Speaker 1: Welcome to Cie Time, a podcast series on Markets and
Speaker 1: Economists from DVS Group Research. I'm Theron Bei Economist. Welcoming
Speaker 1: you to our 139th episode.
Speaker 1: We are releasing this podcast in time for the 2024
Speaker 1: Singapore Fintech Festival. What I'd like to do is present
Speaker 1: some updated thinking on the state of fintech and who
Speaker 1: better to discuss this other than Varun. Mittal. Varun is
Speaker 1: the Chief innovation officer at a leading insurance company where
Speaker 1: he manages new product and distribution innovation, ecosystem partnerships and
Speaker 1: emerging technology rollouts like the A I Center of Excellence.
Speaker 1: Earlier in his career, Vern served as a partner at
Speaker 1: Ey leading its Fintech and ASEAN digital banking practice supporting
Speaker 1: fin tech start ups financial institutions and regulators. Veron Mittel.
Speaker 1: Welcome to COVID Time looking forward. Thanks for having you Vern.
Speaker 1: Give me one minute. I want to read you out
Speaker 1: some things you joined us for the first time was
Speaker 1: in 2021 in the pandemic days four years ago on
Speaker 1: episode 41. So I took the transcript of this conversation
Speaker 1: and I asked Chad GP T
Speaker 1: to prepare a summary of our hour long conversation. This
Speaker 1: is what it produced. In one second.
Speaker 1: The discussion revolves around the exciting developments in the world
Speaker 1: of fintech, particularly digital payments. Mittal highlights the significant impact
Speaker 1: of smartphone proliferation and internet access on the rise of
Speaker 1: digital finance. He argues that the post vaccine phase will
Speaker 1: see a further acceleration of digitalization leading to a shift
Speaker 1: towards remote work and distributed workforces. The conversation then delves
Speaker 1: into regulatory landscape of FINTECH, emphasizing the need for a
Speaker 1: risk based approach to regulate emerging technologies.
Speaker 1: Metal discusses the challenges of cross border payments, particularly the
Speaker 1: need to balance innovation with security and oversight. He emphasizes
Speaker 1: the potential of a train model where fintech companies enable
Speaker 1: smaller customers to participate in existing infrastructure built for institutional clients.
Speaker 1: The episode concludes with a discussion on the Chinese digital
Speaker 1: currency initiative and its potential for cross border payments and
Speaker 1: its implication for national monetary sovereignty.
Speaker 1: Mittal also shares insights on the digital banking landscape in Singapore,
Speaker 1: focusing on the potential for innovation in niche areas such
Speaker 1: as retirement planning for gig economy workers. He further highlights
Speaker 1: the importance of financial inclusion even in wealthy societies like Singapore.
Speaker 1: That's pretty good,
Speaker 1: not bad. Uh Let's begin with an update of the discussion.
Speaker 1: Your prediction that post vaccine phase will see a further
Speaker 1: acceleration of digitalization. Well, that certainly happened. Which aspects of
Speaker 1: the dynamic do you find the most compelling
Speaker 2: the premises, institutions were forced to do digitization which they
Speaker 2: could not go back So all the forms and the
Speaker 2: processes which became digital, all the non face to face interactions,
Speaker 2: which became digital.
Speaker 2: Normally it would take them two years to get the
Speaker 2: internal approvals that time, too much they had to, but
Speaker 2: they could not ever go back. So a lot of
Speaker 2: like I would say decades of progress happened in two
Speaker 2: years and which cannot go back and then that becomes standard.
Speaker 2: So if you could do it for two or three
Speaker 2: of these products, why can't we do it for others?
Speaker 2: So that generational shift which happened across financial institutions
Speaker 2: that stays and that becomes the benchmark and you had
Speaker 2: two of the players to do it. And then everybody
Speaker 2: else uses that as a benchmark. And regulators also accepted that, OK,
Speaker 2: we allowed Zoom based K for overseas customers during COVID.
Speaker 2: So what changed now we can still allow. So suddenly
Speaker 2: if you look at just as simple use case as
Speaker 2: cross border or overseas customers, now that becomes default
Speaker 2: and that reduces your cost of servicing, improves agility, improves productivity.
Speaker 2: And if you look at the RO E for financial
Speaker 2: institutions have improved since then,
Speaker 2: pre COVID and post COVID, you significantly improvement in that
Speaker 1: by all means, what about geographically? So in Singapore, I
Speaker 1: think we can safely say some of these things that
Speaker 1: you just mentioned were very much prevalent ASEAN
Speaker 2: even more even more because those markets started with smartphones.
Speaker 2: So and then everybody was forced to deliver every possible
Speaker 2: service to them because the branches would just not exist
Speaker 2: from that perspective. So if you look at today, the
Speaker 2: number of Fintech who have bought banks in Indonesia is
Speaker 2: more than the fintech who have got a banking charter
Speaker 2: in the United States.
Speaker 2: Literally half of the lending companies have a bank license
Speaker 2: or ma corporation license and it's through a out that's fine.
Speaker 2: But if you look at the fin with a banking
Speaker 2: license or with a board seat or a stake in
Speaker 2: Indonesia is more than most developed markets.
Speaker 1: That
Speaker 1: is actually fascinating. I remember during the pandemic uh to
Speaker 1: your point of, you know, once the genie out of
Speaker 1: the bottle doesn't go back.
Speaker 1: My helper used to go every two weeks to the
Speaker 1: money changers to get the cash when she could not
Speaker 1: send money home like that. She then became fully reliant
Speaker 1: on the digital ecosystem that my bank has. And since then,
Speaker 1: she has always sent money like that back as
Speaker 2: cheaper for her faster for her. She can now go
Speaker 2: there to Lucky Plaza to hang out, but not for
Speaker 2: this
Speaker 1: purpose, not stand in line for like 2030 minutes that
Speaker 1: we should see those labyrinthine lines. Absolutely. But between say
Speaker 1: bank like fintech that are in the business of giving
Speaker 1: out loans, but not necessarily in the business of taking
Speaker 1: in deposits. There was a question, let's say three or
Speaker 1: four years ago, that is there a regulatory arbitrage. I
Speaker 1: remember having this conversation with you as well. Where do
Speaker 1: we stand with that? And did the pandemic sort of
Speaker 1: change thinking around that?
Speaker 2: See the premise is this right? If there is arbitrage
Speaker 2: is there for everybody, it's the beauty of financial services,
Speaker 2: whatever you do, everything can be cloned and copied if
Speaker 2: it works. And regulator allows give it maximum six months
Speaker 2: and everybody will have it. So there is not such
Speaker 2: a case of arbitrage from that perspective.
Speaker 2: And again, wherever you see, right, where regulators find that
Speaker 2: for example, if you see India, India, regulators have put
Speaker 2: in different measures to control some, some some lending use
Speaker 2: cases and stuff because they felt that it was going
Speaker 2: outside the comfort zone from that perspective. So yes, there
Speaker 2: would be times where innovators will come up with areas
Speaker 2: which would be cases which have not been factored in before.
Speaker 2: Sometimes you see regulators are usually behind the curve and
Speaker 2: that's how it's supposed to be because otherwise it stifles
Speaker 2: the innovation but it's a fine balance and overall the
Speaker 2: water finds its level.
Speaker 1: I want to actually to the very end of this conversation,
Speaker 1: I want to come back to that issue that balancing part,
Speaker 1: that's that's an important one. So you mentioned that the
Speaker 1: ro es have improved both for banks and non banks.
Speaker 2: Uh the non banks, most of them are not listed
Speaker 2: from that perspective, but the ones were listed if you
Speaker 2: look at, let's say the United States, for example, right?
Speaker 2: They have been, they have been doing buybacks from that perspective.
Speaker 2: So if you look at the S for them have grown,
Speaker 2: so Roe may not be the right metrics for some
Speaker 2: of the non banks because they they don't have a
Speaker 2: loan book per se. But if you look at S
Speaker 2: for them over the last three years, the PS has
Speaker 2: improved different metric but underlying quality is the same,
Speaker 1: right?
Speaker 1: And the non bank financial sector in India, for example,
Speaker 1: is going through massive expansion. What's your sense of their
Speaker 1: performances
Speaker 2: right now? It's a growth cycle. There probably might be
Speaker 2: some uh I would say pit stops along the way
Speaker 2: and regulators have identified like there are some areas, for example,
Speaker 2: some people, they restricted them from lending or put some
Speaker 2: extra caveats and stuff. Uh and regulators are looking at
Speaker 2: it actively. So think of it, right. You have 100
Speaker 2: plus NBF CS. If they pick out certain +45 or
Speaker 2: six people on certain reasons, there must be some reasons
Speaker 2: and also it sends a message out to everybody else.
Speaker 2: So
Speaker 2: not others may be doing it at a smaller stage.
Speaker 2: But if you, if if you say the the class
Speaker 2: teacher sends puts punishment to two kids in the class,
Speaker 2: then everybody
Speaker 2: has
Speaker 1: demonstration
Speaker 2: of facts
Speaker 2: that sends the message out to the rest of the class.
Speaker 2: So and that is there for protection of consumers, right?
Speaker 2: Because historically regulators get regulators are goalkeepers,
Speaker 2: they get, they do not get as much credit for
Speaker 2: the growth. They save, they get a lot more blame
Speaker 2: for the ones they miss
Speaker 1: very well put. And then coming to our part of
Speaker 1: the region. So you mentioned Indonesia, we see a lot
Speaker 1: of fintech related activities in the Philippines and Vietnam and
Speaker 1: so on. And of course, here in Singapore, so give
Speaker 1: us a sense of the financial performance of this side
Speaker 1: of the world.
Speaker 2: See overall, if you see a lot of them depend
Speaker 2: on non banks
Speaker 2: for the source of capital because not a lot of banks.
Speaker 2: Now what has happened is banks have started to lend.
Speaker 2: So if you look at some, your bank and the
Speaker 2: bank in the same tower, they started to give 30
Speaker 2: $50 million lines to the alternate lenders who are doing
Speaker 2: downstream lending to the long tail. So when those lenders
Speaker 2: are able to access that better cost of capital that
Speaker 2: percolates it down.
Speaker 2: Historically, their cost of capital were 12 to 15%. Now
Speaker 2: they're able to uh they managed to bring their cost
Speaker 2: of capital between 8 to 10%
Speaker 2: from that. So if you the moment you are having
Speaker 2: 200 to 400 basis points improvement in your cost of capital, why?
Speaker 2: Because you have more data, you have proven your NP
Speaker 2: A record, you have gone through cycles in credit. It's
Speaker 2: all about cycles. You have shown that your book did
Speaker 2: X things all through the COVID cycle which gives more
Speaker 2: confidence for the larger financial players to give you those
Speaker 2: lines from that perspective.
Speaker 2: And that has changed. So historically, if you look at
Speaker 2: the cost of capital for the best, some of them,
Speaker 2: the cost of capital is the same, but the best
Speaker 2: performers have managed to bring their cost of capital in
Speaker 2: single digit. The not so nice performers still have their
Speaker 2: cost of capital in double digit.
Speaker 1: So we'll go back to India for one second. So
Speaker 1: you mentioned the fact that in this region, you are seeing,
Speaker 1: you know, banks being a source of underwriting for the
Speaker 1: funding for a lot of non banks in India, private
Speaker 1: capital markets are sufficient for NBFC to raise money.
Speaker 2: Uh that's there. But the banks, there are also open
Speaker 2: banks are not averse to that. The thing is that
Speaker 2: regulators have put very clear loans, clear rules on non
Speaker 2: evergreening of the loans. So what happened was they found
Speaker 2: that there were a lot of evergreening of those loans happening.
Speaker 2: So that's being handled. The Southeast Asian model is slightly
Speaker 2: different because it's a credit line. And when you give
Speaker 2: a credit line, it's by nature, it's default. Evergreen.
Speaker 2: It's not like a term from that perspective. So if
Speaker 2: you have already factored all the risks governance in while
Speaker 2: giving an open open loop credit line which you can
Speaker 2: draw down upon then it's, it's factored in. So that's
Speaker 2: where the difference in. Indeed, it was not, it did
Speaker 2: not start as evergreen
Speaker 1: um related to that. Yeah, I remember in that pa
Speaker 1: past conversation, I think the chat GP T summary also
Speaker 1: picked that up, that you expressed this vision that uh
Speaker 1: fintech will enable SME S to participate in the infrastructure
Speaker 1: that is usually reserved for very large financial institutions. I
Speaker 1: think that was still a work in progress back in
Speaker 1: 2020 when we chatted, where do we stand there? Now?
Speaker 2: A lot more has happened. I'll give you an example, right?
Speaker 2: The number of index today who can issue SME cards
Speaker 2: is much larger than four years ago because now you
Speaker 2: have larger players. So for example, if you say Singapore, right,
Speaker 2: f which is an Indonesian fintech can issue cards here
Speaker 2: wise like British Fintech, they are issuing cards for other companies.
Speaker 2: So tiger broker issues cards using wise infrastructure
Speaker 2: from that perspective. So the card is one collections and
Speaker 2: dispersal is another. So what has happened is the larger fintech,
Speaker 2: they have already invested in that infrastructure.
Speaker 2: So they have the ability to rent that infrastructure and
Speaker 2: they grew up with the DNA that they are willing
Speaker 2: to rent that infrastructure. Banks also do it. So now
Speaker 2: they are competing with banks in some of those places
Speaker 2: where banks, historically, banks would also rent that infrastructure but
Speaker 2: they would rent to the person who has 100 million
Speaker 2: line with them, 500 million line with them or 18
Speaker 2: country bank account relationship IBG one client.
Speaker 2: Uh, what FEX have done is they have brought it
Speaker 2: down to IG three and G four from that perspective.
Speaker 2: Absolutely
Speaker 1: brilliant. We also at the retail level, the same conservative
Speaker 1: parent who would think twice about finding some not very
Speaker 1: famous bank name for their child's sort of, you know,
Speaker 1: little wallet. Now, you know, revolute one day and something
Speaker 1: the other day people are tried between cards, look at
Speaker 1: the benefits and opening this account is so easy. But
Speaker 1: clearly there is a
Speaker 1: degree of comfort around the security guard rails, otherwise people
Speaker 1: will not be using
Speaker 1: these.
Speaker 2: Absolutely. And which is why, right. So all of these,
Speaker 2: they have to store the money with a bank like yours,
Speaker 2: they cannot keep it anywhere else. So there are governance
Speaker 2: around that this is segregated, money and everything. And regulators
Speaker 2: have put very strong guardrails around how the MP license
Speaker 2: and I'll give you an example, right? Four years back,
Speaker 2: the limits for the wallets in Singapore was $5000 per
Speaker 2: transaction and 30,000 per year.
Speaker 2: Now it's changed to 20,000 per transaction and 100,000 per year.
Speaker 2: So because the infrastructure improved, this use cases improved. So
Speaker 2: the regulators also felt comfort to move the limits up
Speaker 2: says we will enable unlock more use cases
Speaker 1: that is sort of encouraging set of the developments. What
Speaker 1: are the not so encouraging side of the developments in
Speaker 1: the last four years?
Speaker 2: I would say if you look at some markets, for example,
Speaker 2: like if let's say India, right? So the India has
Speaker 2: more f trading right now, futures and options trading than
Speaker 2: some of the biggest capital markets. That's true. And as
Speaker 2: for the Indian government statistics, Indian regulator statistics, more than 90%
Speaker 2: of these retail people lost money.
Speaker 2: So how some of the public markets and even if
Speaker 2: you look at us, when you see the Wall Street
Speaker 2: bets and gamestop meme, how public markets started to act
Speaker 2: like a quasi casino in some shape and form in
Speaker 2: different markets.
Speaker 2: Us saw it in Gamestop Wall Street bets. India saw
Speaker 2: it in f some of the markets are in different
Speaker 2: shape and form. So that probably has not been a
Speaker 2: great outcome from the democratization doesn't always work the good way,
Speaker 1: right? And also it is enabled by the speed of
Speaker 1: transaction and the ease of those interfaces. One has
Speaker 2: think
Speaker 2: of it this way, right? When you say that this
Speaker 2: is zero transaction and it's a payment for order flow,
Speaker 2: then you know that it's a hedge fund in the
Speaker 2: other side
Speaker 2: and it is illegal in most of the European markets
Speaker 2: for a reason, it is legal in some markets and
Speaker 2: that's absolutely there is jurisdiction, but you cannot do that
Speaker 2: in Europe or India for that matter. But you
Speaker 1: can
Speaker 2: use
Speaker 1: Robin Hood in the US to do
Speaker 2: that. Exactly right. But then who suffers. So technically the retailers,
Speaker 2: retailers feels that he is not paying
Speaker 2: because the cost of transaction is free. But there is
Speaker 2: on the other side, there is a mark up based
Speaker 2: on the market making from the hedge funds from that perspective.
Speaker 2: So I'm not saying there is nothing, there is nothing
Speaker 2: illegal about it. That's the United States law and each
Speaker 2: of those entities are subscribing to the law of that land.
Speaker 2: I'm nobody to say whether the law is right or not.
Speaker 2: But what that does is a lot of people who
Speaker 2: do not have enough financial literacy, who do not have
Speaker 2: financial awareness and who have a lot of these Tik
Speaker 2: Tok and Instagram influencers, right? So the problem of
Speaker 2: the financial uncontrolled access and awareness is you have a
Speaker 2: lot of non doctors prescribing medicines of financial freedom and
Speaker 2: fire movement and different ideas and different telegram groups and
Speaker 2: courses and everything who probably may not have the bad intentions,
Speaker 2: but they may not have the
Speaker 2: enough knowledge and awareness to do it. So one sided
Speaker 2: ease of access with uh I would say non non
Speaker 2: non sensitized information from that perspective and there is no
Speaker 2: governance around it. So if you're doing medical advice, there
Speaker 2: are regulations around it, but I have not seen much enforcement.
Speaker 2: There's some enforcement have started to happen in India now.
Speaker 2: But there's a lot more gap which needs to be
Speaker 2: happened for governing and whether it's Tik Tok youtube reads Instagram.
Speaker 2: It's all same family of those influencers telling people do this,
Speaker 2: this and platforms saying I'll make it happen.
Speaker 2: So the traditional definition of accreted investor sophisticated CK done
Speaker 2: 1520 years ago may not fully be relevant for the
Speaker 2: Instagram tiktok generation,
Speaker 1: right? Actually, so that will lead me to a discussion
Speaker 1: on so called democratization of wealth management. But I'll come
Speaker 1: to that a little later. I want to talk about
Speaker 1: one thing before that because you and I had a
Speaker 1: long discussion about not just
Speaker 1: payments but also digital currencies. And we talked about ERM
Speaker 1: B at that time and it seemed like erb was
Speaker 1: going somewhere at that time and we talked about the
Speaker 1: digital wallets that the Chinese mobile phone companies have and
Speaker 1: how even somebody sick in Africa could do payments and
Speaker 1: settlement with some Chinese e commerce provider that hasn't really
Speaker 1: gone very well. Has it,
Speaker 2: it has
Speaker 2: it is just not called table coins. Technically, Central bank
Speaker 2: is the one issuing the currency. It is running on
Speaker 2: a proprietary rail,
Speaker 2: the underlying custody of the whatever is the fiat currency
Speaker 2: is with a financial institution governed by the central bank.
Speaker 2: What was that? What was called the National CBD C?
Speaker 2: The central bank, digital currency is now stable coins.
Speaker 1: I think the difference is that they can choose to
Speaker 1: issue or not issue, which is a central bank decision.
Speaker 1: Whereas a stable coin, a private sector entity can carry
Speaker 1: that out.
Speaker 2: But the actual underlying fiat is still sitting with the bank, right?
Speaker 2: The funny joke was that one of the US Stablecoins
Speaker 2: suddenly came up, says announcing publicly I can't verify it's
Speaker 2: true that they are one of the top 10 US
Speaker 2: treasury holders now
Speaker 2: because they parked all the money in US treasuries. And
Speaker 2: over the last 34 years, they became profitable because the
Speaker 2: treasuries are making so much money just by holding on
Speaker 2: to them, they could make so much. But now what
Speaker 2: has done is it has again, there's enough democratization there
Speaker 2: because now there are companies stripe just acquired when the
Speaker 2: companies whose core infrastructure, core job is to help you
Speaker 2: build and run a stablecoin infrastructure
Speaker 2: and you can run it in multiple currencies and stuff
Speaker 2: from that perspective. And as long as the money is
Speaker 2: 1 to 1 collateralized auditable in that bank, it's a
Speaker 2: much simpler way to run that from that perspective.
Speaker 1: So are you saying that on digital currency, the private
Speaker 1: sector sort of leap frog the public sector and the
Speaker 1: public sector sort of fallen behind? And you can if
Speaker 1: you want to want to un match to a domestic currency,
Speaker 1: a stable coin provides a solution as good. Anything that
Speaker 1: the central bank can offer.
Speaker 2: The question is central banks are not averse to that.
Speaker 2: Central bank's objective was to reduce the middleman fees, to
Speaker 2: reduce the American Eggo police fees on merchant transactions from
Speaker 2: that like that's in one use case, right? They want transparency.
Speaker 2: So anything which is digital and trackable is transparent.
Speaker 2: They wanted less oligopoly, they wanted less fees for intermediaries.
Speaker 2: All of that, those objectives are all getting achieved from
Speaker 2: that perspective. So there is nothing wrong about it. So
Speaker 2: regulators can still central banks can still do it. Nobody
Speaker 2: is stopping them. But if for example, people build specific
Speaker 2: use cases. So for example, if you want to build
Speaker 2: a stable coin
Speaker 2: e commerce use case, the government will not wake up
Speaker 2: in the morning. Let me let me allow you to
Speaker 2: buy toast and allow you to buy food and shoes
Speaker 2: on e commerce website because you need to build a
Speaker 2: lot of use case. How does the authorization work hold work,
Speaker 2: refund work? That's a lot of infrastructure around that, right?
Speaker 2: And when for example, it's multi party transaction and you
Speaker 2: do
Speaker 2: apart as fees and other part needs to go and
Speaker 2: you want to have make a checker flows. So there
Speaker 2: are a lot of this work flows which needs to
Speaker 2: be built along and it's great that the private sector
Speaker 2: is building it and private sector is happy to build it.
Speaker 2: Even on the central bank, digital currency, central bank, digital
Speaker 2: currency or private currency backed by the central bank fiat
Speaker 2: are different in
Speaker 2: for different vehicles. The government funds. For example, if you
Speaker 2: look at Thailand, for example, right, those are very usable
Speaker 2: when it's direct benefits transfer, there are merits for the
Speaker 2: government use case direct benefits transfer is a massive use
Speaker 2: case across markets. You look at America from United States
Speaker 2: to Thailand to India, to China. The direct benefits transfer
Speaker 2: is a very large impetus. And when you are looking
Speaker 2: at a post inflation side of environment and stuff and
Speaker 2: welfare society is picking up there's merit for that.
Speaker 2: So central bank digital currencies can do that use case
Speaker 2: targeted subsidies, private builds its own right
Speaker 1: targeted and sometimes digital coupons like in Singapore, we got
Speaker 1: these $500 showing up into our accounts and but it
Speaker 1: had to be used within the year and it had
Speaker 1: to be for a specific purpose using a local Hawker
Speaker 1: center or local grocery stores. I found
Speaker 2: that very
Speaker 2: money, right?
Speaker 2: Purpose bound money can be on central bank digital currency
Speaker 2: as well as private currency and private markets always had
Speaker 2: purpose bound currency. So airline miles is an example of
Speaker 2: purpose bound points
Speaker 1: can be hotel points as well. Ok? Since I alluded
Speaker 1: that we're going to come to this issue and now
Speaker 1: I want to talk about that fintech and wealth management
Speaker 1: and fintech and financial inclusion.
Speaker 1: Let's talk about these two. It seems to me that
Speaker 1: these are two ends of a spectrum. One is for
Speaker 1: rich people and one is for poor people, but maybe
Speaker 1: they're not that far from each other.
Speaker 2: Uh I'll give a third dimension to it. So financial
Speaker 2: inclusion also looks at can they access insurance benefits? Can
Speaker 2: they access the right protection needs at the price they
Speaker 2: can afford in the format they can afford? From that perspective?
Speaker 2: Can their employer enable that? And Singapore is a perfect example.
Speaker 2: Singapore just mandated that all ride hailing and food delivery
Speaker 2: drivers and workers will mandatory get insurance coverage
Speaker 2: and will mandatory have CPF contribution from their platforms from
Speaker 2: next year.
Speaker 2: That's financial inclusion at max scale. And you're talking about
Speaker 2: more than 100,000 drivers and delivery people and their family
Speaker 2: members getting impacted at. And you can imagine this is
Speaker 2: not the top end of the market, correct. It's somewhere
Speaker 2: in like middle, lower, middle, somewhere there and it's financial
Speaker 2: inclusion at risk and CPF it's retirement. But
Speaker 2: yeah, I mean, there is an interest element, there is
Speaker 2: an accumulation element onto it, there is a retirement element
Speaker 2: onto it. So I would say there are a lot
Speaker 2: of those kind of initiatives which have happened uh broadly
Speaker 2: to be able to buy funds ETF or stocks that's
Speaker 2: democratized enough. If you want access to it, you will
Speaker 2: have access to it. There will be enough providers in
Speaker 2: every market for that, that I would say is table stakes.
Speaker 2: The question is what can you do beyond that?
Speaker 2: Can you help people access more things around
Speaker 2: systematic withdrawal plan.
Speaker 2: When people want to have something as an additional layer
Speaker 2: to the government pension plans in each market in an
Speaker 2: inflationary environment. What can you do along with that? What
Speaker 2: solutions can do that? Because you see the upper end
Speaker 2: of the market is all about access and pricing, right?
Speaker 2: Uh If you are worth 2 million $3 million
Speaker 2: you should be able to access most things, not all
Speaker 2: things and the more you go up, the better terms
Speaker 2: you get, the better access you get. And that's a
Speaker 2: simple ladder curve and that curve is simple. Everybody will
Speaker 2: keep trying to compete with each other. They will go
Speaker 2: and try to find you allocations for some.
Speaker 2: So that, that I would not worry as much per se,
Speaker 2: they will figure it out and they have enough on
Speaker 2: the other side of the spectrum is where a lot
Speaker 2: of intakes are coming with very interesting ways to support
Speaker 2: these people. Like for example, how to build credit score
Speaker 2: for these people
Speaker 2: because they don't have salaries. Historically banks look at salary data,
Speaker 2: salary doesn't exist if you are driving for taxi company
Speaker 2: or delivering food. Even your bank statement does not say
Speaker 2: salary every day, something is getting hit because it's daily settlement.
Speaker 2: How do you get scoring for this? Can you have
Speaker 2: credit builder products if you see Philippines, India, there are
Speaker 2: a bunch of companies whose only product is credit builder
Speaker 2: based on your incomes and expenses. They will start to
Speaker 2: report it to the bureaus for you
Speaker 2: and they will charge you a small fees and they
Speaker 2: will help build a score for you so that you
Speaker 2: can be financially included to be able to access credit
Speaker 2: from the proper sources instead of nontraditional sources. And financial
Speaker 2: larger financial institutions are happy. They like we are happy
Speaker 2: if there is score for these people. Life is much
Speaker 2: simpler for us. We want to extend credit. We thank
Speaker 2: you for building the score for these people.
Speaker 1: Um ok, so one end, low end of the income
Speaker 1: spectrum gig workers. And are there certain provisions for them,
Speaker 1: can that be done? And there are some solutions around
Speaker 1: that particularly product access insurance and at the top end,
Speaker 1: you're not that fussed about it. The market devotes a
Speaker 1: huge amount of talent and well there people will get
Speaker 1: nice interfaces, right? Let's talk about the third segment, which
Speaker 1: is the mass affluent we see in the US, for example,
Speaker 1: the whole Robin Hood phenomenon which probably has
Speaker 1: appeal to the aspiring youth as well as others who
Speaker 1: want to be wealthy and want to interface or an
Speaker 1: experience through which they can sort of buy all sorts
Speaker 1: of products. Doesn't have to be, be stock, perhaps even
Speaker 1: something more sophisticated.
Speaker 2: You
Speaker 2: can buy presidential derivatives.
Speaker 1: That's
Speaker 1: right. That's right.
Speaker 2: That's gambling in my
Speaker 1: word. Correct. Absolutely. But what about your point? That as
Speaker 1: you get wealthier, there are certain access you get.
Speaker 1: What do you think of apps that are trying to
Speaker 1: reduce that barrier, that even at a lower cost, you
Speaker 1: can access certain things that only the very wealthy couldn't see.
Speaker 2: There always a question was the barrier, the cost or
Speaker 2: where is the barrier, sophistication of understanding of the product?
Speaker 2: Was it there
Speaker 1: for a
Speaker 1: reason?
Speaker 2: Right. Uh There is a new app which is recently launched,
Speaker 2: they put structured products without advice, you can buy structured
Speaker 2: products without talking to a human being from an app,
Speaker 2: uh which includes knockoff and Kickoffs from that perspective.
Speaker 2: OK. Technology can solve a lot of things, but uh
Speaker 2: there are side effects also from that perspective. So my,
Speaker 2: my view is uh technology can solve a lot of
Speaker 2: these things. I'm not worried about technology lowering the cost
Speaker 2: of those things, but not everything which can be done
Speaker 2: digitally
Speaker 2: should probably be done digitally,
Speaker 1: right? And so investor knowledge, investor education,
Speaker 2: suitability, suitability, right? Because if let's be practical, if people
Speaker 2: are clicking three check boxes in the app, how many
Speaker 2: times have you read the full terms and conditions when
Speaker 2: you downloaded an app or created an account? Never.
Speaker 2: That's the whole point, right? So which is why that
Speaker 2: you have to accept that that's, that's the reality of
Speaker 2: truth and that is where the whole point is, right?
Speaker 2: Nothing about Wall Street bets was most of the things
Speaker 2: I don't think were illegal.
Speaker 2: But did they hurt enough ordinary people? Yes. Right.
Speaker 2: The f is not illegal but does it hurt 95%
Speaker 2: of the people who are doing it? Yes. So, which
Speaker 2: is where there is a reason where, uh, the regulations
Speaker 2: come from the perspective of sometimes sometimes the full free
Speaker 2: markets may not always be.
Speaker 2: Right.
Speaker 1: So, it's interesting, you know, the, that we have had
Speaker 1: so far, I don't think we have used the word
Speaker 1: A I or Genai I even once. But when I
Speaker 1: think about the latest chapter in the global financial stability
Speaker 1: review of the IMF just came out last Thursday. It
Speaker 1: the whole chapter is about the impact of A I
Speaker 1: and gen A I on trading importance of regulation and
Speaker 1: need for greater transparency on exactly what kind of model
Speaker 1: banks are using and so on. So let's have a
Speaker 1: little discussion about your thoughts on A I slash JA
Speaker 1: I and, and how it's sort of fusing itself into
Speaker 1: the fintech world
Speaker 2: A I today is what internet was in 1999 2000.
Speaker 2: Uh There will be a lot of capacity being built up.
Speaker 2: There will be a lot of vision, there will be
Speaker 2: relevant winners, there will be relevant use cases, but sometimes
Speaker 2: the world runs a bit ahead. There will be use cases.
Speaker 2: Absolutely phenomenal use cases which will happen, but it will
Speaker 2: take time from that perspective because A I still can't
Speaker 2: do my laundry.
Speaker 2: Yeah. I still can't do my dishes. And there is
Speaker 2: an element. And when you are doing all of these
Speaker 2: new models, they're generating new stuff based on the past
Speaker 2: trend data.
Speaker 2: So they are when you are doing search use cases,
Speaker 2: when you're doing unstructured, search use cases. Absolutely. Some of
Speaker 2: the existing jobs will become a lot more simpler, more
Speaker 2: productivity will happen.
Speaker 2: And the way I would say is more content will
Speaker 2: be created. So then you will need curation as a
Speaker 2: service as simple. So then you will curation service because
Speaker 2: if everybody is sending you emails written by Chad GPT
Speaker 2: which are three pages long to ensure that no point
Speaker 2: is missed, then you will use another counter service to
Speaker 2: summarize and list the key points. So the swing works
Speaker 2: both ways.
Speaker 2: There will be relevant use cases and it would take time.
Speaker 2: Financial institutions have already started. Financial institutions probably were the
Speaker 2: first ones among the industry them and Pharma to start
Speaker 2: to use heavy computing power to take decisions, credit decisions
Speaker 2: and all of those. So all of that will continue,
Speaker 2: there will be absolutely relevant use cases. But will we
Speaker 2: be in a bright new shining world tomorrow morning
Speaker 2: where there is a whole new lens, even printing press
Speaker 2: did not do that. Internet also took a while. It
Speaker 2: took a while and there will phenomenally be absolutely be winners.
Speaker 2: But it's not that tomorrow there is no humans and
Speaker 2: A I is doing everything.
Speaker 1: Let me ask you a broader question, which is um today,
Speaker 1: when we look back the first quarter century of the internet,
Speaker 1: especially when the proliferation of social media, we now have
Speaker 1: some regrets. Looking back that in terms of mental health,
Speaker 1: of young teenagers, we probably did not put enough guardrails
Speaker 1: around social media
Speaker 1: and it has certainly in the western world, but maybe
Speaker 1: all over the world, it has been an issue affecting
Speaker 1: our Children in particular. Do you think that having been
Speaker 1: chastened by that experience, regulars will be a little more
Speaker 1: sort of intrusive with the A I processes
Speaker 2: they would like to. So there was a recent case
Speaker 2: of one of the A I companies being sued because
Speaker 2: the A I companion got, I would say misguided the
Speaker 2: kid to commit suicide, just read about it. Yes. Right. So,
Speaker 2: but the challenge with this thing is a lot of
Speaker 2: these models are open sourced.
Speaker 2: You could pick the model and run your own service.
Speaker 2: Who is la the company operating the model, the company
Speaker 2: who built the model and you can't track what's the
Speaker 2: sources of data. So and again, same thing happens in
Speaker 2: social media. I don't think Mark Zuckerberg creates a content
Speaker 2: which is causing a mental health problem. It's the content
Speaker 2: created by people on the platform, not
Speaker 2: an employee per se, a Facebook or Tik Tok for
Speaker 2: that matter. Right. So the question is, where does the
Speaker 2: liability stop So the regulations needs to look at our
Speaker 2: platforms liable for misinformation on their platform. Now they are
Speaker 2: now they are taking a position that yes, you are
Speaker 2: right earlier, the position was no, you are not right.
Speaker 2: So there will have to be positions on that and
Speaker 2: there needs to be right balance of what is freedom
Speaker 2: of speech and what is censorship.
Speaker 2: And that's a debate which America is figuring it out
Speaker 2: in their own way. Asia is figuring it out in
Speaker 2: their own way. And I believe it would dwell down
Speaker 2: to country levels because the definition of what is freedom
Speaker 2: is different,
Speaker 1: right? But let me just draw Harold back to the
Speaker 1: world of fintech, that a Robinhood type app, which initially was,
Speaker 1: the criticism was, you know, it promotes addictive behavior. It's
Speaker 1: a bit like, you know, Facebook promotes addictive behavior. You
Speaker 1: keep on looking for likes and keep on looking for
Speaker 1: new feeds
Speaker 1: similarly that, you know, in a gamified environment, you feel
Speaker 1: like going to the app all the time and it
Speaker 1: shows you second by second, how much your wealth is
Speaker 1: going up or down that sort of stuff. Would we
Speaker 1: see uh some degree of friction being imposed by regulators?
Speaker 2: It's tough to regulate it because, because you, you can't
Speaker 2: expect regulators to come and check every screen of the
Speaker 2: app in the
Speaker 1: Uiux part.
Speaker 2: It's, it's not reasonable and practical from that perspective.
Speaker 2: They can, for example, require like for example, in Europe,
Speaker 2: if you are doing CFD trading, they would make you
Speaker 2: accept a disclaimer that, you know, that 80% more than 80%
Speaker 2: of the customers who do this lose money. So it's
Speaker 2: like that. So you can put up the warning in
Speaker 2: your face on a cigarette pack. But either you are
Speaker 2: banning the cigarettes. If you are not banning the cigarettes,
Speaker 2: you can put that warning. But then if somebody goes
Speaker 2: and still does it and does it as a cautious choice,
Speaker 2: you can put up an age limit.
Speaker 2: So let's take example, right? Cigarettes, you put an age limit,
Speaker 2: you put, you can even say like only from this
Speaker 2: time to this time, I'll check your ID while I'm
Speaker 2: selling you, I'll put an image of like this swollen
Speaker 2: lung and everything. But if you still do it,
Speaker 2: then there is a layer to which you will defend
Speaker 2: the person. And then after that is the freedom line.
Speaker 2: So I would not expect the US layers to get,
Speaker 2: but you cannot have quantity dropping, ok? Then I will
Speaker 2: have stars dropping. So I don't think it will go
Speaker 2: there but probably more on acceptance like, OK, every month
Speaker 2: they need to do it.
Speaker 2: It could go even to the level of every time
Speaker 2: they log into the app. The first screen needs to
Speaker 2: say you acknowledge that you are doing this. I mean
Speaker 2: that's the extreme I couldn't think of, but I don't
Speaker 2: expect them to come and start designing apps for people.
Speaker 1: You know, earlier, we were talking about the transparency associated.
Speaker 1: We were discussing in the country of the stable coin
Speaker 1: and you were mentioning that, you know, the regulators one
Speaker 1: lower cost transparency and and the digital ecosystem builds it.
Speaker 1: But in terms of the crypto ecosystem,
Speaker 1: that's where the ransomware and the cyber attack related payments,
Speaker 1: everything seems to be taking place so clearly that despite
Speaker 1: being a digital distributed ledger where you can see things
Speaker 1: going on, there are ways for people to hide behind them.
Speaker 1: Uh So talk a little bit about where you think
Speaker 1: the crypto ecosystem has evolved in the last four years.
Speaker 1: And and how do we deal with this issue? That
Speaker 1: seems to be a lot of illicit activity is in
Speaker 1: that ecosystem.
Speaker 2: See, uh
Speaker 2: yes, there is, but honestly, they get a lot more blame.
Speaker 2: Nobody took a ship full of cash to Panama. The
Speaker 2: historically money laundering happened through the financial institutions, through the
Speaker 2: proper channels and everything. So it's not that crypto are
Speaker 2: the only people, there are wrong things about their systems. Absolutely.
Speaker 2: And which is why there are companies who are doing
Speaker 2: this tracking analysis. How could FB recover a lot of
Speaker 2: that during their investigations and everything? Even when you see
Speaker 2: an FX thing happen, they could track a bunch of
Speaker 2: the assets and stuff, they could do that. Honestly, you
Speaker 2: can't do that with cash.
Speaker 2: You can't do that with cash with crypto. At least
Speaker 2: you have some trail. Is it the perfect trail? Maybe not,
Speaker 2: maybe not. You have concepts like mixers and everything, which
Speaker 2: can be used to istic it the thing. But is
Speaker 2: it better than cash most likely? Yes.
Speaker 2: Should there be more guards? Absolutely on the on ramps
Speaker 2: and off ramps. Most regulators are putting the guard rails
Speaker 2: on the on ramps and off ramps because if you
Speaker 2: keep circulating in the crypto ecosystem, yes. But the moment
Speaker 2: you have to come back outside, then at the entry
Speaker 2: and the exit, you can be asked to justify and stuff.
Speaker 2: Uh details from that perspective
Speaker 1: should cross border transactions of fiat versus cross border transactions
Speaker 1: of crypto be treated differently.
Speaker 2: Uh It's a sovereign matter. Some countries have control currency,
Speaker 2: some countries do not.
Speaker 2: So try to remit ideas freely out of Indonesia is
Speaker 2: very different than you want to do, remit sing dollars
Speaker 2: out of Singapore. So that, that's a sovereign matter. It's
Speaker 2: not a question of crypto or fiat. It's a, it's
Speaker 2: a sovereign matter.
Speaker 1: But do you see instances where let's say, I mean, speaking,
Speaker 1: we have some terrorist incidents somewhere in the world and
Speaker 1: we realize just like in 9 1124 years ago, the
Speaker 1: Western Union was the payment method with which the terrorists did.
Speaker 1: The financing that we see this time it is done
Speaker 1: through the ecosystem. Could there be a massive backlash then
Speaker 2: see premises this right. Uh
Speaker 2: There will be a fraction of the transactions on that.
Speaker 2: And from that question, is this always right. What was
Speaker 2: the on ramp and offer Western Union is still not banned?
Speaker 1: Right. Correct. Right.
Speaker 2: There were, there were probably issues which were rectified and
Speaker 2: everything but it still operates just they just acquired a
Speaker 2: large payment player in Singapore last week. So there are gaps,
Speaker 2: there will always, it's a Tom and Jerry game,
Speaker 2: they will always find something and it will always be
Speaker 2: chasing the mouse game from that perspective. But that doesn't
Speaker 2: mean the platform needs to be shut down the gaps.
Speaker 2: We find gaps, we fix them. And it's not that
Speaker 2: the back enough financial institutions have been penalized for hundreds
Speaker 2: and billions of hundreds of millions and billions of dollars.
Speaker 2: Nothing to do with the crypto ecosystem for supporting some
Speaker 2: country or remitting money to a country which was on
Speaker 2: the sanctions list, which had nothing to do with crypto.
Speaker 2: So
Speaker 2: did we shut down that global bank with 100 and
Speaker 2: 50 year old history? No, yes, there were punitive action.
Speaker 2: There were mitigation measures put in place. It's the same thing, right?
Speaker 2: It's the same yardstick.
Speaker 1: So you are fundamentally differentiating between technology, which you are
Speaker 1: basically saying is innocent and then there are actors which
Speaker 1: you say could or could not be innocent. But I
Speaker 1: just want to harp on that issue one more time
Speaker 1: that when we say that the technology is innocent,
Speaker 1: but there could be algorithms that can promote addictive behavior.
Speaker 1: There could be algorithms that can help you hide things
Speaker 1: and that's where regulation comes
Speaker 1: in.
Speaker 2: As you see in China. For example, they put a
Speaker 2: restriction that kids below this age cannot do online gaming, right?
Speaker 2: They put the regulation.
Speaker 2: Yes, because those games were addictive and stuff. They put
Speaker 2: the regulation, they put some caps on the number of
Speaker 2: hours per login for spending on certain platforms to control
Speaker 2: the addictiveness in the young Children. Absolutely, I fully agree
Speaker 2: and each country will have to take a call for.
Speaker 2: What is that threshold? The threshold will be different by
Speaker 2: different markets.
Speaker 1: Since you mentioned, China, let's conclude on China, the
Speaker 1: tech crackdown over the last half a decade has seemed
Speaker 1: to take some shine away from the entrepreneurial energy that
Speaker 1: we used to see in China in the previous decade.
Speaker 1: But at the same time, Tik Tok is a global brand.
Speaker 1: It's so big and influential that you know, some countries
Speaker 1: like the US think about banning it. X So let's
Speaker 1: talk a little bit about the vitality of the Chinese
Speaker 1: fintech ecosystem.
Speaker 2: I would say it's a very large domestic market over
Speaker 2: the last few years, they have invested in assets across
Speaker 2: the world. One of their assets in the Philippines recently
Speaker 2: was valued at $4.8 billion which technically is worth more
Speaker 2: than all of Gojek is worth
Speaker 2: from that and Indonesia is a bigger market from that perspective.
Speaker 2: So some of those assets have done well from that perspective.
Speaker 2: So from that perspective, it it takes time, there are
Speaker 2: cycles and stuff. And as an economist, like you have
Speaker 2: seen
Speaker 2: the whole Japan cycle come through, sometimes there are economic
Speaker 2: cycles where some countries are balancing society and progress and
Speaker 2: definition of progress from that perspective. And there is a
Speaker 2: reset which happens in that. And if you look at
Speaker 2: from the regulators perspective, right, there was a point where
Speaker 2: the regulators lost
Speaker 2: fair, fair level of visibility to empty money supply
Speaker 2: because so much transactions are happening through the two large
Speaker 2: wallet ecosystems that when the central bank starts to lose
Speaker 2: visibility on M one M two money supply controls and
Speaker 2: through puts and thresholds from that perspective to be able
Speaker 2: to define how do you manage the interest rates? That's
Speaker 2: the time when the regulators have to come. In that
Speaker 2: the case, we embrace private sector,
Speaker 2: we acknowledge all of this, but there are areas which
Speaker 2: we need to manage because we have to manage holistically
Speaker 2: from that perspective. So that's again checks and balances.
Speaker 1: What we have seen the checks and balances in China
Speaker 1: is that harbinger for other regulators that they would also
Speaker 1: do some things like that.
Speaker 2: Some of them depends, right? So if you look at it,
Speaker 2: uh some of them, for example, they started to put
Speaker 2: limits on social media usage or gaming, age limits and everything.
Speaker 2: So those cultures who can accept those kind of limitations
Speaker 2: will start to do it. However, you will see some
Speaker 2: cultures who will be very, very against it, who will
Speaker 2: revolt at the idea that this is my definition of
Speaker 2: freedom of speech, freedom of expression, freedom of access. So
Speaker 2: it's a way that's their model.
Speaker 2: India is another model. India just banned to talk straight away,
Speaker 2: but equally addictive Instagram reads and youtube shorts are allowed
Speaker 2: from that perspective. So some countries will do that model approach,
Speaker 2: other countries will do differently.
Speaker 1: I'm thinking in terms of non bank, financial sectors, extension
Speaker 1: of credit and that's somehow becoming loosely attached or more
Speaker 1: loosely attached into the monetary transmission system. So to your
Speaker 1: point
Speaker 1: that was getting worried about losing control over water money supply.
Speaker 1: Would we see elsewhere?
Speaker 2: I
Speaker 2: do not see non bank players to be that strong
Speaker 2: in other markets to be able to cause that level
Speaker 2: of worry.
Speaker 1: So Alibaba Tencent were different.
Speaker 2: They they they they built the financial infrastructure rails. So
Speaker 2: when the internet commerce boomed and everything, they literally built
Speaker 2: the social media rails, e-commerce rails. So they built the highways,
Speaker 2: they built the highways from scratch
Speaker 2: versus let's say take Thailand, right? So prompt was built
Speaker 2: not by one company, right? In, in the Philippines was
Speaker 2: not built by one company up was not built by
Speaker 2: one company. It was a collection of like 30 2030
Speaker 2: 40 banks per se. And N PC is not owned
Speaker 2: by one individual. From that perspective, pay now was not
Speaker 2: built by a bank or a fin tech. Yes, everybody
Speaker 2: was involved but it was not like
Speaker 2: DBS owned it or OCBC owned it or wise owned it. Right.
Speaker 2: So which is why a lot of regulators learned that
Speaker 2: lesson that some of these public infrastructure needs to be
Speaker 2: supported and
Speaker 2: led by the like supported and nudged by the government,
Speaker 2: the private sector can have equity stake in it, but
Speaker 2: they need to be there on that to enable it.
Speaker 2: Otherwise private people will build it and then you will
Speaker 2: have to come later to regulate it. So the lesson
Speaker 2: for the private for the regulators was that embrace it soon,
Speaker 2: control it, govern it house and you drive the direction
Speaker 2: of it rather than wait.
Speaker 1: I think that's a very good lesson and I think
Speaker 1: that's a very good point to end our conversation. Warren Mittal.
Speaker 1: Thank you very much for your time and thank you
Speaker 1: so much. Thank you. Thanks to our listeners as well.
Speaker 1: Copy time was produced by Ken Del Rich Violet, Lee
Speaker 1: and Daisy Sherman provided additional assistance. All 139 episodes of
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Speaker 1: you can find them all by Googling D BS Research Library.
Speaker 1: Have a great day.