almost seven regions it has a cell phone as then exactly
James Sherwin-Smith 35:19 would you mind for the benefit of people in who aren’t in Norway, can you break down what VIPPs are and what bits are, because I think that would really help.
Unknown Speaker 35:27 That’s a mobile application, kind of like Venmo but quite decent and so basically you can request money you can send money you can pay.
Daniel 35:38 You can pay bills, so this is kind of the last year we basically all ADHF invoices can come directly to the application due to your application in your phone so you can pay all your personal bills. And there’s also clean technology from a couple of friends of mine called Tech where it’s an advanced OCR reading system where you basically take an invoice, and it will automatically read everything you need and basically set it up for payments, but it’s also so old school right, love the way we’re still talking about OCR, which is basically character recognition technology from like the 70s, almost, where you can take a digital image, and then process it and recognize what the text is and in, you know, text and others instead of saying, I’ve got a photo I’ve now got, you know the text from that photos now in a format that is structured like interviews but yeah, I mean, totally there’s so much of this to do right I mean so much paper knocking around still that even this is still so badly needed right.
Yeah, it’s so there’s softer friction, you know, we, I tried to get everything on here, but you know, some companies still in, in theory, have to send them some papers I don’t know why but it’s because it’s actually in Norway.
Every system has can send this VHF format so now we’re on another topic but, but it’s basically everything could be digitalized but it isn’t. So just to add on Linda’s point before you can take the reconciliation part, and because working with this with this incident in the Nordics called the Nordic smart government which is basically the Nordics, which are trying to create a new standard, other than the SI soft T. It’s called, it’s not a new standard because it’s experimenting but creates one for the Nordics. And one of the, one of the things I wanted to do implement this, you know, a payment rep for reconciliation, which, you know, would create assigning the reconciliations based on inside the software would make, you know, the conflation part between payments, and between businesses, you know necessity, because it’s the automated way.
I love that because I’m actually working trying to get those kinds of, you know, just a payment reference that can be exported for through ISO. And the cool part is, since already habits, and we tried to get to get this over to the rest of the Nordics as well.
James Sherwin-Smith 38:23 Yeah, Very very cool so, so much to do right in the, in the integration space because I think you’ve got like I’m saying before, right, we can put in these incredible pipes that if, if nothing smart is happening at the end of the pipe, then it’s not, it’s all for nothing. And so, yeah, the ability for either banks to be that interface, or other effectively if you think about banks as well, is well and good but ultimately it’s banks customers that want to use that technology and want to use that capability and that’s where you quickly get into the world of large companies and small companies and maybe even individuals that need the right interfaces to effectively make use of it. And, er p for those that aren’t aware, er p is basically something of an enterprise technology platform, typically is used to drive business processes, often it gets born out of the financial reporting system. So, it’s used effectively to maintain a general ledger of accounts in terms of accounts payable and accounts receivable and the cash position of the company, and all the processes that go around that to effectively make sure that you know you pay your bills and you get paid as a company. And then what what’s happened over the last 20 years or so is that these financial positions have started to now these financial reporting systems have started to evolve. And, you know, they’ve become more intrinsic around broader business processes which is you know, if I want to procure something to nor to do something that I company, then instead of it just being the last part of that where I, you know, try and set up someone to get paid on the, on the enterprise reporting system that connects to our general ledger and does all this payment stuff, actually it comes forward in the process and actually I have to go through some kind of sign off process and said I want to release this purchase order to buy this thing and then goes through some kind of approval process with different colleagues might have to say yes or no to it or there’s some business rules that say yes or no to it for whatever reason, and so on and so forth and you can see like these kind of like whether it’s Oracle or Siemens or buy these SAP these kind of big brand name, kind of, er p providers, a bit by bit kind of stretch from just financial reporting into much broader business processes. And so a lot of corporates use these systems but now these systems will have to be integrated into the banking system to run 2082 If you want to use all this technology instead of just sending money, you want to be able to make a request for payment or a quest for information using this infrastructure, And that’s effectively what you’re going to have to do to make this stuff work right so it’s gonna be like a bonanza time for these companies to basically get all the consultants to come in and fix the systems and make them smarter. And if you’re a FinTech in this space, you’re gonna make hay, right, because there’s so much opportunity. There’s so much of a space to translate from what it was to what it is going to be that you’re going to be busy for a very long time if you’re building a business in this space then props to you because I think you’ve got a decade of work at least, even as a consultant, let alone as a technology provider, to go after this problem because it’s going to be, I think from my opinion, given how the pace of banks and corporates more broadly. It’s going to take them years to get their heads around it, it’s gonna take them years to design it took years to implement it, but the price is massive. So I think there’s gonna be a lot of attention going in the space so check it, check it out if you’ve not already, but if we piqued your interest today. Fantastic. And Daniel thanks so much for sharing your perspective on how it’s working in Norway, because that really, really helps. And one of our moderators join me on stage and a welcome, welcome, I guess it’s now afternoon in Delhi. So thanks for joining, you’ve kindly messaged me and said, we’ve probably got some people outside of the Nordics here that don’t know what P 27 is so can I elaborate on that absolutely so P 27 stands for population 27 million. And it is a pan Nordic efforts between Sweden, Denmark, Finland and Norway to collaborate on a single platform for payments. So it’s a massive bold experiment, which is to say, we have a number of banks and customers that all work across the Nordics, and it’s really painful that we’ve got lots of different individual domestic national payment systems, because it makes collaboration really hard, and it makes the cost of the banks harder so I’m gonna run like eight different payment systems. It makes it confusing for consumers because if I’m spending money to send a Norway versus Denmark experience and what can be transferred is different.
As a group, you run four different currencies the Swedish kroner and Norwegian kroner the Danish Kroner, and the euro for Finland, and it’s just a bit hard for, for trading block that’s only 27 million people. Why does it need to be this complex. And so the whole genesis of P 27 was effectively a number of bank and state states going to Ghana going. Surely we can sort this out right, we can make this easier. And so, p 27 of the Nordic payments council have effectively started down this journey to say we’d like one platform that does it all, please. We want to strip out some of this complexity, and we want it all down to the same standard that’s transferable and make everybody’s lives easier. It’s a bold experiment because as much as it makes a hell of a lot of sense on paper. Doing it is really really hard because you’ve now got four different national groups who were like well this is what we want. This is what we want, we have this legacy we have, you know, we have these systems that have salaried work today and so you need to be able to accommodate that and we’ve got these different ways of connecting with different ways of organizing payments, and you get this kind of quite big stakeholder challenge of not only different national organizations different inter regional banks different domestic banks, different consumer groups you’ve got lots of people throwing in on this topic and going well this is how we think it should work. And I’ll be honest with you, the path to regional payment harmonization, is littered with bodies. Everybody has tried this for the last 20 years and it’s been largely a massive failure to try and do this. So this is the Nordics going, yeah, we’ve seen in Europe, we’ve seen all the harmonization efforts you’ve done so far. Yes, we’ve got the single European payment area. Yes, we’ve got the euro, but really, underlying it all. This is the problem that we’re going to solve as the Nordics, and we know that there’s been lots of challenges we know it’s been difficult but we’re going to get it done. And to some degree, they’re probably one of the best places in the world to try, because it’s largely a very consensus driven philosophy to business, it’s largely a very digital set of economies, right, we mentioned Sweden earlier right cash has almost disappeared, and nearly everyone is now is using either swish or some form of digital payment app, or a card. Hardly anyone is carrying cash anymore. So, the conditions are perfect for this to happen. But even so, it’s a very, very challenging ask and answer that. I hope it gives some people some perspective on PT seven, you’d want to throw in here Daniel or Linda, please do so because you’re in the market, I’m just this chap in the UK trying to explain it to people that you live it and breathe it every day. So if there’s anything you want to say about P 27 Feel free to chime in at this point. Otherwise, Linda, I know I’ve got your alias conversations come to you, so I’ll go to that next up.
Linda 46:18 No, I agree with you, although I think sometimes maybe it would have been easier to just switch switch to the euro and build from there you know go the Finnish way.
Daniel 46:30 Also, thank you for, you know, believing in the Nordics and given the, the, you know, I agree, that is, this is a good playground, but there are also a lot of red tape. We’re not the fastest, you know, coming into consensus. So, so as you think it’s gonna be hard, but probably,
Linda 46:50 probably, the difference, the difference this time I think is also that it’s, it’s been settled on CEO level between these banks, right, it’s it’s very high up. So there’s a lot of energy behind it.
James Sherwin-Smith 47:08 Yeah I think that’s fair, you only have to look at the, the P 27 board to see that there’s that strong endorsement right so I think it’s six principal shareholder banks for P 27 not there and Banska who are obviously, you know, Pan Nordic players, and then some of the Swedish major bank so I think from memories sweat bank handles bank and SCB and one other I forget now so apologies. Okay. Sorry, sorry, I need to give a shout out to the Finns Yes, oh, yeah, yeah. Thanks for catch,
Linda 47:47 I think, I think the DBC is resting now I don’t think they jumped off completely, either, but they’re not active,
James Sherwin-Smith 47:56 yeah you could well be right. I think there was, I think there was seven and others maybe six active on one dormant or something like that but but effective that the largest banking groups in the region. I think maybe with you every day and be on board to represent Norway I think you’d have a very good, you know, cross, you know, cross Working Group effectively to to kind of drive this forward. But, Lily, You asked about alias and proxy which I think is worth discussing because it’s, I think it’s a lot of the power is sits in these, these assets. So, to help people out. You may well be familiar with the ability to send money to someone by just knowing their cell phone or mobile phone number and that’s a pretty useful proxy for if you’re doing mobile payments because you probably got their mobile phone number in your contact list on your phone so it’s not like you need to remember a string of 12 digits in order to send money to Linda. I just go pay Linda and my phone goes, Are you mean lenders cell phone number five, insert cell phone number, send payment. And what’s effectively happening there is either at the application layer or the underlying infrastructure layer, a translation is happening, says Linda’s cell phone number actually means, this bank routing number, you know, it basically says Linda banks, this bank, potentially this branch of this bank, and she has this account number. And so what’s happening here is that Linda’s cell phone number is being used as a proxy or alias for her actual routing number. And what’s cool about that is, I don’t have to go to Linda and ask him for like a string of 25, letters and numbers to understand how to send her money, I can just pay Linda on my phone and my phone goes, Linda equals mobile phone number, and then the underlying application or infrastructure goes mobile phone number equals all lenders digits, and make sure it lands in our account correctly.
And that is a very very powerful asset and what’s cool about it is that you don’t just have to use cell phone numbers as a proxy, you can have multiple proxies. So, in a place where Tyler is Tyler shout out to you. Great to see you on stage, sir. And if you want to join us. Come talk about what the experience is like in Thailand because you’ve seen that juxtaposition for the North of Thailand that would be cool, but effectively in Thailand, they have a thing called prompt pay and prompt pay is a multi proxy payment system that allows you to pay someone knowing either left Silva number, obviously, but also the ACT ID or national ID, or even their email address, and so it doesn’t really matter what credentials you hold for an individual. If they registered it with the system. You can pay them. And what prompt pay do in Thailand is the government uses it as the way to disperse benefits. They basically say, if you don’t register on prompt pay, you’re not going to get your government benefits. So it’s been a phenomenally successful way to drive adoption of digital payments in Thailand. So I think it’s over 60 million people have registered on the system in Thailand. They did 1.7 billion transactions in quarter four of 2020 So they’ve got an annual run rate of about 7 billion transactions per annum. And it’s growing about, it’s worth, it’s growing, I mean it’s doubling every year, give or take. I would expect that that 1.7 or 7 billion transactions per annum to be 14 in 2021. It’s phenomenal growth and just to give you a point of reference there. The UK has been running faster payments, its real time payment system since 2008 I think at the end of 2020 the UK processed, almost 3 billion transactions. In the year, Thailand’s probably done 7 billion so twice in the year, and it’s only been running for four years, whereas the UK been running for 13. So, the Thailand example is enormously powerful the power of proxy here is to say, effectively, with a government sponsored support it said, If you don’t register your proxy in the system, you’re not going to get your money. And so everyone signs up the system. Suddenly everyone sees the benefit everyone can move money, person to person now helping micro entrepreneurs because they can basically quickly find a way to get paid without huge payment costs, instant, it takes a lot of the risk out. It’s a super powerful way of doing it. And from the Thai government perspective, they’ve started saving money on their benefits, not because people are registered in the system, but because a whole load of people were claiming benefits previously using some old paper method. Using a national ID or a tax ID, it turned out for people who were dead. And so it’s taken like 10% of fraud, out of the system. Because now, if you’re not registered, you don’t get paid, and if you’re not using a tax ID for someone who’s alive, you’re not going to get paid. So, it’s, it’s a very powerful case study for how you can do proxy Well, and, and I say it from a slight point of business, because for me sitting in the UK. It’s not worked at all well we have a system called pay em, I pay mobile. In the UK, and hardly anybody uses it. It’s supported by the banks, you’d have to find somewhere deep in the settings of your banking app, a way of registering your mobile phone number, your bank, but it’s a bit clunky, it’s not very easy to change it. It’s a bit awkward and broadly, no one knows about it. There wasn’t a strong marketing campaign, the banks didn’t get behind it and push it in a concerted effort in, you know, to really promote it, promote it as a brand as a method. And as a result, it doesn’t really get used, and it’s a phenomenal opportunity lost in my personal opinion. And it’s something that if anybody is thinking about doing this or trying to solve this problem any other part of the world, I would have some very simple advice, get a central brand, educate your customers, and find a way to get some form of traction through a government sponsored scheme, because if the government basically say, this is the way we now do business as an economy. It drives mass adoption very very fast. And you can do it through other ways you can do it slowly by person to person and then maybe person’s a merchant, and then maybe bill payment or some other form of disbursements, but honestly, This is the way to supercharge it, and if you can do it that way, it’s phenomenally powerful. But Linda, I think you already. You already have a new range of ideas and proxy systems, and supporting e invoicing and bill payment and all these sorts of things and, and I can see from, you know, a quick scan of the Nordics you’ve all got your own slightly different flavor of it whether you’ve been Sweden or Denmark and even within a country. You know there are different variants within that country. So, these proxy databases that exist are very powerful assets that being able to bring them together and centralize them and coordinate them and over time potentially communism is a deeply challenging task. And what’s great about them is you do have proxies, it drives very powerful use cases. But you really need to have a very good set of rules and the rules, you know, normally referred to as a scheme basically dictate, this is how the proxy is kept up to date. These are the rules about how you change it, if it’s not been used for this length of time then we might put a warning sticker against it to say, this may be out of date, you know, there’s a whole load of things that made that database, a live and valuable asset. And like any data, it’s a risk of falling out of date. So if you’re building a proxy database what you need to be thinking about is recency, frequency and value, you need to think about how often does this proxy get used. Has it been used recently and therefore it’s real data and not stale. Has it been used for meaningful transactions in terms of value and therefore we have trust in this figure, we have trust in this reference. And if we don’t approach it in that way that just think about it as a symbol lookup table it’s just a bit. It’s a, there’s no intelligence there, then, is not as powerful as an asset as it could be because people won’t necessarily know well I know we’ve got Linda’s mobile phone number but I’m not sure if it’s the same account that she had for four years ago. If she moved bank accounts is this gonna work, I don’t know, question mark, question mark. So the only way to solve that problem is to have also in parallel with an alias or proxy system is a route for verification. So often is referred to as account verification but effectively it could be proxy verification is effectively a method to say, I’m about to send, Linda, you know 1000 kronor. Is it definitely Linda at the end of this proxy.
And what we have in the UK recently is this account verification loop, which basically says instead of just on my online banking application, shoving in a name and account numbers, and then sending it and praying that those things match, namely that account number does belong to Linda. We now have a verification that before you send the transaction or says right, I enter Linda’s name linbury Anson fine. I then go and type in proxy or sort code and account number whatever the routing details are, and like, basically, when I click Send, they don’t send the money. They basically go check. Does that name appear on that bank account at the end point where Linda’s money is supposed to be going bank that holds Linda’s account. Is it still Linda is his account still valid does it accept a sec, Crono transaction, before we send you the money. Can you confirm these things are true. The bank comes back with a yes, no or maybe a score that says, yeah, it’s then that you get to send the money which are few good send, and that mechanism is then how you really get more trust and understanding and the system, and it’s how over time you build a more valuable proxy database because you know, it’s not just information that somebody somewhere once entered this information into a system. This has been validated recently, maybe it’s got an expired, it says, are because James did it, and it did it a month ago. I’m not going to ask you the question again, I’m going to take it on trust that it’s still going to be correct, or Jane doesn’t send money to this one for like two years and we’ve not seen anything else in the central infrastructure that says this is valid. I think we better go ask the question again, is it still in his account he’s about to send money to. And why that’s important is not only does it give more trust in the system and give you more sense of security that your money is going to get to the place you want it to go to. But it also starts to take away the potential for fraud, and in real time payments, there’s a lot of opportunity for real time fraud, because money moves very quickly, it’s very hard for authorities to stop it, control it, for people to understand how it’s moved around the system and forces exploit that. So if you have good verification tools, then you have a way to start to eliminate fraud, and one of the fraud challenges that we’ve had in the UK since fast payments was started in 2008, was a thing called authorized push payment fraud. Thanks. What it says is someone approached me and said, Oh, you need to you need to, for example, I’ve got a invoice for a plumber. And, you know, he sends it over email. It says, Please pay me, you know, 140 pounds, here’s my cellphone account number. And I go, Yeah, I remember the plumber. I remember I had the money, I just said that set up that payment and sending the money, what can happen and this has been happening quite a bit is fraudsters have found that way to basically become in the middle of that conversation between the plumber emailing me and me receiving the invoice request, they’ve adopted the invoice, change the sort code and account number and when I get a pair go Yeah, I do 140 quid pay that sort of kind of account number and it ends up in the account of some fraudster, and not in the account the plumber because they adopted the invoice between me and them, and 140 pounds you may go off, it’s not a big deal, but trust me when it’s 140,000 pounds because it’s payment for a house or a down payment on something for a business that’s purchasing or these sorts of challenges this live in big numbers, and they are big frauds. And so now at the point of setting up the transaction for someone who paid for the first time, there’s now a verification leave that goes, No, no, that is going to Acme plumbers limited. You’re good. Rather than go, it’s going to insert foresters name here instead. This is a really important thing. And it’s been a problem in the UK system for some time. It’s caused an enormous amount of complaints and industry machinations effectively the payment regulates when paid banks authorized push payment forward is that a problem, the bank said no no no no it’s not a problem, we don’t need to worry right regulator. Here’s some small numbers, it’s small bit, at which point the regulator played an absolutely blind and went, Okay, perfect given us such a small problem. There’ll be no problem you’ve been liable will it banks. And the banks when Ah
huh. Okay, yeah, we’ll have to go away and think about a system by which people would be reimbursed if they’ve been victims of fraud or authorize payment fraud, but because then other banks are liable. They finally, You know, 13 years old to fast payments going live, put these verification steps up front and go, Hmm, before you send the money to the plumber, you might want to check into the farmer first and try and reduce the amount of fraud that gets created in the system which up until now, they were just shrugging their shoulders going sorry customer, you send your money somewhere that’s on you. You should have checked that was the right destination, to which the Customer Center ongoing, how on earth was I supposed to check with this SOP had an account on that belonged to the person, I’ve got an invoice in front of me that says it’s there. Why is that my fault. And so you had this big battle regulated basis came down the side the consumers and said, banks your problem, you fix it. And so they’re now thinking about creating a contingency reimbursement model CRM, effectively, there’s gonna be a small amount of every payment. That’s basically the banks will have to put into a pot, so that when someone is defrauded they go, I want my money back. I was reported to the system. You banks for the banks then basically make them whole. So it’s another big learning for you know another classic example of the UK doing something fast, everyone hopefully learning from our mistakes and not putting sensible verification tools into the front of the process to make sure these frauds don’t occur. So, Linda does that do some justice to your proxy question because it’s, it’s quite a rich vein and as you can tell, I’m quite passionate about it because it really can make success of a real time payment system. Thank you
Linda 1:02:32 so much, James, I think that, I mean, we’re speaking about databases, products and services. Some of these things I think also what could be very useful as some kind of routing system like the layer that does the inquiry inquiries that are necessary at the moment because we don’t need all these databases that are need to be updated. We need somebody request at the moment for the right information and verification, right. So, in my, in my imaginary utopia, I would be also in charge of that. Me myself my data, right. So I would have this dashboard that I can limit, and I can add or I can verify myself, whatever. But that’s, that’s very far away. But I think it’s, it’s, we’re getting there but I mean it’s not. I think if we speak about harmonizing the payments really setting up something new, over working in the Nordics, and we speak about. On the other hand harmonizing or finding something new on the on the proxy side I mean it’s not an easy thing to to
petal with direct debit masters, with
Unknown Speaker 1:04:08 but I think it’s a very very interesting space and I’d love to have a full session on this actually I would, I can’t get enough of it and I have so much thoughts that that are not really. I mean it’s not, I can’t go on this matter right now, but I think it’s fascinating and I think you’re you’re spot on, completely.
Unknown Speaker 1:04:27 Thank you and yeah be delighted to have a follow up discussion about it, it’s a, it’s a it’s probably gonna be quite a small room because there’s so many of us that will geek out. But uh yeah I’d love to do it, because I love talking to people about it and getting different perspectives because every time I talk about this in different parts of the world, or people from different parts of the world. I get a new perspective on it and it does fascinate me because there are so many good,
Unknown Speaker 1:04:58 because what can happen is that we mean something that in the end is just going to be worse and and even though in the Nordics, we’re pretty advanced digital the digitisation went for, but what happened. We sit down with a legacy like semi good legacy that is digitalized. I mean the invoicing in Sweden. Yeah, I don’t think that’s gonna live you know it’s, it will be requested pay and I see already that the big actors are actually canceling the invoicing, so they move over, because they don’t know how to solve the director, better
Unknown Speaker 1:05:39 yet,
Unknown Speaker 1:05:40 exactly.
Unknown Speaker 1:05:41 So,
Unknown Speaker 1:05:42 I think they’re going to cancel out the invoicing, electronic invoicing systems.
James Sherwin-Smith 1:05:49 Yeah, it’s interesting,
Unknown Speaker 1:05:50 because those things are so heavy, it’s it can’t be it needs to be something completely new.
Unknown Speaker 1:05:54 Yeah I think it’s gonna be a quite a quick evolution I think through, you know, these very kind of closed loop systems that exist today, they might be a private system between the supplier, they use a particular software, for example, or maybe a broader invoicing system that people can participate in potentially the national level, but it for me. The interplay and the the fight and the competition is going to happen across what we call three layers of infrastructure, applications and services, and the infrastructure layer for me is the plumbing, right, it’s the pipes, it’s that is the way that you connect, you know, one account holder at one institution with one account holder another institution so it’s like, how do you move messages you move it through these pipes and somewhere in the middle there’s some form of, you know, switchboard or switch that allows different pipes to be routed in different places right so that’s the infrastructure bit. Those your pipes. The applications for me are the pumps right basically saying what we build on top of the infrastructure which means there’s more flow going through those pipes. It might be that it’s a killer app like swish in Sweden which says, it makes it really easy for me to arrange a payment that uses that infrastructure to move, you know, money or value more broadly data to actually do these exchanges for request for payment and you can do that interaction at an application level right, you can have switch, I can have switch, doesn’t matter what the infrastructure is we can have a switch to switch conversation at the application level, and that’s great if everyone’s on switch, but as soon as you break out of that paradigm you like because think about consumers, businesses, governments everything about domestic opening that cross border. Not everyone’s got switch so then you need to go down a level of abstraction, you’re back in the infrastructure layer and go right can all the infrastructures do the pipe work to make that work and then we can build new applications on top again that make all this stuff work. And then those the pumps and then you’ve got the services on top and that’s kind of like for me it’s kind of, you know, rather crass statement it’s kind of how do you turn the water into wine, right, which is to say, you know, there’s all this ecosystem that needs to run well, I need to make sure it’s protected from a fraud analytics perspective, I need to think about it being optimized so people are using it in the right way for the right use cases that you know, it’s smart and intelligent network, builds and get better over time. And so that’s that’s kind of how I think about it how my employer thinks about it bluntly, you know, we talked about in the public domain, we’ve talked about infrastructure we talked about applications and we talked about services. And I think if you’re gonna approach it that way as a FinTech you go right, where is the opportunity. Should I be in the services layer doing consulting on how to do this, should I be building applications should I be helping on the infrastructure side, plumb these people together, because the pipes might be laid out by someone like p 27, but the endpoints, which are the participants and the banks and the corporates and whoever else they need to be able to do all this stuff to make get that get the water to the pipe right they’ve got all this stuff they’ve got to do on their side of the fence as well so that I think is, is where the opportunity lies I think that’s probably where things are heading. And I think if you’re interested in that space, we’ll, we’ll do a geeky 2002 Two session we’ll do a geeky proxy session, I’m all for it. Linda just DM me my, my DMs are open on Instagram and Twitter and we’ll get something set up.
Linda 1:09:12 Yeah, thank you. And I think also there’s so much that is outside of the actual payments, that is, there’s so much information that doesn’t really need any type of like you don’t need a license to do a lot of the messaging, and that’s also a big space that it doesn’t need to be provided by the banks, I mean there’s, there’s a lot of cut to be made and then just route the payments through the ones with the licenses. The rails or the pipes as you call it,
James Sherwin-Smith 1:09:44 yeah, yeah, totally, and like, it has to be, you know, has to be an attractive way of doing things otherwise people won’t do it right, they’ll they’ll find alternatives. So, you know, as much as you want the rules and standards and prices to be set in a way that makes it ubiquitous and accessible to everyone. You’re not going to please everyone all the time, right, and you know there will always be alternative networks, there’ll be alternative ways to exchange value both money and data. And I think that’s where you look, No, you have to look at the digital currency landscape more broadly to see all the fights going on around government, you know, stable coins through Central Bank digital currency, you know, anyone saw the cover of The Economist this week, it was just one word, Gov coins. The Economist has gone deep on his editorial this week talking about the fact that effectively you know what someone like Dave birch has talked about this before the author of the currency cold was effectively saying look, you’ve got China digitizing, you know, money with the one, you know, and potentially going to do some helicopter money experiments with a rock, Chinese currency into into mobile app so go spend this, and that’s potentially a domestic experiment but more likely I was looking at going back probably then trying to say, we want to challenge the supremacy of the US dollar and international trade. We’re doing all this international trade now because we’ve got into Africa we’ve got into Latin America, we’ve got into different parts of Asia. And as we continue to invest, well, why does the de facto trade cards you have to be the US dollar that could be the remember right let’s let’s make China, the future of the future, you know, owner of currency going forward so we’re pushing hard into into the digital world. Many of you have look at Sweden doing the experiment the E Crona, we had the Daniel one the economist from the central bank and spoke to us about that as well as some colleagues from the club, you know, you can look at the central bank in the UK, the Bank of England is talking openly about its experiments and creating sandboxes for people to do that, you’ve got the Bank of International Settlement which is like the biggest global body that talks about standards of banking saying, This is how we should do stable coins. These are the considerations if you’re a central bank and how to do it. And that’s just the central bank part right you then got the digital giants. Do you know Facebook’s evolution of what they said Libra is going to be going. This is how we’re going to do digital currency and we’ve got all these eyeballs on our apps, whether it be WhatsApp, Instagram, Facebook, we can connect the world, right, with messaging and social interactions. Why can’t we just add money to that. It’s just an exchange of data, ultimately, and a bulletin someone has trust in the system, and we’ve got billions of people connected to our assets, so we should have a go at this right. And then you’ve got clearly, all the more independent efforts, that’s being done across digital currency, particularly the crypto asset and cryptocurrency space where you’ve got, you know, peer to peer decentralized finance, no the government’s the big digital giants, they’re the wrong players to be in this space. Parents are the people we should do it our own way decentralized finance for the win. And, you know, that’s a whole new ballgame, that that’s being set up there and people are working on that as well so it’s such a rich basis such an exciting time to be in payments and I know I’m probably going over the deep end of this but I think trying to put all these pieces together is a daily challenge because you’ve got news coming out of left right and center. Tyler does his amazing show twice daily. Now, I think, which is tech news around the world. Totally. If you’re, if you’re into this type of stuff you want to keep current cannot recommend highly enough. Tyler and Tyler Sherman cow is from the UK often helps him out there in the shower I know as well so just a phenomenal opportunity to learn about what’s going on and I tune in every morning because I’m like, someone. I’m not sure I can keep up. So it’s just a fantastic time and quick reset because it’s just been over an hour and a half of Sunday surgery. Maggie’s raised her hands off bring you up on stage now Maggie. This is an Ask Me Anything show ama so we’ve taken the format from Reddit, you probably be aware of it. It’s a basically you get someone to come up and say hey I’m X. Ask me anything you want, and I do it every Sunday. This is episode 14 to be running for 14 weeks straight. Now the new time of 730 UK because I play cricket in the afternoon on Sundays in the summer so I can’t run it at a later time anymore. So what’s great about it is we’re getting a lot more people from Europe and a lot more people from the eastern geographies of the globe so the plus timezones, which is awesome, and delighted to have Anu with us as a moderator who’s joined the Fund recently just fantastic as I think our 20th member team. So big shout out, you know, thank you for joining us. And the club just continues to grow with 34,000 members and followers were top 40 Club rank by members. We started the club in January with a 10,698 cup created, and we just continue to be a place that’s open and available to all anyone’s Welcome to their number just click follow at the top of the page by hitting the green house icon and check out our website FinTech and payments dot plot where we’re learning everyday. Today’s conversation is going out live across Twitter spaces and Facebook Live, thanks to club deck. And we are also going to try and get that working on YouTube in due course, and maybe LinkedIn live too, because we’re conscious that, in particular the challenge with clubhouse is that it’s only available to people on iPhones right now. And that cuts out over half the world, and this is a global, global room, global topics, and we want to reach as many people as possible so if you’ve got friends or colleagues, or people you think would enjoy this content, please do direct them to FinTech and payments club, or to one of the alternative broadcast channels that we’re using. And that means that more people hopefully will find our content and be able to contribute to the debate. So, quick, quick question from slido, and then I’ll come to you, Maggie, if that’s all right. So anonymous asks the new technology of direct bank to bank transfer is in a way, bypassing the networks like Visa. How will they counter this threat. So great question on this. Thank you, and if you’re curious what I’m talking about when I talk about slideshow. Just go to your Internet browser type in S L II dot d o slideshow and use the event code. The last hashtag and type in this room which is s s nine M solid surgery, ninth May, and then you can find some questions that have been posed by the audience, you can ask them anonymously on your name, and you can also upload questions have been asked and I’ll take the top one from the list and we’ll, we’ll take one from slider, one from the stage so if you want to join the stage please go ahead and raise your hand. So, the new technology of direct bank to bank transfer is in a way, bypassing networks like Visa, how they counter the threat. So, great question. And, honestly, you’re absolutely right, you could argue that accounts Account Transfers moving money whether it be a bank account or a mobile money account, whatever form of digital wallet you use effectively means you don’t have to use a card anymore. And that’s why I think the networks are looking quite carefully to say, how is the nature of payments evolving, and how should we think about different payment choices that we can provide to our customer. Our customers so that we can you know rent and rent maintain our relevance, as a, as a payment network and a network lively for exchanging value. And I think that that’s an important first thing to note, most of the payments networks now, aren’t just about moving money. They’re out moving data as well. And I’ll come on to explain why that’s important but in effect. If you’re just moving the payment, you’re missing a trick. And a lot of the value actually is in the data which is makes that payment understandable because the context around what’s happening. So you know, it’s not just I spent 10 pounds to Linda, is the fact that I spent 10, pounds of Linda for this purpose for this reason, and that means that when the money arrives at Linda’s account, she’s like, where’s this 10 pounds come from, it’s come from James Okay Why is he sent me 10 pounds. These are reasons why. Okay cool, now I can, I can understand that I can reconcile that, and that might make, you know, might seem super anal if you’re just an individual, but trust me when your business or government, it really matters to know what money is arriving. Why is it arrived from Who is it from and when is it supposed to be here and when it’s actually arrived and all the business processes and things you have to manage thereafter. So, a long, long time ago the card networks are created to solve a simple problem. How do we help billions of people by, and millions of merchants, sell.
If I turn up in a country like Thailand. And I’m holding a bunch of paper in my hand, that’s branded the Bank of England, your average Thai storekeeper is going to go. No, thank you very much, that has no value to me. I don’t I’m not going to go back to the Central Bank of England, to go and get value back from them. I don’t really want to go take it to a money change, because they’ll take a fee and I won’t get a good exchange rate and, etc, etc, which is more accurate and work for me. No, thank you very much. So, what can we do instead. Well, at one stage we had these things called, you know, debit cards and credit cards and some of us may still have them. And they used to work quite well within our own country, but as soon as you went abroad, I didn’t work because I was like, Yeah, I don’t know what accesses access is this thing that we used to have in the UK, that doesn’t work in Thailand so don’t know what access is, go away. Try and try again James, still trying to buy my Saturday chicken at the store. So now they’re like, Okay, tell me what, why don’t we have a global network, a global brand that says we will all accept each other’s cards, all the banks or the national systems will shove a logo on the back that says hey, it’s not just access it’s also something else, which everyone recognizes, and that’s where you get to MasterCard and Visa and AmEx and discover and JCP and Union, China UnionPay is effectively a way that says, because I’ve got one of these, it’s going to work. It’s going to be the same experience, everywhere, everyone’s going to be comfortable accepting it, and it means I can just buy the thing I want, and the merchant could just make the sound and know they’re going to get their money. And so it’s not only a technical problem that’s been solved here which says, When I spy something in Thailand, it goes all the way back to my bank in the UK and goes, James wants to buy something in Thailand, is that okay, is all seen as 100 Tight bars, is he got the money, and the bank goes, Yeah, James travels a lot fine yeah he’s got 100 bar, make payment. And then one thing, the merchant gets an immediate approval code says yep, it’s been approved, here’s your six letters to say it’s good. Give James a Saturday check in, James, you’re going to either you’re going to owe your bank 100 bucks, and we’re going to pay the merchant or the 100 bucks less in fees and making that payment. Cool. Everyone’s happy, move on with our lives, and the technical challenge that was being solved was really on what’s called a many to many problem. You’ve got billions of people, you’ve got hundreds of millions of merchants, you’ve got hundreds of 1000s of banks. And what you’ve wanted to do is build billions of connections to make all these individual bilateral things work, right, I don’t want to have a different conversation with every merchant based on oh how do you want to pay well, I’m gonna take this. No, I don’t want any of that. I just want it to be unified. And from a technical perspective, it basically means you want to put solve that many too many problems by pulling through an individual network an individual node, an individual switch that says, James has used his card at this merchants and he uses this card issuer, therefore, will route it back to that issue after this transaction. And then when Monica comes along and buys in the same Merchant But she’s got a car from India, don’t have merchant does not do anything different, the merchant goes back to their central point that central goes, oh that’s Monica’s car from India that’s an Indian issue equation get response back. You don’t have to have like 400 different terminals on your desk because imagine, you just need one. And you need one for MasterCard or Visa for China mean pay whatever standardization of what is what makes that happen. And most importantly, it was solving that many, many problems by having a single way to switch. Now we put the internet, you’ve got the ability to do peer to peer connections, the internet does the switch, right, if I want to send monitor a message, right, my app knows that Monica has an IP address, and I can send money to a monitor in India I can send the data to India, right, we can make that connection through the internet so suddenly, why do I need the central infrastructure. I can move value between individuals. I don’t need it right. Well, turns out we do, because it turns out we still like using physical cards in physical places, turns out we’re not great about fiddling with our phones to organize payment. Turns out the tapping the thing is actually downside isn’t getting the phone on my pocket, probably face ID failing three times in a row I’m wearing a mask right now, and all the frustration that comes with it. I just want to tap and be done. And what’s actually happening is also there’s a whole load of brand around this which says, Because I saw the MasterCard logo subliminally or the visa label whoever it is, I was like, Ah, I can do this here. Great. And I have to fiddle with cash and I have to like have a conversation about how to write a check or whatever, Arcane thing you might be doing. Now, I can just use this thing in my pocket and it’s gonna be painless, and more importantly, if I go and buy something and it goes wrong.
I know I can get my money back. that’s the other key thing, especially when you’re in digital commerce, like, I’m buying someone from a merchant I’ve never met, I’ve got no idea how I’m going to contact them, or no idea if I can trust them. I’m going to put faith in the system that says, I’m gonna buy something online for 100 quid, and it’s going to turn off my door, two days, in two days time, and it’s going to be, it’s going to be what I wanted, it’s going to work. And I’m going to be happy with my touches. But if it doesn’t, I know because I put it on a credit card or debit card depending on where you are in the world. I’ve got the right to go. No, sorry. You took money from my account you debited my current account is, I made this purchase, but the purchase. Turns out, didn’t go well. Money, the goods didn’t arrive as described. Right. They didn’t arrive full stop, or when they arrived, that was it was wrong, or when it arrived, broken, not good enough, merchant, I want my money back, merchant has disappeared or when answer my calls. Fine, go back to my card issuer go card issuer. I want my money back. It’s my consumer rights under this card scheme. I want to do a chargeback and the scheme issue goes, Oh, all right, okay, I can see you’ve got some problems here you can see it’s conceded the goods weren’t delivered as expected. We’ll work our way through the value chain back to the merchant to say, James needs his money back. And if the merchant and Scott disappeared and they go to the merchants acquirer who organized the transactions they acquire need to give us the money that’s the only worry about the merchant give James’s money back. Right, okay fine and the money flows back, and I have that protection as a consumer. So, this is why largely the card schemes continue to exist, because not only we’ve got behaviors which say this is easy. They’ve got network, where it’s ubiquitous, but they’ve also got rules which means it’s trusted and protected and that is their home advantage, I would say in this ecosystem. So, to the question of like surely accounts account is just going to, you know, disrupt the card networks, maybe, maybe, because there’s such entrenched consumer behavior, and there’s such power in the brand and the rules that they operate, but actually they’ve got a home advantage I think in the future of consumer to merchant payments, but I use that caveat at the end of consumer to merchant payments because there’s lots of ways that we can pay, there’s lots of different use cases and context organizing a payment. It may make a whole lot of sense for me to do a car payment at a street store in Thailand, but it may also be because it’s food. And because, you know, I’m going to walk away with my Saturday chicken, and it’s going to be in my stomach, it’s going to be 24 hours until I work out when the goods are faulty or not. Actually, I don’t need the protection of the card that works for that transaction. I’d be quite happy paying cash for it being there vocable mean not having a way to get my money back. And therefore in that setting maybe actually current accounts account transaction or prompt pay in Thailand as they use it. Yeah, I’d have to snap a QR code on my mobile phone and send the money directly from my bank account to the merchants mobile money account, and I’m okay that being one direction and not being able to get my money back. It’s cheap, it’s convenient. I’m not going to get charged any fees for an exchange. Fine, let’s just do it that way. And so there are aspects of the consumers the merchant experience knishes, I would say all niches depending on where you’re on wealth that are, yeah, okay, I could see him reckon mechanism by where accounts account will start to maybe assert the position of car, but broadly carbon networks on investing in account to account, because that consumers emerging problem. They’re not arguing that this is a better way of doing a consumer dimension problem that’s saying, actually, in some cases, it’s better, and in some cases we don’t have cards, so totally fine. And consumers merchant is one area where you may find economies that don’t have the card infrastructure, they don’t have the issuance, so people don’t have cards in their hand, they don’t have cards digitized on their phone. Or maybe when they go to the merchant. The merchant doesn’t have the way to accept the card they don’t have a terminal, they don’t have a mechanism to accept the card payment. And those areas accounts account, mobile money, whatever it might be, fill a gap. Absolutely. And then when you lift it out of consumers and merchants, you think about, okay, well you’ve got potentially consumers, businesses or governments on either side of a transaction, and all the permutations between doing consumer, consumer business business to government gives the government to consumer, all that law. But most of those use cases are not called use cases, they are account to account use cases, there are this government has a billion pounds that it needs to serve tomorrow to million plus people in the form of benefit checks. Okay, well, sending out checks in the mail sounds like a pretty bad way to do that. Maybe you should know what the bank accounts are all those people and we should just disperse it digitally to all those people in bulk.
James Sherwin-Smith 1:28:28 And that’s largely why we have to have account to account systems or Automated Clearing House, a CH systems, because it’s just a damn sight more efficient to do it that way. And ultimately, yes, there are some limited instances where I think a council account will assert, or maybe it’s blockchain, whatever it might be, could assert the position of a card network broadly what you’ll find is most of the card networks are investing to provide choice that providing that no mascot, I think, is one of the companies that the most payment painted patents for blockchain and digital ledger technology. As an example, right, we’re investing heavily in the new wave of ways to move value both money and data, and you’ll find the same at all the other card networks were thinking about the other ways to pay, and making sure that they have relevance as a network for the future. So, definitely there’s an opportunity there to disrupt, There are definitely opportunities to compete for the network’s are also investing is my view and that will continue to happen today. So, sorry for the long dialogue. Great question, all of us, on slide oh thank you for that. And we’ve had a whole bunch of new people join us on stage so welcome to you. Good morning or good afternoon or good evening wherever you are in the world. You’re listening to FinTech and payments club, this is the Ask Me Anything Sunday surgery Show with James in the red. I’m one of the founders of the FinTech and pain club, along with Patrick and Neil, and we have a phenomenal team that supports us we’re all volunteers, giving up all time to get back to the community and anew. I don’t know if you’re ready to maybe introduce yourself, but you’d be most welcome to do so, and and then we’re gonna start continuing to oscillate with questions on stage for today’s show between slider sli.do in your internet browser with the hashtag SS nine ends on the 39th of may and you can see it in the right hand the end of the title of today’s room, so you can post a question there, either in your own name or anonymously, please go ahead and do that. And, or you can join us on stage simply raise your hands. Raise your hand, the way that Lynn and Daniel and Maggie and Vinay have done so today and will, you’re, you’re joining the queue on stage and we’ll come to you each into. So, thanks ever so much for joining us today. We are also simultaneously broadcasting and recording today’s show is going out on Twitter spaces, and also on Facebook Live, so if you have colleagues or friends that can’t get to the top house would like to follow us there, please do check my Twitter account 26 left and you’ll be able to find the links, or go to our web page, and you’ll find that in the top right hand corner, today’s blog post, has, has all the links to be able to follow along with the conversation. So, I know, did you want to introduce yourself briefly as one of our new moderators, if not I’ll move on to Maggie, I think what’s next in the queue.
Anuradha 1:31:26 Just take probably a quick minute to introduce myself. Thanks a lot for important neighbor the club. Hi everyone, I’m Anuradha Kumari I’m based out of India. I currently had the SPD function for FinTech player called pay you. It’s one of the largest players in the emerging markets, and I actually see a couple of my colleagues in the room so hello guys, I just wanted to add a point to the question on that and bank to bank transfer I completely agree that, with things like fungibility for cross border payments, security, and dispute resolution networks like Visa and MasterCard are quite entrenched into the entire payment ecosystem. That said, I do feel that they are aware about this potential threat, especially in the domestic markets. It’s more regulations around 3ds 2.0 modification requirements the data that they hold becomes key. But at the same time I think they’re trying to further deepen their routes into the pie into the payment pipeline right, for instance, talking about some of the moves that were done in the past, to be acquiring Cardinal commerce is a great move to further deepen their strengths in frm products. So I think through this they are making themselves, really important and in a way irreplaceable for the entire payment ecosystem so you might have a certain use cases like to direct bank transfer which is bypassing them, but overall by holding the entire back end of the payment ecosystem, I think they’re quite well positioned. But yeah, like you said disruptions are definitely more than welcome in the ecosystem. That’s, that’s my two cents from me. On the other topic that we were discussing.
James Sherwin-Smith 1:33:33 Right, you know, I’m always gonna probably know that the card network side given my employer, better than others but,
Unknown Speaker 1:33:40 sorry, did you go on mute.
James Sherwin-Smith 1:33:42 Oh, sorry. Let’s try that again. Thank you. No, I really appreciate it and I think it’s always great to have the other perspective on this, because obviously I’m always going to be slightly more informed around the way that this works from a card network perspective and given my role working in the non card part of MasterCard working on the counter counsels and that’s also going to be a bit of a bias for me. But it’s great to have your perspective and thinking about it from the EU perspective in terms of all the exciting things that you’re seeing, and you’re able to share. So, really great to have you with us today. Thank you for joining us and do chime in as in when you feel, you feel you can. And, and what we’ll do is we’ll take the next, next person on stage so Maggie thank you for being so patient, delighted to have you with us please go ahead and unmute, maybe give us a couple of sentences about yourself. Just to place any question or perspective you have in context, and please do let us know where you’re joining from around the world, because we always love to hear where people have found this from, over to you.
Maggie 1:34:52 Hi James thanks so much. And good morning. For those that it’s morning like here in Tunisia. And I, I love that you’re going to play cricket today James, I don’t know there’s nothing more quintessentially British in my mind than doing that and maybe having a deficient chip and a GMT afterwards, or just be here for a year or two, and I work on supporting the country called the National Democratic Institute and di which is headquartered in Washington and works in over 60 countries. And so we work with parliament, we work with political parties and we work with civil society organizations. And one of the things that I’ve been focused on, and that we have a grant that we’re working on from the National Endowment for Democracy is the connection between democracy and economic economic development, and the. In short, it boils down to democracy delivering. And, as you might suspect in a lot of places that’s not really happening and it has been complicated greatly by COVID, and Tunisia is one of those places. So right now they just the senior leadership of the government spent a week in Washington, negotiating with the IMF in the US government for billions in loan guarantees and aid, and it requires some significant public sector cuts reductions and subsidies with more targeted Assistance to Needy Families a lot of things that have been requested for the past five years or longer by the IMF and all major donors, including European donors, and that the Tunisians have not had the political will to do. So, boiling, all of this down. One of the things that I found out recently has been pending for years in the parliament is legislation to establish a credit bureau here, and I kind of wonder especially James because you do such a great job and by the way I came over from tech news around the world, which is, I cannot recommend enough, especially to people like myself who don’t always work in this space but for whom you know, technology is a game changer. Even in ways you don’t anticipate. And plus it’s just such a human conversation, not just tech and gadget focus. Anyway, you know, I think this actually complements the question you just answered so well. The idea of credit bureaus. Alright so the German Development Agency. BMC think it’s BMC has been waiting for three years for the parliament to pass legislation, approving a credit bureau and here like many places the banks are part of sort of economic mafia. And I wonder if maybe Anu can answer this to from her perspective in India. Is it even necessary. In this new world does, you know, is there sort of a democratization of capital N accepts that, you know, you don’t need the credit bureau to rate you. So that’s one question, and kind of a related question that I asked this in a, I think it was news for a room. Last week, you know for places and I think, again, honors perspective would be interesting here for places where physical currency what you were talking about with, you know, James you’re talking about branding and you see the MasterCard you see the visa logo you feel good but for a lot of people it’s not MasterCard and Visa logo, it’s coins, it’s tangible money, Maybe might they’ve migrated to mobile banking because, like here. There’s such a dependence on on the remittances from others who are remittances from Tunisians abroad from Indians abroad and so the only way to do this you know there are long lines here at the Western Union offices, mobile banking, some, there might be some adoption of that just out of necessity, but again, you know, I wonder how that sort of mentality can frustrate efforts to have sort of a large scale leapfrog into this new financial order is my best way of putting it. And I’m done speaking.
James Sherwin-Smith 1:39:30 Thank you, Maggie, thank you for those questions. Great, great perspectives and fascinating to see that, to hear about the situation she is here and how that’s developing Vinay I see you flashing the mic, and then if you want to chime in with a perspective from your part of the world you’d be more than welcome to On The magnet start with the credit bureau question first. If you’re if you’re willing to go otherwise I’m happy to open up to others. I have some views but you know.
Vinay 1:39:56 Yeah. Hey, James. Yeah, this is, you know,
just wanted to chime in on couple of things very quickly. I think both on the the anonymous question on the slideshow and the question from Maggie, I think, at the way I think about it is there is, you know disruption and innovation happening in two different places, one is in the center, which is where settlement. The networks are located and where settlement is happening, and then the other is in the edges where the actual consumer interaction is happening right so in the case of, you know, card network versus bank to bank transfer. I think the disaggregation of technologies like you know whether it’s NFC based tap and pay or basically a card, whether it is it is backed by a card network like Visa and MasterCard or is it riding on top of something like UPI directly right that is changing. So, you could still have a card network, or you could still have a card in your pocket but it could, it could be enabling bank, bank transfer, so that that to me is interesting in how this might play out in the future in terms of credit bureaus again, you know with account aggregator framework in India, with notion of, you know, financial institutions that will provide data versus financial solutions or lending NBF seas that will consume that data, The notion of how the credit scoring and underwriting is done with all you know more sets of data being available, that might again change the positioning of what traditionally credit bureau would do. So I see that there is a bit of a desegregation happening in multiple places, both at the center of the network as well as at the edges, and that would definitely, you know, change both the consumer experience as well as the dynamics of the institutions that are involved in the center. This has been I am done speaking with thanks.
James Sherwin-Smith 1:41:57 Thank you for today and, would you mind maybe sharing a bit more about that you just so we understand the position the perspective you’re offering, where it’s come from because it looks like from your profile you’ve got a really interesting background.
Vinay 1:42:09 Yeah, sure. By way of quick introduction, I work on Google Pay in India, and, you know, spend some time looking at different payment technologies in India, specifically around the new ways of, you know, building new payment networks in the space of UPI and the ennui that is coming up and prior to that I was working at Flipkart, where I’ve looked at some of the consumer behavior with respect to buy now, pay later or EMI or, you know, and how to do like lending for both sellers as well as for consumers, with, with less data
James Sherwin-Smith 1:42:50 very, very interesting. Thank you. Thanks so much for joining us, and before I move on to to maybe give my views on Maggie’s question Does anyone else want to chime in on this challenge of the role of credit bureaus in the markets that don’t have those today. Okay, so, so maybe on the credit bureaus side, I think, all they needed in this modern era, that’s great, great question and I’m in two minds if I’m honest with you, because I can definitely see the argument to be said that actually we’ve got other ways. We’re increasingly living digital lives. We’re increasingly leaving kind of bread crumbs around on the public Internet, around our behaviors and how we act, which I’m sure people could analyze and use it as a way to make a credit bureau decision or sorry, a credit decision rather about whether you know it should be lent to or not. It requires a fair amount of, obviously, data mining, it requires obviously needs to be relatively open with my attitude and behavior online, and it requires someone to be able to quickly distill that information processor, and then make a decision about whether I’m good or not for money. And I looked at this problem first as a practitioner in 2013. When I was working in the UK for a digital lending company that was making real time decisions from a credit perspective for relatively small loans, you know 400 To 1000 pounds. And what I found at the time was that that data that was available through, you know, Facebook profiles and different aspects of which, LinkedIn, maybe I can look at employment history potentially and look at the size of the following network to say do I believe that profile is real and genuine all these all these good things. Didn’t do much for me compared to the credit bureau. As a practitioner looking to score an individual to say, Should I give them money on the credit bureau data was far more powerful. So, this is my initial view from eight years ago when I was building these models with a team, you know, analyzing credit decisions, and we were doing it at scale right we were doing. Over 14 million loans a month, at that point in time. What I found was the, the predictability of bad credit, which is what you’re really doing you’re sorting people into goods versus Bad’s and the bands are quite a small proportion. What we found when we looked at the data that we’ve accumulated to make a decision. And then you do what’s called a retro, or a back test you basically say, given the information I had at the time. And given how that loan then performed was the information available at the time predictive or not, in terms of whether they were a bad credit, and the credit data was so much more powerful, the credit bureau data than the social media data, and we were, we were pretty data hungry organization we were very organized, we’re very meticulous in the modeling. And for all the appeal and sexiness of these things. When you’ve got a choice. If it’s Alp. I would take credit zero 99,000 times out of 100. I really worked, because it was just so much more indicative, so much more powerful, where it begins to break down, is where there is no past history, and that maybe there’s no past history because the country doesn’t have one, or maybe there’s no past history because the individual is new to the credit sphere in that country. It might be because they’ve recently turned 18 and therefore, in the UK for example, You can’t borrow until you’re 18 So there’s no history, or am I because they’re new to country. They’ve just moved into the UK and they don’t have a probe on the country because the credit bureaus are domestic by nature. And at that point, then maybe something is better than nothing. And you begin to think about, Okay. Does that social graph does that public internet information I can find that this individual. Does that help me. Well, it’s something, it’s better than nothing, but honestly, it’s nothing like as powerful as it would be if I had a credit bureau, and we were doing that because we’re doing in multiple countries we’re not just doing in the UK, we’re doing it in places like Poland, where there was a very early. Credit Bureau that’s been created, and largely most of the time you asked the credit bureau a question about an individual that came back with don’t know who this person is. So you had what was called either a zero file problem, which is no information at all, or it might be, when we know this person exists, we don’t have any credit data on them I have thin file problem which is, we’ve got not much to say.
James Sherwin-Smith 1:47:52 So my personal opinion is, honestly, if you have the ability to build a credit bureau, I would, I probably wouldn’t build the credit bureau in the past, I build the credit bureau the future. And what I found in my professional experience is that you want both sides of the coin. You want good data, as well as your positive data individuals credit history, I, they’ve had the credit and have paid it back, as well as having negative which is they took this credit and didn’t pay it back, and some bureaus only work on one side of the fence. And I think to be an effective credit bureau you want to do both. But there’s a whole host of challenges with the credit bureaus in the past, which we can dig into Maggie if you want to, but honestly if I was in a situation of a new country going do we need a credit bureau not the answer for me would be absolutely yes, should I build the credit bureau Oh, absolutely not. There is a much better way I think a more modern approach that you could take to building one, and that would be that would be where I would start.
Maggie 1:48:54 Could you just James thinks that’s so helpful, what we need more modern one. What, and I risk asking this question then only half understand, but go for it, like what do you what do you mean.
James Sherwin-Smith 1:49:09 So credit bureaus that exist today are largely a function of 1970s attitudes to credit and 1970s use of technology. So, there are some very, very cool things you can do as an individual in the UK you can go and look at your credit bureau profile, We have three in the UK, and they’re all largely international names now. So, Experian, Equifax, and TransUnion, and in the UK. It used to be called credit. Those used to be called call credit sorry, and they were bought by TransUnion. A few years ago. And what they expectedly do is they are built on the principles of reciprocity, basically says if you as an institution want to get information from the credit bureaus
James Sherwin-Smith 1:49:58 to the credit bureau.
James Sherwin-Smith 1:50:00 And because of the processes are a bit cumbersome because the technology was a bit crap because data wasn’t really very readily available in real time. They nearly all worked off monthly information. So, once a month, my bank tells the credit bureau that it got information about me from in the first place, about what’s happening with my account. So for a credit card, for example, it will post three pieces of data every month, about my credit card account, it will say, this is James’s limit. You can borrow on his credit card up to this amount, It will say, this is how much, James Bose currently this is balance. And the third thing was say this is how much, James, paid off in the last month. And it might have 1/4 indicator which basically says is James, basically performing the way you should i Is he making a regular payment because he made a regular payment this month. So you’ve got three pound figures, and then one flag, every month. And that’s all you get from the credit bureau about my history on my credit card once a month. And the same principle applies to my current account that will say this is overdraft and how much it has dropped he’s using it might say the same for his mortgage account is how much the balances and how much he paid off last month, did he pay on time yes or no, and so on, but it’s basically it’s a monthly snapshot of data. Now that works reasonably well. If it’s a slow paced environment, and the credit that you’re applying for, is kind of long term credit, right, it’s a five year fixed term loan, it’s a car loan being paid back over three years. It’s a mortgage being paid up over 25 years. It doesn’t work very well for short term lending, because effectively what happens in short term lending is I might be borrowing a couple of 100 quid for two weeks. And if that’s the case, I will have borrowed paid it back before the credit bureaus, even taking the monthly snapshot. They’ve got no useful information about if they’re taking a monthly snapshot. And worst of all, if I’m an organisation relying on the fact that James doesn’t have lots of microcredits out there. I go to the credit bureau and go, I’m about to give James a loan for 500 pounds to tie them over to payday. Is that okay in the credit bureaus goes, yeah sure looks good to us, but actually Jane is taken out seven other loans in the last three days, no one knows about it. That’s not a great credit bureau experience for me as an institution. And so, that would be the first thing I would fix, I would think about the immediacy of the information. And I would think about instead of it being one off monthly push data from organizations going into the bureau. It would be real time pull data that you go get from those organizations, ie Jen’s apply for credit, my organization, a credit bureau, what’s the latest picture of James please credit bureau goes hey institution BCD elf, tell us all your latest information. As of now, about James. Now we know James is today. And now we know whether we should lend to James today at this minute. Instead of probably what was James position 45 days ago, knowing the processing and all the aggro that comes with it. So that would be step one for me magnet. Does that, does that make sense.
Maggie 1:53:42 Sorry, took me a second to unmute it makes total sense actually thank you for doing it, you have this way of through storytelling making things comprehensible and I appreciate it.
James Sherwin-Smith 1:53:52 No problem. I’m sorry if it’s, it’s too much waxing lyrical a lot of brief into the point but I’m always,
Maggie 1:53:59 no, no, no, No, I’m not. I’m being honest. I helped me understand more
James Sherwin-Smith 1:54:06 I probably answered the questions and points but I always struggle to know who else is in the audience and what people’s understanding level is so I try and strip it back to the basics of people. So that would be step one we immediately see that the step two for me would be the banks that hold all the data. So, yeah, you can go and look at James’s information about whether he has a good credit history based on credit information. But what’s changed his income. Can you afford this loan. And there’s one of these banks has got James’s checking account probably gets a salary payments. So, James says his income is, x is it really x bank why can you confirm that James has salary at, please, that’d be a pretty important thing to know. In fact, actually while we’re at it backwards. James does pay all his bills out of your account as well. So actually, how much money does James typically have at the end of the month, can you afford to repay this loan. Affordability is a really important part of the credit bureau experience, and the UK bureaus have been trying to get there and they get some information from the banks and they get some information about expenditure, but it’s very crude. And that I think would be another important part of the real time product your experience which is can James afford to pay this back or not. So that would be the next one. Then, then you’ve also you’ve got the open banking dimension that comes into this which is actually, do we need a credit bureau actually James, when you apply for credit with organization x, which is probably an independent lending organization doesn’t have any banking information about James. James, why don’t you just, like, tell us about your bank account details give us your permission and we’ll go and look at your bank and get all that information straight from your bank, and then we can see that, you know James banks in that way so he gets this income pays these bills and he has this much money at the end of the month, therefore he can afford this loan. And while we’re there, we’ll scan James’s account. To go a James had credit in the past and that he paid it all back on time. Does he have any credit outstanding and therefore, if you’ve got too much repayments going on that he can’t really afford this extra loan, that could happen in an open banking experience he says you know what you don’t need the credit bureau, until you realize James only told you about one organization works with, and you’ve only got one piece of the puzzle. And that’s why credit bureaus are quite important because as much as open banking is powerful and giving you more accurate, up to date information about the primary banking relationship. It doesn’t necessarily tell you about my secondary, tertiary, alternative relationships I haven’t other institutions. I might also be borrowing money from. And that’s why a bureau I think is quite powerful, I think, continues to be powerful in the modern era, because open banking is a permission based system. If I’m James and I want to get credit, I’m only to tell you the good news right. I’m not gonna tell you the bad news too. I’m not gonna go through the process of well now I told you about NatWest oh let me be a really good system tell you about, you know my Amex bill, and my you know my credit card account with, you know bank y or whatever it might be. No, that’s why you need a credit bureau need the full picture. You don’t need you don’t have been totally dependent on Jane to tell the truth or only give access to information that you want to hear or see. So that’s the other aspect of this that’s quite important, it’s open banking could be a massive filler to real time information, and particularly help those people that struggle to get access to credit because they don’t have a profile of the credit bureau in that country. I’ve landed in Tunisia, I’ve been banking in the UK for 40 years, Tunisian banks and look at the Credit Bureau and go, sorry, what were you. Whereas, if I go, Well, What are you doing open banking connections and out west and then you can see my history for the last 27 or so years if you wanted to. It’s all there, help you to help yourself honestly on a good credit, I would like to be able to buy a mortgage to buy a house in Geneva, so I do need a mortgage. So please, you know, approve my application. So I think it’s also quite important.
Maggie 1:57:56 Well, I’d love for you to buy a house in Tunisia and there’s so many remarkable ones that with, you know, 25,000, pounds or dollars would be fixed up but the blame the French for the regulatory system here, it’s always good to blame someone,
James Sherwin-Smith 1:58:20 No problem. Maggie pleasure. And did anyone else want to chime in on this topic, Linda, I wasn’t sure if you’ve unmuted so go ahead. Or it might just be my dashboard.
Linda 1:58:29 Yeah, no sorry I didn’t I am sorry for being able to have to take a call.
James Sherwin-Smith 1:58:33 Oh no no no problem at all. Most welcome. Not a problem at all. So Linda. Thanks for that question, I think, credit bureaus and understanding credit bureaus is another deep dive topic I’d like to do at some point for those that are interested. Chris one of our moderators in Australia Post he posts these really fun polls on LinkedIn, it’s like FinTech farmers his hashtag, and is actually I think it’s also his clubhouse address, but He’s based in Brisbane and he posts these things on LinkedIn, which goes FinTech fun question, and then like it’s like a multi answer, you know, question these pose and you can just click a button and it’s a nice way to get LinkedIn engagement. It’s also really interesting temperature on the community in terms of what people think about different topics. And he posted one this week which is do you know your credit score, yes or no. And to your question Maggie right I think something like 45% said no and 55% Yeah, so most people are totally unaware of their credit score, probably totally aware of what it unaware of what it means. And I posted a follow up to his question which said, and the real problem is, even if you know your credit score. It may be the same score means different things across three different credit bureaus in the UK. so I’ve got a 600 score with Experian. That means I’m going to pull up the post on one Bureau it basically says, I’m a good credit, and another one it says I’m excellent. And another one says I’m poor. So there isn’t even a single currency amongst the credit same credit three credit bureaus in one country is a deeply, deeply confusing part of the market, and it’s great that we’re getting more transparency that you’ve got these free tools that you can go to to look up your credit score and understand what they mean. And then they you’re getting more tips as a consumer on how to improve your credit score and what you need to do to basically access to large amounts of credit at cheaper, cheaper rates and have more options available to you. But most important, I think people just get even more confused. So yeah, here we go, a 600 score and Experian in the UK, their maximum score is 999 So just less than 1600 school experience is poor, with Equifax they mark it out of 700, so a 600 score with them is excellent with TransUnion to formally call credit, a 600 score with a mark out of 710 Don’t ask me why, and a 600 score with them is fair. So, you know, me saying I’ve got a 600 score means nothing. Without understanding from which Bureau, and what the rating chart is and it’s by no means uniform. And every time you move around the world, you’ll find different scoring systems and different results and it’s, it’s a super confusing part of the space. I wish someone would just kind of normalize it so we will have one currency and one understanding but unfortunately there are effectively proprietary scoring algorithms developed by the individual bureaus. And so they’re kind of keen to keep that for sorts of differentiation. So Maggie thanks very much for their question. Hope the sun is shining as soon as it hits here in the UK. And thanks everyone for joining FinTech and payments club, this is Sunday surgery with me James in the red. We’re doing an Ask Me Anything shows we do every Sunday. Now the new time of 730 UK. And we’ve just been rolling for coming up for two and a half hours, probably close the room in about half an hour’s time, so I can get some brunch and get ready for my cricket match later today. And yes, maybe they will probably be GMCs but probably not fish and chips because that’s a Friday thing in the UK of pharmacy, and we will, we will go from there. So, if anyone is new to this news the room. 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James Sherwin-Smith 2:03:27 The next question was actually just a straight URL which I recognize which is from the money Authority of Singapore. So they are both the central bank and regulator for financial services in Singapore, and the press release was the fact that Singapore and Thailand have launched the world’s first linkage of real time payment systems. So this is something I’m relatively familiar with, Because our technology at MasterCard powers both the real time system in Singapore, and the real time system in Thailand. So it’s a new story that I’ve followed closely, and I’ll just reference what I know from the public domain, on this one. So, like I said both systems run real time payments they both also run proxy solutions we talked about earlier on the show, which means you can pay someone by just using their mobile phone number. Now what’s cool is that if you’re in Singapore, you can pay someone in Thailand by just knowing their phone number, but once they’re registered in the Thai system with from pay to their mobile phone number will will effectively redirect into their bank account or mobile money account in Thailand. Then, in Singapore I can be sitting there, no Tyler’s. For example, His Thai phone number, and I can send money straight to Tyler from Singapore. Pretty cool. So doing a couple of things it’s doing real time transfer of value it’s doing real time resolution of a proxy look up, and it’s probably doing some foreign exchange there as well so the my Singh dollars get moved in Thai baht by the time they reach Tyler’s account. And it was a joint effort between the two regulators and central banks the money Authority of Singapore and the Bank of Thailand. And they decided that this is a important thing for their countries and for the people in their countries to be able to send money effortlessly cross border, using the same functionality that they use for domestic payments. So pay now in Singapore, from pay in Thailand, you know, either way, doesn’t matter which system I’m on, I should be able to not only reach all the people in Singapore, but also all people in Thailand to, and vice versa. And it’s, it’s effectively a pretty simple integration that allows that transfer to happen. It uses again referencing back to one of our topics from earlier ISO 22 Two, which allows information to be passed to the message so that you know it’s not only that Tyler gets to know that money came from James but maybe made those pan informations and importantly the organization’s and facilitating the transaction know sufficient information to make sure it’s compliant with anti money laundering restrictions and know your customer checks, so pretty, pretty cool thing. The point here is really to make it easier, more convenient, and I suspect although having done the benchmarking I suspect it’s cheaper to versus the alternatives. And I think this is a perfect example of more collaboration that’s going to happen around the world. and I think it won’t just be these bilateral corridors that spring up where it makes it work just from one place from A to B, but actually it becomes a whole population of countries that join up to these schemes that allow money to be moving across borders effortlessly from person to person. So, and then the great thing about this is that normally the way that digital payments evolve, is that once you crack this for person to person transfers, then it starts to get used naturally for person to merchant profiles and if Tyler’s running a small business out there in Thailand and I’m sitting in Singapore and I bought something from him I can pay him through the same system. The system doesn’t really care if Tyler’s a business or an individual, which is going to land in his account.
James Sherwin-Smith 2:07:01 And then, and then it grows, it grows from there so it’s like okay well if I can do consumer to business payments they can do business to business payments, and I’ve done that, and it’s, it’s really, it’s really powerful to see, you know, people begin to appreciate that this can happen you’ve got real time payments domestically, there’s nothing to stop you having real time payments, internationally too. And it really starts to pull away at some of the more expensive money transfer services that may charge a very high fee, facilitating transfers like these. And also it kind of pulls apart some of the ugliness bluntly of the correspondent banking network, which is how money, typically moves between banks across borders, which as the name suggests correspondent banking is very manual. There’s a lot of compromises. A lot of people in the process and love opportunity for error, but it’s also a source of significant delay, a significant delay of uncertain significant feeling really of uncertainty in the round, which is, I don’t know when my money is going to arrive and know how much is going to arrive. And I don’t know what data is going to come alongside the message because the ability for that to be truncated or basically marked up by each bank in the long chain is considerable. So that’s, that’s what’s happening there and in Thailand and in Singapore, so thank you to whoever posted that new story, I appreciate you for that because it’s a good reminder of something that cool that’s happened in the last week or so. And then the other one has been posted, is around DBS JP Morgan Temasek and I don’t know this one so I’m gonna just drop into my browser and see what that’s about. But it looks to be that Temasek the sovereign wealth fund in Singapore DBS which I know is one of the Singaporean banks and involves the international investment and commercial bank has basically created a new thing so that’s really here. So acknowledging that the future of global payments is on the cusp of a fundamental shift DS JP Morgan and Temasek today announced plans to develop an open industry platform to reimagine and accelerate value movements for payments, trade and foreign exchange settlement in the new digital era, for a newly established technology company. The company is called partielle and aims to disrupt the traditional cross border payments hub and spoke model that has resulted in common pain points so sounds like very much along the lines of what I was describing a correspondent banking, and it looks to be that they’re going to use some blockchain in there, and ways to do programmable value transfer, so it looks like some form of start smart contracts and capabilities to use the blockchain, not only to transfer value in the form of money and data, but also to organize it in a way that means it’s going to be more of a straight through process. So certainly one to watch here because I expect we’ll see more and more of these experiments, there’s been a lot already, frankly, in the blockchain and digital ledger space. The difficulty I found so far is that you see pilots who see experiments we very rarely see anything at scale yet. And that may just be our poor understanding of how technology develops. You know we always, we always get very impatient about expectations about things being fixed today. And actually, it takes a couple of years for a solution to mature and and reach scale and reach ubiquity. So it may well be that this is just another firing pistol on what can happen next. And it’ll be a question of watching this space I think see how quickly this develops, and what their take on the problem and their, their way of solving the problem differentiates them from from the other solutions out there in the world. So then if anyone on stage has anything to add on this but it does seem that cross border payments, and finding better ways to transact outside of the existing system is a focus, certainly in Asia, and I’m sure it is in other parts of the world too.
James Sherwin-Smith 2:10:52 Okay, so without further ado, I’m just gonna do a quick reset. If there’s no further questions on stage, no more hand raising. We might draw the run to close so it’s just gone past SallyAnn it’s been two and a half hours on Sunday surgery. We’re very grateful sorry I needed you want to chime in.
James Sherwin-Smith 2:11:11 Yeah, check if anyone asked anything. And no thanks and didn’t have any question assets. Cool No,
James Sherwin-Smith 2:11:23 no, no, no problem, no problem at all. Anyone in the room that like to join us on stage, please raise a hand or if you’d like to drop a question into slider, you’re more than welcome, sli.do, and use the Event Code SS 9am Sunday surgery night at night. It’s, it’s been a really fun session. Thanks so much the questions we covered topics like ISO 2002 Two. So Jays joined us from the West Coast, before he went to bed to talk about how he fought the X coins particularly things like XRP or ripple are embracing the ISO 22 standard, and the degree to which those are really have a transformational power in the market. Linda then join us and help us talk about the ISO 22 roadmap in the Nordics, and how it’s already got some traction there already. And we very kindly were joined by some of her contacts in the region to share their knowledge about this as well. We came on to talk about credit bureaus, with Maggie who raised the question about how credit bureaus work and, and what would be the right next step for a government in Tunisia thinking about starting a new credit bureau. We talked a little bit about the problems of existing credit bureaus and what the future might hold. In terms of how they could be built differently, and certainly from the perspective of what could be done to maybe not only harness open banking but also a modern credit bureau and the value of employing that within an economy. I’m also very grateful to Vinay and others that have shared some Indian perspectives, big shout out to Annie, who’s moderating the first time with us today on the FinTech and payments club and has been helpfully piping up with some perspective from her and her view on world, given her role within pay you and for the things that she does there. So, Annie, thank you for joining us and hopefully starting to learn the ropes and we look forward to hearing your voice and you running your own rooms in the future, be, It’s great to have you with us and to augment the team in Asia Pacific. If you’re in the room and have enjoyed the content, you’d be more than welcome to join us again, we run a series of events throughout the week. I’m just going to quickly pull up the FinTech and payments calendar and just remind you of what’s coming up next. But if you want to check for yourself, just FinTech and payments club, and click the calendar on the menu icon. So, on tomorrow morning, it’s not a FinTech and payments club room but I, I do a quick shout out for one of the other rooms I run, which is about UK town hall. Normally we, we got a town hall update from the founders of puff house at 5pm. UK time or 9am Pacific, it’s often pretty antisocial time for the UK community on pop house so we debated at 730 on a, on a Monday morning, in the UK just to set the week up with what’s new on clubhouse, what we’ve learned from the town hall, the night before any new app updates, so if you’d like to join that it’s 730 UK in the morning tomorrow morning. By me just give me a follow or look out for United Kingdom townhall, as a club and follow that club there tomorrow evening. Looks like we’ve got a clear night, I think we’ve got our team meeting for the FinTech and payments club tomorrow night which is probably why we’ve not been event scheduled, but on alternative weeks, we want to Monday night we run FinTech in Israel. So, the Israeli FinTech scene is super vibrant, and our next one isn’t this Monday tomorrow but Monday, the 17th, feel free to join myself, Sophia, Goldie in a tie. As we talk more about the FinTech ecosystem but developing in Israel, on, on Monday at 8pm. Eastern so that’s 1am Tuesday morning, in the UK. Madison who works in payment of Facebook runs out, tech, financial services, regular show that’s 8pm Eastern on Monday nights. On Tuesday, we have two sessions in the evening. UK time so 7pm UK, we run a series with the company fin link Finley make L Y and Z. Fin link, make some very interesting solutions for the open banking and embedded FinTech space and we’re looking forward to hosting them 7pm on Tuesday UK time at 8pm UK time is the regular yo pros or young professional sessions that we run for those breaking into FinTech looking to either get in, get into the industry or get established in the industry. Patrick and Olivia run a fantastic show talking to young professionals, learning from them and getting your tips and tricks so do join us Tuesday for yo pros at 8pm uk or 3pm Eastern.
James Sherwin-Smith 2:16:00 On Wednesday, we have the regular 7pm UK show women in payments Power Hour with Samantha and Laura. They run a really fun popcorn room talking about women and payments issues, it’s open to women and allies, so feel free to join them. It’s also the one show that’s been named checked by the New Yorker magazine, it’s a first name check room in their notes from Silicon Valley, and I think it’s because it’s just such a fun room that they’ve got a shout out from New Yorker, which we’re super proud of. On Thursday, at 7pm, we have the next in the series of beyond FinTech from savings Ubirr, so feel free to join us Thursday at 7pm I think it’s, it says in the diary fiver I’m not sure that’s correct. We’ll get it updated and make sure it’s there but as a regular weekly show that we run really exploring how the world’s biggest brands are putting FinTech within the customer processes and journeys to deliver a better customer experience so feel free to check that out. And then on Friday we mentioned it to Jay at the top of the show. We are having a fireside chat at 7pm on Friday. UK time with Ashish Birla who’s the general manager of ripple. So he’s going to share his journey with ripple the date I think he’s been with the company several years now, through all its highs and lows. We’re really looking forward to understanding from him. You know how he went about his career how he ended up working at ripple. And what he thinks the future of, frankly, digital currencies looks like from a ripples perspective, and understand what investments they’re making to try and bring the world together in a much more connected and liquid way. And then finally on Saturday, we’ll be picking up the Middle East and North Africa series again now that Ramadan is will have finished by that point. So even embark to all our friends across the region. But Saturday the 15th of May, at probably the sign of 630 UK time. We will pick up the series I think it’ll be episode seven for Middle East in North Africa FinTech and payments. We’ve talked a lot about buffering, we talked about the Kingdom of Saudi Arabia. We’re looking forward to talking about the United Arab Emirates, but we’re going to wait until the ban has been lifted on top house there, because the moment nobody in the UAE can get onto clubhouse in a reliable way, which is a pity. So we hopefully will move into the era in due course, we might do is maybe do some more on the North Africa. So Darren has recently agreed, one of our moderators to lead for us. So he’s been promoted if you like from moderator to admin, and he’s gonna host a whole set of shows focusing on the African continent. Talk about the FinTech and payments there, He ran a fascinator on the African lions those, you know, roaring loudly to become unicorns in Africa has already been a number of unicorns brought out of the out of the out of the continent already like flutterwave for example, so we’ll continue to cover the African continent and we might team up. Next week on a North Africa quotient, especially given magnesium I’m talking about Tunisia today. Maybe we’ll get her involved too. So thanks everybody for joining us. It’s been a pleasure having you in the room with us again. Please do take the time to explore the room, all the diehards here at the end, get all my love and respect, but it probably means that people you should probably be talking to him again so please do click on that profile photo, and give them a follow and that way that you’ll end up in a room with them again, hopefully following things of similar interests in the future. Meanwhile, all I will say is, enjoy the rest of your weekend if it’s a Sunday for you and we hope you will stay well and stay safe. And please do come and join us again soon. Any closing thoughts, anyone on stage. Before I end the room.
Linda 2:19:41 Thank you so much, James, and enjoy your cricket and brunch
Daniel 2:19:48 Great room James.
James Sherwin-Smith 2:19:50 Daniel, thank you for your contributions today, I really appreciate your, your perspectives on these things, and great to get some more Nordic flavor into the rooms and definitely get some more Nordic sessions up and running again soon because it’s such a fascinating place that we can all learn from and I’ve seen Tyler hanging out in the room again and I know he’s got a lot of experience and talking and being based in Stockholm, so we’ll definitely try and get something set up. I know, Frederick and others run some great FinTech shows as well. Also in tech shows for the region, so we should do that, we should do some maybe collaboration with him as well.
Anuradha 2:20:26 Thanks a lot, James, it was really fun, moderating the first room looking forward to more that
James Sherwin-Smith 2:20:31 Yeah, sorry we shouldn’t be we should have been a lot more coordinated today than we were, but wonderful to have you with us. Really looking forward to some of the cool rooms you got lined up in the pipeline as well
James Sherwin-Smith 2:20:41 And, you know, now that you’ve helped me out with, with Sunday surgery, I’ll be helping you out I’m sure with some of your rooms too so welcome to the team lovely to have you with us, and final thought if anyone if you’re, if you’d like to format you want to get involved with the club, please do get in touch, we’re always on the lookout for new people to help us out. It’s a very simple process if you go to our website and click join, you can learn about joining the team. You can read a little bit more about the team guidelines of ethos we put our moderated guidelines online for like a 10 page document on how to be a moderator and what it takes to do it. You can learn from all my mistakes, and we continue to try and update those documents as we go. I think we’ve worked out, there’s probably eight different roles to being a moderator on clubhouse. It’s that complex. But what’s great is when you can share the load with others, and it makes it really fun, so please do check out that if you’re interested in, in joining the team, we’d love to hear from you. Otherwise, stay well stay safe, have a lovely rest of day and take care. Bye bye.
▶️ Join Sophie & James for the next episode of the #BeyondFintech series exploring how the world’s brands are embedding Fintech. This week we will be talking with Richard Thornton of Insurtech company Hokodo.
By Sophie Guibaud, Chief Growth Officer at OpenPayd ✨ BAAS & Embedded Finance
In the latest #BeyondFintech discussion for the Fintech and Payments Club on Clubhouse, I was able to speak to two great thought leaders about the topic of purpose-driven businesses and how this important trend is affecting banking and finance.
Theodora and Brad Leimer are the authors of ‘Beyond Good: How Technology is Leading a Purpose-Driven Business Revolution’ and the Founders of Unconventional Ventures. I was joined in this discussion by my co-moderator Darren Franks, the Founder and CEO of TalentintheCloud International.
If you weren’t able to join the conversation, here are the main topics we covered and the key learnings I took from it.
How banking needs to change
While energy companies have accepted they are the worst offenders when it comes to climate change and have turned to renewables in response, banking hasn’t had the same Aha moment about resolving financial inclusion. As a result, it can seem from the outside like only profit matters to these businesses. Current profits look obscene to many people and this needs to be talked about, with banks asking themselves “how much is enough?”
Big banks also need to address the fact that they no longer seem interested in wealth generation for most individuals. Already, around 15-20% of financial services have been ceded from large global banks to fintech, with the banks turning their focus to niches they view as profitable.
What is needed is more community banks, building societies and credit unions that are solving a fundamental local problem and have ‘doing good’ for the community embedded into their structures. Sunrise banks in the US are good examples of this because their employees reflect the people they serve, with half being female, 30% coming from communities of colour and 30% from a low or middle income background.
Embedded finance and fintech disruption
Embedded finance is all about bringing the core value of finance into another business model so it can empower the community. For example, purpose-driven businesses can bring the store of value service that banking provides to a community that needs it most. The banking and finance elements disappear almost entirely so that what is left is the value being delivered.
In this way, embedded finance can help to bring financial management tools to the mass market. This seems like a real missed opportunity right now even though it can be done profitably. If finance providers are willing to help individuals grow over the long-term, they can also grow their profits alongside the people they serve.
The key enabler in achieving this is how financial institutions embrace ‘empathy as a service’. This will lead to real disruption, rather than the type that many fintech startups claim to champion. After all, what is disruptive about offering a new credit card if the structures at the back-end are exactly the same?
Purpose-driven businesses to follow
Companies like Patagonia and Ben & Jerry’s were founded on the principles of ‘doing good’ and have this embedded into their structures. As a result, it doesn’t require a PR disaster or investigation to occur for it to take the spotlight.
Right now, the technology giants who leverage personal data for their advertising businesses demonstrate the models to avoid if you want to be purpose-driven. In finance though, there are already examples of companies and individuals who are showing the way forward.
These include organisations like Mojaloop, the open source software foundation creating financial inclusion through interoperable payment systems, which is clearly dedicated to who it serves and why it serves them. The foundation’s Chairperson, Konstantin Peric, is a great example of someone who has moved up through the financial system but always focused on broadening who is served by finance how this is achieved.
What leaders can do to help
Over the past year, when many economies have experienced a recession and many people have lost their jobs, the image of CEOs receiving record pay is not a good one. Therefore leaders who want to start a purpose-driven revolution in their businesses need to look at the people who are making the decisions. They should ask if these decision makers represent the people a business serves and whether they really know how to serve their community.
The truth is that everyone has leadership qualities in them but it requires strength of character to question an existing paradigm. The past year’s events have driven some to challenge the status quo but the onus should not be on individuals to fight their corner. It takes a village to change and it’s something that everyone is responsible for.
A leader’s mindset should be to set a course with a purpose and keep moving forward in that direction. If they don’t, they should be aware that their employees can and will move to make sure the changes they want to see do occur.
Want to follow more discussions like those?
1.Visit the Fintech & Payments club website to be informed of daily events. The Fintech & Payments club comprises 30,000 members and followers on Clubhouse, growing every day. We run events every day on a variety of Fintech topics!
2. Follow me on Linkedin for new updates and live session write-ups.
3. Subscribe to my substack to follow my new series Beyond Fintech, exploring how Brands leverage Fintech to unlock new growth opportunities.
▶️ Fireside chat with James Sherwin-Smith and serial entrepreneur and investor Kevin McKeand – currently VP at QuadPay. We will learn about Kevin’s path from working & investing in cellular comms, coffee & eCommerce companies.
By Sophie Guibaud, Chief Growth Officer at OpenPayd ✨ BAAS & Embedded Finance
Last week, it was my pleasure to speak to Jonathan Larsen, the Chief Innovation Officer at Ping An Group, about where insurtech fits into the embedded finance stack and how insurance providers can remain relevant in a digital customer experience.
I was joined in this Clubhouse discussion for the Fintech and Payments Club by Florian Graillot, Founding Partner at astoryaVC, and we were able to cover a wide range of topics affecting global insurtech innovation.
If you weren’t able to join the conversation, here are the main topics we covered and the key learnings I took from it.
China shows the way once again
Insurance in China operates against the backdrop of a leading digital finance economy where cash has more or less disappeared. AliPay and WeChat Pay account for over 90% of eCommerce and peer-to-peer payments, with the country as a whole having used digital, mobile and cloud technologies to leapfrog modes of commerce seen elsewhere.
Chinese consumers live their lives through digital platforms like nowhere else and embedded insurance must live within these experiences. At the same time though, Ping An’s business existed long before these customer trends appeared and it has had to navigate the changes they produced.
The company has gone about merging and integrating traditional products with digital models while also innovating from scratch in a digital-first way. As a result, Ping An Group includes brands like Good Doctor, the largest telemedicine provider in the world with a market cap of $15bn, and Lufax, a personal wealth management and lending platform that started out with 900 branches but is now totally digital.
It will be interesting to see how things develop as the Chinese regulatory landscape evolves too. The light touch approach of ‘letting all flowers bloom’ has been useful up to now but, as various digital services become more structurally important to the economy, the government is less likely to take a hands off approach.
A cloud strategy that enables innovation
As mentioned, Ping An was around long before the digitisation of eCommerce and payments that Alibaba and Tencent led, and it knew it had to plan for the future as it saw these trends emerge.
The key decision Ping An made early on was to embrace cloud technology. It was a long and costly process to digitise its core businesses and is one that never stops. It may also make Ping An the largest financial institution in the world to have embraced a full cloud transformation.
It was a fundamental move though, as it allowed the company to re-engineer its processes and technology within its legacy businesses. Now, it is a tech-first company that is thoughtful in the way it applies technology. DevOps is a key part of the company culture, with teams building microservices in a modular way so they can be reused via APIs in a ‘plug and play’ fashion across the Group.
It has been able to build an ecosystem of services around customer activity, while leveraging traditional business models to ensure they also benefit from digital. As a result, Ping An now has 600 million digital users overall.
Innovation that is driven by bold leaders
Incumbent insurers and financial service providers that want to drive digital innovation need bold leaders who have a vision of the customer experience they want to create and the user problems they want to solve.
Peter Ma, the iconic entrepreneur who is the Group’s founder, saw that the digital revolution Alibaba and Tencent were leading represented a revolution in how consumers would run their lives and that it would be a huge challenge for traditional finance. In particular, he saw that digital would transform distribution channels that had been used to categorise finance and insurance products up to that point.
His approach contrasts with that of many leaders within financial services, who often have too much of an administration mindset and not enough of an innovation mindset. Conservative boards with too much focus on regulation or shareholders who only focus on earnings will never be able to react to the potentially existential threats brought about by major shifts in customer behaviour.
Therefore, these businesses need courageous leaders who are able to react and make changes that fuel sustainable innovation.
Next-gen commitments must be meaningful
As a result of its cloud transformation and tech-first strategy, Ping An has been able to navigate the tension caused when a traditional insurer approaches building new digital business models.
Typically, this sort of business will see open, digital distribution channels as a threat. Digital can rapidly commotise their business models, reduce the margins they are used to in traditional channels and relegate product providers to the bottom. However, Ping An has been able to set up new digital businesses in parallel to its existing ones without cannibalising what they do.
If you look across the top 50 largest financial institutions in the world, the number of successful new businesses that have been created is close to zero. That means an entire industry is not reinventing itself successfully. In contrast, Ping An is creating unicorns like ZhongAn, which has a market cap of $10billion, because it is putting capital and effort towards them.
It is not afraid to go into competition with itself if it sees a 10x opportunity in a market that could grow substantially in the future. It does this by incentivising managers who will be rewarded as stock owners and who are willing to put meaningful amounts of their own money into the business.
It also accesses third party capital, which in ZhongAn’s case comes from it being a partnership between Ping An, Alibaba and Tencent. Finally, Ping An supports the business without constraining it but is more than willing to take tough action to correct its course or close it entirely, if necessary.
Health insurance provides a big opportunity
As mentioned, Ping An already owns the world’s biggest telemedicine provider in the shape of Good Doctor and health insurance is seen as a huge opportunity.
China has a large ageing population and there is a big focus on health for this reason. The population is experiencing the same issues with chronic diseases related to diabetes, heart issues and obesity as the West. It will not be able to support these growing needs through the traditional offline health system alone.
China currently spends around $700 per capita on health, compared to between $3,000 and $5,000 across Europe and as much as $12,000 in the USA. Building a system that would support this increased need would be unaffordable without technology. Good Doctor is Ping An’s solution, which has been built without reimbursement from the state.
Health insurance for individuals and corporates also provides one of the biggest opportunities for insurance businesses outside China and is likely to be an area where we see more and more embedded insurance. One example of a successful implementation in the US that gives us a taste of what may come in the future is Amwell, which is allowing corporations to pay for their employees’ by delivering doctor visits at 75% of the usual costs.
Life insurance remains a challenge
How to sell life insurance digitally, at scale and as a natural extension of other consumer services remains one of the biggest problems the industry is yet to solve.
For Ping An, this is part of a bigger discussion about how it refocuses all of its financial advisory services to fit into the right context and be more intuitive for customers. It wants to help them think more holistically about life insurance and financial security and to solve these problems within a mobile and digital experience. It is a challenge that all life insurers around the world face, mainly because customers don’t really understand the products. Embedding it within other products, so that it is a service customers can understand in the right context, is one obvious way of doing this.
At the same time though, life insurers have generally been slow to digitise and this may also be holding them back. Tackling their underlying infrastructure issues is long overdue and also very necessary if they want to be able to deliver attractive customer propositions that ensure they are not displaced by newcomers.
Want to follow more discussions like those?
1.Visit the Fintech & Payments club website to be informed of daily events. The Fintech & Payments club comprises 30,000 members and followers on Clubhouse, growing every day. We run events every day on a variety of Fintech topics!
2. Follow me on Linkedin for new updates and live session write-ups.
3. Subscribe to my substack to follow my new series Beyond Fintech, exploring how Brands leverage Fintech to unlock new growth opportunities.