Pivot: Cross Border Commerce Podcast Series

Product or Technology, which is driving the market?

Pivot – Cross Border Commerce Podcast Series

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Wolfgang Koester - Chief Evangelist at Kyriba 

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment where, due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America. And our guest today is Wolfgang Koester. And the particular topic that we're going to cover with Wolfgang today is really around technology, and what drives the ecosystem today? Is it technology or is it indeed the environment itself? I'll hand over to Doug to take it from here. 

 

[Doug Houser]

Thanks Mike. So I want to start off with a story here to lay the foundation for everyone out there, talk a little bit about MyLackey.com. Mike, do you know, do you remember MyLackey? I would be surprised actually, if you did. So, MyLackey was a platform designed to crowdsource people to run your errands, right? Late nineties, Seattle outfit, right? And so, you know, if you need somebody to get you a sandwich or pick up your dry cleaning, right? You would be able to go online and get someone to say, Hey, you know, for, yeah, sure. I'll do that for $10, right? So bottom line, MyLackey, no reason nobody really remembers it is, you know, it did not last, but then 10 years later, TaskRabbit®, essentially the exact same model, wildly successful, bought out by Ikea, we all know the story. And, so what was the difference between MyLackey and TaskRabbit® and, you know, what did MyLackey lack? So Mike, what did MyLackey lack? Do you know?

 

[Mike Robertson]

I don't really know. I feel like this is a bit of a layup.  

 

[Doug Houser]

Yeah. So MyLackey, what MyLackey lacked was our phones. Ubiquitous GPS attached to people. Right? So that technological innovation is really what drove a perfectly great product idea, but actually made it successful. Right? So the technology had to be symbiotic with the product at the time that the products launched. Right and so that's what we want to kind of talk about here is, which one's driving right now? We see a lot of new technologies coming out in this space and the, in the cross-border commerce ecosystem. Is the technology driving the product, is product driving technology, or what's the push pull of either of those, right? So, Wolfgang, I'm going to hand it over to you, and before we get into this market, I want you to talk a little bit about FiREapps, right? You founded FiREapps and that was recently purchased by Kyriba, where you're chief evangelist. So when FiREapps was founded, it was the Renaissance in corporate EFX training. Right? It was going on. But, you know, clearly that market was booming, but what other factors in the technology landscape also drove you to say, you know what; this is a great time for this idea of an exposure management tool connected to ERPs to be launched in the marketplace. 

 

[Wolfgang Koester]

Yeah. Thank you for having us, by the way, first of all, so exciting to be on Pivot, so thank you for that. To answer your question, I'm actually a pretty conservative business person in the sense that I always think about what's the problem we want to solve. And then you got to ask yourself, can you solve this problem? And can you solve it now? And I think that the issue that I think Lackey had was they couldn't solve it now. So timing is crucial in this area. So when we looked at FiREapps, we had actually, before we came out with any technology for two and a half years, helped corporations understand and manage their current exposures manually and then started seeing what was actually missing. And the beauty of that was that you started having software to service raise its weary head, where you didn't have to implement technology at every single customer. And when that came about, that was kind of like, do you have a phone with the location GPS or not? That really said to us that enables us to do it because we couldn't get the business model otherwise to actually work, because it would be too expensive to implement and to maintain and to break into that market and make it easy and safe. Yet, be on the forefront of it is all about timing. So I'm a big fan of actually not building technology to find a problem, but rather find a problem, solve the problem, and then ensure you have the right technology from A to Z to do it, and then make sure the timing is correct. 

 

[Doug Houser]

So that’s great insight. And I do want to talk a little bit about that now, how it is in the marketplace, right? How we're seeing that now. And I say this because a lot of what we're seeing is a technology that's a solution for, and then we're trying to find problems to attach it. Blockchain is the greatest example of this, right? I think we all agree, right? Where you see oh, we have this great technology and everyone's trying to say, okay, what problems can it solve? So do you think that the outfits that are going to be the most successful is really going to follow the path that you're talking about, right? They're going to solve problems first and then apply the appropriate technology rather than trying to; you know kind of shoe horn, something into a technology as the solution.

 

[Wolfgang Koester]

Yeah, I really do. And I mean, I can't think of too many examples of very successful companies that created a technology and then try to find a problem. I think that when people, you know, call it any sort of technology firm, looked at what they're trying to do, they had a vision of what problem to solve. And with that vision, they had to push technology along and to ensure that they had it. So it's the interesting part about this is that you don't rely on five-year old technology to solve your problem. You actually have to stay ahead of that while you're trying to solve the problem, where things going and then do not succumb to the market forces. So the market forces, when we started FiREapps, where people said to us, you got to be crazy, if you think that we will allow you to give us a script, to run behind our firewall, on an ERP system, nobody touches the ERP system. And then you're going to take that data and you're going to uploaded into a cloud somewhere. You've gotta be kidding me. And there were certainly, especially technology firms, interestingly enough, who said, we're not going to do that in the very early stages. And then they said, we want you to solve that problem, but we want you to solve it on premise. And probably one of the tougher decisions I had to make during that time was to really say, I'm not going to take that customer today. Eventually they're going to see that this is the way it's going forward. And today, if you're coming with even a hint of an on-premise solution, that probably they're gonna look at you and go next, you're living behind the times. So again, it's kind of interesting because you have this you want to solve a problem. You got to be at the edge of the technology, make sure you have all the technology, but don't be belated to the technology because that combination is what ends up making it successful. Look at any companies; we can go through the Amazons. We can go through anything is where did they come from? And it was my opinion all about, was a problem. And what we did, when we looked at FiREapps and initially started, as you know, just helping companies understand their exposures on their balance sheet, on the monitor assets, liabilities. People said, you can't do it! Funny enough - now everybody agrees you can do it, but at the time nobody thought we could do that. I mean, everybody says, that's impossible. And I said, well... go ahead.

 

[Mike Robertson]

It's kind of interesting though, isn't it? Because when you think about this, this whole solution or technology or product or technology, it goes to this need to be able to be flexible, I guess, because, you know, we all know many companies that have stuck to the knitting, so to speak, and it failed because of it or were successful, didn't pivot, to use that word, and then things changed. I mean, could you speak a little bit about how you look at that? I mean, ultimately the cross-border commerce has a number of players, those in the Fintech space clearly there's legacy banks and so on. Could you speak a bit too how you see technology driving those sorts of changes and the absolute need of CEOs to be aware of, you know, to use the words you were saying before the coming change, being on the edge of it. How does one approach that strategically?

 

[Wolfgang Koester]

Yeah. So I know I look at this, the problem of cross-border payments, really being one of, it’s somewhat archaic that we have processes that may take two days to settle a transaction. Okay. But it would require a pretty significant change of the monetary system or create technology that actually addresses the problem and settles things quicker, faster, and cheaper. And I think that from various aspects, everybody's working on that problem. From our aspects, whether it's on the FiREapps side, or whether it's on the Kyriba side, is we really look at helping companies get to push a decision to a financial institution. And I say that specifically, we'll talk about that in a minute. Why finance an institution in order to execute for liquidity and then feed that back? We feel pretty strongly that the future remains with the financial institutions. And I know that there's a lot of players, who want to be quasi friendly in that environment to financial institutions, so maybe they have enough liquidity not to have to be. I think that that's a very dangerous place. So the thing that, the problem that we're looking to solve is, how do you make it easier, cheaper, and easier to reconcile, quite frankly, for corporations? What are the problems that a corporation has with cross-border payments and how do you solve that? Not with a number one focus on pricing. 

 

[Mike Robertson]

See that's kind of fascinating to me. How, when you think about the corporate problem, as you phrase that it's very neatly phrase there, how does one really, or how do you see a version of, I'm gonna use the word collaboration in a space where if financial institutions and let's call them the legacy institutions exist and they have a role to play and given the way I sit on, you know, of course hoping that is the case. And then we have a raft of people finding utility solutions out there that aren't traditional banks. And they're looking at corporate problems and saying, we can solve these. Speak a bit about how you see those vendors or those solution providers and legacy banks collaborating in the future. How does that look for you? 

 

[Wolfgang Koester]

Well, so I think that one should not look at a problem like this in isolation in its own silo. And if you do, then you could easily make the argument for that. These technology vendors would be able to take business from the financial institutions, but I think that's a very narrow minded thinking because at the end of the day, financial institutions were around for thousands of years, as we all know, and they've been around because at the core they provide liquidity and not just provide liquidity one, they provide liquidity in lots of different areas. And whether it's depth, whether its use of the leverage of the balance sheet for all things are. And if you, as a corporate, aren't willing to pay one way or the other for a service, then you will not have that service any longer. And I think that's becomes the issue here is, you know, at some point that corporate is going to say, well, I really need it during this COVID crisis. I needed really needed right back. I really think that this COVID crisis really was a great highlight about the importance of liquidity in general, and that being the core provision of a financial institution and that liquidity isn't being really provided by these other technology vendors.

 

[Mike Robertson]

Hmm, Interesting! 

 

[Doug Houser]

So, yeah. So to push on that just a little bit, and I do agree with what you're saying Wolfgang, because it is very interesting that simultaneously during COVID, right? What we saw is an appetite for digital solutions, which would immediately have people thinking Fintech, right? But exactly the same way where this, there was absolutely gravitating towards the security of major liquidity providers, right, in the banks as well. So that would have you thinking banks. So I guess where is the power center line also between those two, right? We all know that they've gone from competitor to collaboration and back and forth. Where do you see that in the market right now? Where do you think we are in that space?

 

[Wolfgang Koester]

Well, I'm actually very, if I may put it this way, you know, black and white on this in the sense that there's really not that much grey to me at all. There's a handover process. There's a pre-trade, trade and post-trade. And I feel that financial institutions will remain at the center of trade. And there's pre-trade, which has a lot of preparation, which the financial institutions are getting more and more involved in to get closer to the customers and working with Fintechs, who are not looking to get into the trade space. I think this is a really important aspect that I've seen again and again. Are they truly long-term these Fintechs friends or they frenemies? And if they're frenemies, one has to be very careful as a financial institution to work with them, because then all they're trying to do is get enough volume to compete. So, but I think that there, it really depends about where the pre-trade starts, which in my opinion, is raw data to the base decision, which is really not something that as a base decision, financial institution wants to get involved in, but the financial institution wants to get involved. Okay, now you have a base decision. You need to, you know, sell euro by dollars, whatever it is, 40 million, whatever. Now let's put about what product do you use. Is that a cross-border port is, what are the products, financial liquidity products that actually fit around what you want to do. And then we're going to give you the output of that, but you need to put that output somewhere else and need to push that. And I think what's interesting, there's enough space for the companies like us, Kyriba, I think we're as good position as anybody honestly, in this space is to really have ERP integrations for, and with the banks. In other words, where a corporation's problem is, I've got a lot of banks from Bank of America, I'm hoping not too many banks, but that's unrealistic to think that there's only one bank, but a lot of banks, you going to have a lot of accounts. I want to actually be able to as easily as possible transact with the banks, I want to transact with. And the ones who are investing in it, certainly Bank of America being one of them, they're the ones who are actually going to stay ahead. And you will see a dichotomy of the ones who are not investing in technology and the APIs digitalization close to it that are going to fall behind them.

 

[Doug Houser]

Okay. I just have one follow on to that, Wolfgang. I want to talk a little bit about not only the Fintechs and the banks, right? But there's another side of this now with other players, which are the large tech players, right? And the Fintech integration with the large tech players, who have a user base, have user experience knowledge, right? And also of course have capital as well. How do you see that evolving? Right? I mean, as technology players, the large technology players as a competitor to the banks via the Fintechs, right? Where you actually say, okay, that's great that the Fintechs are providing the service to the banks, but they can also provide it really to anybody else who has a user base or capital. I think we see a little bit of this. Obviously the regulatory framework is something that adds complexity to that market, but how do you see that evolving as well as big tech looks to move into the banking space?

 

[Wolfgang Koester]

So you're talking about like the Amazons and the Apple Pays on these sort of things? 

 

[Doug Houser]

Exactly, exactly! Where they're fully integrated with the Fintechs. Listen, they can do the user experience better than the banks, they would say, but of course the banks still have the accounts of liquidity, but they figured, you know what? We have the capital as well. We have the relationship. This is something where we can disintermediate the banks from at least some stand point.

 

[Wolfgang Koester]

Yeah. So I'm looking at that pretty similar to, you know, in, when we started FiREapps, we have to ask ourselves and every investor asks the question, why isn't SAP doing this? Why isn't Oracle doing this? They are, the ERPs. They are the, you know, owner of the data. Why aren't they going in there? And my answer to that question was it's not their core business. And people, it's very dangerous to walk away from core business. Apple's core business is not Apple Pay. Apple's core business, the Apple Pay is facilitating payments, but are they really going to go away from their core business to go into that bit? I doubt it. I really doubt. And I'm not even sure the investors would allow them to quite frankly. So I think that you have this area where people still go back to what is their core business. Amazon, okay, we were a core business. You may say, well, they were book, you know, they're buying and sell book. Now, they were buying, selling a product and book would being the first. But I think you're going into that space. You're going into a very different space and that can work if it supports your product. You know, look at the General Motors accepting corporations and the financing of these things. But is it really going to get you into that business to compete with financial institutions? I would say that it's a bit difficult to create that much liquidity. Now, I think we, you're going to see this becoming very interesting. Sorry, go ahead.

 

[Mike Robertson]

No, no, I hate to interrupt you. I'm just fascinated by what you said there. You know, I do want to gently challenge that because I'm not sure that and perhaps this is the definition of core business. It feels to me like the successful companies in the large tech space of, sort of, you know, there's almost a concentric ring of how they view their business. And so you might use Amazon as an example from, you know, retailing to web services for, you know, going into that space movies. It feels like the successful large techs are able to re-imagine what core is for them. And I think in that sense, the interesting area is when there's sufficient importance for the actual transaction within that business construct, then you can sort of see them imagining a banking type utility, which they embed within their user group and then provide a user interface, which is just generally more attractive or more agile than that, which the user was used to. I mean, do you see that that's a possibility?

 

[Wolfgang Koester]

I mean, I hear the argument. I actually think that if you look at technology firms, they evolve from one product on to become a platform. And I think that's what you're in my, that's how I would interpret when you're saying it's kind of becomes circular and becomes bigger and it's supporting more and thinks, and does it more interactively, etc. At Kyriba, we do the same thing, right? We had at the, at the core, we had the visibility to cash. Then we started looking at accounts payables and then receivables, and then that kind of just kept going to the point that now we have a full on platform that at the end still supports the vision about giving people the visibility and then the ability to manage what they can see. And I think that at the end of the day, an Amazon, while they certainly can do any and everything, you know, with enough time money, you can do anything. But I think what they're trying to achieve is they're still trying to be part of the financial ecosystem without being the ecosystem. And I think that, you know, if you look at your, why can you add your American Expresses and your Visas there? Is Amazon really thinking about taking on these credit cards and the virtual cards, et cetera, et cetera, just doesn't feel like that's the core business. Of course, making it easy as possible to purchase as much product as possible and facilitating that. Of course, that's part of the platform. 

 

[Mike Robertson]

Yeah, yeah, of course. And then, you know, and as part of all of that thinking, you know, as they evolve and as they move, you know, and using my words carefully, as they, as a large tech, not necessarily Amazon, but any large tech moves closer to, you know, legacy style financial services, then there's of course the regulatory environment, which comes into play. And I suspect some of the decision-making happening in these large organizations also takes account of the potential regulatory change. Don't you think that may occur because of that? 

 

[Wolfgang Koester]

Absolutely! I 100% agree with that. I think that, you know, you just saw it with Alibaba and Jack Ma, right? All of a sudden they said, no, no, no, no enough of this. I think that he's probably the ultimate example of this. It's always been, you know, it's kind of the same thing about this debate about cryptocurrency, you know, and I have never been a huge fan of cryptocurrencies for the sake of replacing a government issued currency, replacing a government issued currency. I have been a big fan of A. Blockchain and the technology and B. Cryptocurrency issued by governments. And I think we're going to end up seeing that, and that will create faster, better efficient financial markets, but at the end of the day it's the regulatory environment that's going to slow that down, and go back to when all this thing came out with a Bitcoin. There's a senate bill that has never been challenged or try to be passed, but was drafted to be passed, which changed the definition of a financial institution to include issuance of currency. And those three words would actually change them and require them to be a regulated financial institution under the, you know, in this case, the United States law and therefore fulfill all the regulatory environments, which are there to protect the market and the individuals. 

 

[Mike Robertson]

Of course, of course! And that's fascinating really, because just a final thing on that crypto side, because ultimately one does get a sense that in the same way, we can ask whether product drives technology or the other way around? One can also say, well, does the evolution of the crypto discussion, is it driven by simply liquidity from people, you know, investing so to speak in that token? Or is it driven by or held back by the really true environment? And it's a fascinating area because sometimes, you know, as we could see growth in, let's say just use Bitcoin as one example, whether one agrees or disagrees with the underlying premise may eventually be a moot point. If the token itself has appreciated to a point where it's, you know, now accepted or perhaps more ubiquitously used. 

 

[Wolfgang Koester]

Yeah, and I feel that's going to be a while. I think the volatility within that is just too high for corporates to really take. We know that there's some examples of corporates to some degree self-serving who are accepting it. And we've seen how Tesla is starting to look at these things. But, maybe I'm a little too conservative, if I still believe that the government issued currencies as were, it's going to continue to stay. 

 

[Mike Robertson]

Hmm. Time will tell, I agree with you.  

 

[Doug Houser]

Yeah. I think that, I want to touch a little bit on this about crypto is great because it's so polarizing in a lot of ways. And I think that one thing I want to talk about with technology is the taking sides’ aspect of it. Right? We tend to, and this goes back to what you were saying, Wolfgang, about solving a problem, right? Being the center of all of development, versus a technology. You get something where there's a technology that comes out and people start taking sides as to whether or not it's going to be either completely revolutionary or nothing. Right? And the bottom line is much of the technological advancements are really, they're tools that you can use and some are better than others for different use cases. Right? But, I don't know, I don't know if it's actually serves anybody for us to kind of think of technology as either a revolution or a dud. I mean, it's like, that's great that we have more tools in the tool belt and we can build around them, but only when appropriate. Right? I mean, I think that that's what we want. We want to build solutions with the appropriate technology versus, you know, again, shoehorning it into a technology.

 

[Wolfgang Koester]

Right! And I think then you can actually differentiate between Blockchain and cryptocurrency and make the Blockchain, the technology that it is and cryptocurrency a product that they're trying to push on that Blockchain.

 

[Mike Robertson]

Yeah. That makes sense. I mean, and I think that's, I think that the use of currency and coin hasn't necessarily helped the argument because it takes the mind to a certain place, you know, but I'm with you. I think it feels like, in fact, this is probably a neat segue to a question about technology, you know, and your thoughts on it because ultimately, if one understands the potential of the Blockchain or distributed ledger technologies, and the applications that could be built on those. Where do you see that specifically narrow on this? Where do you see that type of technology potentially playing a role in the Fintech space in the future? 

 

[Wolfgang Koester]

Well, I think that it will continue to have a role as it helps companies track products and transactions. So I think that matching the two up is something that's going to be a, so you're going to start seeing where all of a sudden, in my opinion, in 20 years, you won't have any more borders when it comes to products. Maybe a little bit brash of a statement right now, given the administration we just came from, but at the end of the day is if you can track and you don't have to stop a truck to get checked out because you already know all the products that are on this truck and you have the DLT to support it. You actually start smoothing out and speeding up the supply chain. And I think that these sorts of things, this word DLT plays a significant role and finance will be part of that because at the end of the day, somewhere, somebody is going to get paid and you're going to have technology staying on top of it, making sure that when, what got delivered that a payable is paid and a receivable accepted and then cash is exchanged. So I think that there's lots of applications. I was a big fan of IOT, Internet of Things, especially when they started off on the figuring out where bicycles were, you know, and then that obviously took over into the scooters, etc. But the idea was pretty phenomenal that also, and it was really because you had the technology to be able to exchange things that fast and track where those scooters and bikes are.  

 

[Mike Robertson]

Hmm. You can kind of see that transparency really working, I guess, into all sorts of areas in financial services. I mean, one obvious one might be transparency of fees within a particular service supply chain, you know, and how it would be possible, simply to embed that knowledge within the construct itself. 

 

[Wolfgang Koester]

Well, that's, you're touching on another, I think really phenomenal and very interesting part, which is, I actually believe that the right thing to do is to be able to attach all fees to every single transaction and actually give a better picture of the balance sheet and the cashflow of a corporation. So, you know, I would challenge the question about, okay, you are managing currency risk, let's go right back to that, which is what we try to solve and did solve with FiREapps. You're managing currency risk, but are you managing the foreign exchange gain or loss line. Or are you managing the expense and where is it? That's not always very clear, right? So, if you're managing it, but you buy the technology. If you buy the technology, you'll be in the expense side and the impacts of the foreign exchange gain or loss, and going into the foreign exchange last line below the line. But wouldn't it be better if you could actually say the overall impact of it, including the cost of managing is a foreign exchange gain or loss line. And I think we're going to go right into that direction, and DLT will be part of that, as really being able to track it. And I think we're going to see this entire industry in the financial parts, going much more oriented towards transaction fees and transparency thereof.

 

[Doug Houser]

So that leads me to have a question about, I mean, we love transparency and we also love as you're talking about transparency and a Blockchain security. But that's very tricky also from a technological standpoint is, and from a regulatory standpoint, is we live in an era where we want transparency, security, but we also want to share our data with everyone because we want to be able to make our choices and open banking and everything as well. So in that space, right, you definitely see some contradictions about how data has to flow. So from a technology standpoint on your side, what do you see as being able to kind of solve that problem? Because something like, we talk about Blockchain solving problems of security. You don't necessarily want everything to be visible, only sequentially or not visible at all, right? There are very good reasons to have some data actually be accessible and there are very good reasons to have it distributed, right? So, talk a little bit about that, about the push/pull in the market of how technology is driving, both openness and security. 

 

[Wolfgang Koester]

So, I do believe that you're going to continue to show that a customer, and let's talk about corporates, want absolute transparency, and they're going to continue to want transparency towards what they are doing. And they want that in the most secure environment. I do think that those two things are not contradictory. I do actually believe that the sharing of data with everyone is actually reached an inflection point where actually people are questioning that. And actually you're going to see that pendulum, in my opinion, actually coming back. You want to actually be able to control who sees what data. And so if you have to look at those three variables, I would challenge that the variable of sharing data with everyone is very questionable and something that people are going to resist more and more too. I know that you have the, obviously the, you know, certain generations who wanted to see a show, everybody everything about everywhere, where they are, what they're doing and all these sorts of things, but you do actually see even that generation starting to question the positives and negatives of that. And I think that for corporations as executive, same thing, if you shared all the data with everyone, you have no more competitive advantage, if you take the extreme of that. So it's really important to make sure that you keep a competitive advantage. Transparency and security, absolutely! It's going to continue to move forward in that direction. And companies like Kyriba; we have to stay five years ahead of that from a security point of view. And we did the same thing in FiREapps, because that is part of our product. Now, if you're building a car, security is not part of your number one, it's not your core product. But if you're building technology, financial technology, security is absolutely part of your product and part of your investment strategy. 

 

[Doug Houser]

That's good question, right? Is that as we, for example, see our clients build out their own financial technology platform, and I say that because what they're really doing is they have their core financial activities that they have to do, but more and more, those are comprised of multiple systems, multiple providers, and downstream from those providers are other providers, right? And so we've created this web where data needs to be permissioned out, to not only your immediate partners, but also then their partner’s partners. And so how's that going to be managed and going to be driven? Is when you're essentially creating these apps of apps everywhere, right? How is data going to be protected and also, who is going to control that and really, how do you balance control versus what becomes an operational nightmare really, to try to manage that data flow?

 

[Wolfgang Koester]

Yeah, it's a key question. It's going to continue to evolve; I actually feel that at the end of the day technology is going to push, to give those controls back to the users. And, you know, that control was taken away from the users quite frankly, in the last 10, 15 years, so I think we're going to see that there's going to be much more control of people wanting to be able to say this data goes there, and this data doesn't go there. And I think that becomes a key discussion that I think you're going to see. But the apps of apps is an interesting process. So in the meantime, at the likes of Kyriba, we have to ensure that we still do what the customer needs and what the customer wants and not take it beyond that. So the customer doesn't want, you know, it's a great example of FiREapps, for example, when the first question was always, okay, you're working with this financial institution, are they able to see all our data? And the answer was no. No, why would they, how would they? Well, okay. And they got comfortable with that, interestingly enough, because we weren't part of a financial institution. We're not. And they got very quickly comfortable, but it was all typically the first question in due diligence to somebody says, can anybody else see that data? And so I think that's, especially when it comes to financial data, people are going to remain rather protective of it. And they want to be able to tell you exactly the workflows. And I think this is where platforms become so important because there the user can control what part interacts with what part easily. And the platform is the easily part of this thing. When you get an app and you try to control all these apps and pull all these together, and is there a lack and therefore, could that be a risk of security, which it could, then that becomes an issue. But if you're creating a true platform where you're saying, okay, here's the environment, here’s everything that can be controlled and then allow others to plug into it, to be able to interact per permission of the corporate. I think that's the direction this is going, we're already seeing it. 

 

[Mike Robertson]

Yeah. It's a fascinating thing because in many ways, if you ask anybody, do you care about your data? And most people say yes to that question. But I sometimes get a feeling that in some senses, it's a little bit like a terms and conditions click through for a lot of people when they're actually faced with having to control permissioning, you know, how much attention is really paid to that by individuals, it kind of goes to the need for solid policy really, because ultimately when you think about it, the data conundrum between a business to business is a very different conversation between business to consumer. And ultimately the permissioning piece of that, it needs to be controlled, I think, in stronger corporate policies so that one can use the utility or the goodness, if you like, behind data share, but don't abuse it. And I think that's ultimately the challenge. You know, I challenged an executive here at the bank once about that, and I said, we know so much about our users. And he said to me, yes, we do, but we can't use it because it would be, perhaps construed as us overstepping the mark. And I think that's part of the challenge. And frankly, it's just really about, we're moving into a place where I think, and would you agree that corporations are going to be expected to do the right thing? Not necessarily just what the regulation says, but do the right thing by some sort of moral standard, would you say? 

 

[Wolfgang Koester]

Yeah, I think that eventually, and this is where they always say, look to the financial institutions, the consulting firms. They do what's, you know, what's always been the case. I feel what they try to do, which is best applicable practices. They really need to look at what applies to us and what are we comfortable with and what are we not comfortable with? And when it comes to finance, that's probably the most conservative part within a corporation, right? The finance part of the treasuries, etc., is they're the laggards when it comes to innovation, so to speak. And I don't mean that in a negative way. I mean that in a, they're very cautious about what to do, so they don't make a mistake, which could be extremely costly, because at the end of the day, cash and liquidity is the bloodline of that company. And you don't want to mess around with that. 

 

[Mike Robertson]

Absolutely! Yeah. By nature there's a risk culture, I guess that goes with those institutions for very good reasons. Wouldn't you say, Doug? 

 

[Doug Houser]

I agree. And, I mean, I think in a lot of ways, for good reason, right? I think that it's at the forefront of when we talk about treasury, which is really, you know, and all of us in our treasury business and Kyriba in treasury management. It is a risk managing function, ultimately, right? And while it gets tied up in all of the financial activities and payments and all the actual commercial business, effectively at the end of the day, they're managing risk. And so that's one thing I want to talk about, Wolfgang, is how do you think your business, treasury technology specifically, how do you think that changes over the next 3, 5, 10 years? How do you think that that's going to look, what's going to change about the way you approach corporate clients and how you interact with the financial ecosystem? 

 

[Wolfgang Koester]

I think we've seen, COVID really high-lit this, if I may, that really financial functions have been extremely siloed within corporations. And, you know, AP may or may not be within treasury, etc., etc., etc. And what you're going to see, and we're well prepared for that is to really get everybody around the proverbial table to continuous to discuss this. And we actually came up and I, look, chairman CEO of Kyriba came out with a paper that we supported in the September before COVID. So about six months prior and really advocating that there will likely be a chief liquidity officer or a person that is strictly responsible for anything related to liquidity, which is not just cash and his working capital and its risk. It embodies all that its tax implications, everything, and then work with the rest of the teams to do that. And I think you're going to see, just like we did a FiREapps at the end of the day, FiREapps foreign exchange understanding it. We really had to put different people around the table in order to have them resolve it. And then we had the technology to filter that. But at the end of the day, one of the questions I used to always ask people when it comes to understanding your balance sheet exposures. I'd asked the treasurer, do you actually have a password for your ERP system? And 95% of them said, no, they had to wait for the controller, who had obviously the key to give them the data. And so that doesn't make sense. So it's the same thing here. It's, treasury isn't just going to be treasury any longer. And we're positioning for that. It is all of the above; its cash, its working capital, liquidity, risk, its currencies, its international business, its flows, its timings. All these, you can put them in about eight categories, but you're going to see that effective companies are bringing more and more of this decisioning together and not doing one, the other. You will recall, Doug, for example, when people used to say, okay, I'm going to settle a transaction, and then they didn't realize that that reduced their exposure, but they still had a hedge on. So they didn't realize that it needed to take that hedge down maybe a day, maybe a week later. So those were two silos because one, you were AR/AP and then the other one, you had foreign exchange exposure. How did you bring those two together? And you're going to see the same thing as treasury becoming a much more strategic partner within the ecosystem of finance, not just a cost center. I think that pendulum is swung too far the other way. And you're going to end up seeing that corporations are going to want to have an integrated platform to manage their liquidity holistically. 

 

[Mike Robertson]

Fascinating stuff, really has been, Wolfgang! Thank you so much. It's really going to be interesting to see how the current debates evolve over the next number of years and how large tech, how Fintechs, how Reg-tech, how legacy, financial institutions play, and of course then how regulators evolve as well with this whole space. I want to thank you very much, Wolfgang, for joining us, both Doug and I and this podcast, the Pivot Series. 

 

[Wolfgang Koester]

My absolute pleasure! 

 

[Mike Robertson]

And just ask whether you have any final thoughts before we wrap up?  

 

[Wolfgang Koester]

No, I think liquidity is where everybody's going to have to focus on, and to make sure that we keep solving a problem with technology, not a technology in finding problems. And, but I thank you all very much. Thank you for your vision and thank you for including me in this great conversation.

 

[Mike Robertson]

You're welcome! Thank you for joining us. You’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

“Bank of America” is the marketing name used by certain of the Global Banking and Global Markets businesses of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. © 2022 Bank of America Corporation. All rights reserved. | 4475770

Pivot – Cross Border Commerce Podcast Series

Data and why it's mentioned in almost every presentation?

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Dan Wright, CEO of Data Robot

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment, where due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America.

 

[Doug Houser]

Hey Mike! 

 

[Mike Robertson]

Great to have you again, Doug. And for today's podcast, the subject is, Data and Why it's Mentioned in Almost Every Presentation. And we're joined by our guest, very excited by this, Dan Wright, CEO of Data Robot.

 

[Dan Wright]

Hey, great to be with you today. 

 

[Mike Robertson]

Great to have you here, Dan. Thanks very much. 

 

[Doug Houser]

Dan, first of all, congratulations, newly-minted CEO of Data Robot, and we like to kick off these podcasts with a bit about your personal journey. But also, could you discuss a little bit about what you see as the future of Data Robot, considering you're new in the position right now of CEO?

 

[Dan Wright]

Thank you for the congratulations, but to start with my background, so I actually was a lawyer, and realized I wanted to do something different with my life. And it was kind of looking at some of the startups I was working with and watching founders take just enormous risks, but build impactful companies that had a really positive impact on the world and on the lives of everybody around them, and so, I actually jumped into an early stage startup called AppDynamics and joined the company when it was around 150 employees and scale it to the point where we had thousands of employees all across the world. And then we got the company ready to go public in 2017. And two days before our IPO, we got a call from Chuck Robbins, the CEO of Cisco, and he said that he wanted to buy AppDynamics for what at the time was a record multiple that anybody had ever paid for a software company, obviously since then that's changed. And that looks like a bargain now, but at the time it seemed like a great offer. And so we ended up taking that and from there joined Data Robot. 

 

[Doug Houser]

So great! I want to get into our topic, which is Why is Data Mentioned on Every Presentation, and how the data space has evolved since you've been a data robot, and also, you know, since you been in technology. 

 

[Dan Wright]

So, you know, companies have more data than ever, and as the volume of data is increased, the cost of compute at the same time has decreased to an all-time low. And so that combination, more data than ever, also changing more rapidly than ever, and the cost of compute being at an all-time low means that companies have a massive opportunity to leverage the power of their data, to make meaningful business decisions and enter AI. And now what we're seeing is companies really unlocking the power of their data, leveraging their data, to transform how they make critical business decisions using predictive AI driven business insights. And I always like to say, it's the difference between, you know, reporting the news and helping to create the news. And that's really where this technology is going and it's going to have a massive impact. I mean, PWC forecast that it could contribute up to 15.7 trillion to GDP globally between now and 2030. And that's more than the current output of China and India combined, so just a huge impact. And, you know, I'm really seeing this every single day as many of the top banks like Bank of America are using this across every part of their business. And it's not confined to banks. It's really the top retailers of the world insurance companies, healthcare companies, and even the government, you know, we've been working with the pandemic response with the government to help with that. There's really an endless number of use cases in every industry, all across the world. And it's really just about who can adopt this technology fastest to unlock the value there. 

 

[Mike Robertson]

The momentum seems astonishing. What are your thoughts around artificial intelligence? What does that even mean and how does that happen?

 

[Dan Wright]

It's funny you mentioned that. Artificial intelligence term, I think, is very misunderstood, and I think the, you know, the term is actually it invokes feelings of fear, oftentimes in people is what I've noticed when I bring up that I work for an AI company. People, you know, they seem like, you know, the Terminator might be coming after them and that's not the case. That's why our mascot is a very friendly robot. We actually talk about AI in the context of augmented intelligence, which is taking machine intelligence and combining it with human intelligence and empowering humans to do things that otherwise never would have been possible, right? And that's true in a number of ways. One is just the accuracy of the decisions that you're making, so being able to more accurately predict the, you know, staffing needs of a hospital or the rebates that you need to give for a car, or what is the best optimal pricing of a security? Like there are so many different things that you can optimize if you leverage machine intelligence, but then also you can have the human in the loop to make sure that it's guiding the machine intelligence and also for things that humans are just better at like creative things that machine intelligence is not optimal for. And so I think, you know, this idea of AI generally needs to be clarified. And you'll hear us talking a lot more about augmented intelligence being what is happening out there in the world and the idea of, you know, general intelligence, I think, we're not quite there yet, but certainly you can picture a world where AI takes on almost human-like characteristics and there's some things that actually exist in our platform along those lines, but we're just scratching the surface and that's still a ways out versus where we are today. 

 

[Mike Robertson]

That's interesting because you've touched on something there, which I think is a relatively human aspect that you mentioned the fear around that, you know, aspect of things, and one can sort of see how, if you think of the augmented world and how, I guess decision-making and processes is actually embedded in the day-to-day environment, such that you may not even notice it. Where does the fear factor come with that in humans? Why do you think humans have a fear of that, so to speak?

 

[Dan Wright]

I blame Hollywood. No, I really do think, you know, it's funny that movies like the Terminator and AI and all these different movies that have come out over the years and novels, right? People have internalized that, and they think that, you know, AI and that machine intelligence is out to get them, and in fact, the interesting thing is that it's really the inverse. AI is humanity's friend and is solving problems that were previously impossible. And I see that every day, you know, I mentioned some of the things that we've done with the pandemic response, lives have literally been saved that would not have been possible without machine intelligence in a very large number of lives. And also, things like figuring out what can we do to more quickly, more precisely stop the spread of forest fires. One of the things that we did through our AI for Good Program is we worked with a company down in Chile that installed sensors on trees and was able to take in all the particles in the air and using Data Robot, we could predict if a fire was going to break out and, you know, make sure that the response was significantly faster to limit the damage. And I'm a resident of California, I'd love to see that across our entire state and believe me, I'm trying to make it happen. But there's applications in healthcare, more accurately diagnosing diseases, right, before they're not as treatable. And, you know, even things like demand forecasting, things like impact real humans in terms of making sure that there's, you can get what you need, when you need it, and taking a lot of the guesswork out of all of these different things. And then there's just the time that it saves everybody. If you're doing these things, using automation and machine intelligence versus manually, without the data science, and so I think, again, it's kind of Hollywood has caused the problem, and I view it as part of my job to kind of dispel some of those fears and those misconceptions about AI. And we can do it through one telling positive stories about the impact that we're having in the world, but also, you know, helping to democratize AI and bring it to the masses so people can see for themselves the value that it can create.

 

[Doug Houser]

So building on that, I'm going to flip that a little bit and also talk about the other phenomenon that sometimes you see. Which is the data made me do it, right? The aspect of data being used, as not only, when people say data driven decisions, that's great, but your decisions also should be driven by strategy, by experience, by a lot of other things. So how do you look to balance that? 

 

[Dan Wright]

It's such a good question because we believe; I believe it is critical that you do a couple things, if you're looking to adopt AI. One is you have to build a system that has trust built into the very foundation. And that's something that we talk about at Data Robot, and we're going to be talking more about this idea of augmented intelligence. One of the pillars of that is this idea of trust. That in order for a model to be put into production, you have to be able to know that it will only help you, and it will never harm you. And how do you do that? That the AI actually has to be humble. And so we have something that we call Humble AI that will alert you if there's any sort of anomaly in the data that might throw off your model, or if there's another issue with the data that might, you know, cause an issue with the model, the prediction and the decision intelligence that it generates, so that you, as a human can say, maybe before I just blindly rely on this, I should actually dig into that and decide if I want to do that or not, right? So this is another great example of the need for collaboration and the combination of human intelligence with machine intelligence. The other thing that I tell everybody is its incumbent upon you, if you're looking to adopt this technology, to make sure that you have a strategy for your data, you know garbage in garbage out remains true. And so making sure that you are able to gather your data, and you can do that in a variety of ways. There are a number of data platforms out there. You know, for example, we have a great partnership with Snowflake, which made its first strategic investment in Data Robot, you may have heard of Snowflake as, you know, their record setting IPO last year, the largest software IPO ever. And at the same time, we have our own catalog of datasets and we can pipe in data from any source. So what I always tell people is get your data architecture right, and then make sure that you have an AI system that is end-to-end. So, you know, there's going to be no leakage of data and it can go across the entire life cycle all the way into having models in production and constantly updating those models. And then, you know, secondly, you need to make sure that that system has trust and this humility, which again is almost a human characteristic built into the foundation of the system itself.

 

[Mike Robertson]

So that trust aspect is one of the fascinating aspects around it, because it takes us in a way to the regulatory environment because clearly, you know, our data, my data, your data, the data that companies collect on us is it's a hot topic. To what extent, in the US, does a lack of federal level guidance around data and data management, storage, usage, etc., impact what's possible versus, let's say, what's different States are allowing you to do, how do you guys tackle that particular challenge? 

 

[Dan Wright]

Great question! So, one thing is it's important, especially in financial services or really any heavily regulated industry to understand not only what is the current state of regulation, but where's it going? And so one thing that we do is we're actually working with the regulators, and with the international bodies that are helping to shape policy around AI to make sure that A. makes sense if they're going to regulate this. And, you know, we have lobbyists and others in DC helping to make sure we get to a good answer here. But also we are making sure that all of our clients, all of our partners that we work with can see around corners that they can see what is coming so that they're not surprised because as I mentioned, there is a tremendous amount of value from a company's data. It's incumbent upon you to adopt technologies like AI, so you can realize that value, but at the same time, if you're not thinking a couple of steps ahead in terms of what is coming from a regulatory standpoint, you are really missing a trick and you're setting yourself up for, you know, potentially some serious liability down the road. And so we are very, very focused on, again, this aspect of trust. I am hearing and seeing, I go to DC frequently, and I talk to our team there frequently. I'm hearing and seeing that there's likely to be more regulation in this area, in the future. And so we're very focused on making sure that we have the most trustworthy AI in the market and that it's perfectly positioned to help all of our clients if, and when this becomes more heavily regulated.

 

[Doug Houser]

And following up on that, what do you think is an ideal state for the regulation of data? Because obviously you can approach it from plenty of different angles, right? 

 

[Dan Wright]

It's something that it's important to separate out the different things that we're talking about. Cause data regulation is such a broad topic. We could talk for much more than 45 minutes about that topic, but if you separated out there's my personal data, right, PII, and that I think has been much talked about. There's, you know, a lot of regulation in that area. And I think there are good reasons for that. And there are also ways that you can deal with that I think allow you to apply technologies like AI and machine learning to get the value from the data while still respecting people's privacy. And I can talk some more about that. The second area that you talked about is data residency. And similarly there are ways now to deal with those requirements, while still getting the value from your data. And then the third is really what I was talking about more before is the actual regulation of machine learning models. And that is an area that is a hot topic in Washington where there's some people who would go so far as to say that you need to sort of certify and audit every one of your models, every time it's updated. And I, you can argue whether that's too far and then there's others that would just say, and I think this is more, where I would fall, that you just need a system that has things like trust and bias and ethics monitoring, and ML Ops to constantly monitor the accuracy of your models. You need to have a system that accounts for those things, in order for you to actually be able to responsibly rely on these models for the types of predictions and decision intelligence that you are going to want to rely on them for. And so, I think it's important to separate these things out in the area of personal data. There's some very interesting things that are happening with, for example, synthetic data that also help with data residency. And you can apply a lot of the same technologies, a lot of the same workflows while still respecting, you know, those requirements. And so I think what you'll see in the areas where the policy is more settled, is that technology will evolve to adapt and allow society to get the value of the data, while still addressing the concerns that underlie those policies in the first place. And I think in areas that, you know, maybe currently less regulated, like the actual machine learning models themselves, that you will see an emphasis on platforms that have this idea of trust built into the foundation and that, you know, are really, again being built with these things in mind.

 

[Mike Robertson]

Which makes absolute sense and maybe that takes me to something that's quite topical, you hear it all the time now around the crypto world, more specifically distributed ledger and Blockchain and so on, so what about data in that particular environment? How do you see data evolving as those technologies in evolve? 

 

[Dan Wright]

I mean, I think it's going to be very interesting to see, you know, with crypto and Blockchain, they've really gone mainstream over the last few years, and one great example was actually in the news today. I don't know if you saw that the Coinbase IPO. I was not involved with that company, but many of my friends were early investors in that company and, you know, so I've been tracking it over the years and I think that's a great example of crypto going mainstream, right? And I think with that happening, you can expect increased regulation. You know, certainly there's been a ton of talk about that already. But I do think there's a reason why companies like Coinbase, you know, exist and why crypto has, you know, and Blockchain has continued to advance the way it has and that's that it has intrinsic value for society. And at the end of the day, I think that those things will continue to prevail. And, you know, regulation, it's one of those things, and I can say this as an ex-lawyer, it doesn't always hit the mark the first time, but typically it shakes out over time where there, you know, the policy concerns that underlie it get addressed, but at the same time, technology and innovation will always win out in the end of the day. And we'll find a way to get the value there. So I expect, you know, when it comes to crypto and Blockchain that we'll see more regulation, but I also think companies like Coinbase will continue to do incredibly well. And that we'll see more innovation in these areas in the years ahead.

 

[Doug Houser]

And speaking of innovation, right? I mean, that's really what it's all about in this data space. What do you see is like on the horizon, that's an innovation that is fairly near term that should really change the way companies think about data?

 

[Dan Wright]

I'll give you a couple of examples of areas that I see a lot of opportunity in the future here. And really in the near term, one is taking new types of data. So previously, when people talked about AI, they talked about a more limited, you know, set of types of data. It could be just text for example, but the way I think about it and the way that we approach it at Data Robot is that just like a human being takes all different types of data, whether it's text, audio, visual, smell, your AI should be able to take in all those same variables and combine the same way the human brain combines them to generate predictions, and I'll talk about this in a minute, decision intelligence. And I think that that is definitely a massive, massive opportunity and we've invested there, right? So just last year, we released visual AI, so, the ability to apply AI to images, and also geospatial, what we call it Location AI. Taking geospatial data and there's time series data, and we're working on other types of data as well. And what's exciting about that is it opens up a whole new world in terms of the types of use cases that you can address. And actually a great example of that is the work that we've done on COVID, where we actually were able to combine a massive number of different datasets and different types of data, including texts, but also images, geospatial data: tracking the movement of people all around the country, and generate decision intelligence. We were informing using applications built on top of our AI platform, policy decisions, decisions about, again, how many tests do I distribute to this specific County in Ohio, given, you know, what is going to happen with the pandemic? That sort of intelligence is something that previously had not been possible, right? And it's taking these different types of data and being able to ingest massive quantities of data and generate that type of decision intelligence, and then constantly updating the models as data's changing. So market's also moving towards continuous learning and Data Robot has heavily invested in that area. The other area that I'm very excited about is decision intelligence and that was, kind of, the segue there, but again, I think people think of AI in terms of predictions and predictions are valuable, right? Insights into what is going to happen into the future are very, very valuable, but their highest value is in how they inform human decisions. And the more that we can suggest better decisions based on what the AI is telling us and what the data's telling us, that's a massive opportunity. And so that's a huge area that we're investing in now. And that really is the last mile for, last mile for value for people who are not data scientists, who just want to be able to make better decisions and do their jobs more effectively, to be able to understand the power of their data and also of AI.

 

[Mike Robertson]

When you talk about how people want to make the better decisions, it's really perhaps not so much the volume, or indeed the speed of change, the velocity piece of it, but really that sort of long tail of variety, which we all sit within our business, we can often see the obvious things, but then this obvious things are sort of more deeply embedded. How are firms dealing with that sort of long tail of variety typically?

 

[Dan Wright]

Great question! I, you know, I'm seeing people rush to adopt this technology and the really encouraging thing to me is that people are looking to do more with their data. Like I mentioned, not only the quantity of data and making sure that they have a solid data architecture in place, but also the different types of data that can be collected. And I think what I am already seeing that we'll see a lot more of in the next few years is, again, this idea of decision intelligence, automating all of the critical decisions that you're making in the business. And there will be a human in the loop. But if the machine intelligence can use all of your data to predict what is the best possible decision in this situation? There's a couple of things that happen, one is it increases the velocity of your decision-making, but the second thing is it increases the accuracy of your decision-making and that that's very impactful. I was talking to a major retailer the other day to the chief data officer there. And they were saying, if they can improve the accuracy of their demand forecasting by half a percent at their scale that is billions of dollars in ROI to them annually. And those types of decisions, being able to have that little bit of accuracy really moves the needle substantially. But the other thing that that does is something that's very human, very personal, it frees people up, it frees up their mental capacity to be able to innovate on new things or to do things that are more creative. And that's what excites me, because I know, for me personally, and I think others who are just experiencing what's going on in the world, there's more data than ever coming at you before. And if you're just relying on your brain all the time, unaided to be able to process all of that and make decisions and focus on what matters the most, it can be overwhelming. It can be exhausting. And so I really view this technology of helping to, you know, liberate people and free them up, so that they can focus on their highest level work, so that they can be more creative and even so that they can spend more time at the end of the day with their families. And those are the sorts of things that excite me. 

 

[Mike Robertson]

Indeed, as you mentioned, you speak about a chief data officer, you know, some firms have them, some firms don't. It brings me to the thought of this coming together of, and developing new skills. To what extent do business people, as a distinct from the data officer or the data team, need to learn data, so to speak? How do those get together as a set of commonalities that makes sense for the overall business strategy?

 

[Dan Wright]

I think it's absolutely critical. I think that if you're relying solely on your chief data officer or on your data scientists to drive these types of critical decisions to drive the adoption of AI, you're going to fall behind because the technology is at a place, now, where we've automated so many things that were previously done manually by those types of people and enabled things like decision intelligence, where literally the system is just recommending a decision to you and you don't need to be a data scientist. It's very, very important at a company level that you, we like to talk about democratizing AI and enabling what we call citizen data scientists. And my belief is anybody can be a citizen data scientist, you only have to have intent. You have to intend to learn. And it's the barriers to that learning are so small; now, it's really just a matter of wanting to do it. But if you look at the companies who are having the most success with this technology, they are really driving a cultural shift where everybody across the company is realizing that they can create value with this technology. And they are internalizing that they themselves now are citizen data scientists, they themselves now are using platforms like this one able to create values, make better decisions than they ever could have in the past. And that's why, you know, even when I talked to C-level executives that some of the largest companies in the world, they're looking at this as a strategic priority and they themselves are saying, how can I get this type of decision intelligence for every critical decision that I'm making on a day-to-day basis? And there's even dashboards now that are able to visualize all of this. And so, even as just a business person, if you take out maybe even an interest in your data or an interest in AI, what should interest you is the value that you're creating. And we are able to visualize that with dashboards that, similar to dashboards that people have used for business intelligence that, you know, again, we'll just reports the news. We can show you how you're using predictive intelligence to actually drive incremental value that was never possible before. And that's really powerful, again, at a personal level for people who are not data scientists, to be able to show that to their colleagues, to be able to show that to their management team, to be able to show that to their board of directors. And we've already seen countless number of people really change their own lives and be seen as the citizen data scientists, oftentimes they're promoted, they're elevated within the organization and they're having a huge, positive impact on their companies. 

 

[Doug Houser]

So to that point, data culture, data processes, data governments, across those three, where do companies usually fall down when they're trying to implement? What are the biggest mistakes you see, and what can they do to avoid them?

 

[Dan Wright]

It really does fall into some repeatable patterns. I mean, one thing that I see, and I'm seeing this less, but I certainly saw this more, even a year ago, people trying to build their own systems for data in-house and that inevitably fails, you know, and you lose really valuable time. The systems that are developed, they don't scale, and they also don't have this concept of trust built into the foundation. And so, you know, inevitably what happens is that they fall down and then you're back to square one. And with any technology, there's a first mover advantage, but with AI that's even more so because of the feedback loop you get, where the algorithms are constantly improving. So if you fall behind, and if I'm in banking, you know, I may never catch up, and the same thing, if I'm in retail, or if I'm in insurance or healthcare or automobile manufacturing, or you name it airlines. And so, you know, that is definitely one area where I have seen people fall down and, you know, I try to point people away from that just because I've seen the damage it can cause. The other thing is using a combination of point solutions or open source that isn't truly end-to-end and also not enterprise grade. And so, where I see people are most successful is when they're using an end-to-end enterprise grade platform to go all the way from data to value. And maybe you have, you know, a few partners, right? So you could have a Snowflake, for example, plus a Data Robot. That combination is very powerful. There's other combinations or, you know, Tableau or ThoughtSpot, you know, maybe you want to visualize some of the intelligence that we generate through those types of platforms, we enable all of that. But pick, you know, those two or three really strategic partners when it comes to your data and then treat them as partners. The other thing that really strikes me is when people, and oftentimes it's the same companies that are using point solutions or just Open Source, they're not focusing on what is the value that I'm getting from my AI at the end of the day, and it really is experimental. I talk about experimental AI being, you know, again with these point solutions and open source, doing data science projects, but many of those models never actually make it into production. And the ones that do aren't monitored or managed for accuracy, and they're not evaluated for the value that they're creating, you wouldn't treat any other type of your business that way it's just not responsible. It's not tolerable. Why would you do it with your data? When I think everybody agrees, your data represents a massive, massive opportunity, maybe the biggest opportunity that any company has right now in any vertical to drive significant value. So those are the things I would point to, don't build it yourself, look for an end to end platform that has trust built into the foundation, and then measure the value that you're creating all the time. And one of the things that we also do with customers is we do an AI council where we'll go and we'll bring their executives and the ones that do this really well. They actually bring C-level executives to these AI councils. And those executives ask the question, which again, should be an obvious question. What is the value I'm getting from my AI, and where are there opportunities to drive more value?

 

[Mike Robertson]

It's such a great point. I'd like to sort of conclude this with a final question really. What is no one thinking about with regards to data, and what should they be thinking about if they aren't?

 

[Dan Wright]

That is a great question. So I think people aren't proactive enough when it comes to their data. And I think that's a common theme that you've heard throughout this conversation. And I mean that in a couple of ways, one is there are categories of data that have been almost completely ignored, whether it's the type of data, you know, how many people have even talked about audio data and the types of use cases there, or, you know, sources of data, you know, now we're able to apply this technology to satellite imagery or x-rays, and there's just so much opportunity there. Not being proactive enough when it comes to having a strategy around your partners, your architecture, when it comes to how you get value from your data, or not being proactive enough when it comes to, especially in financial services, what's coming from a regulatory standpoint? How can I make sure that I can get the value from this technology? But also one be able to trust the technology, which I should be focused on anyway, and two make sure that in that context, I'm well in the right, when it comes to any pending regulation and that I don't run into issues down the line. So I think in general, and this is why, you know, I love podcasts like this one, and I hope that many people listen to it. In general, people just need to be more proactive about their data. And hopefully, some of these conversations can spark the initiatives, spark the interest that allows people to be more proactive and really dive in and take an interest in this.

 

[Mike Robertson]

As you say, it is a fascinating topic, and productivity is so important. Dan, it’s been fascinating, thanks so much for your time today. And it's really been a fascinating look into the world that you occupy, and all of us do, probably without even knowing it. So thanks very much. 

 

[Dan Wright]

Thank you very much. It was great being with you look forward to talking again soon.

 

[Mike Robertson]

Cool. And thanks so much. And Doug as always, mate thanks very much for being with us.

 

[Doug Houser]

Thank you Mike.

 

[Mike Robertson]

You’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

Bank of America and Bank of America Securities are the marketing name used by the Global Banking and Global Market divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading and securities and financial instruments and strategic advisory and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation investment banking affiliates including in the United States, Bank of America Securities Inc. and Merrill Lynch professional clearing Corp, both of which are registered broker dealers and members of SIPC and in other jurisdictions by locally registered entities. Bank of America, securities Inc. and Merrill Lynch professional clearing Corp are registered as futures commission’s merchants with the CFTC and are members of the NFA. Investment products offered by investment banking affiliates are not FDIC insured, may lose value and are not bank guaranteed. © 2022 Bank of America Corporation. All rights reserved. | 4736948

 

Pivot – Cross Border Commerce Podcast Series

What are we missing in the market right now?

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Roy Sosa - Co-founder and President of Rev Worldwide, and the Co-founder of NetSpend Corporation

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment where, due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America. For today's podcast, the title is, What are We Missing in the Market Right Now? And I'm sure there's much we could discuss. We are joined by our guest, Roy Sosa, Co-founder and President of Rev Worldwide, and the Co-founder of NetSpend Corporation. 

 

[Roy Sosa]

Thank you so much, Mike. It's a real treat. 

 

[Mike Robertson]

Thanks Roy. And Doug, I believe you have something you would like to say to kick start this for us. 

 

[Doug Houser]

Yeah. Mike, I want to kick it off, I think with a story, you know how I like my stories, Mike, right? So, want to take you back to the downfall of Blockbuster Video, right? Blockbuster Video is going down because there's mail order DVDs through Netflix, and Netflix is actually now transitioning over to streaming. So the market is now all full speed ahead to streaming. And so everyone's saying, it's all headed to streaming, DVDs are done, and so that model doesn't work anymore. But a funny thing happened, at the very same time, within McDonald's of all corporations. Somebody said, hey, what if you already have the real estate? What if that's not an impediment? You have the real estate, you have the traffic, and what if there were an easy way for people to be able to access DVDs, because not everybody has broadband connectivity at this point, and so that was actually the birth of Redbox. And even 10 years on, on Redbox, the kiosk based DVD service; it was a multi-billion dollar operation, because still 30% of the market didn't have broadband. So, we want to talk a little bit today is about how a lot of times we think of, you know, what is the market doing? But the market is actually an aggregation of a lot of different markets. And so you have the possibility to miss opportunities, right? And really miss the bigger picture, right? So, Roy, fantastic to have you here, and I want to start with that because this is something that is very near and dear to your heart as NetSpend, the first company that you co-founded with your brother, attacked the market of the unbanked, something that at the time, when a lot of entrepreneurs were steering towards more digital, faster, more everything, and really catering to a high end of a corporate market. You really focused on the unbanked individuals. So talk a little bit about how you were able to assess the market and devise that this was a space that was underserved and something where you could fill the gap.

 

[Roy Sosa]

You're absolutely correct. And you've taken me back to 1998, December, when Bertrand and I in our one bedroom apartment at University of Texas, we're sort of brainstorming, you know, the big question of how are people that are jumping into the e-commerce revolution, where the likes of Webvan, Pets.com, you know, CDNow, many of which are not, Living.com, Garden.com. But at the same time, you know, we had other sites that we didn't know if they were going to make it back then, Amazon and we were thinking, how are people going to pay for things online if they do not have a credit card or a debit card? And millions of Americans at that time, it was close to 70 million, if you consider 30 million teens and 40 million adults did not have any access to that. They were either handling themselves on a cash or in money orders. All the dot-com companies at the time were focusing on the ra, ra, fast and furious type of growth with the bank customers. But, it was fascinating for us because it turned out to be, at some point, Visa and MasterCard, it went from being a big opportunity to a, what did they think of now as the third pillar: debit, credit and prepaid. And it became part of the war on pass. They became part of economic citizenship. And the reality is that for people that did not have a debit card/credit card, everything was more expensive because that's everything moved into a digital realm. It was always more expensive to deal with money orders with stamps. And there's been plenty of studies over the years, done by, whether, the likes of Brookings or Federal Reserve and many others. But, I'll fast forward to where we are now, because while we have made significant advances, and by the way, back in those days, we founded NetSpend with $750 in one bedroom apartment. And then the company ended up going IPO 2010, over a billion dollars and then sold to Total Systems. And then Total Systems were sold to Global Payments, and today, over 20 years later, NetSpend's still going. And it's now has processed hundreds of billions of dollars’ worth of transactions and open economic citizenship for millions of people. But the story kind of is really interesting because it goes across the board. It's not just about payments and debit cards and credit cards, so you've named a Redbox, but I would argue healthcare, it's a big trillion dollar industry, and it goes beyond our borders at a global level. If the opportunity that we sell 70 million Americans, just to give you a failure globally, we have close to 400 million small businesses, no bank account. We have billions of people with mobile phones and no bank account of sorts. This remains a big opportunity today. But I think, when I think in terms of the conversations that we've had over the past few months, it's an opportunity for small and large. I think this pandemic and maybe the recent Genesis for the Pivot Podcast is that everything is accelerating in the way of digitalization. It's not just about moving bits of data corresponding to the actual payments, but everything that goes along. Back in those days, and I know this has been a long introduction, but back in those days for us, it was sort of like, are you telling me that because I don't have a debit card or a credit card, I don't exist. And the reality today for a lot of small businesses and a lot of people, they exist in some sort of form, but we have not even scratched the surface as to how the data, so my transactions are not enough. So, we've more or less have addressed the ability for people to transact, the mission that we set up with NetSpend, and all the NetSpend fierce competitor's done a tremendous job, hundreds of billions of dollars of transactions, in bringing people into the mainstream financial service arena. But now the task, it's just as great, which is okay, so now I exist, but do you see the full picture? And when I say I, I mean, obviously individuals, but I also mean small businesses or even large businesses.

 

[Doug Houser]

So, that was fantastic insight. And I want to get a little bit into not only why, right? Because I think that when you talk about the economy being 44% driven by small business, but I would argue that, to your point, a much higher percentage of products and services, especially in financial services are actually aimed at the other 56%. So half the market gets about 80% of the investment spend, right? And a much lower spend goes towards this very, very critical part of the economy that also is one that really, really needs these types of solutions. So, how do you think that, you know, maybe as a market ourselves, that a lot of people can combat that? Because I think that what you see is like, you'll see a lot of entrepreneurs and founders, and you were founded in college, which I think is in some ways an advantage that you can look, kind of, out to a blue sky, right? And say, okay, where can I find the opportunities? But right now a lot of entrepreneurs come from big businesses, right? They come from big tech, right? And everything and so you tend to gravitate towards what you see. So, how do you get over that mindset and how do you encourage like entrepreneurs, you know, through empower and other ways to be able to say, hey, let's look at the big picture here? And let's really attack all parts of the market because it's a financial opportunity, not only for us, but it really can grow the economy as well.

 

[Roy Sosa]

You're spot on, so like from my side, I think that you're keen on two things, as an entrepreneur back in 1998, and I would say no different than today. We were pining; we had all the needs and understanding of the needs, but zero of the resources to make it happen. I always thought about whether somebody at the CEO of one of the top 10 financial institutions in the United States, those folks have tremendous power to change an entire industry in our ecosystem and beyond that, same goes for members of Congress or if you're a treasury or a Federal Reserve, or the European Central Bank, and yet, because you don't know the need, or you don't have the contextual understanding. And tiny anecdote on understanding a few years back, I had an opportunity to go to Vietnam for the first time, and it was really interesting because as I was taking a tour of John McCain's prison cell, I was told the story about how people in the Congress had an understanding of the situation in Vietnam, but until you actually find yourself in the Viet-cong tunnels, did you really have that contextual understanding of the situation in Vietnam? I think the same applies to entrepreneurship. So you ask how you bridge it. Well, I would argue you're doing that right now. As of the biggest financial institutions in the planet, to open up this podcast and get folks like us and others to come in, is you're creating that diversification of thought. But, at the same time, we continue to have it with diversity in our organizations. And then lastly, technology is an incredible tool. Technology is not the solution. It's a tool. If you do not have the understanding of what can be because you know what all the pieces that you can move, like, somebody had to have the idea of guaranteed rates, for example, at BofA. And for you to have that, you have to understand what can be done, but you have to marry that with like, and why do I need it? And why is it important? And so this is why making those connections is so important now. Technology today, it's a tool, it's been a bit of a drawback because you're flooded with possibilities and information and resources, but I think to the extent that you put together the people that have the keys to move things, with the people that need the specific problems solved, in that you have the ability to create dialogue; magic happens. I was so blessed in my early days in that as we raised money, one of the funds that we're still collaborating with them, Inter-atlantic, they brought to us who was then previously the President of Bank of America. And, you know, when a caveat to the podcast, you guys never asked me to say this, but Stephen Galasso, the then President Bank of America, allowed us to create that connection. He, haven’t been an executive at Citi Group and BofA, understood what could be the delivers, what could be moved and how could we do this and that. And he knew the right people. From my side, I had the benefit of understanding the need. And when you piece those two things together, we built an amazing team and we're, you know, the rest is history. 

 

[Mike Robertson]

That's really fascinating, Roy, you know, you said use Bank of America and, you know, as somebody who grew up in Africa and lived most of his life outside of America, but I've been employed in large banks for the last 15 years or so. I've often thought about the fact, you know, I saw him in Pesa, in Kenya developing. I saw that and I had a very close friend, who set up Fundamo. It was eventually sold, I believe to Visa. And I often thought to myself, if you were designing banking today, you know, using first principles, you certainly wouldn't be thinking about the ID version of a license or indeed a passport, because it's not that inclusive if you think about it and a wet signature, which is probably not the most secure way to identify anyone. And if you were thinking about the phone and ways of using so many of the new technologies to create an ID, you know, virtual fingerprints, so to speak. It just feels like the world of exclusivity or inclusivity in financial services is definitely changing. And I guess my question is, do you think America, compared to what you see outside of this country, is lagging behind, or do you think the fact that there isn't legacy base here generates a different type of opportunity?

 

[Roy Sosa]

Well, I think both. We are lagging for sure, we're lagging, but I think you're actually correct in pointing out those, this creates an opportunity in, I will say, not only does it create an opportunity, but I would not because of an entrepreneurial optimism, but because I see it. And for my friends at the Federal Reserve, America, unlike all of Europe, Mexico, Australia, where we operate today, regions, countries that have real-time payments, we've been stuck with this ACH system that is so antiquated and does not serve as well. And nobody's happy with it, but good news is that, you know, the Federal Reserve right now is undergoing a major transformation and they're actually have listened to a lot of feedback from the industry. And I'm really excited about, even just virtual 1.0 of FedNow that is coming up, and so that is going to help us. And I think that, as we go back into the 1990s, when we started talking about the cell phone as a leapfrog effect, that there were countries that were going to bypass the landline, as a way of communication and they did. And they moved so much faster. Two things that, I believe, are going to drive a complete overhaul of payment systems beyond what other countries have is that when you find yourself in the middle of a pandemic and economic crisis, and you now see, independent of your political affiliation, you have every right to be excited and concern about the trillions of dollars that are being pumped into the economy. I'm not going to debate the merits, one way or another, but I will say when you have that much money being pumped, making sure that the rails allow us to not just distribute those funds as fast as possible, but then also with the accuracy and accountability is going to be something that we're going to have to do. We're going to have to do it literally in the next 12 to 24 months, and that is probably perhaps the biggest infrastructure investment that this country will undertake. And I know this may sound that's hyperbole, but I would argue that for our federal government or giant enterprises, all the way down to the individual with the smallest bank account or digital wallet, they're all going to benefit out of having the most efficient, financial rails more than having them overhauling our highway system or on our airports. And...

 

[Mike Robertson]

You can certainly see how the inclusivity element of it, allow people to be in the game, so to speak is so key. Especially for those who are on the, you know, perhaps aren't fully excluded, but certainly under-bank to use that phrase. Do you think that there's a role to be played by, and look, we touched on this in a previous podcast, actually the role to be played by the smarter use of data, and I'm thinking specifically artificial intelligence here. Is there an AI angle here where institutions and perhaps even the non-bank fraternity could sort of be working together to generate an approach using modern technologies and artificial intelligence for that underserved part of our economy? 

 

[Roy Sosa]

Absolutely! But, is there a use for AI, of course. AI and machine learning, as well as all the latest, you know, cloud computing, the centralized processing, all these things are trends that are well on their way and are extremely important. And I would argue, some of the things that we're working on, it's not just at the end consumer, but look, you can't forget the fact that in America alone, we have close to 10,000 small community banks and credit unions that they have to figure out how they're going to stay in the game, and we need them to stay in the game, in a world where there's incredible acceleration of technology and implementation of things like artificial intelligence. A small community bank does not have the resources, forget about the technology investment, but the executive staff allocated to manage that and to figure out which one's a good vendor to help me do these things. And so that's something that should be a concerning if we believe, and I do, that we need a strong network of small community banks and credit unions, because they're the ones that have the closest pulse to our communities, in particularly in places that may be disadvantage or remote rural communities, but that's one piece. But I would also say to you, even at the macro, so we at Rev, one of our clients, won't name it by name, but it's one of the largest banks in the world, and we are developing their private banking infrastructure. So what content is important for the underserved CommBank is equally important at the top. The reality is like most private banks, across the world, do not have the latest and greatest technology available. We've gone with an approach that is very hands on, very close. You know, if you're a private bank customer with tens of millions of dollars, or even a million dollars plus on your bank account, you call your banker. But that human layer, which is so valuable from a relationship perspective, is keeping us from making the knowledge that the bank has with you scalable, and where the bank actually learns how do we make this better? So those are trends that are happening right now. But I was also talking about the fact that it's not just about how do we leverage AI to manage transactions. I'm actually getting through to the amount of data that we're pushing through, its equivalent, and you see the Netflix example. I think it's important to say, like Netflix could not have worked 20 years earlier, Netflix in a way that built with the anticipation that we are going to have, not just Wi-Fi and DSN and 128K communications, but that we were actually going to move to a point where we now had fiber optic. So, we need to start thinking about, can you imagine at the federal level, at the big corporate, Fortune 500 level and the underserved level, how valuable it is, for example, that we put through the transactions, all the data relevant to the transaction and the individuals, or the companies doing that transaction. Today, we only put amount, date and maybe some sort of memo or location. Because of that, we end up with a healthcare system that is, trillions of dollars of expenses, highly inefficient, the whole paying for reimbursements, whether for vaccines or testing becomes an ordeal for everybody and highly inefficient. If you're able to put all the data in the transaction, it can be done much faster, much more efficient and everybody wins. And so I think that when we start thinking about a lot of times, when we think about inclusion, or when we think about what are we missing? Actually, what we're missing is when we build, Apple, for example, doesn't build an iPhone for the underserved. They build an iPhone for everybody, and maybe it has some features or some, you know, the outer layer is more expensive because it has this material's, bigger screen, but fundamentally the guts of the iPhone are the same, whether you are the wealthiest person on the planet, or you are an entry level grocery store clerk, it doesn't matter. And that's how, when we think about the infrastructure of financial services, if you're sitting there managing a hedge fund or managing a fortune 50 corporation, or you are the Secretary of Treasury, what's good for the smallest player is going to be good for you; at the individual level and your company level at the city, state, federal level.

 

[Mike Robertson]

Yeah, yeah that's really interesting! 

 

[Doug Houser]

So, Roy, you mentioned something there and want to touch on that a little bit more, which is in financial services, but you mentioned healthcare and a lot of other industries because of the rapid advancement in technology, which can always be a huge boom to the population at large, but it can also create, at best, and I say, even at best, a bifurcated market, right? And in some ways we need some of the aspects of the lower market, right? When you talked about those credit unions and not to lose those credit unions, not to lose alternative sources of funding, and one thing that we, that you don't want to lose with them is you don't want to lose the ability to make a decision based on other qualifications outside of data. Because once everything scales up, everybody becomes kind of a slave to their information, right? But for somebody to be able to make a decision and say, you know what, I'm betting on this business idea, that's a very important part of the market. So, how do we kind of navigate the market that at the very least is split into, where you need some aspects of how credit unions act, how alternative sources of funding act, and you also need those very large capital centers as well to accelerate the growth of very good ideas on the other end, and of course the bridge between the two? 

 

[Roy Sosa]

So I think, you know, I like to go to a couple of words that they've been used for many years and continued to be used, which is artificial intelligence. And that means a lot for a lot of people, but I like to think of the interim basis, which is augmented intelligence. And that's when you leverage what the engineers and scientists would call as artificial intelligence and machine learning. And when you give that to people or companies to put the human factor and enabled those individuals or those companies to be more. So in our case, for example, again, when you come to whether it's risk management, we literally have increased the throughput and capacity of a risk management team by a hundred times, not a hundred percent, a hundred times, but we never turn over the risk management to the software on the computer. So it's almost that think of it like the figurative terms, the exoskeleton that allows the worker to lift more. But obviously I'm talking about processes, and in particularly, in transaction processing that financial services and decisions. Fundamentally you need that contextual understanding, going back to my earlier comment. It takes me to early memory at NetSpend when we never, in the early days, would never outsource or call center because we want it, at least for me as a CEO, I want to have customer service in the same floor, so that I could actually have a conversation with the agents and be close to the customers. I knew that at some point it was not going to be scalable because we would end up with hundreds of employees in absence, but it was important enough in the early days, I still believe it's important enough, no matter how big of an urban station, you have. But, I'll give you a specific example, once I had an agent that a customer called in and there was something about a deposit and transaction, and literally the transaction was $3.50, and they just had a question about like, hey, why what's happening with this? And I remember going back to the agent after the call finished, and said, do you realize that, and it benefited me that I was literally just out of college, let's say you realize with $3.50, but then you can buy eight boxes of mac and cheese and feed yourself for several days. So never minimize the $3.50. Because that amount maybe insignificant for somebody, but it can be everything to somebody else. And so, as a result, you have to have the contextual understanding. This is where I am going back to, as we move through digital commerce, we got to make sure that in the pipelines, in the transactions, in the authorizations, in the reporting, we put as much as possible because we can, not just of the items, information related to the transaction, but of the data related to the parties in the transaction, not just in that point in time, but with context, because fundamentally we are way more than rows on a spreadsheet or a number on a credit score.

 

[Doug Houser]

So, following onto that, do you think that right now, businesses in the market are sufficiently addressing, or you think that there's a groundswell that we're seeing of up-and-coming businesses that are addressing data needs from the standpoint of that human factor? Which is to say, I'm using this data because I want to know more about people because I want to find positive opportunities with people, with small businesses, right? Versus when you sometimes use data to find, I would say it falls into two buckets, number one is risk insecurity, of course, there's a lot of risk and security, and the second one, which is a commercial opportunity, sourcing for opportunities to sell into. Do you think that there are enough companies that are working on the other side of this, which is to say, how do I farm opportunities to help small businesses and consumers really grow from a financial standpoint, right? And, you know, use data proactively in that regard, versus those other two buckets, which I think are, you know, larger, there's a lot of crowding into that space.

 

[Roy Sosa]

So I begin this with previous questions. I think the answer is both, and you're ready kind of alluding to that. So look, anytime, at least from my perspective, anytime that you see somebody having success, you kind of see how their model and talking to financial services specifically, now. You can see how, what they're doing is disruptive or revolutionary, versus what has been done before. As an example, I think of Affirm and what Max Levchin has done is amazing. And of course over there, you have other players like Klarna, Whatnot, but the, really the revolution, if you think about it is that they went from traditional bank, credit card company gives you a loan or a credit line for you to buy whatever you want and here are the terms. And here by moving down to, instead of financing a month, or several months’ worth of credit needs, you finance a specific purchase and you have context of who's the merchant and who's the customer in what is a transaction for, and by the way, because there's two parties involved in terms of the merchant and customer, the merchant can actually subsidize any kind of credit on the writing and the cost of credit. So that makes perfect sense. If I were a credit card company, I'd be very concerned about how that is going to erode my traditional portfolio and cherry pick my best customers or sort of the, it has an impact on your, the profitability of your portfolio. But at the same time, I would argue that what Max is doing at Affirm, it sort of version 1.0, I would expect that knowing what I know about Max and knowing him, they're already working on version 2.0, 3.0, and the likes of Klarna and somebody that you don't know where it's not just about the merchants have similar function, but whereas more again, like, okay, in what are your future needs? I've been bringing it up over and over, not just because of the pandemic and where we are, but you got to believe that there's the data related to healthcare and wellness is so rich in terms of where do you want to go, but similarly, digital commerce, where do you want to eat next in terms of eating out as a restaurant, or what are the things that you're gonna need later? Anticipating your health, the consumer everyday spend or education needs and figuring out how to help you deliver those either through financing or insurance products, when not based on data, not about where you are today, which is much richer than again, a credit score or some sort of algorithm, but getting more of that data and processing it. But, I think the companies that are going to succeed and the next opportunity is right there is where are you going to be next? To me, that's sort of an obvious one. And like I said, I don't think that I am a soothsayer or I have a crystal ball. I mean, I guarantee you that the guys that are succeeding, they're already onto the next iteration, and we're going to see that very shortly.

 

[Doug Houser]

Yeah. I actually had, that's a question teed up. We were talking about how the cool crowd, as I always say, who is the crowd going towards what everyone thinks is the market. Cool crowd is cool, but it's also very, very crowded. What companies are you seeing actually in the space right now that you think that we may or may not have heard of, right? That you think are doing a great job of sort of either going against the grain or attacking the market in a little bit of a different way, where they have an opportunity to capitalize on something that other entrant aren't really seeing?

 

[Roy Sosa]

Well, I mean, look we can, there's four players that are always at any given time, they can do amazing stuff. Everybody has seen how Apple completely stole the limelight with their credit card. It's only a matter of time before they do the debit card. And I would argue that they should do the debit card on a global level. You know, we do that kind of stuff, so yeah, if Apple wants, whoever wants to do that, we're happy to help. Amazon, it's another one where the amount of data, the purchasing power, if you were to map out what Amazon has done in financial services, it's accelerating, but I don't think we've even began to see the bits and pieces. A lot was said a few years back when you started seeing health insurance, big bank and e-commerce company put together an initiative for a healthcare company, and then only to have this altered recently. What the reality is that that's still an opportunity. I think what a lot of the big players are going to say, what are they going to do is like, don't need to run it, I just need to leverage the rails or build the rails. And the other one that also is for me, when you think about the challenges pre-COVID, that the big fight, between the share ride, share economy companies and lawmakers was, hey, you're using this gig economy force, but you haven't completely eliminated their benefits. And that has an impact on our community. I would argue that we can either go the route of hoping that the federal government or state governments are going to bridge that gap. And maybe that's going to happen, maybe that's not going to happen. But I always felt that financial institutions have an opportunity to step in and address that need. So when you asked me look, who is doing it, or when do you think we might see something happen? I mean, obviously the likes of Apple, Amazon, biggest of banks, you know, suggest that be BofA and Chase and others. They have the unique opportunity to really leverage the infrastructure, Visa, MasterCard, PayPal. But, I think that there's a lot of small companies again, Affirm was literally just an idea and a startup lesson about five years ago, and look at where they are now. I think fundamentally the technology is there, and a couple of guys in a college dorm room, or some folks that are literally have had a few years of success in Silicon Valley, technology company and decide to spin off and go do their own thing. They're just as likely to come up with a solution. I think you have to look at; again, it goes back to your underlying theme. If you can link up the understanding of the blocks on leavers that are needed to make things happen with the underlying contextual understanding of the need, that's all you need to be very, very successful in coming up with solutions and making them stick.

 

[Mike Robertson]

It does kind of raise a question though, doesn't it? I mean, cause frankly that's absolutely valid and yet, you know, one of the things that perhaps gets in the way of that inclusivity element is, you know, for leaders in the more established companies to, in some cases, almost unlearn what they already know and develop a new set of lenses on the possibilities for the future. And I guess that takes you to an obvious question, which is, you know, if you have the likes of some of the large tech players who have fundamentally changed or are changing marketplaces, how do legacy companies or legacy banks actually collaborate? And what do you see, if your crystal ball is working today? What do you see happening for us in the next, say three to five years? What are the major changes? How will banks play alongside those large tech companies? 

 

[Roy Sosa]

Well, back to technology and banks. So, you know, for the longest time there was always like the conversation, oh, can you imagine if a mobile operator partnered with the bank, what could they do? I think that when we look at, go back to the early days of the Internet, when we had things like CompuServe and AOL or Hotmail, and they used to charge $9.95, $19.95 for an Internet connection and email account. And of course now we have Gmail and it's free. Of course, everybody can see how the technology players, the idea that you can get a free bank account is now pretty pervasive across the world. All of the neobanks in Europe and coming to United States basically give you a free bank account. But I think what you're beginning to see and you already have seen the announcements or the pilots is what happens when the likes of whether it's Google or Amazon, AWS, Whatnot, start offering banking as a service for free. There's a lot of companies right now playing in the banking as a service, we actually do. But, I think that for any entrant, you have to assume that it's going to go to free. And so the question there is how do you then support that small community bank credit union with all the tools and so that they can be successful and then your business…

 

[Mike Robertson]

But that's the key question, Roy, isn't it, because frankly I love your example. We paid for an email account. Gmail comes along and we end up paying for it through advertising. So the fee structure changes, but, you know, fundamentally the provider still owns a revenue stream. So I guess that's really the question. I think on many institutional banks minds is as the structure of the market changes, so do fee structures, and so I think the collaborative question is if a large tech is allowing banking utility to exist for free within the framework, but they're making money elsewhere because they had that ability to do that. And if banks don't have that, then they are sort of in a cul-de-sac, in a dead end almost. Wouldn't you say? 

 

[Roy Sosa]

Yes. And yet it's really interesting to me that, this latest iteration, the likes of Google are sort of saying, hey, we want to provide a platform so that banks can ride on our platform, because we don't want to be the ones regulated. For us operating across the world is very unique that different countries have different approaches to regulation, even in the United States, you have federal, and then every state has their own approach, and it's not the same for you to operate in California as it is to operate in Arizona or Wyoming. Given the approach between an overly prescriptive in some cases and laissez Faire everything goes quasi libertarian in numbers. So I think the regulation will continue to play a big role in checking anybody, technology or otherwise to say that you really want to play here because at any moment the rules can be changed or somebody may decide, we've seen it before. Hey, you're making too much money interchange, which has to be a very important component for banks on the credit and debit for all of a sudden in Europe is almost zero same in Australia. Now, and so it was like, when the regular overnight can come in and say, oh, that's gone. It's really interesting ecosystem, and because of that technology players usually shy away from playing in it directly, but they absolutely whereas your IBM, Microsoft, Google or any of the big consultancy companies, they love to play behind the regulated entity and say, here, I'll give you all the infrastructure, I'll play the toolmaker and you go fight, you go play the game. Fundamentally I think, it's all about, where's the data? And when I say, where is the data? I say who's managing the data? Not from a privacy perspective. I think that over years we've arrived at a very solid privacy construct and understanding that the data belongs to the customer, the end consumer, but more along the lines of, how can the different players leverage not only access to data to maximize the value for, even for the end consumer to make things better, but also to build the skills. So sometimes Google, for a long time, the average person that you got on Gmail, it's not about, it was minimal. The benefit for them was like it built their skills to do other things elsewhere. And when you think about Android, they basically gave it away for a long time because they built the skills to get into voice recognition in translating, you know. So all these things, the more data you have, even if you've never going to charge a dime for this specific type of service or product to the end consumer or to small community bank, it gives you the ability to build the skills, the knowledge and to reach this scale to be able to solve big problems beyond just being successful at some enterprise.

 

[Mike Robertson]

Indeed. Indeed. Well, I'll tell you, you know, new technologies, of course, opportunity and coming from those and new challenges for existing players. I think we can all agree that the next three to five years is going to be a really compelling time here in the US and across the world as changes happen. So, I want to thank you, Roy, and Doug, thanks very much for this fascinating look into this area today. I mean, I think we covered quite a lot of ground and your insights were extremely interesting, Roy. Thank you. 

 

[Roy Sosa]

My pleasure! Thank you so much for having me. 

 

[Mike Robertson]

And for all of us, you’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

“Bank of America” is the marketing name used by certain of the Global Banking and Global Markets businesses of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. © 2021 Bank of America Corporation. All rights reserved. | 3491582 

Pivot – Cross Border Commerce Podcast Series

The Network, how will the payment landscape become a more cohesive experience or indeed environment? 

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Anil Aggarwal, CEO and Founder of Fintech Meetup 

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment where, due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America. Hi, Doug!

 

For today's podcast, The Network, how will the payment landscape become a more cohesive experience or indeed environment? We are joined by Anil Aggarwal, CEO and Founder of Fintech Meetup.

 

[Anil Aggarwal]

Thanks so much for having me, Mike. Appreciate it!

 

[Doug Houser]

Anil, I know that many of us know you from your various ventures in the payments end in the professional payments association spaces, but let's start off from the beginning. You actually were a lawyer, so how did you end up getting into the payment space?

 

[Anil Aggarwal]

I'll give you a brief story on how I made the transition from being a lawyer to getting into Fintech. It was the holidays, 1998, and I was in the middle of a deal and wanting to get my assistant something for the holidays. It was the last day before she was going to leave for the rest of the year. And my intention was to go over to Bloomingdale's and buy her a gift card, back then gift certificates that were paper-based were just making the transition to being plastic cards and, you know, best of intentions, but by the end of the day, you know, I was putting some cash into an envelope and giving it to her and apologizing for not being more thoughtful in the gift that I had gotten her. And her response to me was actually interesting. What she said was, you know, I don't really shop at Bloomingdale's anyway. I think things there are overpriced. And, you know, always wanted to be an entrepreneur, it was the late nineties, the Internet was, you know, all the talk, as a 20-something, that's where everybody wanted to be, certainly where I felt I could make my entry point into being an entrepreneur, and I thought, you know what, a secondary market for gift cards. And that was the Genesis of what became Clarity Payment Solutions that ultimately got acquired by TSYS in 2004 to form TSYS Prepaid. 

 

[Doug Houser]

So, you're at TSYS and you found your first professional network there; Innovative Payments Association. First, what made you think we need a professional organization to get these payments, providers and people who are operating the space together? And second at the time, did you think, hey, you know, this is really important, this is something I want to be pursuing full time versus the other entrepreneurial ventures directly in payments?

 

[Anil Aggarwal]

Great question! You know, especially because I would divide my career over the last 20 years into basically two categories, tech entrepreneur and community builder. The concept of the NBPCA, today the Innovative Payments Association, came from during the Clarity Payment Solutions days and during the TSYS Prepaid days, what we were doing was creating new categories of payments. A lot of people claim first, I've got my fair share of things that I claim to be the first at, so I'm going to indulge here and throw a couple of them out there. I'm pretty confident that at Clarity, we were the first company to create a virtual Visa account number. And I'm pretty confident; we were the first, third party process that processed FSA cards. And as we were doing some of these things for the very first time, what we found was that, there was at a minimum, some confusion, and maybe at the other end of the spectrum, concern with some of these products. And, you know, the regulators were looking at this category of, again, what was back then known as, I would say, more prominently known as the prepaid card industry. We're looking at these products and looking at, you know, fundamental consumer, fairness and disclosures and things like that. So the intent behind the network branded prepaid card association, I would say number one was really education and education of two categories of groups of constituents. The first was legislators and regulators, as they were looking at this space and including the gift card industry closed loop, but also open-loop as they were looking at this space. We felt that they needed a resource or an organization they could turn to, which was a collaborative or collection of the industry, and ultimately, I think it was a great resource for all of those groups that I mentioned, and a great way for the industry to engage with each other and certainly, it was my first experience in this type of collaboration, community building that can help really, you know, lift a product category up. 

 

[Mike Robertson]

I totally agree. To what extent though, Anil, do you think that the media begins to over-hype it, to the extent that there's so much froth involved, that people become cynical? 

 

[Anil Aggarwal]

I mean, it's a good question, especially if you look at some of what's happening in Fintech today. You know, I think the reality is that everyone gets excited about new things, especially new things that are really beginning to gain significant consumer traction. It's kind of a Fintech's moment, as the industry moves to being very centric towards the user, whether that's an individual or business. And I think that if you look at just fundamental ways in which payments, banking, broadly speaking financial services is going to evolve. There's a lot of work to do there, and there's a lot being done. And so it's, it is fodder for everybody, including the media, and everyone is going to have an opinion on it. I can tell you that, as we were talking about that period from, you know 2000 or late nineties to late 2010s, Fintech was not an interesting area. If you were at a cocktail party, and you mentioned to anyone you were in Fintech back then, that was a sure fire-signal for them to go refresh their drink. So, you know, times have changed and as Fintech has gone from being an area that doesn't get much attention at all with a specialty area of investment to something that's, you know, absolutely mainstream disruption.

 

[Mike Robertson]

Of course! You know, it's evident that user experience is a very direct line to a consumer because we make our own decisions as to how we use our things on our platforms, perhaps less so in a business environment, you know, business to business, because perhaps people working in companies have less say in the platforms that are given to use, but if you were at the cocktail party and someone says to you, where's the next traction coming from, in this exciting space, where would you think it is? 

 

[Anil Aggarwal]

Well, first I think you're right. You know, consumer experiences generally lead in terms of, you know, just how simple, intuitive, and transparent they are. And you kind of get the sense in the consumer market that they just work, that's the expectation. Things tend to remain clunkier and more cumbersome in the B2B world, but generally the B2B world does follow the consumer world. You know, as I think about, I mentioned this kind of moment, or this movement that I think Fintech is. If I were to just take a high level approach to answering that question first, which is, what are the overarching trends that are winning out here? You know, I'd say it's probably a few things. I think some are very basic; pricing, fees, general fairness. I think that's an area where, frankly, financial services have been challenged over the years. And I think that a general movement towards a simpler, more transparent and fairer pricing and fee structures is one of the areas where you see some of the value proposition coming about. I think some of it is simply access. Could be, again, basic, traditionally underserved communities or it could be access to investing opportunities, maybe that are more fractional, for example. And then, you know, as we were just saying, I think a whole bunch of it is just simply convenience. You know, helping people do what they do with their money better, much more simply. And I think over the last 10 years, we've seen that groundwork laid in a number of different ways. We've seen it laid in terms of unbundling of traditionally bundled financial services. You know, it's only really when you unbundle that you can then laser focus on the problem that product is intended to solve, and how can you make that product better? So, I think that's where we're headed.

 

[Doug Houser]

As you just mentioned, that there's a supply of unbundled services that can be monetized in a certain way. But that also means what we see is this large proliferation of different experiences, right, and to the point where actually, and when you ask consumers, which experience do you want? Their answer is yes. And by that, I mean, it seems like they want whatever they are into, and they want to have that kind of infinite choice. So, as the market gets more complicated that way and more complex, do you see any sort of reconsolidation in the marketplace of the payments landscape, or is it going to be, you know, sort of continued proliferation of these, sort of, niche players all over the place and very unique experiences to each consumer? 

 

[Anil Aggarwal]

I think, frankly, it's so up in the air, I think its open for grabs. It's certainly not to say that it's the establishment versus startups or the other way around. I don't think it's, you know, neobanks versus robo-advisors. For example, I think ultimately, it's the move towards being a full solution for whoever your customer is, consumer or a business. And wrapping things up in a way that provides them enough of that solution. I also think right now there is a movement towards that for sure. And you see the addition of, you know, banking, if it's a robo-advisor or lending and things like that, but I'd say that at the same time, people are still focused on getting what they're working on right. I don't think there's a rush to do all of those things, which is why it's taken 10 years to get to that point. But I think it is a movement. I think it will be mostly rebundle. And if I were to say, you know, what is probably the biggest driver of that bundling it's, you've got to work from the consumer or the business back. I think a lot of what we've seen is working from the industry forward. Okay. Let's deconstruct this, fix the component parts, let's make things accessible via APIs and things like that. And so it's been a lot of focus on that, but I think the focus has to shift to what is the consumer problem? What is it that the business actually needs? And always the best thing to do, I think, when it comes to focusing on the end user, is to find the end user where they are, don't try and take the end user somewhere, go to where the end user is.

 

[Mike Robertson]

But perhaps then that's the point, right? Maybe the point is it's not disruption anymore? It's just the fact that change is there and it's going to be constant because when you think about the experience for a second, it’s to do with the input possibilities, or put another way, the technological possibilities that exist. Now, if we were going to go back to the moon, we would go back differently because there's different ways to get there now and different mechanisms to use. And perhaps that's what the constant is. Let's go back and solve the problem again, but use different inputs. Is that where you're going with that?

 

[Anil Aggarwal]

I think that is right. You know, I think that, I'm not sure that this stuff was being solved for before the great recession, I think before the great recession, what we generally saw was financial services industry that was, for lack of a better way of saying it, kind of, pre digitization, obviously it was an electronic payments industry, used technology more as an enabler. It wasn't digital first. It wasn't, you know, the proposition, wasn't a technology first proposition in that sense. So I think that coming out of the great recession is probably that pivot point of the industry becoming more user centric. In fact, that was the Genesis of Money20/20 was as I looked at the, you know, let's go back another decade, going back to the 2000 to 2010 decade for a moment. Following the great recession, Dodd-Frank, the creation of the CFPB, that's when there was really a revisiting to begin with, so I think maybe the change in inputs that pivot that you're talking about, which was everyone has to work together differently now than they did in the past.

 

[Doug Houser]

So Anil, wanted to touch on going back to what you were talking about, is it a horizontal, or is it a vertical within an organization? And that's one thing that we also know about your background, you were acquired by TSYS, but then you were also at a company that was acquired by Google. And we want to talk a little bit about Large Tech. And how has the entry of Large Tech into this space, where it's not their core business, but its part of the experience they want to provide, right, because they definitely have the capability to reach a broad number of users of their platforms. How has that changed, how the space operates? How they think about who the players are in the space? And also, does it cause more innovation? Does it restrict innovation? How do you think the entrance of Large Tech has really changed the landscape? 

 

[Anil Aggarwal]

I think it's changed the landscape a lot. And I think all of the changes for the positive, because I think ultimately you have to measure change by utility of financial services to end users. And I think that the entry of Big Tech into payments, specifically financial services more broadly. First, I would describe it as a partnership approach. You know, this was a question that I used to get a lot when I was at Google, is Google a friend in this or not. And the reality is from day one, at least during the time that I was there and judging from everything since then, Big Tech has been a friend. I think those organizations have helped make it a more consumer focused industry. And they've helped mainstream the disruption, and they've helped integrate it into more of your everyday experience through devices and browsers and other things that are being utilized. I think part of the description of whether these organizations, kind of, cross the line into becoming payments companies, has to do with, well how much of that revenue is being generated from payments? Is that a cost center for them? Is it a potentially, substantial source of revenue, which we've seen with organizations like Shopify? So, I think there's probably this continuum of how tech companies are either offering and helping overall disrupt and improve payments and financial services, as propositions in and of themselves, all the way to the other end of the spectrum, where they're integrating these as utility is into that service. So that it's a more seamless experience. And we see this overall distribution of financial services, not as a place you go, but something that you find, conveniently in the background and in the cloud, as you need to use them.

 

[Mike Robertson]

That's an interesting point, have we moved away from needing to refer to Fintech anymore? Is it just now tech? You know, have we moved away from the need to identify with Fintech and simply say that tech is part of change, its part of everything?

 

[Anil Aggarwal]

You know, when it comes to semantics and terminology, you're going to get people on both sides of that. I think if we were to pass that out a little bit and say, well, what actually has to happen to integrate payments, banking, lending, financial services more broadly into experiences? I think the reality is that you still do need to think about Fintech as an ecosystem and as a group of organizations that need to work together and collaborate to make something real. And by real, I mean, you know, usable and of utility to end users. So, no one in payments and financial services can exist in a vacuum. Moving money from point A to point B the way that the system is structured requires a collaboration of a number of different organizations. There is no one organization that owns all the pieces, you know, from one end to the other. And by the way, again, that was really the reason for creating Money20/20 to begin with. And it's the reason why I've created Fintech Meetup now, which is that ultimately you need that network effect. You need that collaboration of organizations to power any of these experiences and ultimately, you know, that's what I view as Fintech, whether other organizations, more on the periphery or that end up benefiting from financial services, would view themselves as Fintech or not. That's maybe more questionable or more debatable whether their Fintech, but at the core the movement of financial services towards a digital first business, I do believe that continues as Fintech.

 

[Doug Houser]

So on that point with the integrated experience, what do you think is going to drive integrated experiences as we move forward? Is it going to be acquisition? Is going to be partnerships? Is it going to be technology? Is it going to be, for example, is it going to be interoperable, distributed ledger, right, or something, or crypto that says, okay, that's allows us to bring everything together. What is going to bring together those experiences, and what players in the ecosystem are best positioned to sort of act as that hub? Is a banks? Is it Fintechs? Is it technology? What would it be? 

 

[Anil Aggarwal]

So, I think the answer to that question is, yes. Now let me give you the maybe longer answer. It's, kind of, all of the above. So I think it is the, you know, I mentioned earlier, kind of, full value chain disruption. The disruption is up and down the stack here. That means that, you know, some fundamental things are going to happen. I think the most fundamental we've seen is moving towards everything being open, interconnected and interoperable in a way that it has not been before. Truly breaking down the silos, as much as I don't love that term, is something that we have been seeing as everything gets more connected, more open; ultimately, it's the only way to get to being user centric. When everything is siloed, that's what results in clunkiness. And it's not just about opening it; it's about opening it and making it available in very consumable ways. Because you can have organizations that are open to working with each other. You can have complex systems integration; you can have long and protracted contract negotiations. And you can argue that is some degree of openness and collaboration. I think what we're seeing is that all of those things are getting simplified. It is the movement towards, for example, APIs and Open Banking. But it's also the movement towards embedded, you know, banking as a service that embeds, whatever it is, payments, lending, credit, all of that as a service, more readily into, you know, these consumer experiences.

 

[Mike Robertson]

So is that just taking us closer to decentralized finance as a concept? 

 

[Anil Aggarwal]

I mean, I think that's a little bit of a term of art. So I would say as a general matter, yes. I think you're going to find financial services decentralized, in the sense that users of them will find them at the intersection of what they're doing, as opposed to a place where they have to go to find them, in many cases. So, I'd say from that perspective, yes. In terms of who are going to be the winners or paraphrase, you know, the question, I think that's up for grabs. I don't think that that chapter has been written yet. 

 

[Mike Robertson]

Maybe that is it. If we look at the world through the winners and losers lens for a second, then I can see the value in that, perhaps really, if we stay with just that phrase, decentralized finance for a second. Perhaps the real winner here is going to be simply the end-user. Access to more people in more ways away from, you know, the traditional, we hear the five paper-based steps you take to become banked, this ought to change the landscape in terms of what's possible for those who don't have access to those natural ways, maybe they're the winners. 

 

[Anil Aggarwal]

I think that's right. 

 

[Mike Robertson]

It's a fascinating area. And I do think we're going to see much, much more there in terms of integration?

 

[Doug Houser]

The one question I do have for Anil, what's the biggest mistake a Fintech entrepreneur, in this space, what's the biggest mistake they could make in launching a new Fintech startup?

 

[Anil Aggarwal]

Boy, that's a tough question. Biggest mistake. I have a philosophy of, as a serial entrepreneur of what it is that presents the biggest opportunity. And I always think it's a mistake to not do that. So, I'm going to go with that and share that with you. I think the biggest thing that should be done is to solve problems. You know, when you look around at, no matter what aspect of payments, banking, credit, financial services, there is almost a seemingly endless set of things that can be improved. And my view of entrepreneurship is very personal to how I've done it, but it's also how I see many others going about it, is solve one of those problems better than anybody else. And as you're solving that problem, better than anybody else, other opportunities come about. But that's been my experience is you generally know when something isn't really working. I can give you an example, most recent example that I did of just that, which is, you know, one of the things having been in the events industry for as long as I have now people always complained about was traffic to booths. You know, every large event sells concrete. You know, we'll sell you a 10x10 space, a 20x20 space, whatever. And people will stand in those booths, and they're waiting for the right person to walk by. If you think about being in 2021, it's kind of like the Uber analogy. You've got someone waiting, you know, for someone else to walk by and you're hoping it's the right two people are going to connect at that moment. What I did at Shoptalk, this is going back about two or three years ago, actually a little bit longer, 2017, was, I set up a technology company to address this problem. And my view is that there's got to be a better way to connect people onsite in an event than selling people concrete and tickets, and hoping that they somehow find each other. Now, in that first year, that product was far from great. It was good, at best, but I would describe it as because we were shooting to be 10 times better than what we were before. You can fail by 50 to 80% and still provide a phenomenal value proposition to people. And the other thing that I have found is that when you approach it that way, people are very forgiving of your failures because they see you trying. And so when they see you trying, they get vested in your success. So, I am very focused on problems are usually more obvious than people tend to admit. And it just takes some effort and maybe some hard decisions, like we've got to kill the old product to really get the new one to scale. But when you take a step back and think about it, there might be hard things to do in practice. But I think that probably the more obvious things that if you do them, end up resulting in your success.

 

[Doug Houser]

Fantastic advice and we'll leave it there! 

 

[Mike Robertson]

It interesting! I totally get that. I think we're going to continue to see people re-imagine the issues; solve those problems the way you described. Very interesting! Thanks so much, Anil.

 

[Anil Aggarwal]

Well, thank you so much for having me guys. It's been a lot of fun. 

 

[Mike Robertson]

Awesome! And Doug thanks very much. Again, your questions are great. 

 

[Doug Houser]

Thanks Mike! 

 

[Mike Robertson]

Thank you for joining us. You’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

Bank of America and Bank of America Securities are the marketing name used by the Global Banking and Global Markets divisions of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading and securities and financial instruments and strategic advisory and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation investment banking affiliates including in the United States, Bank of America Securities Inc. and Merrill Lynch professional clearing Corp, both of which are registered broker dealers and members of SIPC and in other jurisdictions by locally registered entities. Bank of America, securities Inc. and Merrill Lynch professional clearing Corp are registered as futures commission’s merchants with the CFTC and are members of the NFA. Investment products offered by investment banking affiliates are not FDIC insured, may lose value and are not bank guaranteed.

© 2022 Bank of America Corporation. All rights reserved. | 4736963

Pivot – Cross Border Commerce Podcast Series

Best of Frenemies? Collaboration and culture between Fintechs and Banks.

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Jonathan Lear, Head of Community at Fintech Meetup 

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment, where due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America.

 

For today's podcast, the title is, Best of Frenemies, looking at the collaboration culture between the Fintech and banks. Indeed, does it exist at all? And to look at that, we are joined by our guest, Jonathan Lear, who's Head of Community at Fintech Meetup. 

 

[Jon Lear]

Mike, it’s good to be here with you and Doug. 

 

[Doug Houser]

Thanks Mike, Jon, thanks for joining us. We'd like to kick it off here. So, you're a brand guy, how'd you stumble upon Earthport and this Fintech space?

 

[Jon Lear]

Thank you, Doug. So, I started my career as a lowly assistant brand manager back in the UK, and then I left and I started my own business. And one of my shareholders at the time had a little holding in this company called Earthport, which was about 20 people listed on the London Stock Exchange. And he said, look, can you go and have a look at this company? It's got some really interesting technology, but I'm really not sure what we should do with it. And I went into the organization, had a little look around, met the people, and I was fascinated by what it was doing and the opportunity in front of it. But they had one big problem in that they were doing cross-border payments, but they weren't doing it for the United States, which is obviously the biggest economy in the world. Well, fast forward, nearly 20 years later, I'm now a citizen of the US, and I've really spent my career across payments, banking and Fintechs.

 

[Doug Houser]

So you mentioned that you're partnering with banks. But if I recall, one thing about Earthport was that's not how it started, right, and it's a little bit not how the journey’s been necessarily between Fintech and banks, right? How did it evolve with Earthport to, you know, go from trying to compete against banks to really integrate with them? 

 

[Jon Lear]

That's a great question, Doug, because when we first started looking at Earthport, and Earthport had essentially a processing platform, and then it had a series of local bank relationships around the world. They covered about 50 countries at that time. And the whole proposition was; we'll make it as easy to transfer money from one country to another using the low value clearing system, as it is to send a local domestic ACH transfer. So, this is what we typically now will be referred to as global low value payments. And when we first looked at the industry, we said, well, we don't need the banks. We will actually go out. We'll sell directly to all the corporates. We'll get individuals signing onto the platform. And I would say after a couple of years of blood, sweat, and tears, we really realized that was not going to be a sustainable strategy. And that's really where we concluded that it would be much better for us as an Earthport organization to partner with the financial institutions. One is that the banks obviously have the relationships with the customers. And the second is that banks also are deeply integrated into those customers as well. So, our view of it was, if we can do a single connection to a bank and then they can offer and package that up as a product and service and solution to their customers, it obviously makes much more sense for us lower cost of customer acquisition.

 

[Mike Robertson]

That's really interesting cause, you know, there was an obvious need for a pivot, which you identify it. And then you ended up in that position with those banks. What would you say was the most difficult aspect of dealing with banks then, given that that was what you needed to do?

 

[Jon Lear]

I would say everything was difficult initially with dealing with banks. And it's actually very funny now when I look back at it, because when we first started Earthport in the US, and the US was really where we focused on partnering and selling to banks initially at Earthport. First of all, nobody had really heard of us. We didn't have an industry brand, you know, we were effectively a small, UK based payment processor that did global payments, but we didn't really have any presence in the US. So it was all about really going out and credentialing ourselves, evangelizing with a number of very senior thought leaders, who were open-minded to look at alternative ways that they could best serve their customers. And that’s actually what we did, and the first bank that we actually partnered with was Bank of America, and we had a fantastic relationship that continues to this day. And, you know, the bank had one particular customer that had a particular need and requirements, and they looked at the Earthport solution and said, I think that you can help us do this. Now, to actually adopt the solution, it really did require buy-in from across the bank, whether it was at the senior executive levels, technology on the product side, on compliance, etc., etc. And ultimately, all of the different stakeholders, after lots of due diligence and really understanding the proposition and the platform and what it did, everybody bought into using Earthport as a partner. 

 

[Doug Houser]

But the first controversial question I would say, if Earthport were launched today, would that be different? Would it be more possible to sell direct to the corporates?

 

[Jon Lear]

I think that is such an interesting topic, and it really reflects the huge growth of Fintech, Doug, over the last decade. You know, if I was to look at Stripe today, for example, they have over 2 million customers, a market cap of North of a hundred billion, and they've clearly gone direct to put on the SMBs, but also some very significant large enterprise customers now. And you're seeing more and more of that actually happen. So whether it's a bill.com, for example, lot of the players have been able to build a model that effectively does go direct to the corporate or the SMB. And I think with the right level of capital and the right position and the right marketing, it's entirely doable. And for me that represents two things. The one is it does represent a very significant threat to the banks, but it also represents a very significant opportunity. Stripe, I find incredibly interesting because they've actually, completely taken out the banks from servicing those customers. So I think it's certainly we could now I think in this environment go direct. You just need sufficient capital to do that. Our view was actually, it's a better model for us to partner with the banks because they have the captive customers. And we really wanted to be that infrastructure provider and partner to the financial industry. 

 

[Mike Robertson]

It's interesting. I do remember, well, the Earthport journey. You say that Fintech has changed, and what do you think's really changed?

 

[Jon Lear]

Mike, if I note back on my career, I've really spent 15, 20 years focused on strategic partnerships, business development, bringing people together. And whether it was initially at Earthport or then laterally, I was running Global Fintech Partnerships and the FX group at JP Morgan Chase. And at Earthport, I was looking at, hey, how do I partner with banks? And at JP Morgan Chase, I was looking at, how do I bring the Fintechs in to partner with the bank? So what I love about Fintech Meetup is that we're creating one of the largest online communities to bring everybody across Fintech, banking and payments together to drive those conversations that need to happen, to drive collaboration, to drive partnerships, you know, to raise awareness of all the different solutions that everybody has across the market. So a forum that enables you to really understand all aspects of the industry, we think is incredibly exciting. And Anil and Simran, the founders have a huge track record on this from founding Money20/20, Groceryshop and Shoptalk. And what we love doing is building communities that they come together. 

 

[Mike Robertson]

So what I just heard you, that’s changed there, is that there's generally just more players in the industry. So there's more to talk about, is that what you're saying?

 

[Jon Lear]

Exactly! And, you know, if you think to really take the retail side of Fintech, the commercial side of Fintech, and then even on the wholesale side of Fintech, I think what we're seeing is that there are now players with really compelling solutions that cover all aspects of it. So as we've gone out and looked at the payments for banking, Fintech landscape, we've identified a hundred plus different categories of segments, services and solutions that both banks serve today, and Fintechs are also serving. So the opportunity for us is to say, look, if we can bring all of the people together across those hundred plus categories, wouldn't it be spectacular to think about what partnerships or new products could be created off the back of that. And that's what we're really trying to do, Mike.

 

[Doug Houser]

So, I want to ask a little bit about that with the proliferation of the market of all different types of players, have the goals that you've noticed in the Fintech space changed over time? If that’s the case, does it even matter?

 

[Jon Lear]

I think my personal view is that the more entrant that you have, it raises the bar for everybody because you get more innovation, more creativity, which ultimately we're all in the game of better serving our customers. So I think innovation is absolutely the right way to consistently raise the bar, in terms of how you can best meet their needs. And those needs might be clearly articulated and they understand what those needs are today, or they actually may be, they've never even thought of them. So our view, I think is that everybody who's in the industry has a great role to play. It's a very interesting dynamic, actually, when you sit on the partnership side of a bank to really understand who you should be partnering with, because there are multiple stages of states that the company might be at, you got the really true early stage, even pre-seed or seed, which might have some really unique technology that actually, you know, ultimately the bank could be very well-positioned to take advantage of. There is a cultural challenge though, is that sometimes the idea is, the management team and the company might be so early that whilst it's a terrific idea that people believe in, it's actually going to be quite difficult to get them through a vendor process, a partnering process. And I think we're starting to see now some of the banks adopt a much lighter touch engagement model, where they can bring these intakes into the bank, whether it's an accelerator program or an early adopter type program. 

 

[Doug Houser]

So you're actually saying that the banks have gotten better at this this versus 10 years ago, and do you want to develop that a little bit more? 

 

[Jon Lear]

I think we've made huge strides in that, Doug, as an industry. And I think that the banks are naturally, almost through force of competitive pressure, have been forced to be more open-minded about where and how they partner and even the approach of partnering and what that entails. I know Jamie, from JP Morgan Chase just came out recently and use an interesting turn of phrase, but basically told his organization that they should be very scared of Fintechs. And I look at that and I think that's very interesting. One was probably, to send a message, but I also think that banks shouldn't be scared of Fintechs. But there are pockets and parts of the end-to-end solution set that I think can be better served by Fintechs, and banks should look to adopt those. The rise of Open Banking and API technology, I think really starts to enable banks to open up some of their back doors, so that they can test and learn with the Fintechs. We're seeing that more and more in Europe, and I think we're certainly starting to see it here. Now with that, that also brings some interesting discussions and challenges, you know, I look at Plaid, for example, which I think is doing some really interesting things in terms of access and data and technology. But that also opens up and provokes a question of; how do you best protect the customer that you have? 

 

[Doug Houser]

And just following up on that with one point, as you said, you know, about banks, partnering with Fintechs, it doesn't always make sense. Talk about a little bit about frontend versus backend, right? And by that we mean, where you integrate with a partner, but you actually end up losing a bit of control, if you will, over your interface with the end client, versus where you improve a client experience and you still have the primary relationship, right? So, as banks think about that, have you noticed that that's something that it's a bit of a different calculus when you say, okay, you guys are going to be the face, like someone's going to have to actually interface with a Fintech, right, versus you're going to interface with a bank, and we're going to use you for something very, very specific on the backend. Is that a different type of partnership and a different type of consideration, you’d say?

 

[Jon Lear]

I think that's a very strategic question that a bank would, really needs to step back and think about very carefully. My belief as a brand and marketing person is that you always want to control as much as you can, the customer experience and the branding and the offering, where you can and where it makes sense. So, we would always think, when I was running partnerships, how do we bring in the partner to provide the capabilities, the infrastructure, the feature functionality, but ultimately that needs to be part of a bank owned end-to-end experience. And we could definitely do that. So, you know, when we were looking to expand the global disbursement rails, for example, into alternative payments, there are 300 plus different wallets around the world, well, we'll never own all of those wallets, and neither would we want to recreate that functionality, and neither would we probably be able to do it. But what we could do is we could own the front-facing experience for the customer and then use the wallets and the mass market, disbursement partners as distribution partners. And that's what we did. So for me, I think you always want to look to own as much of that experience as possible.

 

[Mike Robertson]

So, Jonathan, interesting points you made there. I don't think anybody though, in a bank, who has decided, or has agreed that we need a partner, would then agree that taking two years or even a year to integrate for their partner, so the systems work for both sides is an ideal state. Nobody would say that. So clearly, you know, I believe that most entities wanted to be achieved within the right sort of timeframe and then reality steps in, and I guess a number of things sort of get in the way, not least, perhaps the cultures of the different organizations. Could you speak a little bit about that? What's your observation around how culture gets in the way of, in essence, both entities wanting to achieve something that they've already seen as good, but then just taking a long time to get there?

 

[Jon Lear]

That Mike, I think is one of the perennial challenges, when you think about partnerships. I was always a little naive when I was talking to banks about Earthport, and always thought, well, surely it's just a case of commercially at the executive level, we agreed this makes sense, and we want to do it. We can just get the tech teams to resolve it and go forward and do it. Then when I started to look under the hood, you really understand that the technology infrastructures in banks and financial institutions, it tends to be pretty complex. So, when you're talking about, how does a Fintech integrate to a bank? It's going to touch large parts of that whole technology stack. So, you can certainly push to some degree in terms of, look, we need to take this down from a two year integration to a 12 month/ 9 month integration. The reality is though that most large technology organizations roadmaps are set nine to 12 months, if not more in advance. So, I think for the Fintechs, everybody wants to be incredibly, you know, get everything done yesterday, but there's a certain reality, which is; tech integration projects, they just do take time.

 

[Mike Robertson]

It does take more time. And I do think there's more understanding there. Yes, you're right. It goes to what Doug said early on, you know, it's more symbiotic than wipe out the other side. I do though, as a person who works in a bank, do wonder at times whether we come across individuals, given the risk culture, and it's understandable that it's easier to say no to something and have somebody else more senior make the decision. So ultimately you end up in a place where the decision takes off, longer than it needs to take, perhaps. Do you think a bank could apply a different approach to that partnership requirement? You know, sort of a five step process that, they don't considered? 

 

[Jon Lear]

Mike you raise a couple of really interesting points. I think culturally, what I seen over the last 15 years is that some of it is a bit of a generational piece, which is consumers have been exposed now to Fintechs and financial technology apps on their mobile phone. They expect to be able to send payments P2P directly, whether it's domestically or around the world at the touch of a button. I'm starting to see that expectation bleed over into the commercial and wholesale banking experience as well because at the end of the day, we're all consumers. And if I can do this as a consumer on my mobile phone, why can't I have a similar experience as a corporate treasurer, for example, interacting with my bank. So I think the expectations are definitely changing and definitely bleeding over onto the wholesale side. Partly as well, I think there's also a, just a generational piece. You know, Fintech started 15, 20 years ago. You've now got a whole range of new people, whether they're technologists or product managers coming through the organizations, both on the Fintech side and the bank side that says, hey, is there a better way that we can do this? Because ultimately we know we have to better serve our customers because they're demanding it. 

 

[Mike Robertson]

Well, that's good to hear, pleasing really! 

 

[Doug Houser]

So, pivoting away from the specific Fintech and banking partnerships to a question about community, which is what is community? You're the Head of Community at Fintech Meetup? Is that correct, Jon? What exactly? What exactly is that?

 

[Jon Lear]

It's actually something that I feel like I was designed to do. And partly because of my history, my track record, whether it was, as part of a Fintech at Earthport, trying to partner with banks and other people in the payments industry, or whether I was on the bank side, trying to bring Fintechs in. So I'm having the most fun that I think I've ever had in my career. Communities for us is really simple, it's about how do you create the opportunity for everybody to come together? And when we say everybody, we truly mean everybody who has a stake in this industry, whether it's payments, banking and Fintech. To come together, to drive discussion, to drive collaboration and to drive understanding of what everybody has in the ecosystem. Our view is that everything starts with a conversation. And whether it's looking at I'm a product manager at Bank of America, hey, what are the new Fintechs out there that might have capabilities I want to bring into my product set? Or if I'm a Fintech that says, actually I've got some really interesting technology that I think Bank of America should look at. So, what were just doing really is creating a meeting's first digital platform to bring everybody together to drive the discussion. So, it covers payments, Fintech, banking. It really covers everybody from C-suite executives to product managers, strategy, information, transformation, technologists, compliance, Reg-tech, because we all believe that the best opportunities all start with a conversation.

 

[Mike Robertson]

That's interesting! When you start to think about the industry that you're in and the changes that's gone through, it's fairly evident, especially having come through this pandemic or coming to the end of it, hopefully. Do you think the face to face kind of media play is behind us now? We're moving to a more dynamic model of, on the speed dating virtually, or do you think there's still a place for that large event come together, you know, fly out, etc., etc.? 

 

[Jon Lear]

We think that there's a role, definitely for that, Mike. I think it's a question, as you rightly say, with the pandemic and the current situation, it's just the question of when, probably feels like its more 2022. You know, one of the great things about an in-person events is you have serendipitous experiences. You meet somebody that you just haven't seen for a number of years that you wouldn't have necessarily scheduled a meeting with or somebody introduces you to somebody else as part of a three-way conversation and that sparks another opportunity. At Fintech Meetup, we've actually built our platform to drive some of that serendipitous type connectivity. So, we're hugely excited and the industry response for Fintechs Spring Meetup on June 15th, it's been absolutely outstanding. I think everybody recognizes that the tool and the platform is something that everybody in the industry has been looking for. And when the offline events and in-person events come back, we'll be able to leverage and use that technology as part of a hybrid model as well. So, I think everybody's looking forward to getting back together and having real life meetings and discussions, and we're in a great position where we'll be able to facilitate both.

 

[Doug Houser]

So last question, you have been on both sides of a Fintech and bank relationship, which is increasingly not unique, but I do want to ask. Do you think that there is sufficient cross-pollination in both directions between the banks and the Fintech industry, as far as from a leadership standpoint, from a thought leader standpoint, and even just from a product management and creativity standpoint?

 

[Jon Lear]

That's a brilliant question, Doug, to end on. I think that the banks are doing a terrific job now at bringing in talent from Fintechs. And why I love that is that people who've worked in Fintech and have never worked in a bank. It's a huge eye-opener. I was, you know, somewhat green-eyed and a little bit naive in terms of the regulatory burdens and oversights. And I would sometimes get frustrated, when I was at Earthport trying to partner with a bank, not really understanding what was all this compliance and regulatory control. When you go on the other side, you get a true appreciation of it. And similarly, I'm seeing banking execs and product managers go to the Fintech side. And I think what that does is enables people in the Fintechs to really understand the purpose and the constraints, but also the opportunities that banks deliver as well for their customers. So, I think that cross-pollination is happening more and more, and I would expect that to accelerate. And for the whole industry, I think that's just an incredibly positive thing. Everybody gets to understand how to partner, how to build products together, and it's all about raising the bar for ultimately better serving the end customer. So, I think it's a great trend that we're seeing, Doug. 

 

[Mike Robertson]

Wonderful! The Venn diagram; it's a been a long overlap. I hope it does more and more. Well that's brought us to the end of this conversation. It's been fascinating, Jonathan, thanks so much for your time. Thanks for joining us. And, you know, sharing your views from both sides of the fence, so to speak, and we wish you well with the new endeavor as the Head of Community at Fintech Meetup. 

 

[Jon Lear]

Thank you very much, Mike and thanks, Doug. It's been great to have this conversation.

 

[Doug Houser]

Thanks so much, Jon. 

 

[Mike Robertson]

Thanks, Doug. Thanks for joining us. You’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

Bank of America and Bank of America Securities are the marketing name used by certain of the Global Banking and Global Markets businesses of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. Trading and securities and financial instruments and strategic advisory and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation investment banking affiliates including in the United States, Bank of America Securities Inc. and Merrill Lynch professional clearing Corp, both of which are registered broker dealers and members of SIPC and in other jurisdictions by locally registered entities. Bank of America, securities Inc. and Merrill Lynch professional clearing Corp are registered as futures commission’s merchants with the CFTC and are members of the NFA. Investment products offered by investment banking affiliates are not FDIC insured, may lose value and are not bank guaranteed. © 2022 Bank of America Corporation. All rights reserved. | 4736044

Pivot – Cross Border Commerce Podcast Series

Banking as a service or what is the ultimate destination?

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Nigel Verdon - CEO of Railsbank

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment where, due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America. For today's podcast, banking as a service or what is the ultimate destination? And we're joined today by our guest Nigel Verdon, CEO of Railsbank. Welcome Nigel! 

 

[Nigel Verdon]

Hi, thank you for the invitation.  

 

[Mike Robertson]

Excellent. Great to have you here. And Doug, hi!  

 

[Doug Houser]

Thanks Mike! Looking forward to the conversation. 

 

[Mike Robertson]

Yeah and so am I. So, the topic; banking as a service, you know, Nigel, I met you back in the days when you were still doing good things with Currency Cloud, and now there's a totally new story around banking as a service, we're Railsbank is doing some interesting things. I mean, I'd love to hear a bit more about that journey, really. Could you just kick us off with how you got, where you are? 

 

[Nigel Verdon]

Sure. I go back to leaving school. I left school and I failed all my A-levels and ended up as a professional sailor, up and down the east coast of the U.S. The boat I worked on, you can Google it called Sleep Providence. It was a replica of the first ship of the U.S. Navy in the war of independence back in 1776. So, my father eventually persuaded me to go to university cause he didn't either. And I ended up with two engineering degrees and an engineer. And then, the way I ended up in finance is a buddy of mine said he's joining, an engineering buddy, he was joining this company called Goldman Sachs; I hadn't a clue who they were. He just said, they'd pay you 20 times the money for the same engineering maths. And so that's why I ended up in the city of London, initially out in the mirror and then Swiss Bank called, I left Swiss Bank in 1996 and founded my first company when the single Internet appeared around '95, '96 and did the very first foreign exchange trades ever on the Internet, which is Swiss Bank called Eske Bank. And on the back of that, we built this company called Evolution, which is now part of BA Systems on a footsie 100. So it was my first introduction to how technology can massively change the business center. So I was sitting on the FX floor in Swiss Bank House, which is now called UBS, Swiss bankers to acquisition, the mergers and everything. Then we sold Evolution and I ended up on the equities business of dress the climb wall or, wear the same thing as a management team money equities, and one of my caretaker roles was to look after their electronic trading business and ended up actually in a new unit called Digital Markets, where we brought together all flow trading was equity, FX, credit, rates, listed futures options and everything into one business unit with a colleague called, Sean Park and Sean you're well known now, he's a founder of Anthemis from the most high performing Fintech funds and one of the real innovators in it. And when we left there, I founded Currency Cloud, which was still back in that foreign exchange. And that's now a global company worth half a billion or so. And I founded that in 2007 and left it 2015 to found Wells Bank. We founded Wells Bank. The reason for it was, I'd always wanted the infrastructure the Currency Cloud to build on top of because we have to integrate all their legacy infrastructure that the most of banks used to have then, and still have today. And, same with my colleagues, Kristo and Taavet founded TransferWise, and all us who came through that first wave in 2011, also Fintechs, when it sort of appeared and Q1 2012, when it appeared in the media was first moniker. We all wanted infrastructure because we all have to build our own. And hence was the Genesis of Wells Bank. It's the infrastructure layer, the regulation, the operations and technology to let anybody to build a financial services business, whether it's a Fintech, web brand on top of us, instead of taking 18 months to go live, it normally takes between up to eight weeks to go live. Our fastest has been a neobank in eight days from idea to Apple app store with a debit card and its name. And I think that demonstrates the power of infrastructure. 

 

[Mike Robertson]

That's fascinating, Nigel. Wow. So, in a way, first of all, that's a great story. You've certainly had a coat of many colors, I think is the phrase you'd find in the scripture, but ultimately, you're now with Railsbank and in doing reading about your business and looking around the Internet, you know, one sees this phrase, something as a service, banking as a service, treasury as a service, payments as a service, as a service it’s certainly something that's being used a lot in media. Hype or reality? What do you think? 

 

[Nigel Verdon]

I think the, something as a service is always used to describe the concept of a platform and a platform business and platform business model, and so sort of technology way of describing, like a utility company, water as a service, for example, which is what you get from your local water company, here in France, it would be helene des eaux and they give water as a service essentially. So, a way that the media and commentators have described utility strike platform businesses. So banking as a service is only really sort of consolidated on what it really is because it gets very confused with open banking, which is something fundamentally different. And it’s only really come of age really in the past quarter, or plus six months, I'd say because half the VCs in the world will chasing banking as a service. There's a new banking service business starting up left, right and center. So it's a, I think it's more than height, but it's not so much about banking as a service is actually what it frees customers up to do. And that's probably the most important thing. If, for example, I wanted to launch as a brand, like say Marks and Spencer's, and I wanted to launch a bank service, which they have. In the past, you'd have to sit on top of agent banking or something like HSBC or others. And you'd have to probably spend two years getting up and running a couple of million bucks and OPEX of about three to 4 million. And you'd also inherits all the legacy of HSBC of processes and everything else like that. So that was the old way of banking as a service. And you only have single products which are multi-party, you'd have a credit card and perhaps have a bank account and that's about it. Adding new products is pretty nigh on impossible because you have to align your vendor to actually have that product available. So banking as a service is just a hell of a lot more nimble than that. Its ability to multiple products, get live super-fast, at a 10th of the price, at literally 10th of the time, because all the hard work has been done. It's different than white label, very subtly because white labeling, like say, Marks and Spencer did with HSBC. I think they'd just be sealing that worth is, you inherit legacy. Banking as a service with typically digitize the underlying product, which say issue can send money, receive money, issue cards, spend money, issue insurance policy, all those little components. And we've made them available via APIs that can be reconstructed in any way that the customer wants to put them in their customer journey. And that's the fundamental difference; the customer owns the customer journey.

 

[Doug Houser]

So, Nigel, I want to touch on that from the customer angle, right? And you said a lot there. That was interesting, especially about the nuance between when we're talking about how open banking, right, relates to the customer versus banking as a service. So I want to touch a little bit on, not banking as a service, but from my consumer, let's say as a customer standpoint, what I call services as my bank, which is to say that when I think about a bank in the traditional sense, I think of one place like you talk about it, you go to that, you go to that building even, you know, and say, this is my bank, and I get all my services from there. But now from a customer standpoint, how is open banking and banking as a service changing where consumers start to think, I'm going to get my banking from an amalgamation of different sources and all of those services aggregated for me as my personal bank, right? Versus, having one place to go for the services that a bank provides. Talk a little bit about how that mindset is changing the market. And is that something where we're going to evolve to from our customer's standpoint? 

 

[Nigel Verdon]

Yeah. If you look at how banks have traditionally, whether they've got a map or branch have always been bank centric, it's a privilege to come to the bank. It's a privilege to be banked. And so access to banking as being sort of more privileged than the actual human right, when actually it should be a human right. If you look at say tech companies and others, and people democratize access to whatever product they have or service, but like extremely customer centric, you look at say, Lulu Lemon, you look at Nike, you look at brands, they're very much wrap themselves around the customer. So, I think the shift really is by breaking and deconstructing finance, or you call it banking. Banking is just a collection of different financial products into the fundamental components I discussed, like an account, send money, receive money, a card, and insurance policy and allow the brand or the company, it doesn't necessarily need to be a brand. It doesn't necessarily to be a bank or financial services institution, to reconstruct financial service at the point in time when the customer needs them, or they essentially bank with a brand they trust. So it's, I think the fundamental shift is customer centric, financial services not necessarily delivered directly by the bank. And the bank more becoming a wholesaler and a place of safety to deliver those services, cause a fundamental issue if most G10 banks sort of, a bit of an elephant in the room on this one, is the cost of acquisition is about three $50 of customer. The LTV is like $250 ex-lending. And so the economics and all the infrastructure that sits behind it, really makes it very difficult to do something nimble because you're taking so much losses on ones that aren't producers. Whereas some at Wells Bank, the way we do it is it's cost us 10 cents a month to operate an account, Gita and Banks, 15 to 25 bucks a month. So we can fundamentally do things and enable brands and others instead of spending that two to 3 million bucks a set up, they can be spending 200K to be at the experimenting, and I'm putting financial services around the customer in the brand and then their customer journey. So that shift is really from bank centric to customer centric. So, I think, it's very difficult for the banking world to actually make that shift. I think their shifts...

 

[Mike Robertson]

Yeah. I want to pick up on that point, cause I think that's a fascinating area. I mean, certainly you mentioned elephant in the room and no doubt, you know, there is that factor. There's two things I want to pick up on there. One is a statement and perhaps you can comment on it and then I've got a question to follow that. You mentioned the cost of acquisition for a customer and in a large bank versus your approach, would you agree though that the fact that the banking infrastructure in the legacy sense exists with that high cost, is one of the reasons that you're able to sort of layer in something, which ultimately reduces the cost that you have, you know, 10 cents, etc., without that traditional rail network that was there before, within the legacy environment that might not be possible. So there's that aspect. And if you could comment on that, and then the question I wanted to ask you, kind of following into that is this; it's very obvious for me living initially in London and now in New York, that the culture and approach to banking is quite different. And the regulators, of course, play a part in that as does technology and legacy. Talk a little bit, if you will, about the different approach you see in Europe with regards to open API versus what happens here in the U.S.

 

[Nigel Verdon]

Yeah. So I'll just push one thing back from your original comment. We're 10 cents. We don't lie on top of a bank. We were direct clearers with the Bank of England. So there's no Barclays or anything between us and the Bank of England. We are the clearer. Okay. So, this is one of the things that hasn't clicked and a lot of the legacy infrastructures, because we've built it from the ground up to be lightweight and designed for 10 cents a month cost of running an account fully loaded with the compliance for it and everything. And because we built fraud, and into and compliance, everything into every single transaction rather than bolted around the outside, that allows us to do that. And that's what legacy is going to find it very difficult cause changing core banking systems and all the compliance sense of sellotape on the outside is like changing the wheels in your car. It's massively high risk, cause you’re impacting people's money. And so, hence why there's people like a standard chartered building, a total digital bank alongside of it. So they can basically move all the customers over to that and close down the legacy. Ditto as Charles Schwab did with his online, he showed, he basically cannibalized his orders, storefront brokerages. So that's what I think the fundamental change is. That we don't sit on top of anybody and just get them to take the pain. We take the pain all the way to the central bank, or all the way to Visa, all the way to MasterCard on it.

 

[Mike Robertson]

OK, we can come back to that. 

 

[Nigel Verdon]

And also we're heavily regulated too. I think there’s no real difference between our regulation and what we do, and a bank been regulated to, we held deposits and we do that and we have to look after the custom money. And we talked to the FCA and the regulator every day on top of that. So the key thing differences in Europe and the U.S. U.S. is highly complex because of the regulatory environment is very much state-based in many instances. And so there isn't, also there isn’t the concept of a more lightweight, e-money type license, which has deposit holding and doing payments, which is what essentially e-money is. I mean, the difference in e-money and the banking licenses and the e-money license. You can't leverage those deposits into loans, and you also can't use as deposits, your own cashflows, which you can actually do in a bank within limits and stuff, and make sure you're, as long as you got all the other capital requirements in there, you can use them, whatever you want. So, that's one observation. Number two is, Europe and other parts of the world, there's concept of contactless payments. The fact, no hardly anybody uses checks anymore. The infrastructure's very much grown up because it's less complicated than the U.S. system, where still got these small, think it was U.S. or somewhat four 6,000 banks, serving 350 million people. There's certainly not that number in Europe serving 640 million people. So, because it's a very fractional based infrastructure trying to get it to change to the way the Europe, well Europe's been easier because it's a less infrastructure and people to change has really held, I think, the U.S. banking back considerably. And so, I think that the real challenge in the U.S. is how do you get all those banks, and the different clearing models and everything, cause they all end, they're not all members of U.S. Fed. For clearing, they have to clear on top of somebody else. And so you've got this layering infrastructure too, which adds extra complexity to it. And then when...

 

[Mike Robertson]

Do you think it will hold them back? Ultimately? 

 

[Nigel Verdon]

Totally, totally. I think that's why you've seen the consumer react and join people at Chime and others and Robinhood and Wealth Fund and things because of the experience is so much better and the consumer's not held back. But I think there's a real challenge in the infrastructure.

 

[Nigel Verdon]

That's interesting. 

 

[Doug Houser]

So I want to touch a little bit on, again, that was a great sort of primer as to how you operate like a bank versus how a Railsbank doesn't right? And one thing about, for when you see the democratization of services like this, which is, you get a lot of entrance into the market. Who can provide a lot of different services, but the question I have fundamentally is, does it require a long-term for there to be a concentration of capital similar to how the larger banks acquired in the past? So, and what does that look like, of how you think about, how consolidation would happen in the space, right? I mean, Railsbank recently acquired assets from Wirecard. Talk a little bit about how you think long-term, if this is a distributed network of small players that are offering differentiated services, or if long-term, it looks a lot like the consolidation that has happened to the banking industry over the last 50 years with this burst right now of new services being offered in the market.

 

[Nigel Verdon]

The way I said is, banks still play a major role and, just historically my great, great grandfather was one of the co-founders essentially of ANZ Bank. So we know a little bit about banking and it's fundamentally banking is there to take deposits and turn them into loans. And that's the fundamentals behind it. And those banks have ended up with, I think every bank, if he looks at them, has something like 190 on differentiated products and very few differentiated one, cause a current account is no different from any bank. And then there's another elephant in the room. You look at the marketing spend out of one of the big four in the U.S., they actually spend more marketing a credit card and a bank account than Apple do globally, and such an undifferentiated product. So invest the core problem and the economics behind it. So what's the future look like? The good thing about banks, their safe, they have all been through war, famine, credit crunches and everything. And 99.9% of banks are run by very good people. And what they, really, are is centers of safety and very good at managing risk and very good at lending. They have a ton of data, which none of the Fintechs have and lending, a friend of mine is a CEO, so Chief Executive of Standard Chartered, former CEO of Standard Chartered, we chatted a few years back about, it's easier for lending money, Nigel, but the Fintech world hasn't figured out how to get it back again. The banking world has. And so I can see where platforms like us will be like the Amazon web services, there'll be four or five platforms where the new world sits on top of and the concept of data centers or banks providing those APIs and all that sort of thing will disappear. Banks will then use platforms like us to distribute the amazing product, which is, would you prefer to have a deposit with Wells Bank or would you prefer to have a deposit at JP Morgan? I think most consumers would prefer to have a deposit at JP Morgan, but there's some consumers who may not be able to be applicable to JP Morgan, they may have one at Wells Bank, so there's different risk profiles. But if you make that choice available by the platform, you can construct financial products around that to your consumer. And so the interaction with consumers will most likely be in the hands of tech and brands, but those tech and brands won't get into the business of licensing or bit of platforms and fundamentally some of the banks, whether it's banks or insurance companies at the back end. So I think there'll be a shift towards being wholesalers. And then you change the economics considerably to actually make a, probably a better economics for bank. When instead of again, paying a few hundred bucks to originator an asset alone on to your balance sheet; you're paying five bucks to originated it, that fundamentally changes the economics of the bank as well. So I think if we look forward to a world of platform, wholesaler and distributors, that's what I think the future is, but that scares majority of boards and the banks and the reason is on the boards, most of the banks in the world, I think only 2% have anybody who's got any real tech experience and digital experience, cause they still think that technology is IT. It's not. They’re a fundamentally different thing. Amazon doesn't have a chief digital officer; Google doesn't have a chief digital officer. And if you've got a chief digital officer, you've lost the plot because you don't know what digital is. And ergo your board doesn't. And so I think...

 

[Mike Robertson]

You make a, well you make an important point there, I mean, we all understand that legacy companies have legacy oriented boards and you know, let's not go too far there, because I do take your point on that one. But I want to just go back to something, you said, around this new model. It fascinates me and I can sort of see the utility at an angle. Absolutely, I live in the same world you do. And I can sort of see where that might go. And of course we have customers and clients that talked to us about new ideas in this sense, how do you see this, I'm using this boot on purpose? This re-imagined environment, this reimagined a platform world. How do you see the actual shift in the fee structures though because clearly every player has to take something in return for what they do? So, how do you see that fundamentally changing at the cost end to the customer, and indeed to the legacy entities that are making money today from the environment? So you're sitting in the middle of that. So how does that change things?

 

[Nigel Verdon]

It’s the same way that I think Amazon has done it, that AWS and others. Before Amazon, I used to, oh anybody used to have a machine with them and then there was data centers, but you still have to have bits of tin in the data centers. And then AWS says, oh, it's a pure digital product. Then that's the shift and the digital product underneath it. They're still, Cisco routers are still bits of tin sitting in there. So, I think that’s the shift. And so you get the economics of Amazon or JP Morgan for sake of argument. Cisco still in business providing Amazon, which has been like Amazon web services would be something like Wells Bank, the capabilities there just to have a different product set. But they're still making money. The person who really wins, I think out of this is the consumer because access is massively enhanced. And the say unbanked where it's unaffordable for banks from the, they tend to use a compliance angle say well or not, then our risk policy. Well, there un-affordable is a real, another elephant in the room. And so, certainly UK got 8 million unbanked, perhaps you can bank those people as 92 million unbanked across Europe, 92 million people. That's a huge amount assuming there something 640 million people in Europe. And if you look at, say Southeast Asia, within two hours of Singapore, there's something like 350 million unbanked because the economics don't work. So if you shift to this model, you bring the world into something called financial services inclusion, and you make financial services a human right and not a privilege. And then you move it from bank centric to very much make customer centric. Parallel is what happened in the music industry when the iTunes came out and the music industry was on its knees because of economics, all the powers in the labels. So the iTunes suddenly people had choice, they had a digital product, it didn't have an analog product, like even a CD is essential an analog product, but you could have choice. And so that was choice with a simple thing called digital product, business models, massively changed. Now the music industry is in a massive heyday again. Power has shifted somewhat away from labels, but labels are still there. But the consumers mastery enabled distribution models for, I can be as a musician and I can use all the, my cause I can do everything digital, even my laptop. I can become a famous musician from my bedroom, if you certainly see...

 

[Doug Houser]

Yeah, I want to touch on because there is the one point though, which is, I want to talk a little bit about this, which is, while yes, democratization of all services are very similar, No regulatory board and no government is saying, how do I prevent the next indie rock crisis, right, to be able to prevent the next economic crisis? So, banking services are fundamentally tied, right, to stability of governments and stability of the financial systems. And so as such are going to be regulated differently. So the idea around the democratization is a little bit different, right? So, how has that balance of access to services and how do you see the push/pull happening with the desire for, as we talked about, traditional banking structures have safety, kind of built in? How do you see that evolving, right? It's a little bit of a different services play when you talk about the financial industry versus other technical services. 

 

[Nigel Verdon]

So I appreciate it. I still serve on the boards of world's number two foreign exchange options hedge fund as an NED, so I get that. One of the key things is, there is systemic risk and everything that governments and everything they have to control, as well within the financial services. And then obviously the 2007, 2008, everybody had their eyes off the ball, including the boards of most banks. And I think everybody learned from that. Democratization doesn't mean that risk management goes out the window. As I mentioned earlier, everybody plays a role in democratization. Banks are still places of safety and always will be, and they have been many times. The role in the place of safety may change. And it’s basic from mainly from a distribution model. So, I can see the deposits still maintaining within the banks, but their cost of actually acquisition of those deposits, and also then acquisition of the assets side of it, but fundamentally large, which is a good thing, because most banks, you look at the return on equity at the moment, it's been declining and it has been declining. And it hasn't really grown at all since 2007, 2008. And you can see the paper written by Frank Waltman, the former CFO of Capital One, is now with Nigel Morris founder at Security and Investors. And if you look at the paper for the call, the Copernicus Moment, the banking, it's a very good thesis on why their fundamental economics changed. Even if you're making money and you're profitable, it's there, it's some of the other ratios aren't there. And you look at the share prices as everything's not stellar when they should be. And I think its change. You keep the risk, you keep the systemic risk, so it keep the risk and systemic risk won't ease in. Economics will be better, and actually then the financial system. And I think it's in a better place, a fundamentally better place.

 

[Mike Robertson]

Yeah, that's really interesting. I certainly take your point about looking ahead in the good times to ensure that you aren't tripped up without looking ahead when times begin to shift. I totally get that. And just incidentally, I, you know, growing up in Africa, I do see the impact, especially you, we all know what Impressa is these days, but when Impressa launched, it was fascinating. And it did change the fundamentals for so many lives. So collapsing the cost, clearly in the whole sort of economics of the permit, so to speak, is interesting. And it does bring more access to so many people. And, you know, I can totally see the benefit of that. I want to just move across, you know, it was in the media and certainly why I called was a topical subject. You know, a while back, I guess, you know, one person's challenges, another person's opportunity. And so talk to us about what you acquired a portion, I believe, was it, Nigel, of WireCard or something there? What are your plans with that? 

 

[Nigel Verdon]

So, yeah, we acquired a part of the UK business, which was a card issuing side, 90%, 95% of the work in business was card acquiring, and that was level the main issues were the card issuing part and UK was primarily the acquisition of Newcastle Building Society, a few years back. So we actually knew those people, and it was a clean business. So we’re not in the business of acquiring. We saw that asset come up for sale. We approached colleagues of mine on the supervisory board of Wirecard and said we were interested in this particular small piece because we understood where all the risks were in the company. And just so, even for the record, I know Jan Marsalek, the guy has disappeared, and I also know Wirecard's biggest customer who allowed them to get to where they are at the time. So we acquired it. It's now, we've got roughly a five, roughly just over five and a half million cards issued out there now. Lots of those are from the Wirecard acquisition. There's a team of people who are superb, who've come and joined us as well. And we were hiring in the market, hiring for good people. So the people came and fundamentally, we helped save those other 5.5 million or so 5 million or so account holders from having a major impact, and also the Fintech industry having a major impact and systemic risk because of the fallout of another part of Wirecard, which wasn't their fault at all. So we work massively close to the regulator. And I think we got the deal because of our relationship with the regulator and the fact that we've got a bunch of gray hair in the company, who've run banks, been CFOs of banks, have management responsibility in banks in our past lives. So we understood how we can make sure we remove the systemic risk. And I'm proud to say that the team migrated all the Wirecard cardholders and program managers over in a four week period, and not a single cardholder was impacted. So, it was combination of one, we don't want the market having systemic risk because it's not good for the merchant Fintech markets, we put our check book where our mouth was, two it's helped our business, so it's aggressively helped us scale our business. We've got some fundamentally great people who've joined, and I still think they should have a badge of honor of working for Wirecard because it was a great company. It was supported by a few, and there's still great people out there. So I also, if anybody seen somebody ex-Wirecard, don't persecute them, hire them. They're good people. So that's the sort of impact to us. It's really helped. And it’s also built our brand around the world massively. That's another sort of impact we didn't even consider, but it has made us now worldwide known, thanks to all the articles associated with them.

 

[Doug Houser]

So that's a point I want to touch on a little bit, as well, is when you have the strategy of acquisition in the space, we talked a little bit about how consolidation is happening in the space. How do you think about assets? And by that, I mean, what assets are you looking to acquire as Railsbank versus for example, a traditional bank would? You have people, you have technology, so for example, are you thinking you want to acquire a portfolio of technologies because you're not sure exactly what the prevailing technology is going to be going forward, right? Do you want to acquire brands? Much like in the distributed technology space, where you say, I'm going to acquire the brands that will allow me entrance into a new market. So I just want to think a little bit about how it's different from traditional banking and how it kind of, is related to technology because it sits in the middle a bit. How do you think about what assets you're acquiring when you think about making acquisitions in this space?

 

[Nigel Verdon]

Yeah, sure. If you look at, say history of most bank M&A activity, there's lots of mergers, a majority have failed and being demerged as well. And, just my observation from sitting in banks, when I was at Swiss Bank or when we bought Warburgs and then Dillon Reed, and then we're asked to buy UBS because of LTTM fallout. So there's that sort of driven. So banks generally acquire for access to new market, access to assets and customer bases. That's fundamentally the only reasons why to acquire or somebody's in distress, and so you can buy the assets at a less cents than a dollar. For us, it's a different thing. We don't really care about the technology because I learnt in Swiss Bank on, when Swiss Bank were bought. So Warburg's had said, you'll lose all the Swiss Bank core technology because we're streets ahead. And it's all based on the technology O'Connor built when Swiss Bank bought O'Connor. So it's the same thing as technology. We believe that a great platform is leading edge, and it's continually being improved. And it's built, not like the legacy; it's built like Google and Facebook, where you can permanently improve every single part of it. So you don't get stuck in this or technical debt by a part of the world. So, our acquisition mindset is it's about customer basis. It's about new country entry and team, quality people as well. Those people, let's not forget, people power businesses, they’re the most important thing that we have and with a good people, we get happy customers. And it's something, that's also, not forget, it's all about the customer. We don't need to buy the sort of balance sheets at all, because were not a balance sheet business. What we want is with distribution business. We're a customer facing business and we're a people business, below the covers as well.

 

[Mike Robertson]

That's really interesting because I can, sort of, see where that approach will differ from the way things have been done before. We’ve mentioned regulators on and off through this conversation. And clearly you're exposed to different regulatory environments given the fact that you have a more global outlook, then some of the audience. Talk a little bit about that. I mean, how would you, if you were asked to describe the difference in approach between the U.S. regulators collectively and perhaps regulators in Europe or in even, indeed, even in Asia where you have a location in Singapore now.

 

[Nigel Verdon]

Sure. So, we're regulated across UK, Europe, Singapore, just getting approval in Philippines, Australia, Japan, and so we got good exposure of different regulation and things. The fundamental difference in U.S., and say Europe, or especially the UK, and UK fully, one of the leading lights on regulation in the world over the past, say 40 years. U.S. is rule-based, UK is principle-based. So, people operate in the U.S. spend the whole time arbitraging the rules, where as a principle base regulation is all about, are you doing the right thing? And I think you get better outcomes by principle-based regulation, because it empowers some trust in the people, and you've got to have the right environment for that. And I've seen it operate by some trading floors in banking and others. And it breeds a different type of relationship with the customer. And that's the fundamental divide, regardless where in the world of, are they rule-based or are they principles based? MAs is very good. It's very mirrored on the loss of the stuff, on the MAs of Singapore is very much moving on UK as well, and the principle-based approach, and then, there's others, which are sort of blends of the two. When you become totally prescriptive and rule-based, it's actually quite dangerous place to be for regulation in my humble opinion, because you can't have a rule for everything. And so you need to be able to empower your industry to think, and if you're going to power your industry to think in the right way, and sometimes you get some bad eggs like you do, you get a better outcome for moving systemic risk, and you've got a better outcome for the customer for treating customers fairly. That's just my observation of operating over, most lot of jurisdictions. My management teams operated them a ton of jurisdictions as well, because we've all operated around the world over the past 30 years. But I think when we come then to discuss regulation, which we do all the time, because we were, I'd say we're daily contact with our regulators in UK and Europe is always comes back to this principle versus rules. And we're big fans of principle-based regulation.

 

[Doug Houser]

I want to talk about that a little bit more because the U.S., when we talk about the U.S. regulatory environment, obviously, one of the largest markets, I think we all know that, but it is very prescriptive, right? We are talking about very much rules-based of saying, if X happens, you do Y, right? That's why you have to remediate it. You have to check for this, you have to do that. And why, that something that is sort of easy to govern and police, right? But as you said, isn't necessarily producing better outcomes from a risk standpoint. Is the U.S. going to, do you think it has moved forward in principle-based thinking, and do you foresee it in the future, sort of, are you optimistic that the U.S. will move more towards principles based going forward? Or are we going to be in the cycle where it is largely prescriptive?

 

[Nigel Verdon]

I can't see it changing anytime soon, it's the base of the regulation and it's the base of how the regulator and the Fed and everything acts, and you can just see it in the way the DNA. So it's incredibly difficult to change your DNA. So, I personally can't see it, but the U.S. will continue on it. We just know it's a rule-base environment. One, it sets values and regulates it, actually challenged that because you'll find everybody. And I remember this in banks, how it works is spending the time arbitraging the rules and trying to find a way around the rules and things. So it's very difficult to regulate because you get tons of court cases, which are on the edge of the rule, but the rule, isn't totally clear cause of poor drafting, for example, it's just happens. So, it's theoretically, you've got a set of rules. It's easier to govern in practice. I'm not certain as it's a, it's a great place. And you just see it from lawsuits and the amount of time we've got to have lawyers to make sure you've got a clear understanding of the rule and some, sort of, way, cause there isn't really a safe harbor otherwise, and then you've got to go to court, which isn't great.

 

[Mike Robertson]

So that safe harbor point is interesting. Cause I mean, frankly yes, one can see the importance of allowing, you know, that sort of, that hot-house safety to incubate new ideas without, you know, being tripped up. And I take your point that the U.S. approach maybe backed into the DNA and living here for a few years now, I can, sort of, see that within general culture sometimes as well. I wonder whether you feel the U.S. would at least move more healthfully towards that safe harbor approach to allow more incubation to occur. Do you see that happening? 

 

[Nigel Verdon]

Well, there's this thing called lobbyists in the U.S., and as a teenager, my father was a military liaison between American armies and the embassy, and father was in the military, and we lived in McClean, and father worked in the embassy and Fort Mead and a ton of other places like that. And the real observation there was, exactly that whole approach on that, which is fundamentally different, and it will be the U.S. that makes U.S. different, but also makes U.S. great as well. So, the safe harbor side of things in terms of opening things up. There was one in Wyoming, whether if I think Kraken has got the first hurdles were licensed, but that still has to go through Fed and in places has, sort of, seen a bit of innovation, but lobbyist tend to squash it down considerably. And you've got see if the lobbyists that JP Morgan and others can throw at a bank and make a Merrill Lynch can throw at it. So I think lobbyists, possibly the people that are breaking innovation, and it'd be great to see a brave regulator, like the SGA was with sandbox and many others around the world have followed suit as well. And you see how those markets have changed? Have they got more systemic risks? No. So, I think, yes, if you've got a brave person in there, I'm not sure who it will be because of lobbyists and the way that American politics and how you get funded works. See if that actually happens, it'd be a great thing that does, cause I think the U.S. is a great market. It's a ton of innovations happening in so many industries. 

 

[Mike Robertson]

Indeed. And perhaps that's a whole new topic. You know, the capture somebody was referring to that regulatory capture through the lobbying channel is a very interesting conversation, perhaps another whole 45 minutes on that at some point. Nigel thanks very much. This has been a fascinating look into, you know, banking as a service in general and your thoughts on how that moves and where this is going for banking more broadly. Doug and I'd like to thank you very much for joining us on those topics. 

 

[Nigel Verdon]

Thank you as well for the opportunity to speak, it's always good to speak to you, Mike, cause it's bumped into ourselves in many, many different guises. 

 

[Mike Robertson]

Indeed, indeed. And thanks Doug for joining too.  

 

[Doug Houser]

Thanks so much.  

 

[Mike Robertson]

You’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

“Bank of America” is the marketing name used by certain of the Global Banking and Global Markets businesses of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. © 2022 Bank of America Corporation. All rights reserved. | 4475867

Pivot – Cross Border Commerce Podcast Series

Crypto and the future of digital currencies

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

David Kinitsky - CEO of Kraken Bank

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment where, due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America. So for today's podcast, we look at crypto and the future of digital currencies, and we are joined by our guest David Kinitsky, who is the CEO of Kraken Bank. Welcome David!

 

[David Kinitsky]

Great to be here. Thanks for having me.

 

[Mike Robertson]

David, I've been dying to ask this question of somebody who is knowledgeable, and you know, who knows the space that you're in. And invariably, it's a question that I get asked from time to time about people around me. And the question is this, cryptocurrencies hype or real? What do you think? I'm, obviously you're in this space. What do you think about this?

 

[David Kinitsky]

Yeah, obviously I'm biased, but I'm, I very much think it's real. Just like any new kind of technology, innovation kind of market structure, you go through phases of hype cycles and all of that. So, maybe at one point in time, there was more hype than it was real, but I think there's little doubt that this is sticking around. This is here to stay and it will fundamentally change a lot of how we view in the world of finance.

 

[Doug Houser]

So David, that's a great segue into talking about how it will change in the world of finance. So I think still there's a misconception out there that a lot of people see crypto as a monolith, right? Even just by kind of short handing it with a brand of Bitcoin. And so, I want you to talk a little bit about, there are different business models that are really underlying the crypto assets in this space. Talk a little bit about how varied they are and a little bit about what some of the more interesting ones you've seen out there. 

 

[David Kinitsky]

Yeah, absolutely. And I think there's kind of two levels to it to start. One is kind of Bitcoin and these other types of new networks that we're seeing emerging and the differentiation between them and then what businesses people are building on top of them and the differentiation among them. So to start with the first one, yeah. I mean, people just say crypto and there's an inclination to lump it all together and you see Bitcoin or Blockchain and everything that is Blockchain is the same thing. I don't think that could be farther from the truth. I think you have Bitcoin, which is a fundamental innovation and, for the first time ever, the creation of digitally native property rights in the world. We've never seen this before. When there's other kind of Blockchain projects that are kind of more consortium or institutional based in the traditional finance world, these truly are just kind of like new networks or IT innovations. The Bitcoin and crypto innovation though is a much broader one, it's technological, but it's also a social and economic innovation. And even within that world of crypto, you have things like Bitcoin and you've got all these other networks with different value props, like an Ethereum that's trying to build a much more extensible and flexible kind of like financial system on the Internet. You've got ones that are more dedicated to specific use cases, whether they are entertainment or gaming, or even nonfinancial use cases like those. And so there's broad differentiation amongst that group. To be clear though, Bitcoin is certainly the granddaddy of them all, and a lot of things are built on top of it. Speaking of that, you've got a ton of businesses that are building on these new networks and protocols that have, kind of, are pursuing some interesting new business model. In addition to the traditional ones, certainly to date, the most popular and most profitable ones have been fairly traditional, honestly. They've been brokerage and trading and exchange, and market-making, they've been created investment products and collecting, you know, asset management fees or administration or custody fees, things like that. And by and large, that's at, kind of like the end user, whether it's retail or institutional level, but the infrastructure level, at the bottom of the staff, you've kind of have these protocols, which, like Bitcoin and these others that have their own incentives or business models to themselves. Bitcoin, for example, has the concept of minors, which process transactions and secure the network, and as a result are rewarded by the network with a new issuance of Bitcoin. And so miners, Bitcoin miners are another segment that have been relatively profitable as well. And you're starting to see kind of the middle of middleware be filled in with all sorts of services like beta and developer tools and things like that. So while you have seen a lot of this, kind of, that's a traditional financial services staff, you're starting to see some kind of new models be, kind of, pursued as well. Something like a traditional technology, open source software model where a business builds kind of a new protocol and then builds a top layer above it that they monetize. You're starting to see that, which is a little bit unlike traditional financial services. You're starting to see different frameworks and paradigms, where folks can build services that they don't collect assets or users on their platform, but actually provide financial services wherever the users goes. And what we're seeing is the embedding of finance within applications across the web, and then even non-financial applications. We're seeing finance look a little bit more like entertainment though, I guess we're starting to see that in traditional markets as well. But what you're really seeing is kind of an unbundling and rebundling of the financial services stack, and really you're seeing a convergence of crypto with Fintech and Neobanks and traditional financial services as well. So I think really you're seeing kind of a lot of experimentation and exploration with highly profitable businesses in the traditional models, meanwhile totally new frameworks being pursued.

 

[Doug Houser]

So just want to follow under that and pivoting a little bit like we'd like to do on this podcast. That was fantastic description of the entire landscape, right, in giving us an overview of the landscape. So you have the FX guys on here, hosting this. Why currency? And by that, I mean, we've heard about this being described pretty much for a long time. It's been as cryptocurrencies, but the diversity of the crypto assets, and the way that they function doesn't seem to be sort of unilaterally function even as closely to a currency as it does to other asset classes. So, I mean, do you see us moving away from that idea of it being named a currency and, kind of, broaden out the asset class? Or is there a very specific reason why these assets are best described by currency?

 

[David Kinitsky]

Yeah, that's a great question. A lot of people approach it head on and say, hey, this doesn't look like what we consider to be a currency or money and start taking issue there. But I think you kind of have to zoom out a little bit. Whenever there's a new technological or social or economic innovation, whatever it makes you kind of question is kind of something to pay attention to. So when the Internet came out, it made us kind of rethink what does media, right? When Bitcoin and these other crypto networks come out and they make us think, what is currency, what is money, right? And I think it's important to note the frame of reference that Bitcoin and these other cryptos are serving as money or currency. And that is each one can be viewed as kind of a network or community or ecosystem or economy unto itself. The Bitcoin network is a closed loop insulated economy and the Bitcoin assets and tokens on that network are that economy's money and that economy's currency. So when you, kind of like, come at it, head on and say, well, this doesn't look like the US dollar. It doesn't function like it, right? I think you need to zoom out and reframe the context you're talking about it. And what we're talking about is digitally native economies and these tokens serving as the money or currency within that. 

 

[Mike Robertson]

So, in essence, if I just follow off from that, it's, sort of, tapping into the other answer you gave before Doug asked the last question. It's really understanding the fact that there's an economic aspect to, in essence, the underlying business models, I mean the store of value in Bitcoin, I think, tell you, argued, been debated kind of over there to a degree. And then there's the other direction, if you like of the platforms that you mentioned before. So if I look at that, would it be right to look at the whole concept of, and it's a concept, I get it, of decentralized finance, defy, so to speak, being driven by a different economic model, whether its own economic thrust in, for example, Ethereum. Is that how you look at it? 

 

[David Kinitsky]

Yeah, I think that's fair to say. I think that, basically, these networks, because they are decentralized and don't have kind of like an authority or control to them, they develop economic incentives that make them work, right? And so what these tokens do is kind of serve a particular function for a particular network. For example, Bitcoin often, kind of, wrongly gets, kind of, correlated with, you know, the US dollar or, you know, Visa, MasterCard kind of payment transactions. Really it's more like physical cash or gold mixed with Fedwire settlement, right? And so it's all about the frame of reference you're using, to kind of compare these to money and currency. And I think historically or actually, we're kind of in ahistorical moment currently with the US dollar being a non-bank Fiat currency that serves as a global reserve. That's relatively new and probably ahistorical, if anything. And so I think Bitcoin kind of takes a little bit from the past, but also blends it with the future. And I think the key thing here is, it being digitally native, it being decentralized and using economic incentives to make the network work. And then it being a layered model. Whereas if you view kind of Bitcoin as the, the bottom layer of the staff, like physical cash, gold, Fedwire settlement, you then build layers on top of that to facilitate things like, you know, real-time settlement and payments and things like that ultimately to cash. And so I think, there again is a little bit of unbundling and rebundling going on. A lot of people, you know, talk about money having three uses of store value, unit of account and a medium of exchange. And we're kind of experimenting and pursuing kind of the unbundling of that. And then rebundling how it works. So I think it's all about frame of references here. 

 

[Doug Houser]

So, building off of that, though, it's true. It's a little bit of the old, a little bit of the new, but I'm going to pivot to the fact that you decided to become an old stodgy bank. Well maybe not an old stodgy bank, but you did decide to get a banking license. Certainly, and that's a big step forward, right? Well, I'll say it's a step forward, but so one, a little bit towards the traditional, in some sense in trying to blend those two worlds as you were discussing. So one, what made you want to make that decision? What did you decide? Okay, you know what; this is the next evolution of our business model. And do you think there're more crypto exchanges that are going to follow suit? 

 

[David Kinitsky]

Yeah, absolutely! I mean, hopefully we won't be a stodgy old bank, but it is true that we are the first crypto company to receive a banking charter in the United States. And in fact, it's a very specific and new type of banking charter; a state charter out of Wyoming called the Special Purpose Depository Institution that we found particularly attractive. We're pursuing this for a number of reasons. You know, the overarching one is Kraken has a mission to promote the adoption of crypto in order to enable more financial freedom. And we think that this Kraken Bank is a key tool to facilitate that by enabling us to more seamlessly integrate between crypto and the existing financial system. And then in the future, kind of, have a bank and full staff, financial services solution that's crypto native or crypto centric at a minimum. There's a couple of very specific kind of business objectives that we're hoping to achieve here as well. Legal and regulatory positioning in certainties is a big one. Historically, certainly in the US, regulation has been pretty unclear and pretty burdensome, and there's not been a great model. You could try to go, you know, across 50 States and do a state by state kind of like money transmission license approach, or you could kind of try to have a trust company program. Neither of those kind of gives you a consolidated approach. And neither of those that exist have kind of a crypto dedicated framework, for example, for supervision and oversight, right? That just doesn't exist. This is the first, kind of, charter or legal or regulatory framework that does have that kind of crypto dedicated framework built in from the ground up. It also kind of harmonizes this legal and regulatory framework with some of the underlying legal concepts below financial services in banking, for example, bailments law and property and what these assets are, how they're classified and what the relationship between depositors or end users and the actual institution is, that sort of uncertainty, was persistent across the United States. This is the first framework and regime that I've seen that, kind of, create some clarity there. That's the first reason; the second reason is better infrastructure and result in customer experience. By and large in the crypto industry, getting banking partners has been challenging. Again, a lot of it because of that legal and regulatory uncertainty. Kraken's been fortunate that historically we've had a slate of great third-party banking partners that we've been able to integrate into the platform. But even though that's the case, we're still kind of having to use their systems, their APIs, having to deal with their risk management protocols and things like that. And that does kind of affect how we are able to integrate it into our products and customer experience. By getting direct access to the federal payment system and master accounts at the Fed, as well as other kind of correspondent banking services, we kind of have a direct connection to these things, and then control over how we integrate them into our products and services. And then the last one is we're able to offer new products and enter new markets with this, we're able to, for example, enter new institutional markets and provide qualified custody or good control locations for broker dealers. On the retail side, we can offer many traditional banking products, and then investment products and specialty accounts like a tax deferred or tax advantage ones, IRAs, 401ks, that sort of stuff, and connect it to real world use cases in payments and other things. So, that's kind of the whole reason we did this and from our view, we think it's going to be a lot more crypto companies and incumbents who entered the crypto space pursuing banking charters. Cause the bottom line is that banking is the bottom of our financial services stack. Everything is built on top of that, so you kind of need to be at that bottom layer. And frankly, it's great to have a seat at the table now to be able to, at least inform or help shape what the landscape looks like for banking and regulation for crypto in the future.

 

[Mike Robertson]

Yeah, it's really interesting to see where this goes. You know, working in a large bank has Doug and I obviously do, you would appreciate that, the opinions at one hears in this, around this entire topic, very, very widely from, you know, absolute nonsense to, wow, it's going to change the world and everything in between. And one of the questions is, for a large bank, how does one sort of blend the old with the new? Leaving aside, you know, the fact that there's a regulatory issue in the background, always. I think an approach to understanding this from within a large institution would be healthy. I mean, what are your thoughts around the best ways to approach that blending of, what's possible with what's gone before?

 

[David Kinitsky]

Yeah, and that's always the issue for innovation in larger institutions, and I had something of a firsthand look at this. Started my career, actually in securities law, but then quickly moved over to Fintech and financial services, and most of its been in startups and Fintech, but had a sojourn at Fidelity, where I saw firsthand kind of how they were working, struggling with these issues. They're a little bit of a unique situation as like a private kind of family owned and run company that has maybe a longer horizon that allows them to kind of approach these things a little differently, but it's absolutely still an issue at any big institution. You've got kind of this successful portfolio of products and businesses that exist. Why should we focus on this thing that, you know, is a drop in the bucket compared to that? How do we get ahead of it? And a lot of times, by the time it becomes big enough, maybe it's too late. I mean, that's always the issue. And then you kind of, these are real people making decisions, right, in the board room, and you know, risk and legal compliance is one thing, and then the executive side, we use to call it the IBGYBG problem. The "I'll be gone, you'll be gone" problem, which is basically executives who are in their fifties, sixties, who say a great, like this isn't going to matter, and I'm not going to be hit with the issues that might come, if we kind of miss the boat on this, I'll be gone, you'll be gone. Who cares, right? You've face a lot of that institutional, kind of, headwinds, right, when you're dealing with this. But I do think that now, you're starting to see some of these early moving big institutions who kind of saw the writing on the wall and said, hey, this is like a good asymmetrical bet for us. Look, if it doesn't work out like, oh, well, but if it does, we're kind of like a first mover. And then you're starting to see kind of newer institutional entrance come in as a result of demand. You're starting to see, kind of, a lot of these public corporations keeping, for example, Bitcoin, on their treasury. Who's going to custody that and serve it, you know, give it prime brokerage execution services and manage that treasury and provide services there. And you really, a lot of them are looking for institutions to do that. And you're also seeing kind of desks trading it and end user retail customers wanting it on your platform. And so that demand is what I would expect that ends up bringing most folks in. 

 

[Mike Robertson]

So do you think that "I'll be gone, you'll be gone" issue, which of course is a very real thing in a lot of institutions, not even, just banks. Do you think that's also true from a regulatory perspective because, you know, one could argue that the Internet was one of these things, which boomed and was a very big US centric topic for a long time? And then of course it spreads around the world very quickly. And at the moment, you look at the crypto space and you can see there's a lot of distinct activity outside of the US. Is there a danger that the US's approach to this versus say other jurisdictions is slightly slower?

 

[David Kinitsky]

Yeah. I mean, this is something that's very top of mind for me, both, as somebody who works in space, and obviously like, as an American, I think that we are definitely risking, kind of, our position here. I think there's, kind of, the regulation and the underlying kind of like public policy and public opinion debate in the US has kind of been stunted and frustrated by these kind of absolutist perspectives that, oh, you know, Bitcoin is only used for illicit transactions or, you know, hey, this Bitcoin model is kind of antithetical to American interests, things like that, which are kind of both bunk in my mind. But it hasn't allowed us to actually have the policy debate that would inform a proper regulatory and oversight structure. The bottom line is, in my view, well, of course, like Bitcoin is broadly used and very little of it is used in illicit activity. And certainly it's no different than the dollar or a lot of other kind of value mechanisms in the world today. But I think a core thing here is Bitcoin is fundamentally, in my view, American. It's as American as apple pie, free speech, free association, free enterprise, strong property rights, all of that in the digital world. It's kind of like what we've built; kind of, our society around and what our major growth engine has been, and we should want to see those same principles apply to the digital domain. The second thing is it's happening, whether you like it or not, even if everything I just said, you disagree with, it's happening, and there's a real risk that it happens more in Asia or elsewhere in the world. And in my view, it becomes pretty quickly a national security interest for the US to maintain a strong position in this space. Just like our strong position in the Internet has benefited us immensely across the world. And then I think if you take it from a non-US perspective, it's true of other countries, too. Folks who are smaller countries looking for something that can help leapfrog them into the 21st century, countries who may not want to rely on a US dollar denominated reserve currency system any longer, or want to kind of maintain more control. It sounds funny to say more control when you're moving to a decentralized network, but some countries do view it that way, either way this is happening. And I think it's important to kind of regulate this the right way. 

 

[Doug Houser]

So getting to that, I mean, you know, again, a fantastic overview of how the landscape is changing in general, but let's look at this from the standpoint also of central banks. So, when you think about the control that they want to have, right, fundamentally, I think there's multiple layers of this. When there's control over bad actors and all of those kinds of things, I think that's something where, we agree, there's many models that will happen, that could potentially help the cryptocurrency space. But the other one for control is of course the actual money supply issue, right? So I think there is a bit of a challenge, you know, as you said previously, these are their own economies. So, as a central banking authority, thinking to yourself, oh, great, now I'm in charge of a multitude of different little sub economies. How am I actually going to make policy decisions when that's the case? So, talk a little bit about, should they be worried about that? Is that how they should be thinking about it or does it matter it's happening anyway, and there's ways that we have to figure out how to resolve it? 

 

[David Kinitsky]

Yeah, no, I mean, they should be worried about it from the sense that it's happening. And those that adjust best will be rewarded. I don't know that it's like necessarily a direct threat to them immediately, but yeah, there's, some of their concerns are certainly valid, but again, this is happening. I mean, I think look at the world around us today. And in my view, at least, a lot of the tumbled or turmoil you're seeing is the fact that the Internet happened, and it's been rolling out and infiltrating every aspect of our society. And we have simply not adjusted our society and our institutions to it in a good way. And so we're seeing the fallout from that now. And so, I think that similarly, you'll see something where, hey, if you don't kind of adapt to this new world, we're going to face the consequences here. I think with, you know, bad actors or, you know, illicit transactions, yeah, there's this argument, as we said, you know, a Bitcoin's used for illicit transactions. Well, one, look at the numbers, not really, but two, they're having to deal with something they've never had to deal with before regulators and policy makers, and that is the existing financial system doesn't have an opt-out mechanism. The bottom line is if you want to hold value and transport it or send it or transfer it over time and space, you need to use the financial system. I mean, otherwise you need like airplanes and suitcases of money or bullion or whatever. But by and large, you can't opt-out of the financial system. Here with Bitcoin and these other crypto networks, consumers have an opt-out mechanism. If you put too much burden on them or make it hard for them to use the Bitcoin in the system, they can do it themselves. They can host their own wallets and send transactions themselves. There is some level of burden of regulation and oversight put on the system that will drive users away. And guess who the first ones to go away are; it’s the bad actors that you want in the system so that you can oversee them. That's kind of the double-edged sword that they're facing there. Then you have kind of the monetary policy side. And there's a lot of gripe about monetary policy from already from Fintechs, right? You see Fintechs and narrow bank concerns and things like that. This is another kind of potential threats that I don't think in the near term it is, but yeah, I think this is happening regardless. What you're seeing, even aside from Bitcoin is a host of new assets, and long tail of assets serving as store of values and transactional mechanisms? You're seeing people basically put their money in to equities or gold and commodities or art or sneakers even, right? And actually start to use them as the mechanism by which they hold their assets in, and they transfer their assets in. So I think they're going to have to deal with some version of this issue anyways, right? And of course they have all these economic concerns they have to deal with. I think the bigger question in monetary policy terms is kind of structural. What is the role of the actual private market banks? They play obviously a, such a critical role in our system today, both in terms of kind of being the intermediaries between the Fed to the economy. And I think this is an important thing to note here, and especially when you talk about things, like central bank, digital currencies and whatnot. These banks, these private market banks, one, they create credit, create money themselves, and actually act as kind of a check and balance to the federal oversight of our monetary policy and our economy. I think that's important, two, they serve as, kind of, deputized entities for our policy objectives. They are why we can enforce embargoes and sanctions and oversee, kind of, the financial system. And so I think the bigger question in my view, at least, than monetary policy is actual like monetary system structural elements and what role the Fed versus private banks, versus kind of, end users have in this new space. In my view, that's the bigger question.

 

[Mike Robertson]

Yeah. It does call into question the role of different entities. I mean, clearly over time, decades, millennia, etc., the roles of institutions have changed, and no doubt they will again, of course they will. You know, there's something around the decentralized part being a very nice idea. And there was an example back in the day where things were very decentralized, just the sheer nature of how communication work made it that way. But now banks are more centralized and have this sort of purpose. And to what extent then does this decentralized finance idea and the role of a bank play into the narrative that, and I was listening the other day to a conversation around how one could actually influence behaviors through digital mechanisms. You know, for example, you might've said the stimulus checks come to you in the form of a cryptocurrency, which expires after a certain point in time, if you haven't used it. I mean, there's a lot of things that you begin to think about when you move away from the obvious way things are done. So, what role do banks really play then in this decentralized world?

 

[David Kinitsky]

Yeah, no, it's a great question. I mean, to start obviously in a lot of the country in the world, banks and the financial industry in general, certainly gets a bad rap, and look there's enough valid reasons for that to be sure, certainly recently, 2008, today. But, you know, historically finance has played a critical role in our society and has contributed massively to our welfare and kind of our economic growth over the centuries. The financial industry is key. Every time you, kind of, have like a new technology, whether it's the industrial revolution or anything, you, kind of, need a corresponding financial mechanism like capital markets, like the joint stock corporation, these are social and economic innovations that need to pair with new technologies in order to move our society forward. And so I don't know that a lot of the narrative around Bitcoin is like do away with banks, do away with intermediary, so on and so forth. I don't know about that, I think their role does change, but I think they're still critical. Banks, you know, providing a safe place to hold assets, and the ability to use those assets in transfers and actual transactions and payments and commerce, and then all sorts of kind of lending and other mechanisms that help grease the skids for the economic and commercial system to work effectively. I still do think they play large roles there. I think what they look like is a little different. I think there's a lot more, kind of, transparency, you know, with these assets like Bitcoin, for example. You have this open network that anyone can use and anyone can see in some respect and you can do things like providing a cryptographic proof of reserve. So basically you can hold Bitcoin and conduct like a cryptographic kind of audit, if you will, to say yes, this bank holds this much Bitcoin and even at a sub ledger level, and it's allocated to these addresses, that is a pretty slight, but pretty massive change in the ability to kind of oversee the safety and soundness insolvency of critical financial institutions. I do think that a lot of the banks also, can get more automated, cause you kind of have this on-chain digital network that you're interacting with and beyond automation, eventually we get to automation, which means that you're building scripts or kind of machines that can handle a lot more of the actual day-to-day operations and processes of an organization. You're obviously seeing that with machine learning and AI and other parts of financial services, like customer support and portfolio management and things like that. But the core processes and operations that's been the case less so. I think that this enables banks to kind of streamline themselves and get back to kind of the core functions that they're so important in providing, but then providing them even better than they have in the past and more cheaply and effective, and being able to then serve more customers as their cost structure changes, so that they don't have to like lock out, kind of, lower tiers of like barbell classes in our economy. 

 

[Doug Houser]

So, following up on that point, which is, banks serve, as you said, many, many different purposes. But I want to talk a little bit about that, you know, it sounds to me like you are saying that the purpose of the bank has, even though you have a currency that is decentralized, let's say, or an economic asset that is decentralized, right? To a certain extent, the aggregation of those assets and the ability for them to then offer, for example, credited, etc. There's something there that actually is efficient in a way. Or if it's not efficient, what it does allow is that the governing body can regulate it and say, you can't have predatory lending, you have to lend to everybody, you have to do that, right, so there is a reason to have that aggregation piece. First of all, speak to that, if that is the case? And, you know, second, do you see that as being, what's going to be a driver of crypto in banking sort of becoming closer? And is that philosophical or is that practical? And by that, I mean, do you think we should be thinking about it that way because that's the right way to think about it for society? Or is it practical because that's the only way it's going to go forward because the banks have power in the space? 

 

[David Kinitsky]

Yeah. It's probably both. So the aggregation component, I think everything is a trade-off, right? The aggregation of assets and services and things within these institutions is a function of efficiencies, and the model and infrastructure that are available to us today. There's kind of no other efficient way to have done it in the past, then to kind of have this consolidated, concentrated organization that collects assets and services and provides them in a more cost-effective way. In fact, if you kind of subscribe to the theory of the firm, it's why institutions exist at all, right? Is because of transaction costs and aggregation efficiencies, but there's a trade-off to that. You are seeding control, and power and transparency away; you are consolidating that to a bank. Obviously, we put laws in place around fiduciary responsibility. It's another kind of constraints there, but there's still issues, right? And so there may be, now that there is kind of like a new technology, a new system, an opportunity to revisit those trade-offs and kind of get a more pareto, optimal kind of blend, so to speak, right? So you still definitely need aggregation for some things, right? But like, why do you need the aggregation? It's either to provide services, efficiently and cost-effectively, it's to be able to have kind of a fuller insight, or kind of handle on the system, and the potential risks that it faces and other things like that. There's with these new technologies ways to potentially achieve that without seeding as much control over that to the bank, right? So for example, with Bitcoin, yeah, you can give it to a bank or other institution, and let it just sit there and seed control like the traditional model, but perhaps there's other mechanisms where you can, kind of, use a bank as like custodial agent that maybe provides like a backup key to your own wallet that you can take with you and use, however you see fit. And the bank just kind of serves as a recovery mechanism, or maybe they are providing like partial custody over transactions, and then plugging in their risk services to kind of wherever you want to use these assets. Similarly, on the data side, rather than getting call reports and all this stuff, and like aggregating them across the space and looking at the system, kind of, in the centralized places, you can do things to query the actual Bitcoin or other crypto networks to get certain insights around the systemic structure and some of the risks that it may pose without having to say, hey, all that has to happen to these institutions. You have these open online digital networks that serve as kind of very rich and robust sources to fulfill a lot of the reasons why we have this kind of aggravation and concentration in the first place. And you're seeing this in the technology industry as well. We have a lot of questions around Facebook and Twitter and Google and these other kind of, institutions that similarly concentrate and aggregate customer data and services and things like that. And we need to find a way to get the same benefits, without all of the negatives, and potentially there's a chance to do that here. So, I do think that banks play an important role going forward. One, look, banks and regulation, the structure we live in today, it exists and is the kind of environment you have to play in. So from that kind of like path dependency and kind of momentum point of view, it's gonna matter that look banks in the way you do things today are going to start out as the default. But then going forward, yeah, it depends. It depends on regulation and it depends on technology and business models and some of these new startups coming up the pipe that are providing these new models for doing things, as well as some of the incumbents, big banks and other financial services and wirehouses and brokerages that are getting into the space. Can they reinvent themselves? So a lot to be determined, just like the Internet look, it happened everyone, most people, many people knew it was going to be big, but it plays out over decades. It's not like a flip of the switch.

 

[Mike Robertson]

Yeah. And you know, you've said a lot of things in there, which I've found absolutely fascinating. The future possibilities are really, really interesting, I think for all of us, and having an open mind to exploring them without just shutting them down through some sort of dogma is probably useful. So with that in mind, coming to the end of this thing, and it's been fascinating. I want to go out with two questions for you and they're quick-fire questions. The two questions are this; the first question is what is the question that you get asked the most about cryptocurrency? That's the first question, and the second question, what is the question that you think you should be asked more than any, but aren't?

 

[David Kinitsky]

Yeah, so I think that the first questions you tend to get asked are something around, is this real? Is this hype? Like what is this, does it matter? Usually, quickly followed by something about price and investing into it from folks who maybe are interested in the opportunity there. And then a lot of times, you get questions around, what is this or how it works, is the big one, and that's the tough one because it's really hard to explain from zero to 60 in how things work, but that's true of everything. If you ask most people how a light bulb works or the electrical grid or the Internet or any number of things they use on an everyday basis, it would be similarly complicated to explain. And that's usually where then the discussion trails off people say, hey, how does this work? It's a challenging endeavor to explain simply and clearly how it works. And as a result, maybe folks say, who don't kind of have a historical reference point of, kind of, dealing with new technologies or innovations say, well, I mean, they can't even explain it. Like, I don't even understand this, this is bunk, this doesn't make any sense. And that's a lot of times where the breakage is. And then, again, a lot of it is like, well, how does this work with something that exists today, monetary policy, banks, regulation, yada yada, yada. I think in all of those, I'd love to kind of have people take a step back and understand like the different frameworks and mental models for what these things are and what they might enable, or that is possible. And actually kind of start there because I think that wherever you start with your initial frame of reference dictates oftentimes where you go from there. And I think a lot of people start from this kind of what is it? Well, I don't understand it and hey, that doesn't look like what exists today, or how does that work with what today, and so kind of write it off and that's a frustrating thing for sure. But you know, it's tough to kind of get people on that abstract level, and so, that's a really challenging thing. I will say, to conclude, I've never met honestly, a well-informed, big time Bitcoin or crypto bear. There are many reasons to be skeptical and potential issues or flaws you can point out, but I've never met anyone who is pretty well informed, just write the whole thing off.

 

[Mike Robertson]

Yeah. It's fascinating. Isn't it? It's a, as you say, it's where we start from our context of so often drives over your pace, even listened to. It's been really, really interesting. David, thank you so much. You know, it's been great to look at this so much broadly. I feel we could talk for a lot longer and I feel like you're one of those people we feel like having a beer with it would be a really fascinating conversation. I want to thank you so much for your time and for joining us to talk about the future and cryptocurrencies. 

 

[David Kinitsky]

Yeah. No, thanks for having me! Yeah, I could definitely go on all day. Maybe we will, in some time in the future, grab a beer. 

 

[Mike Robertson]

That's great. Well, I'll take you up on that, and Doug as always, thanks very much for joining us as well. 

 

[Doug Houser]

Thanks so much, Mike. This was great. Thanks so much, David. 

 

[David Kinitsky]

Yeah. Thank you. 

 

[Mike Robertson]

Thank you for joining us. You’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

“Bank of America” is the marketing name used by certain of the Global Banking and Global Markets businesses of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. © 2021 Bank of America Corporation. All rights reserved. | 3496385

 

 

Pivot – Cross Border Commerce Podcast Series

Target Markets, is narrower better?

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Mike Massaro - Managing Director of Flywire  

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment where, due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America. For today's podcast, the title is "Target Markets, is narrower better?" We are joined by a guest Mike Massaro, who's the Managing Director of Flywire. Welcome, Mike! 

 

[Mike Massaro]

Thanks Mike. Thanks for having me. Thanks, Doug excited to be here.  

 

[Doug Houser]

Thanks. Great to be here as well. As always, Mike.  

 

[Mike Robertson]

Fantastic. Thanks guys. So, as we said, today's discussion, "Target Markets, is narrower better?" and Flywire is such a great example of a company that's done exceptionally well. Indeed, you've had some recent good news, haven't you Mike? With Goldman, in terms of just being a really strong performer in a niche or a niche market that you've certainly carved out to yourself around education. And I know you aspiration goes way beyond that. So perhaps you could tell a story of how Flywire, and indeed yourself came to be where you are. 

 

[Mike Massaro]

Sure. No happy to. You know, so myself, I actually got, reluctantly pulled into the tech startup world about 20 years ago, almost, became a consultant at one of the big four, big five consulting firms, went to visit a buddy at a startup, who had graduated a year ahead of me from university. And that was when I got hooked on just tech companies and startups. I just, I love the environment that was there, seeing people kind of try and do something disruptive something new, and it just seemed different than what I'd ever been exposed to, kind of in the pursuits of a career post-academic. And so, you know, made the crazy decision that I probably wouldn't go hungry and I should join a startup, and so started my career there, had done various tech roles. I like to say it was probably one of the worst front-end web developers ever, but got exposure to clients, deployment of technology, a lot of billing and payments related experience, there, late nineties through '04, '05, and was fortunate to just be part of a successful company that ultimately sold to Siebel systems and Oracle. And so that was kind of what got me hooked. And from that point forward, had another company that I joined with a bunch of coworkers, which ultimately was acquired as well. And then I came to know of this business in Boston. You know, I traveled the world quite a bit for those first two roles, had lived abroad with my wife and doing various client deployments. And so when I got to an opportunity to kind of look for the next company to join, started hearing of a Boston based company; it was actually founded by an international student, Iker Marcaide. It was actually called Peer Transfer at the time. It wasn't even called Flywire. And so I got to meet Iker got to know some of the other founding team members got to know some of the investors and, you know, really decided to kind of jump in. And I jumped in as the Head of Sales, Marketing and Business Development, so kind of running the external facing part of the business originally. And back then, we were just helping with a cross-border use case. And I mean, to your point, Mike, the number of times we were told we were too narrow, back in the day, of starting the company, you know, we were focused a hundred percent on the experience that Iker had, being a Spanish student, going to MIT for his MBA, and he had trouble paying, traditionally with a bank wire, you know, it's one of those experiences that is oftentimes not a consumer experience you're often familiar with. And he had difficulties, the university had difficulties, and he set out really to build a company to solve it. And so that's how we got started. 

 

[Doug Houser]

So building on that, I do want to; I want to ask you about when we were talking about seeing that it's too narrow. Now, is there a conscious decision that goes hand in hand with, not only the problem you're trying to solve, and what you think the goals of the company are, but also where you're potentially going to get funding? I know that this is something and it's very relevant now, obviously, you know, with the Goldman announcement and everything as well, but is the idea you go and pitch and say, hey, here's our idea. And somebody says, I don't see the return there. You need to broaden out; you need to make it bigger. And how difficult is it to then say, hey, you know what, we have a vision and we're going to stay with it right now, we're going to be the best at this. Is that something that there was some discussions about as Flywire kicked off in this space? 

 

[Mike Massaro]

Yeah. You know, completely, you know, when you started, I mean, Iker ended up getting, you know, initial seed capital funding from some angels and some investors in Boston. And I would say got the first, you know, client that said, yeah, that sounds interesting. And so really set off to build kind of the beta product. After getting a few universities interested that yes, this was an actual pain point and an actual need. That's where, kind of, the first round of venture capital came in. And I would say at that point, getting that first check, you know, you almost want your money from anywhere, but we were really fortunate to get it from just a great group of investors that in hindsight, was one of the key parts of success, right? Like, it's such a weird thing when you're raising capital, you almost want to take money from anyone, but when you later realize as you grow and scale the business, like who you take money from initially and frankly at any capital raise is really important to building your company. Oftentimes like people can assume, you know, investors give you money and maybe they give you some connections. Maybe they give you some introductions, but you know when a company doesn't have a certain future, the investors can actually make a huge impact. And so that initial set of capital, like it wasn't all green lights for us the whole way, right? How to go to market, if you think of how complex you both know, cause you know, you're in foreign exchange and been around banking, but we were set up to try and help universities collect money from, you know, a hundred plus countries and territories. You know, and part of the reason why it was a challenge is that it was hard. You know, the way people want to pay in China versus India versus Korea versus Europe, are all different, right? The rules, the regulations, the oftentimes the banking infrastructure in those places are different. And so, frankly, I didn't, you know, in hindsight, like, if we knew how complicated it was going to be, I'm not sure we would have taken the jump in the pool. And yet one thing we did know is that we had a real pain point, right? We had clients that didn't understand payments. They oftentimes, you know, universities were not staffed 24/7 to answer questions, in Mandarin, at two o'clock in the morning when a parent or student had an issue, right? Like they weren't set up, they needed help. And, you know, Iker was a great champion of the story, right? He experienced the pain point as a user. And so we definitely use that early on to help validate product market fit. And once we started validating product market fit, we kind of began to shift into, okay, what is this business going to look like? You know, that's where the kind of, that next part of scaling a business really came in and whole bunch of pivots there too. 

 

[Mike Robertson]

Yeah, totally. I mean, I met Iker back in the day and I certainly can speak to his passion. You know, when he told me about what he'd gone through, I really got it, you know, so I can totally get that. And so you need the resources to move the needle. But I do think it's one of these things I think really successful companies are so good at taking things that are complicated and messy and wrapped up in an enigma and effectively simplifying them for the end user. I mean, there's many examples of companies out there who do that. And I think Flywire are probably one of them as well. So from your perspective, what would you say were the biggest challenges and actually creating a simple interface for the end user? And indeed I'm thinking of the end user here with the student and the university level as the first part of my question and slightly cheeky one, to what extent the banks get in the way of doing that rather than assist? 

 

[Mike Massaro]

Yeah. You know, I would say, you know, we're fortunate early on again, to have banks that supported us. I mean, obviously Bank of America being a supporter from the beginning Citibank and a few others. And, frankly, when you're dealing with payments, when you're dealing with money, having those trusted kind of brands, you know, saying, hey, we understand this and we're going to support you. Like that was critical in us getting kind of off the ground and getting support from the university clients. There are two things we tried to do to your point of, kind of, adding value in simplifying, one on the client side. We realized that frankly, the clients did not have a lot of, ability, like they were busy, right? Like they didn't, you know, the finance teams were often overwhelmed with all the processes they had, invoices would go out, payments would be coming in. You know, it was not payments were coming in every day. They were coming in these very big peak seasons throughout the year, which were just chaos weeks on end, where people were working, you know, 12 plus hours trying to reconcile payments, right? And so we knew that, they didn't have a ton of it resources. And then we knew on the consumer side that just putting an account number and a routing number on your website, which is what most of the universities were doing back there was hard as well, right? The parents, the students, often times there were language issues. Again, you know, not many consumers were familiar with what it took to send a bank wire in places like India versus China. There's different forms you have to fill out for the student, for different government regulations for sending money out for educational purposes. So we started to understand how complex everything was. And so we did two things. We tried to make the solution almost no lift for the client to deploy, right, because we knew they didn't have the capabilities or they weren't going to be able to do a three month or six month deployment of the software. And so every chance we could, we tried to make it easy for them to, you know, maybe download a report as opposed to do a real-time interface. We could do the real-time interface, but we made the report downloadable so that the real-time interface wasn't a gating factor to deploying the solution or making a decision. And then on the consumer side, as an example, we just got to be really smart about certain corridors or certain areas. Based on this industry, it was, it had great data, so you could dive into like China, India, Korea, and say, okay, what's a great experience in China, right? What are the ways people want to pay? You know, they may want to pay with Alipay or a bank payment or China union pay credit card. And how do we start building up the capability so that we almost localize it for the person paying and make it seem familiar, even though they're about to send their child, you know, halfway across the world, which is not a very comfortable experience. And so that's really the approach we took, is try to think the two stakeholders you're exactly right, the payer, the parent, and then the receiver. And how could we build something that was simple enough to start delivering value very quickly and helping just fix the angst and the pain that existed in that user experience.

 

[Doug Houser]

So, dive into that a little bit further, because it's great being able to identify that you not only have two different stakeholders here where you have the student or the parent/ student, and also the university, but you have two different problems, right? The student really kind of have a payment problem, but the university really has an information problem. They have a data problem, right? More than anything because they have to reconcile all of this and they have to have something that integrates in some sort of seamless way with systems that they already provide to their student base. So how did you attack that problem? Was it, hey, we have two separate product teams and they come together in the middle. How did you govern it? And, you know, to be able to roll out an experience that is all at once specific to the two problems that you're trying to solve and also cohesive.

 

[Mike Massaro]

Yeah. You know, there are so many bumps in the road along the way. The thing I want to make sure I convey is like, in the early stage environments, you're constantly looking at other companies as well and feeling like everyone's doing it better, right? And they're not necessarily competitors. You know, I always say if you read Tech Crunch, right, you don't mean read many stories of all the failures, right? It almost seems like everybody's tech company is amazing and having such easy success. And I think early on we realized, oh my gosh, we picked a very hard, global problem. We have multiple stakeholders to your point. And, you know, we're actually doing something around the movement of money, which is relatively challenging in a global environment, right, especially for someone on a finite set of financials, right? I mean, there were instances early on where, you know, we were getting clients to sign up for business and those universities were moving significant amounts of money. And the question was, hey, are they going to trust a company, a startup? Like, I remember talking to one of our clients at BU years later. And I remember the CFO saying, geez, if I knew I was client 15, I'm not sure I would've signed up. And so, you know, those early days of trying to build the company around that, the biggest lesson we had was focused, right? And part of the challenge we had in growing the business early on was the distraction factor that I think so many companies have, and almost like this decision to either pivot or not, right? Like you see so many opportunities as you're building your company that look easier than what you're doing. And, you know, we had a few moments where we almost decided to change course. We almost and frankly we probably lost cycles, lost time, lost some money associated to being distracted. I think what ultimately helped us have the success that we've been fortunate to have over the last, you know, eight to 10 years, has been the fact that it was this focus, right? It was, I joke, for probably about two years in there are only like our strategic vision was, hey, if we get more clients which are universities, we'll probably get more payments and maybe we'll have a business, right? Like there was a point where we hit the tip, you know, that was a decision point where it's like, that's the only focus and what that did to your point, is it, it just aligned everybody in the organization, like product and engineering, sales, client services, the focus became what helps the customer, right, and the user? And let's do more of that stuff. Forget all the other noise, forget about launching a new product, entering a new geography, right, we're going to be the best at focusing on this sector, this industry. And that just aligned everybody almost in a surprising way, because you started to release features. You started to improve the user experience, and then users would actually say, this is so much better than how it used to be. And the minute that would go to the client, the client would feel really good about their decision. They would tell three more other clients about it, right? We were at these events or we'd get referrals from clients, you know, hey, you should talk to this person at a different Ivy League school. And so it was amazing to see our clients actually start referring us business, because I think we got rid of so many distractions that can hurt a company early on and just said, you know, what is right by the client? What is right by the user? And let's just do more of that as fast as we can.

 

[Mike Robertson]

That's great, Mike. I mean, I love that really that focus element to me is, you know, when all you have is a hammer; everything's a nail, right? So you kind of have to get good at that. And I totally get that, you know, and I think what you said earlier on, points you made around the example you gave of sort of allowing someone to download something once a month, rather than doing it in real time, even though you could that sort of iterative approach to solving problems, especially when you have the focus of knowing where you want to get to, but aligning your user groups to sort of, get there with you rather than force it on them. I think that's really interesting. I've got a question about it, going back to banking, because obviously sitting, where I sit, and one of the questions I often ask myself about ourselves, in a moment of honesty is just how helpful are we really sometimes with our clients and our customers? Because, you know, we, obviously focusing on solving our problems, as well as solving our client's problems, and sometimes one can question whether, you know, the balance is right. And to be honest here, within moments where you thought, I wish, you know, bank A, B, C, forget who the bank was, I wish the bank would take a different approach with people like us. Did you ever get to that point? 

 

[Mike Massaro]

You know, I would say, we always had parts of parts of that. Although, you know, I've always been a big believer and this has just been a tenant, right? Like there's people who think, you know, Fintechs and banks are we're on a collision course. And I think four or five years ago you'd be at conferences. And like, that's what every other session was titled, right? And I've always been a believer that what we're trying to, I think collectively do is disrupt the bad experiences, and that's the goal, right? It's not to disrupt a given party, it's to disrupt the stuff, kind of getting in our way and wasting all of our time or making it inefficient. And I've seen a huge shift in the last probably, I don't know four or five years where, you can look at, you know, banks and infrastructure, as like the level of trust they have, the level of scale, the distribution, all that stuff is extremely powerful, right? And, you know, I even go back to, geez, a decade plus ago, and try and look at what people used to say about the media companies, right? You know, will, hey, they're dumb pipes. Like you're looking right now like content is King in some ways, right? Like, so it doesn't seem too bad to be, quote unquote, called a dumb pipe in media right now, right? It seems like just owning infrastructure has allowed people to then use that infrastructure to deliver great things. And I think banking and financial technology is kind of at that point to where this is a good way in which everybody realized there's better things we can do here, right? You know, looking at how the challenger banks came in as well. And it caused banks, I think, to innovate, it caused banks to say, hey, we can do that quickly, fast, better. And I think that's a good thing. And so our banking relationships, we've been fortunate to have great banking relationships over the last decade. It's always hard when you're dealing with many geographies, many regions, so of course would always love things to move quicker. But have been very fortunate. Like, you know, I think you have to look at what are your strengths and play to those, right? Like if you look at our company today, we're servicing many geographies, many different industries and verticals, and it's the combination of software and payments and financial services that I think is the winning combination. The more those things work well together, the better off clients and users are. And the financial providers that are supporting us, and where all the money sits that Flywire moves around the world is sitting at the world's global leading banks, right? And so without them, we couldn't do what we do. And I think that's part of the ecosystem that has to develop. And I think banks also have gotten to realize they can't build everything for customers. They don't want industry, necessarily industry specific things, or be a software development house. You know, they need to provide a set of kind of core capabilities and services, but they also need to have good partnerships that deliver value for mutual customers.

 

[Mike Robertson]

For sure. That's absolutely critical. I mean, so you mentioned innovation and you said something about banks realizing they can't build it all themselves. And I totally get where that's coming from. If you had, you know, that magic wand that we all wish we had from time to time, and you could have the banks innovate in any one particular area that would make a difference for the things that you do, where would that be? 

 

[Mike Massaro]

You know, I would say it would probably be, probably a combination of either speed or coverage for us. You know, we're constantly trying to find ways to speed up the movement of money or even the receipt of it. So the more you can do that in cross geographies, you know, like there's still accounts all over the world where we would love to have the ability to either bring on new customers, like we're investing heavily right now in Latin America. And that's a great example where it's sometimes stretches some of our existing banking relationships and we may need new ones. And so that correlation of geographies, and then, probably industries, you know, we're finding new use cases, we're solving new problems, and sometimes those require yet additional approvals, right? You know, we started off in education. Now we service some of the top hospitals around the world. And, you know, that process, again, has to go through a bit of an approval process to say, hey, we're delivering a new solution to market, and you have to kind of get some of your same stakeholders aware of what that solution is. And so I'd say, it hasn't gotten in the way of innovating, but we definitely started to push our partners to say, like, we're not just going to stay in this one spot. We're going to go to new geographies. We're going to add new use cases. We're going to add new industries. And anytime you change those kinds of, those factors, you definitely have, you know, have conversations that have to happen.

 

[Doug Houser]

So you talked a little bit about speed there. And I mean I think about, you know, how you want banking partners, and we hear this a lot, we have a network; you want us to shrink the globe for you, right? Because we have those, sort of, ready-made footprint globally to be able to do so. From a technology standpoint, does it matter, for example, to yourself and to your team to say, you know, really, if you're increasing speed, be it a distributed ledger, Blockchain, real-time using your own network, whatever it is, does that matter to you? Or does it only matter in the way that you're like saying it doesn't really matter what technology you use? It really doesn't matter what the process is. We really care about the results and the ability for us to act on the data. I mean, is that something that on your side, are you kind of agnostic to like what the technology used would be?

 

[Mike Massaro]

Yeah. I'm always a big believer of evolution versus revolution, right? I think there's been folks that want to kind of throw out the infrastructure and start again, like actually think you can deliver some pretty cool stuff on existing infrastructure in adaptations to the way that infrastructure can be used. And I see it as kind of a road to travel on, if you will, meaning if we all just waited to, you know, set a new standard and, you know, we were just going to all mail it in and wait five or 10 years until everyone adopts the new standard. It's like, no, you get to kind of move forward with what you have. And so that's been our thought as we've built the company. I would love there to be one crypto currency or Blockchain infrastructure to leverage, to make interfacing better. I actually think eventually the world will get to some fiat to crypto combination that will actually help make a lot of these things move easily. I think it's going to take time, right? I think if you look at other industries that have taken a long time to evolve, I mean, look at mobile devices, look at, even look at social media, look at digital music, right? I mean, some of these things took 20 years to evolve to the point in which they're at now, 25 years. And so I think some of that we'll take time and that's okay. I don't, I think what that means is if you're trying to have an overnight disruption, especially in financial services, where people actually care about their money and they care about trust and all those elements, I think it's really important to have that long-term view, especially if you're building a tech company. Cause if you think you're going to make a shift overnight and you're going to change user behavior, going to change infrastructure, that's been around for a long time, you can adapt it, you can make it more flexible. You can extend it. But again, I think the focus needs to be on the user experience. You know, I'll often say to people that I can Venmo you money or I can Zelle you money. I ran to an ATM and tried to pull it out immediately, I don't really know where the money is nor do I really care, right? I've been communicated to; it's good as done in my book. And I think that's where the user experience versus the actual infrastructure behind the scenes can behave slightly differently if that makes sense.

 

[Mike Robertson]

Yeah, I totally does. And I absolutely agree with what you said there. I think I'm already seeing some very creative thinking in the market that allows the underlying technology, that is Blockchain, and where the iteration of it is a crypto asset. I'm already seeing solutions that allow those sorts of ideas to work alongside or in parallel with existing payment infrastructures and rails. So I agree with you, it's an intuitive approach. It's more of a, it feels more like a development in parallel rather than linear, if that makes any sense. I want to switch across to something. Cause you mentioned healthcare. And I think that's interesting too, cause clearly there's, the series being called Pivot, you've obviously moved as I'm sure, you know, it was intended your strategy into different directions, which makes sense. Do you think that, sort of, the movement into new areas generates a different type of data problem? Or is it really, and I'm not talking about crypto here necessarily, but a bit because it doesn't mean you have to be relevant of that, but do you think it generates a different type of data issue? And are you ready to solving the data pain points really when you go into a new area and that's what makes you successful?

 

[Mike Massaro]

Yeah. You know, I think it's a great point. When we went from past product market fit, we did that two years of focus of just help improve the product for customers and users in our one industry. Once we hit a tipping point of success there, we actually we're sitting down with our board and saying, well, geez, you're so focused on like next month, next quarter, this year, you don't really pick up your head in that early period of time and plan too far out, especially when I think probably plan too far out, too early, right? And then as we started to though, then pick up our head and say, okay; we now have a business, right? Our business is growing. We have hundreds of customers in this sector, in this region. We really tried to do three things then; we said, well, geez, what would be great? We'd like to see if this concept of helping people with complex payments that were kind of left behind or, you know, not e-commerce not retail, not all the digitization that was already kind of happening. Can we find other industries that are interesting? Our clients kept saying, hey, you help us with cross-border payments, but why don't you just help me with all my payments, right? Why are you just helping with cross-border? It was clear that the customer didn't realize like they just at it as payments and like, that was a huge eye-opener, right, so can we find other industries, can we do more for our clients because we really only had one capability at the time. And can we do this in other regions around the world, right? We were very US centric. So when we went to expand, that's the three areas we went to expand. And, you know, people ask, how did the company kind of go and evolve? I said, instead of being successful at one of those, we were fortunate to be successful in all three. And so we were able to get clients in over 30 countries, which we have today. We're able to go into industries like healthcare and travel and business payments, and that was a huge changer for us. Also, we were able to offer the customers more than just cross-border payments and say; we can actually help you with all the complications around all the types of payments you're receiving, whether they're coming from within a country or whether they're coming from halfway across the world. And so when we entered healthcare, and the other industries, it became a similar but different, right? Like it was the same connections to backend data like you highlighted that was really important. It was getting the data from the back office to the payer, and it was creating a great payment experience for those payers to then transact with our client. And that was the consistent theme across all of the industries and the geographies that we serve. You know, yet to your point, it was very consistent, right? It was the same fundamental way in which our software had to interact in the value we were delivering, even though we were delivering it very different, it was different systems on the backend. It was different data that had to be reconciled and communicated to the payers. There were all types of nuances that were industry specific, but when you took the 30,000 foot view, we were helping them extend legacy back office infrastructure, deliver great modern experiences to make payments easy and simple for their finance teams and their payers. And that was the consistent theme. And that's what helped connect it all together. And it didn't become this kind of siloed business with different industries. It became, you know, a company that was focusing on digitizing that next wave of payments. 

 

[Mike Robertson]

Yeah, and that sense you really exploded the narrow is better thing. Wouldn't you say, Doug?

 

[Doug Houser]

Yeah. And I want to hit on another point that you said there, Mike, that was fantastic was talking about looking too far ahead, that you would keep your eye sort of off what was happening in front of you, right? And it's sort of the idea of having principles for the company rather than hard goals, because you have something so far in front of you that you say, if you veer off to it, you say, Oh, we have to get back on track, right? But it sounds to me like you took the track that your clients sort of paved for you and said, well, let's walk on this track using the same principles that we have as an organization. 

 

[Mike Massaro]

Yeah, I think that's right. And also, we're ready to move if the track ran out, but the track didn't run out, right? We just kept finding other ways we could help with our customers. You're going from just helping with cross-border to domestic. Another example we found out our clients had trouble with people who had overdue payments, and they were talking to third-party firms, you know, lists of customers that owed the money. And then they were paying a huge percentage of those firms to go collect the money. And we just saw that as a use case in multiple industries and said, why don't you just use the same payment technology you already have to interface with people who are paying on time and just create a better experience for people who are overdue, and not have to go in and hand it to a third-party and have an awful payment experience for that user. And so there were instances like that all along as well, that just kept showing us that there was plenty of opportunity, plenty of areas, we could keep helping our customers, what that just did is it just changed our view of the roadmap, right? Like we had the same ideas, but what we thought we had to do two years from now actually became something that we said, hey, that's still important, but like, we don't need that to grow. We don't need that to deliver more value for customers. So the roadmap almost kind of elongated a bit. And it just gave us more time to say like, now I can see us running this company for another five or 10 or 15 or 20 years, because those items that you want to get to, sometimes it's not the right time to get to them either, right? You know, even, just look at the advancements in card issuing, or look at the advancements in bank connectivity in the last five years, you know, if like you were trying to build some of these companies 10 years ago, you just couldn't have done it. And your ability now to build some really cool new products is exponentially better off than it would have been just a few years ago.

 

[Mike Robertson]

Sure. And when you think, I mean, that's really interesting, cause you're right, you know, sometimes the solutions are there, but the problems can't be solved with them just yet. I have a podcast that talks to that about strategies and technologies before their time, so to speak. I want to go with that a little bit to, you mentioned payment mechanisms, you mentioned, Alipay, WeChat China and so on, of course are movements now, digital wallets, and having that be a store of value. I mean, to what extent do you see that coming in to the payments space as a mainstream and second part of the question, to what extent do you think the regulators impede that rather than accelerate it?

 

[Mike Massaro]

Yeah. You know, I think there's huge changes in, whether it's wallets or stored value, you know, even challenger, bank products, alternative products, like I think the embedded financial services, I look at things like, even cryptos kind of evolved into an asset class and, or a wallet, like the lines are coming down across a lot of these things, right? Everything that was a challenger bank now has an investment brokerage product as part of it in a lending product. So, I think there's a lot of those barriers that are kind of coming down. You know, I think when you're looking at things from a regulation perspective, I think there there's a bunch of great markets. You know, I think China, Singapore, Japan, the UK have done a really great job trying to identify ways in which they can push some of these regulations forward, but yet at the same time have some rules, right? And I think when you can look at a regulation in a concept of scale as well; I think that's really important. The UK does a great job at this, which is, there's almost different rules, for different size players, so that it doesn't get in the way of innovation, but it also protects consumers, and those that could be impacted by kind of people that mistreat users or consumers. And I think that's one of the keys, right, is when you look at countries like the UK and countries like Singapore who have done a really great job understanding what's happening in the ecosystem and trying to create rules, it's okay to develop new standards or to provide guidance, especially if you're having rules for massive companies that they can abide by, but you're not trying to apply the massive rules to companies who are trying to get their first hundred users, right? And I think that's part of, I think the evolution of regulation and that in the speed. Speed of how these markets are developing is so rapid. Like I don't envy a regulator anywhere in the world, in financial technology right now, I mean, there's so much going on and it's great, but how you regulated, how you stay on top of it. You know, I've been in the space for 10 plus years of my career, and it's hard to keep up on everything going on in Fintech right now.

 

[Doug Houser]

So that brings up a great point on the topic about, is narrower, a focus better, which is even from a regulatory standpoint and from a partnership standpoint, is it potentially better to say, let's start off with something very focused, a little bit smaller, because even from a regulatory standpoint, being seen as less of a threat to the broad based financial system that you have within these countries. That is something where you're allowed, a little more leeway, because like you were saying, it's not a revolution, it's an evolution. And so maybe there's this other reasons to start off small, not only does it focus your company and allow you really to perfect a user experience and say, you know, we're going to be great at one thing, but maybe it also is advantageous when you're actually bringing it to market. From a regulatory standpoint, is that fair to say, or do you think it's a mix bag? 

 

[Mike Massaro]

Yeah, no, it's a completely fair thing, frankly, if I think a bit of dumb-luck, right? If we didn't have the use case from Iker, if we didn't have the education tuition, the reason Flywire and Peer Transfer Flywire of all been the Flywire got off the ground was partially the industry we picked, right? You know, if you think of when our company started 10 plus years ago, it wasn't the time to start cross-border payments, like regulation was extremely tight, but part of what we were doing was helping a very low risk sector fix what was a big pain point, right? If we had tried to do that for import/export or consumer remittance, you know, or something that was seen as significantly more risky, I think you would have seen regulators think differently. I think you would've seen the banks that we were working with, to Mike's point earlier, would have looked at us very differently. And so I think it does matter, showing focus, but it also, when you have that focus, it minimizes, not only distractions, but it minimizes having to get different stakeholders on board with lots of different concepts. Like, so you had venture capitalists looking at us potentially and saying, wow, that seems narrow, now you have education, but it was cross-border education originally. And yet at the same time, it was that cross-border education that allowed us to stay focused and allowed us to get the banking partners we needed, get the regulators on board with our model, like all of that was really, really important. That would have been much harder, if we were out telling, you know, the Flywire 10 year in story from day one.

 

[Mike Robertson]

It's been fascinating. It really has been and I can't believe the time gone this quickly. It's really an interesting area. And, and I think your clarity Mike, on the way, you solved the customer problem, and you stay focused on the knitting, so to speak, partner with banks that aren't a threat, they do what they have to do. You know, it's really refreshing to see that. I just want to finish off with one last question. If you had a crystal ball that was actually working, cause I guess we all wish we did. If you were to describe what banking and Fintech looks like five years from now in a collaborative sense, how would you describe that just in closing?

 

[Mike Massaro]

You know, I think when you look at financial technology, I think you have to look at the way in which people are trying to, you know, leverage it. You're seeing people want accessibility to product. I think you're seeing people have amazing connectivity; we're walking around with these kinds of super computers in our pocket all the time. And so your ability to connect to your user, your ability to understand, you know, financial aspects of products you're using is it's literally right at our fingertips. It used to be like, you sat down with your checkbook, you sat down with your, you know, your computer and you did your finances. Like they're part of what's in our pocket and we're walking around every day. And so I think these things have to adapt to that. And I think that's the exciting part, right? Like, you know its amazing world we live in. We're pre COVID. You could request a car and get picked up in two seconds on the corner. You could get food delivered to your house, thank goodness, you know, with a couple of clicks of the button. And I think when you look at financial technology in the last two or three years, you've seen a huge exponential improvement in user experience. And I think you're going to continue to see that. And I think that's going to lock people into brands. It's going to lock people into getting the functionality they want to save better, to spend more clearly, to understand financials and financial health better. But it also, isn't going to move people away from the trusted brands and those companies that have delivered great service for them. Like, just because someone delivers a great user experience doesn't mean I'm going to move all my net worth into their product. You know, I was sitting pre COVID with about 30 individuals from our company in Valencia, Spain. And I asked them all, how many people have a challenger bank card in their wallet. You know, everybody raised their hand. How many people have two challenger banks and their wallet, still 20 people with their hands up, you know, how many, three, how many, four. And when you ask them the question next, which is how many people have more than 500 euros in a challenger bank? The answer changed significantly, right? So people have a low barrier to try these financial products, but it's still a high barrier, I think, to build a lifelong relationship with a user. And I think that's where you're going to see Fintech evolve. You're going to see the incumbents get better in realizing that, and then you're going to see a couple of breakthrough Fintech companies that can actually get mainstream and drive that long time user engagement as well. So I think that's what you're going to see. 

 

[Mike Robertson]

Great! Really, really interesting! Well, time has really flown. So Doug and Mike, thanks very much for this really interesting and fascinating look into your particular aspect of cross-border commerce. It was really great having you here. 

 

[Mike Massaro]

Yeah, thanks for having me really enjoyed the conversation. Thanks Doug. Thanks Mike. 

 

[Mike Robertson]

Thank you for joining us. You’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

“Bank of America” is the marketing name used by certain of the Global Banking and Global Markets businesses of Bank of America Corporation. Lending, other commercial banking activities, and trading in certain financial instruments are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., Member FDIC. © 2022 Bank of America Corporation. All rights reserved. | 4475973

Pivot – Cross Border Commerce Podcast Series

Adyen from RBS Worldpay to today and beyond.

 

Hosts:

Mike Robertson - Head of Transactional FX Trading, Global Banking and Markets at Bank of America

Douglas Houser - Head of Transactional FX at Bank of America

 

Guest Speaker:

Roelant Prins - Chief Commercial Officer

 

[Mike Robertson]

Welcome to Pivot, the Bank of America Cross-border Commerce Podcast Series. Pivot refers to a moment where, due to an impactful event within the business environment, one is set on a new path and a new series of possibilities arise. In this series, you’ll hear competing discussions with industry leaders and key figures in the cross-border payments ecosystem and learn how they pivoted when the situation demanded it. I'm Mike Robertson, Head of Transactional FX Trading, Global Banking and Markets at Bank of America. And I'm joined by my colleague, Doug Houser, Head of Transactional FX at Bank of America. Hi, Doug! 

 

[Doug Houser]

Great to be here as always, Mike!  

 

[Mike Robertson]

Yeah, good to have you. For today's podcast, the topic is 'Adyen from RBS Worldpay to today and beyond.' And we're joined by our guests Roelant Prins, who’s the Chief Commercial Officer at Adyen. How are you doing Roelant? 

 

[Roelant Prins]

Hey, I'm great! Nice to be here. 

 

[Mike Robertson]

Yeah, great to have you from, all the way from Amsterdam. So that's awesome! So the topic today Roelant is, as I said, Adyen from RBS Worldpay, where of course, I knew you back in the day, to today and beyond. And, you know, I learned just recently, with Peter on starting the business way back when, that Adyen means in Sewanee, 'start over again', which I find it fascinating understanding a little bit about the story from before. So perhaps that's a good place to start really, you know, what, what was the story of start again, and what was your personal journey within that? 

 

[Roelant Prins]

Yeah, that's correct. So briefly my story was, I started my professional life back in early two thousands. And at that point in time, there was only pretty limited Internet activity going on across Europe, but it had really fascinated me. So, after starting with a consultant, I ended up being quite disappointed with being in Excel sheets all the time. I ended up, you know, seeking more adventure and seeking the Internet space. And as there were so limited number of things going on, I ended up with this payments company through a guy I knew, which was called Bibit. I'd never heard of it, but I thought, hey, this is an Internet payments business. And let me check it out. There was a start of fantastic journey. I joined there fresh out of uni, started at customer support, you know, a whole new world, but fantastic adventure. And then I ended up working in the commercial side there. I worked closely with Peter, who was responsible for all the commercial activities at Bibit, which was really a first generation payment service provider, you know, enabling a credit card payments and other payment methods across Europe for the first generation Econ businesses out there. And that company was quite successful and then got acquired by Royal Bank of Scotland Group in 2004. And then there was a great acquisition for RBS because they really wanted to grow internationally in e-commerce. And I think for Bibit, as you know, early startup really new to this, it was a good moment to do this. There was a lot of uncertainty in the market around regulation. And for me personally, it meant I moved to London. I worked there, that's where we met. I worked in the city within RBS payments, wider payments team for quite some years. And I find that truly fascinating because I really learned a lot about the other side of payments being, how do acquirers work? What does risk mean? How does it fit into the wider banking space? And then, you know, what did happen is being part of a, at that time, 110,000 people, large bank, you know, this tiny 90 people payments operation. I got overwhelmed and not only by the size, but also by group, IT managing all the IT of the business, which had basically had a very limiting impact on the innovation. And as a result, quite a few people at some point left, you know, a lot of customers got a bit upset over time because a lot of the innovation came to a standstill, and they were used to getting a lot of new features being shipped to them all the time. So, then after a few years, about two and a half years, three years later, we, Arnot and Peter felt like, hey, that they'd left already a bit earlier. They felt like, hey, there's still so much demand and need for innovation in this payment space. It would be really fun to see whether we can deliver that because we felt like there was nobody really doing that. And that's how this company got started. So, you know, Adyen, at that time already, a lot of dot-com domains were gone, Adyen was available. We didn't want to go to a boring, global payments, blah, blah, blah type business name. So we felt short and sharp make sense and Adyen means indeed, in part of Sewanee language, to do something all over again with a group of people. And we had worked before, and we felt, it would be fantastic to try and do this again in a different angle. And that's how it started. 

 

[Mike Robertson]

That's super fascinating, frankly, because, you know, back in the day when I was at RBS when they acquired Bibit and I can't recall exactly whether Bibit came first or Worldpay came first in terms of acquisitions. But it ended up being, of course, this combination. And I do recall at the time being very excited because Bibit for me was a company which was very agile and was able to, as you said, innovate quickly and deliver quickly. It felt almost like you would do a sales call, head back to the office, and then, you know, many weeks later, the actual production of that sales call would arrive with a customer, which I thought was astonishing. Is that really then what you saw as the key differentiator, did quote unquote, Big Bank effectively kill that agility? Is that what you think happened?

 

[Roelant Prins]

Yeah, that's what happened. And, you know, it's all to do with the fact like Big Bank is not used to run technology the way smaller tech company does it. So, in our way of working, which we still run today, you are able to try, test, push something through life quickly, see whether it works, and then you optimize. And we call that within Adyen, we launched fast and iterate. That's of course completely opposite on how they think about development of functionality within a bank. It's, you know, risk management first, you figure out like, hey, what's the potential impact here. We gotta make sure we understand all different angles, and then typically projects take six months, you know, through business cases and all sorts of studies. And by doing it that way, you basically limit all the different functionalities for which you are not hundred percent sure what the impact is. And for us, a lot of things we build, we don't know exactly on day one, how big it will be. You know, you have to try a lot of things and solve them, become really impactful, and then you improve them. Some of them you launch and you feel like, hey, in the end, doesn't really do what we were expecting it to do, and then let's pause. And that ability to constantly try things and see what works and sticks and improve it that just doesn't fit with a risk management approach the Big Bank has. And that's the limiting factor.

 

[Mike Robertson]

I get that. I get that. 

 

[Doug Houser]

Before we bad-mouth the Big Banks, totally, I will say one thing about Adyen and the banking expertise that Adyen has, which is, what we see, really it's a, you know, in the last 15, 20 years in the Fintech space is lots of tech, not as much Fin sometimes. And by that, I mean, the frontend piece is very, very sharp, but the backend piece is where innovation is a little bit less likely to happen, but also more impactful. Adyen is actually different in that way, right? Adyen has always focused on being able to innovate on the backend, the actual process. So, talk a little bit about, was it helped by the fact that, sort of had people who had grown up in banks a little bit that had exposure to the banks, while agility is important, was some of that DNA for the risk and backend piece helpful as Adyen grow? 

 

[Roelant Prins]

Yeah, absolutely, it was very helpful. And, you know, I think everybody has their role to play, and a tech company is good at tech and a bank is good at managing risk. And if you try to do and be something else, then that's where it fails a bit. Then that's where the issues arise. But in general, I think we learned massively from being within the bank, we learned massively about, you know, what does this industry, how does it operate? What is this underlying value chain and what can we do to improve that? And absolutely, it's one of the key learnings we had, but also the insights that gave us, you know, the ideas and dreams about what we wanted to build. And a lot of what we've been doing over the years is really the backend. It's like changing the way the entire value chain of processing card payments, and really rebuilding it from scratch. I mean, it's not really sexy. People don't see it. People don't really understand it from the outs of people like, what does it; does it really make a difference? In the end, in our opinion, it makes a huge difference, but a lot of it is under the hood, so to say. 

 

[Doug Houser]

So following on to that and talking a little bit about disruption in the space, and there is of course, a lot of disruption in the space as far as how payments are made, but let's talk with the nearest one probably, which is, what do you think about the models that are largely aggregator based in functions, right? We all know them, right? So is it Stripe and other competitors in the Adyen space. How do you see those types of models versus Adyen, and where they play in the market and how both of you co-exist? 

 

[Roelant Prins]

Yeah, and I think on the aggregator space, there's, you know, there's lots of benefits in terms of that frontend you alluded to earlier. Like if you go back a few years ago, and especially if you go back 10 years ago, you know, for any small business or even startups to try and get payments going, or in general to try and open bank accounts, get something going, it was incredibly painful. And that was just the way it was. And I think in this aggregator space, there's been, so much improvements to try and make that so much simpler, faster and easier, which so many companies benefit from. And it's absolutely a space where a lot of innovation has happened and will happen on an ongoing basis. I think our approach has always been like, we have more experience and by background, more knowledge and network within the bigger merchant space, where it's much more about, you know, global reach all sorts of different payment methods, and how do you make that all work, but also very much about the optimization at the backend, what can you really do to fix our problems in the operation? How do you make financial reconciliation more stable, faster is a big problem. How can you improve, you know, authorization rates on card processing with 1% for a small merchant that doesn't really matter, but for big merchants, it has massive impact. And that's where you really, really find a bit this value chain and our angles always been to approach it from that side, because that's where our passion lies and that's what's been driving us.

 

[Mike Robertson]

That's really, really interesting, Roelant, because you've said something there, which is interesting. The rise of others and yourself in the market has created, I suspect, more I'm using the wrong word here, but more relevance in the sense of the traditional providers to you, which of course helps. And I think I last read that Adyen is now over 1700 people, perhaps that number is even old, so you're approaching a big company. And yet as you say, within your DNA, there's this need, passion to fix the problems, which very implies agility. How do you balance that? How do you balance this kind of, the culture of agility and innovation in a large company as you grow?

 

[Roelant Prins]

Yeah. That's of course, an ongoing topic. That's one of the biggest topics that you have at the moment, right? How do you do that? You know there's one thing that’s always been very important to us where we say, we create our own path, and we won't be slowed down by stewards, it's the saying we have, we have this Adyen form path, some of these core driving principles. And this specifically stands out in this regard because, you know, there's a lot of things and we've gone through quite some phases as a company, and there's been some big moves we made within, you know, how our role within the industry. So at some points, we became our own acquirer. We got our own licenses. We billed directly into the Visa, MasterCard networks, no one had ever done that from a tech company point of view. And lots of people were saying like, you know, that's not possible, or it's a massive amount of work. Why don't you just outsource that? It's not going to make a big difference. You know, the big players are not going to allow for it, a lot of this sort of stuff. And we felt like, well, let see about it. We think it makes a difference. We really wanted to try this; we think we can do it. And in the end we did it and the impact was massive. And we still benefit from it hugely in the service we provide to our customers. Another thing was, we got our banking license because from a regulatory point of view, it was a much more clear predictable bar for us to have a banking license in terms of the regulatory framework to adhere too. And we thought that made sense. And also the functionality we could start building for our customers over the long-term made sense. So again, that's the path we took. Then a lot of people are like, oh, now you're going to become a bank. You're gonna have to comply to everything. You’re going to be wearing suits, all that sort of stuff, you know, people start to talk about it. And we felt like, well, let's see about it. We're a technology company with a banking license. Is that how we position it? We have some extremely smart people running the reporting side of the bank, etc., but we continue to operate the way we do. And it's been fairly successful. Same thing, we went public, oh, you're a public company now you're so big. It's all going to change, you know, everybody's going to be dealing with the stock price. And we're like, well, we'll see about that. And again, we go our own way. We create our own path. And this thing about these stewards that we say in this thing, like, we won't be slow now with stewards. There is this story, like in the eighties, when it was massive problems with hooligans in football stadiums in UK, and they did this scientific experiment when they had, you know, a couple of stewards dress up like hooligans. And they were there one night in the stadium, and they're like talking all the aggressiveness out, like talking to all the other hooligans, like, think I'm going to go home tonight, you know. Don't think it's going to happen tonight, probably going to rain, that sort of talk. And what happened is that it instantly took away a lot of the aggression. So the violence and the problems instantly became much smaller, which showed that you only need a few people that start to talk the energy out of a group, and you can really impact the group behavior. And that's something that always stuck in our minds that, you know, make sure we decide how we go forward. We decide how we approach this industry. And let's not be influenced by people that are going to say what it's supposed to be like, or, and that's, it's a strong conviction. And it's the same thing for how we look at; we’re growing, because of course, a lot of things change. We never think like, oh, we got, currently, of course, in COVID working from home has a big impact on how you work, how you interact. We're a very informal company you suffer of course from that. And one thing is that at some point you could say, like, we really got to do everything to maintain our culture, but it's ultimately not about maintaining our culture. It's about what are your core values? What do you think is really important and how do we keep building on those? And of course the culture and how you work, it constantly changes because you are so many more people, but the core principles they have to keep standing.

 

[Mike Robertson]

So what I'm hearing is it's really your culture, I guess, any sense for culture is this, it's a living organism and you're giving a space to develop, and in the analogy of a plant, you've sort of giving it the light in the, you know, the water and the food it needs and moving it around when you need to. That kind of takes me though to a thought, and you used the word steward, some would say through some lenses, the regulator could be seen as a steward in this space. And you mentioned having got a banking license, and, you know, the changes that obviously implies, I mean, in your view, and if you had a blank sheet of paper and you would like the regulators to do three things differently in your space, or even choose one, if you wish, what would that be? 

 

[Roelant Prins]

You know, I think what's been very helpful for us in dealing with a regulator is, you know, we initiated at an earlier stage, the fact that, hey, we are interested and we'd like to discuss getting a banking license and moving away from the license we had before that, because we thought like, hey, we see how this company is evolving. We have very long-term ambitions. So we initiated that. So in that regard, you know, I think we have always been proactive, keeping the regulator in mind and thinking along the way. And that's been helpful in the sense that you have a long standing relationship, and you have a lot of openness. So that's been one thing that's been very helpful, I think from our point of view, at the same time, you know, I think what you'll find is, you know, regulators have such a long background. They look at the industry through the lens of, hey; this is what this is how banks typically operate. These are the main areas of concern. And because there are so many of those, then you know, you look at a company like ours through the same lens, or you look at the same criteria you have for the others, which of course from a consistency point of view, you have to do. But ultimately we we're quite a different company. There's nothing like us. And that's a challenge because it's new. And of course that's makes it hard. I think what we very much like to offer to regulators is, come spend time with us. You know, we're more than happy to not only talk about ourselves as a company, and how we look at things, but also, you know, provide a, almost like educational guiding program to explain much more about our role in the bigger ecosystem. What are some of the things that we as tech companies, do, how we work. And we feel that the openness to share that, beyond, you know, looking at specific numbers, ratios, etc., and measures is important to create more of that context and to work together, to create a bigger context on what's happening in the wider industry. I think it's very relevant, if you look at what's going on. 

 

[Doug Houser]

And after that comment about the wider industry, I do want to pivot the conversation a bit to the market journey for Adyen. And by that, I mean, from when you started to now, where did you start thinking that your target market would be from geography, from a segment, from a size of company standpoint, and where have you ended up at this point in time? And how has that evolved over time?

 

[Roelant Prins]

Yeah, that's a great question because, who would have known, you know, when we started like 30, 40 years ago, it's, I think the only thing we knew for sure was that we take a long-term approach on this. We want to go for the long run. We think that's where the real fun is. That's where the real impact is and where that'll take us time will tell. And I think, you know when we started, I looked at that very recently for a talk I was doing around a bit of the origins of the company. And when we started, we were just trying anything. We actually built a mock-up of a buy now/pay later product back in 2007. And we were pitching that; nobody wanted to buy it, so in the end, nothing happened. We built a marketplace product and we were pitching that with split settlement, etc., for some resellers. Again, you know, we were a young company, nobody wanted to buy it, but we had all these ideas. And in the end, we started in the gaming space because in the gaming space, there were lots of startups. They didn't care about us being very, very new as a company. And they loved the technology and that's how we got into the market. And then together, we could build some really cool, ways to, you know, improve conversion on the payment pages at that time. And that got us going. And I think, you know, we didn't have a plan originally to say, hey, we're going to go for these gaming companies. It was all about trying, pitching and see what sticks, and that's how we got into it. And I think, you know, what's always been driving us like is, we talk a lot to merchants. We listen to what are their challenges. And then we think about how can we help them fix those problems? And that's always been a bit, the give and take approach that leading us to where we end up, and that's been going like that for a long time. I mean, throughout time, at some point we, a pivot moment for the company was, at some point, we signed Groupon at that time, as a merchant, and they were growing incredible pace and going into market after market, they have a huge reputation at the time. So it helped us a lot, together with them, to go into new markets, and we could very quickly implement new payment methods and get them to market with them. And then suddenly, you know, we built out in a year, so many different payment methods and then suddenly you have this global solution. So not all of this, you can plan, especially in those earlier days. I think the things that we always dreamt about, not only doing online payments, but also in store, and we always thought about retail, but the fact that we're now also doing the likes of Subway, McDonald's, hotels and it's going beyond that, that's something we'd never thought about years ago. The fact that we are, you know, we're growing really rapidly, relatively in the US and that's for a long time in the beginning, I had the feeling like, hey, the US, our play there, so to say, is helping US companies globally, you know, and for quite some time that was the approach, because US it's all cards, it's all commodity, you know, what do you have to offer? Then over time, it turned out like, hey, with a very modern acquiring processing infrastructure, you can suddenly automate much more for these larger companies. And also you can give access through the local debit routing networks. Oh, and if you do online and in store and combine it all, that's fairly new. So suddenly we had quite a few things we could offer that weren't there and that's driving a lot of growth on the US market and the fact that, that's happening, wow, I'd never anticipated it.

 

[Doug Houser]

And that was something I want to build on, which is, Adyen's been around long enough, and I've seen this journey where everything was going to be e-commerce. Remember that, we were all going to be e-commerce, even when we're all at home, we still don't want it all to be e-commerce oddly enough. So, talk a little bit about how that's happened in the market, where it's seemingly, like everyone was looking off in the future, and it was one direction all the way to e-commerce, but it's kind of switched back to being omni-channel, right? And have, and being able to solve across physical payments as well in point of sale as it is online.

 

[Roelant Prins]

Yeah. Yeah. You know, the way I look at it, what we see happening is that people are now used to having multiple ways that they pay. They have things like Apple Pay or Google Pay for their favorite food order apps that they go to every Friday. And then, ooh, if I buy some luxury products, I use my Visa card, but if I go for my day-to-day online groceries, that's where I use my Internet banking, because that's what they like from a cost perspective. And because of technology, making it so easy now to have these multiple payment methods, it's all stored for you. It's all there. It's tokenized. So it's not difficult to run a few of these different payment methods side by side. And it's almost like a contextual way of payment method preference, which ties into what you're saying. There's so many different situations where people want to buy and interact with brands. We see a craving for people to go out and go to stores and buy things and experience the shopping. Whereas at the same time, there's lots of things that people just want to get shipped off to their house once a week. It's, you know, and it's all possible. So, to figure out as a brand, like, how do I cater for these different segments of customers that I have, is the key? And they all have different needs. It's not like everybody's the same. And it's easier to address them if you invest in the technology.

 

[Mike Robertson]

Well, speaking of the same, I mean, that's critical, isn't it, it's a segmentation and knowing what job you solve for whom. Speaking about that, then in terms, the actual payment methods, let's just move a little bit towards an area, which is for some quite controversial, sort of digital, you know, asset tokens, cryptocurrencies, call them what you wish. Where do you, and I'm not suggesting that Adyen tells us anything that's not public, but where does Adyen see the link between that asset, so to speak, and the payment channels? How do they come together, do you feel? Do they come together?

 

[Roelant Prins]

Yeah, not really at the moment, from our perspective, you know, I think we are very pragmatic in how we work, I mean, if you hear me talk that comes across, maybe already here and there, but we've always very much looked at how, what issues do merchants have right now? And a lot of those are either; we want to go into more and more markets. We want to be able to, you know, support the Japanese customer, whose paying with a different payment method, then the customer in Brazil, or in, we want to drive costs down in the US, how can you help us do that? And from that perspective, that's always been driving us, that's driving our development roadmap. And from that perspective, we have always been looking at, like, what can we do for customers along those lines? And it's not like we're only fixing the problem they have today, but our windows there for few years down the road and see, how can we really best help them? What's their problem in growing today? And what can we do about that now? How does it then work when we're thinking about new ways of payment, what new payment methods to add to our platform? Yeah, the past few years it's been a lot about buy now/pay later, and there's the large ones that we work with, like Klarna, Affirm, Afterpay. But there's also lots of local initiatives in countries like Spain, France, across APAC, and those are actual current needs that merchants have. Whereas on the crypto side, you know, we've always been looking at customers and asking them what payment methods would you like to see? And this doesn't come up. It's not like all of our customers are keen to have crypto as a payment method for enabling their customers to make payments. And therefore it's currently not high on our to-do list because you have the merchant, the demand isn't really there.

 

[Mike Robertson]

I get that. So, I can sort of see your point. It feels like you're agile enough to react when you see the demand. I get the pragmatic aspect there. I saw online recently, quite a cute headline about going Dutch, which of course referred to Adyen. And it made me chuckled because, you know, obviously the double play on things, but what is it that you think that really means in the, in terms of the future of you offering in the payments market? What does going Dutch mean to you? 

 

[Roelant Prins]

Yeah, well, it's funny because in our country it doesn't have a very specific meaning, so just to make sure how would you explain that expression?

 

[Mike Robertson]

Well, going Dutch was, especially for me, which I don't do any more now that I'm married, but when I was dating, it was me splitting the bill with the young lady, hopefully.

 

[Roelant Prins]

Yeah. What does it mean to us? I think, you know, it's about flexibility. It's about enabling different journeys. And I think the first thing I think about is, you know, QR codes. What's the role of QR codes and what are they doing outside of China and APAC? Because of course, in China and, you know, they've been around for a long time and very effective. We've seen a huge amount of growth in using QR codes in enabling payments and more across Europe, more recently. And that includes, in these lockdown areas, the ability for people at restaurants to order and pay without having to touch anything or to interact. And these QR codes then drive the ability to split, for example, I mean, it's very easy to integrate order and pay in one go. It's easy to include loyalty, but it's also, enabling these split transactions. So I think technology enables that and makes going Dutch much more simple. That's how I look at it.

 

[Mike Robertson]

Well, you could also say, going Dutch implies taking the Dutch or Adyen-ing approach to addressing the market, which I suspect is the double play there, wasn't it? 

 

[Roelant Prins]

Yeah, no, of course. I mean, that's the other part that I like about it, but I, that's the bragging answer, which is not in our DNA.

 

[Mike Robertson]

I understand. 

 

[Doug Houser]

So one question I do have about it, when you're talking about cryptos, you're saying that your clients haven't been begging for it right, or even their end users? And kind of want to ask the question again, over time, what's been the biggest surprises in the market as far as something that you didn't realize was going to catch on, as far as from an experiential standpoint in payments? And also something that maybe either hasn't changed, that you thought would by now?

 

[Roelant Prins]

Yep. I think the success of buy now/pay later in the US is something that's, an even the pickup in the UK, is something that I did not see coming. You know, because I think the way we looked at it, like credit cards in those markets are real credit cards. A credit card in the Netherlands, for example, means it's just a postponed debit because the moment I pay with my credit card today, then ultimately by the end of the month, automatically, the money's taken off my account. But of course in the US, UK credit card means real credit, so why then a need for buy now/pay later? Isn't that the same thing? Yeah, of course that is happening and it's growing and that's something that I wouldn't have expected. I think the, you know, the thing that hasn't happened is, I'll put it differently in the sense that, looking into payments and the importance and the often underestimated role of culture and habits, in how people look at payments, how you look at adoption of payment methods and the change in behavior. I think that's often, you know, not taken at the right levels because in countries like Germany, Netherlands and others here in Europe, there is a massive feeling of, you know, not wanting credit at all in your life. That's how we grow up. You are taught here, credit is a bad thing, you stay away from, that's only going to cause problems. So you don't want to do that. And that's something that's important here, but in Germany, very relevant. And that has a lot of impact in how people think about payments and what payment methods, and how they will be successful. In line with that, there's an example of, you know; the most important payment method here in the Netherlands is called iDeal. It's based on the Internet banking infrastructure, it's been massively successful, and everybody uses this for their online payments. The funny thing about it is that people really look at it like this is the payment method. This is the best thing out there. If you can pay with this, you should always go for it. This is the most trustworthy way to pay. However, it almost acts like a cash payment in the sense that the moment I make the payment, I transfer the money in real-time to the merchant, and it's gone and they then have to ship me the product. The moment the product doesn't arrive. There’s no way for me to reclaim the money. I mean, there's no chargeback rights, there's nothing like that, the money is gone, and if the merchant’s off, then yep, sorry. Whereas a credit card, of course, you have all these protection mechanisms that give you much more, as a consumer, rights to get your money back. But still with that in mind, people still look at JEJA, iDeal, that's the most secure payment methods. 

 

[Mike Robertson]

So, do you think then, perhaps that's, if you like, what you've just described, there is one of the critical elements that support the future of card usage, this underlying relationship, credit aspect that gives them protection. Is that one of the protections for the card industry, do you feel? Or do you feel that's, you know, not even really fully understood?

 

[Roelant Prins]

No, it's not everywhere, fully understood. I think there's also the conception of it's costly. I'm going to pay for something that, you know the whole idea that you have to pay for a payment method in the eyes of the consumer, here in Germany and the Netherlands, those markets. I'll never pay for something like that, you know, so it's a different mindset.

 

[Mike Robertson]

Yeah, I get that. So given the different mindsets and the fact that obviously, you know, you're in a global business and you're operating a global offering, let's move a little bit across to cross-border payments because clearly that the friction in the cross-border payment is the two currencies and, you know, and there's often, you know, certainly there's lots of startups out there that seek to sort of address that from a cost perspective or from a friction perspective. I want to just sort of combine a question here with the future of embedded payments, this sort of, this payment that's embedded in the underlying transaction, but it's almost seamless, as you don't even know it's there, and the cross-border element. Your thoughts on this how do those two things sort of become more frictionless, more mainstream in the future from your perspective?

 

[Roelant Prins]

Yeah, I mean, this is of course where there's so much optimization still to be done. And it's only just started, I think now, if I look at the likes of TransferWise and what they're solving is so impactful for people that are traveling or that they're spending some time in a certain country. I mean, I moved to the US for about a year, as part of this Adyen journey. And you don't want to set up everything locally, then, you know, it's incredibly costly to use your non US bank accounts or cards, etc., to spend in the US. I mean, it's almost irresponsible to do that in terms of the Forex markups and everything. It's incredible. So there's a huge path of optimization there. You know, I think it's only just about, started from a merchant perspective, you know, that there is a company we work with, which gave me the insight. So there's this company called Joe & The Juice. They're one of these super fun, coffee and juice chain there, and they're really global, they're in APAC, in Australia, US, all over Europe. And they really decided we want to run a consistent experience in every country. So we work with them, hence I know a bit about what they're doing. And one of the things they were very focused around is loyalty and making loyalty as seamless as possible. So embedding payments in an app where you can pre-order and then pick up in the actual Joe & The Juice location. The payment is done automatically, loyalty is awarded and minimizing all the efforts, right? It's just; order once everything happens, and what they're aiming to do, because they have a lot of these international travelers and as customers, they've really been building this as a uniform infrastructure in every country that they're operating. So you can really actually go in Sydney, order something, go to New York, order something, it works the same way, it ends up at the same loyalty program. And that's something, if you think about it, which retailer, which brand runs a consistent uniform infrastructure like that, hardly anyone, because payments are so fragmented. These currencies are driving a lot of the fragmentation, but also, you know, by nature, by tradition, you have to set up locally, you need local contracts with local payment companies, local bank accounts. There's no way to combine all that. And, you know, with this company, Joe & The Juice, we figured out that, hey, wow, they're one of the first that are actually now doing this where you think like, that's quite unique. I mean, for e-commerce businesses, that's much more common, right? But for the likes of anyone that's to do with retail that doesn't exist.

 

[Mike Robertson]

Absolutely, that really innovative! 

 

[Roelant Prins]

Think about hotels, it all has to start. Nothing out there yet. 

 

[Mike Robertson]

No, no absolutely. I get where that's going. 

 

[Doug Houser]

So I think from an experience standpoint, what are all the layers that, kind of, go into that, right? And so we often talk about here is the bank is the, end users and wants someone to be the network for them. They say, okay, just go ahead and connect everything, please because their business, a hotel chains business is to make sure everyone's comfortable. It's not to actually create a global payments experience, and what, from the standpoint of innovations, will kind of help that journey? And also, basically, what part of this is really kind of just brute force, like basically saying, hey, we're going to create a global infrastructure and it's difficult, but someone has to do it essentially.

 

[Roelant Prins]

Yeah, no, I think that second part is really important because you can't do everything, have the low risk cost, and at the same time have all the other things, those are hard decisions these companies need to make. But, what I would say is to add an element of humbleness, because we as payment companies tend to look at things, you tend to look at the world a bit through the lens of payments and it feels like, hey, payments plays a really instrumental role in creating these fantastic uniform customer experiences all over the world. And we can do it. But if you look at the bigger landscape in terms of systems, that these companies have to deal with, I mean, then payments is maybe like 5% of the overall. They've got all these point of sale systems; they've got the local networks to deal with in their stores. They have customer management, there is older accounting systems. They have to comply with local tax. And if you paint a bigger picture that they need to deal with yet, that all plays together. Of course it's easier if you start from scratch, then having to try and re-engineer all that existing stuff that you already have running, but I think it can be done, but you have to make certain hard decisions like, if we think this is important, then we got to move to one central system around our point of sale infrastructure, because that's the way we can be ready for the future. And anything we build and innovate here instantly becomes available everywhere. That's where you want to get to. 

 

[Mike Robertson]

You're effectively describing an efficiency of scale, which by definition implies, I guess, more collaboration and more collaborative partnerships, so to speak, to make that work. Because of course, as you say, payments are fragmented, especially cross-border. And, you know, kind of goes to a topical area, which under certainly topical in the bank at the moment, and I'm sure it's topical in most places. And that's the use of technologies and specifically the use of distributed ledger type technologies, or indeed, underlying Blockchains, no matter what type of technology you look at there. Is that a topical thing within Adyen in terms of, well, how does one create this sort of distributed or decentralized network that embodies transparency and trust and immutability, but still works in the sense that the underlying data that should be protected is protected and it's private, etc., etc.? Is that a general conversation in your firm at the moment? 

 

[Roelant Prins]

It's a discussion out of interest for a lot of people because of the space we're in. But it's not big topic we're actively working on to try and create in a sense that, we have to deal with a lot of reality that these merchants are facing today, and we weave that in at some point in time for them. And so that's a bit how that fits in.

 

[Mike Robertson]

And I guess as you say, you have to be pragmatic and I guess you solve today’s problems today. But I can't help wonder how successful companies are going to adopt these sorts of ideas. Because the more I read about it, the more I can see the potential there, just like I could see, as I'm sure you could, going back 15 years ago, the potential of the Internet and what that was going to do for us, despite the fact that we saw lots of disasters along the way, one can't argue that it's fulfilled a lot of the promise.

 

[Roelant Prins]

Yeah, yeah, I agree. I agree.  

 

[Mike Robertson]

Yeah. It's going to be very interesting. Roelant, I'm afraid we've come to the end of this, which is disappointing because I'm really, really fascinated in this area. It's such a broad topic. And it will continue to be that I feel, as world trade continues to expand. So I just want to thank you very much for being with Doug and I today. It's really been interesting. Thanks so much. 

 

[Roelant Prins]

No, my pleasure. It's been fun. Thanks for inviting me.  

 

[Mike Robertson]

Yeah, sure. Maybe we'll do this again, and Doug, thanks very much for being here too.  

 

[Doug Houser]

Thanks so much, Mike.  

 

[Mike Robertson]

Right, so as always, you’ve been listening to Pivot, the Bank of America Cross-border Commerce Podcast Series, our compelling discussions with industry leaders and key figures in the cross-border payments ecosystem. Join us again next time for more of the same. 

 

 

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