Ep. 147. State of the Union 2 FILE DETAILS Audio Length: 00:53:06 Audio Quality: Good Number of Interviewers: 1 Number of Interviewees: 4 Start of Audio SM: Alright, welcome, everyone, to our first ever Fintech in a Flat show, and Ollie Judge came up with that, and I love that title. This is a special edition of Fintech Insider, we’re coming to you live from the Ice Tower Condominiums in downtown Toronto. I’m Sam Maule, I’m the Managing Partner of North America for 11FS. I’m joined by both Michael and Ollie, from our 11FS media team. We’re in Toronto, we’re attending the Innotribe event, which is my personal favourite part of the annual Sibos conference, one of the largest banking conferences in the world. We’ve had a great time so far, we’ve interviewed several of the speakers and panellists at Innotribe, and had the opportunity to speak yesterday morning on banking and the fintech space itself. We have several friends of ours in the flat along with us, we’ve shared some pretty good food, all in all, Ollie ordered mozzarella sticks, that’s a long story, he wanted to know if there was a Chick-fil-A in Toronto, that’s another long story, there’s not. We are also drinking a little bit, which is-, it works, because it’s past three o’clock in the afternoon. In no particular order let’s go through our guests. So, first we have Dion Lisle, who’s the VP and Head of Fintech for Capgemini. Hello Dion, how you doing? DL: Good, Sam, thanks. SM: Dion’s drink of choice is Bulleit bourbon with-, what is in that? DL: Ginger ale. SM: No, what’s the thing floating? DL: Orange, I-, I went radical. SM: I don’t understand. Alright, alongside him we have April Rudin, she is the founder and CEO of the Rudin Group, hello April. AR: Hey Sam, what’s up? SM: You’re my date tonight for the Steve Miller concert. AR: Of course. We need to listen to some music. SM: Which I will leave at like 9:30, because that’s late for me. You’re drinking-, I swear to God, what are you drinking? AR: I’m drinking Absolut raspberry, which is just a facsimile for the Faygo Red Pop which we share in Detroit. SM: She’s 15 years old. Alright, next to her we have Jo Lang. Jo Lang is a blockchain legend, who has actually joined IBM, how long ago? JL: Six months. SM: Six months now. Your title, I like this, you’re an Offering Leader for IBM Universal Payments and Marketing. JL: Markets. SM: Markets? That is-, does that fit on a business card? JL: I haven’t tried. SM: Alright. Well, okay. We’ll work on that. I love what Jo’s drinking though, Jo went with the classic Maker’s Mark and ginger ale, which I love. Along with Jo, from IBM, is Hannah. Hi Hannah. HS: Hi. SM: Nice to see you. She’s drinking water, I don’t get it. Last but not least, the Yoda, if you will, of fintech, is Mike Sigal. Hello Mike. MS: Hello. SM: Great voice, Mike. MS: Isn’t that great? SM: You are stunning. Alright, Mike. AR: You’re bringing sexy back. MS: I’m bringing sexy back to podcasts, that’s right. SM: Mike heads up 500 FinTechs, which is part of 500 Startups, he has no voice left, he was kind of ill yesterday, so, let’s dive into this. Let’s go to our first topic. We’re here in Toronto, we’re attending Sibos, and actually Ripple has a conference going on, called Swell, just down the road. So, Dion, I have to ask you, all of us are conference warriors, we do this-, it’s October, right? This is what we do. Next week we’ll be at Money 2020, we’ve all been on the road, how do you look at this conference? What have you enjoyed? What has stood out for you so far? I think we’re into the second day now. DL: So, I think, two things. One, there was an amazing speaker yesterday at Innotribe, an Admiral from the US Navy whose last name escapes me, but I believe her first name was Michelle. She talked about pioneering journeys, and although she was talking from a female empowerment perspective, which was awesome, I should also point out she was African-American. So, for her to be an Admiral in the US Navy, even in this day and age, is stunning. But, as she talked about pioneering journeys, it really meant a lot to me, as far as those of us in innovation, and what we have to go through, and how we have to overcome hurdles to get there. That was one, the second piece was actually the Swell event. I thought that was really interesting. Because I walked over, and it was Ripple’s Chief Counsel guiding everyone to the buses, to go over to the Swell event, and I said, “Ah, that’s brilliant. You use Counsel for bus duty, that’s cool.” MS: For (? 04.05). DL: Well, no, it was explained to me, it was Chief Counsel for a reason, because you’re standing in front of Sibos and there was a little bit of tension between Sibos and Ripple on this issue, who would have guessed? So, long story short, they had their Chief Counsel in front of the building, guiding people to the event, because, just in case there was tension. So, it was rather interesting. SM: Yeah, it’s interesting-, JL: Instead of a bodyguard? DL: Yes, exactly. Instead of a bodyguard. AR: This is Canada. MS: Who says fintechs don’t understand regulation? DL: Exactly, well said, Mike. SM: Well, I found it interesting, we noticed today, the team, because we went to interview the CEO of Ripple, over at the conference, and so we walked over to Sibos, and all the black cars with the Ripple logos were sitting there. DL: Yes. SM: I found that to be rather funny, and a big middle finger to the industry, which I thought was quite enjoyable. Mike, I’m going to come to you last. Jo, I’m curious, is this your first Sibos? JL: No, actually it’s my second Sibos. Last time I was here my company, Epiphyte, won the Sibos Innotribe competition. I like to say, maybe because I’m a Millennial, that I and Edan Yago, the founder of Epiphyte, brought blockchain and cryptocurrency to Sibos in 2014. Since then I have not been back, this is the first time. It’s very different, coming in as a startup, that no one understands, to IBM, where you have a massive booth, coffee all day, every day, any time you want, and everyone standing around trying to make meetings with you. So, it’s been very different, and also, at the time Richard Brown was at IBM, he was my advisor, to our startup, and now I’m at IBM and he’s at R3. So, we’ve-, SM: It’s-, yes, the dichotomy of what you just talked about makes me smile, because a lot of the fintech companies have these tiny side booths, that are barely-, unless you turned your head and coughed, you wouldn’t know they were there, that they’ve paid a fortune for. And then you go to the main exhibition room and, like IBM, I’m sure, and good job, Hannah, it is-, I don’t know what you sunk, half-a-million, into these booths, they’re bigger than a lot of people’s homes. Sibos and Money 2020 are about the only two that go to that length for it, where you go through the exhibition hall, you’re seeing Wells Fargo, you’re seeing IBM, Deloitte, the major players. JL: And they’re not just competing on products, they’re competing on coffee, spread, beer. I mean, Deutsche Bank, I think, was pulling out the champagne at about noon. SM: I missed that. DL: I did not. AR: Well, I was at the SAP champagne cocktail hour in the booth, so, I missed the Deutsche Bank one, but I was across the hall. SM: This is your first Sibos, right? AR: Like a virgin, right? I’m at Sibos for the very first time, but I’m certainly a conference veteran. So, seeing these big booths and 20 years in marketing, so, seeing these big booths and all of these things, for me, are not really thrilling and exciting. You know, it’s table stakes for a lot of these firms to just be there, some of them probably don’t have great messages and don’t have anything to say, but they’re just here. So, that’s what I feel about Sibos. SM: And have you gone to any of the Innotribe side of it? The reason I ask, yes, Innotribe is interesting because it was started by SWIFT, started like Matteo Rizzi, Kosta Peric, Peter Vander Auwera-, yes, (? 07.21). Who, all of them, by the way, are not with SWIFT anymore, they’re all doing something else, which I find interesting. So, this was Kevin Johnson’s first year really taking the reins and driving it forward. I do like that Kevin brought in-, I believe the Admiral’s last name was Herman? DL: Howard. SM: Howard. She was outstanding, really good, polished speaker. DL: Excellent. SM: And I thought she did a good job, I liked the idea of bringing outside industry, if you will, to come and speak, because, you kind of need that little bit of a refresh, I think. So, I do like that aspect of it. Did anybody go to any of the main sessions? AR: Well, I was just going to make just one comment quickly on that, because I think you touch on something really important here, which is, Innotribe, Sibos, Money 2020, what does this all look like? I mean the reason Innotribe was started, right, because Sibos is an old, staid financial services conference, so, how are you going to innovate? You’re going to bring something new to it, which is an offshoot, but not really integrated into the main conference. So, if we look down the pipe, what do we see, right? Is that integration of financial services conferences moving down so that there are traditional financial services and fintechs and everything. Similar to Asian Financial Forum, which, you can see that. MS: Well, so, I’ve been involved with Innotribe since 2008, I helped form the Innotribe Startup Challenge, and what Innotribe was trying to do, originally, is create a bridge between the existing financial services ecosystem and the fintech startup ecosystem, as it was evolving. I think the role that Innotribe has played is if you look on that show floor and all the large firms who have set up their booths and all of that, most of their day to day gives no visibility into the richness, the effervescence of the startup ecosystem. So, I think that’s what you see going on with Innotribe, and I think that’s why you see a lot of new ideas coming from-, you know, through the Innotribe channel, as opposed to the main stage. SM: Yes, and I like to see the-, “graduates” is a poor choice of word, alumni, how’s that? From Innotribe, that have come out. Because Jo’s one, right? JL: And, I was just going to say, not only was my company a winner, but our partner, who we just announced, our cross-border payments and FX platform, was the 2013 winner, who I met at Sibos the year I won. MS: That’s what we try to put together, with the Startup Challenge. SM: So, there’s a value add, right? MS: So, we don’t track it very closely, but estimate, by virtue of press announcements, the Innotribe startup alumni have done about $650 million in transactions with SWIFT member institutions, as a result of meeting through Innotribe. SM: I do want to circle back to what you started with though, Jo, which was when you came here it was-, and I think, if I remember right, at Sibos it was they actually ran a session called blockchain, new kids on the block. It was Singapore, packed out, right? A million-, that’s the one thing about Sibos, it’s suit heaven, right? This is where it’s okay to be a banker in a suit, unlike Money 2020 where they wear pressed jeans with their t-shirt, and a suit. Jo laughed because that is true, right? You still know who the bankers are. But at Sibos, everybody’s plastered in a suit. But yes, I do find it interesting that blockchain really is front and centre, I think, at the conference. One of the news stories that was out about Sibos was-, it is SWIFT that’s behind it, so, we are talking a legacy payments rail, right? MS: Yes. SM: Or solution, that’s out there. So, SWIFT is a sponsorship for it and they were on the main stage yesterday, and the press release that came out on this was, while they were on the main stage, and one of the head executives of SWIFT was talking about what’s happening with cryptocurrencies and the unpredictability of it and the uncertainty of it. He actually did-, I, kind of, laugh when people do this now, the screen switched to an image of the tulip bulbs, right? Ah, there you go. I know, that’s so getting overplayed. But the audience started laughing, because it’s an audience, 90%, of bankers, right, that look at that story, or myth, or however you want to take it, of the tulip market in the Netherlands, when it comes to blockchain. And yet, I guarantee you there wasn’t a session that talked about blockchain that wasn’t packed out. Did you present, Jo? JL: We-, I did not present, but we did hold a panel hosted by my boss, Jesse Lund, with the CEO of KlickEx, Rob Bell, Chuck Hounsell, SEP of Payments, Ram Komarraju of CLS, and Jed McCaleb from Stellar. Which, you know, I like to think went really well, it was packed, as well, I heard there was overflow, and we’re really pleased with the response that we’ve gotten so far. DL: So, interestingly enough, don’t disagree with any of that, but we-, Capgemini had a session this morning, we released our payments report that we do every year with BNP. Old school payments, going digital, cash is still being used, etc. etc., packed house. So, payments still matter, you know, old school money still matters, people still want to see what’s happening around the world, obviously a lot of movement in China and so on, you can all guess what the trends are. I was surprised to see packed house for an old school payments report about where are payments going? What’s happening by region? So, it was interesting, not the latest greatest AI, blockchain, etc. but just where are payments going? What are they doing? SM: Well, we’re-, and Mike, you correct me if I’m wrong here, I think we’re well down the path, right? As far as fintech, the relationship with banking, right? Are we beyond it’s going to completely disrupt everything that’s happening? I think that term, if you say disrupt on stage now you get laughed at, or I think for the most part. MS: Well, I’ve learned the messaging to say enable or disrupt, but-, SM: That’s because you sound like Mark Simpson’s sister right now. MS: That’s right. SM: You’ve been doing this for a while, but Jo (? 13.17). AR: He doesn’t look like it. MS: No. JL: I think that you can say it if you are truly building something disruptive. Don’t call yourself a disruptor if you’re building “the Uber of X”. You’re not. You’re copying a model. SM: Well, think how much we’ve moved this year. If you’re actually on stage saying, “I’m the Uber of,” you’re a moron. AR: Yes, no, I wanted to pick up on that. I mean, using words like disrupt or Uber of anything, really, are not doing service to any fintech, not doing service to any big banks, not doing service to even end consumers that are buying these products or looking at these products. The problem is that nobody really has that sort of deep down understanding of what they do, and the messaging, so that people really understand what they do. So, even blockchain or Bitcoin, I find all of these things to be really cliched, some of the use cases. That’s what I think gives rise to things like payments, Dion, because everyone knows what it is and they understand what it is and they grasp onto it and it doesn’t need anything else. MS: They make their money on doing payments. AR: Exactly, and that’s what drives a full house. JL: The one thing that was interesting and, I guess, if anyone listens to this podcast they’ll hear it, one of the senior banking execs on the panel that we held was a big fan of explaining that payments is on a race to zero in terms of pricing. MS: He’s dead on right. JL: He’s dead on wrong. SM: Oh, first one, here we go. JL: So, in certain markets, in certain corridors, developed markets, that is true. Then why is the IMF saying that the cost of global payments has risen 0.3% since 2014 and is up to 30% of a payment in some corridors? MS: I think that’s by virtue-, I don’t know, right? I’ve not read the report, but if I had to guess, it’s about the penetration, the cost of getting the-, JL: That’s still payments, because if you can’t get access to it, your payment doesn’t exist. So, to me, yes, the machinery, the actual data, the actual ability to send a message, sure, that’s cheap as anything now, it’s basically the same as sending an email. Then it’s sending an email, you haven’t sent anything, where’s the value? That was a pun, by the way. SM: He was laughing, but he has no voice left, so you just didn’t hear it, it was silent laughter. JL: So, where’s the value? It’s like why does it matter if you have clearing and settlement together or apart? Why do some of these solutions that have come out-, SWIFT is only clearing and messaging, Ripple is an example, is generally settlement, or the asset is settlement, Bitcoin is settlement. So, the power and this is where the design of what we built comes in, and I can go into that separately, is you need to put the two together. So, I like to think of the fact that the real cost of payments comes from tagging the messaging and the reason for the payment to the payment. Even the clearing house, I had a client tell me this is true today, systemic risk has been increasing due to the increase in fintechs. Not because fintechs are doing anything inherently bad, it’s great, but it’s actually harder for the banks to bank them, because if they don’t have their payments and their books in order, the bank has to somehow figure out how to explain to the regulator what the fintech is doing. They’re at risk, so they can’t do it. The clearing houses, they have to even send back domestic payments because they can’t figure out where they tie, and then they can’t keep it. So, going back to our whole design around the way we believe we’re changing the payments transforming economics is by tying the messaging to the payment. You think about payments, it’s like the circulatory system, you can’t live without your heart pumping blood to the places it needs to. The aorta drives the oxygen, or the money, and the veins, you know, take it back through replenishment. It’s, sort of, like an accounts payable and receivable of a small business, does it matter if the money might be coming? If their electric bill goes out and they can’t pay it, they have bigger problems. So, it’s making sure that that money gets there when it can and that they know when it is, and maybe they can call up their electricity firm and say, “Hey, I know my payment’s coming in two days.” SM: So, here’s a question for you two, because you’re both-, Dion, I’m going to say you too, but the two-, MS: Don’t say it, I know where you’re going. SM: The two bald guys sitting next to each other, I love it, right? So, 500 Startups, 500 FinTech-, largest-, MS: Most active. SM: Most active fintech investor. MS: 220 portfolio companies in 60 countries. SM: Then, Dion, fintech investment for Capgemini, so, again, we’re going full circle, we’re talking about blockchain and really how-, well, here’s my opinion. When it comes to Sibos, when it’s going to come to Money 2020 next week, this is the central topic that most people will show up and dive into. The whole Swell conference that we’re having down the road, with Ripple, is all based around that. So, two questions for you, before we move on. One, do you really think, within the industry, so, within-, I’ll take the banking side, do you think there’s a significant or at least a level of understanding of what blockchain is, as compared with cryptocurrencies? For one, and the different protocols that are out there. Then, two, do you think we have an industry, on the flipside, in the fintech side, where we have 1 billion people saying, “I’m an expert,” and they’re full of shit? I already know the answer to the second one, because you’re laughing, and you know I’m right. MS: Yes, absolutely. SM: Absolutely, there’s a lot of people that think they’re full of-, JL: Do you think the ones that say, “I’m an expert, and you’re full of shit,” actually know what they’re talking about? SM: No, I don’t, unfortunately. I think the people that, on their LinkedIn or their Twitter feed says, “I’m a guru,” need to go away. DL: I’m going to disagree. SM: Good. Here’s why, and I’m going to disagree with your disagreement. DL: So, I can’t say the name of the company, because I might have once been employed by them, but I did an evaluation of a payments company and their enterprise value per employee was in the $30,000 to $35,000 per employee range. Stripe was in the $12 million to $16 million range. The Stripe Brothers, the Collison Brothers knew nothing about payments, they knew everything about technology. They came into payments and did a fantastic job, created a ton of enterprise value, changed the way the game is played, with no knowledge. Why were they able to do that? Because they weren’t hampered by a history of knowing too much. So, I value payments knowledge, I value enterprise domain expertise, however, it can also hold you back. SM: I’m going to go to Jo in a minute, one thing I find interesting, and I’d like to hear your comment, in a minute, on this, Mike, I know several people that are VCs, that I admire quite a bit, that I think are incredibly sharp, that came out of the fintech community, that think Stripe’s the most overvalued company in the world. I don’t know, so, Jo, I’m going to give you the last word on this topic and then we’re going to move into the next one. So, Jo, go ahead. JL: So, I think that Stripe has done some incredible things, I say that to get started, you’re right, they didn’t have the fear of the existing technology. However, I would hazard a guess that they hired a few experts along the way since then, and on their march up to whatever billions that they’re worth. That’s my first comment. The second comment is a couple of other things, that they are lipstick on a pig, right? They are still beholden to the existing payments infrastructure, they’re still beholden to the costs of liquidity that the banks have to hold, all the KYC risk. While Stripe isn’t public, Square is, and I’ll tell you right now that they made $49 billion last year and about two thirds of that had to go back to the credit card companies and, as a result, has impeded their growth into international markets, as the US has become much more saturated. In order to get to where you need to, whether it’s because you need some sort of appreciation, I don’t think you need the in-depth knowledge, but I’m not that old, I do know the industry, there’s an appreciation of what’s come before you, why did it come before you? They’re going to do it that way, but you say this is how you solve that problem a different way, and you work with the clients, and also one of the biggest things I see fintechs or tech startups doing is they discount, publicly, privately, the knowledge of the predecessors, typically at banks, who’ve been doing this for 30 years. Part of R3, the best experience, that’s how I ended up at IBM. My boss and my other colleague, they were my clients, some of the smartest, most genuinely interested and passionate people about technology and banking come from these banks. So, the worst thing we can do is just say, “Sorry, I’m not interested.” SM: So, let’s take that and pivot in to banking, because we’re going to move to the next topic, and thank God you all didn’t agree. Dion actually jumped across the table, we got it on film, it was fantastic. But he was going for the Bulleit bourbon, because that’s what Dion’s like. DL: Guilty. SM: Let’s talk about Jamie Dimon, alright? Who, for some reason, is now the de facto voice for banking, I would raise my hand and say that, in the US, who now has this passion of talking about how stupid Bitcoin is. Even though he says, “I will not talk about it again,” I think yesterday or the day before-, MS: He just keeps talking about it. SM: He keeps talking-, this is like me being married, right, to my ex-wife? When she says, “We’re not going to talk about this anymore,” and then, oh my God, we start talking about it again. He, I believe, yesterday came back and said Bitcoin’s a fraud, it won’t end well, if you’re stupid enough to buy Bitcoin, you’re going to pay the price of it. Bitcoin’s at, I just looked-, Bitcoin, in US dollars, is $5,620 today. MS: That’s-, yes, well, this ties back into the former conversation. SM: Yes. MS: I think we’re missing the point. If you look at 1990, right? You had HTTP and SMTP, which brought millions of really smart people in to try and figure out new ways of moving information around. The exact same thing is going on in financial services, as a result of Bitcoin. So, it’s not about Bitcoin as a currency, it’s not about Bitcoin as an asset, it’s about the different mindset of talent that’s coming in to change industries. SM: So, what do you think is up with Dimon? Because he’s not stupid, right? Yes, I’m definitely going to come to you, Jo. He’s got Amber Baldet, he’s got-, it’s not like they haven’t invested on the blockchain side. So, I’m curious, Jo, what do you think is-, JL: I think that Bitcoin did a terrible thing. It showed people, particularly my generation and younger, who’ve watched our parents go through the financial crisis, that you didn’t need a bank to make money. You can use your computer. Now, whether that’s a sound investment is a separate story, I mean my father has given me all sorts of advice on that, he generally agrees with Mr Dimon, but suddenly it became a-, not you can’t do that, or can I do it? It’s why not? Why can’t I send it? Oh, because of X OFAC regulations, because of X, Y and Z. Not-, and I think that’s scary. Any time something like this happens, it’s the rice bowl effect, right? It means I have my part of the rice bowl, in order to get me to have it, someone has to lose it. MS: You are right, right, Jamie Dimon, and a lot of financial institutions, are arguing against this stuff, because it’s reducing their hold on the economy. JL: Well, it’s not just that it’s reducing its hold-, AR: Yes, and no, but we’ve seen everything-, JL: Because, actually, this-, and, you know, we’re doing work with central banks, G20 central banks, so, we could have a whole podcast about working on central bank digital currency, and the access and the power it can provide. It’s actually, no, it’s the fact that, for example, two years ago it would be unheard of you not to go raise money from a BC. SM: Oh God, if we do ICOs I’m going to shoot myself in the head right now. JL: I don’t want to talk about them, and-, SM: Please don’t. JL: But it’s just there’s a new way, there’s a whole new way of people making money that they didn’t have before, or scales that people are paying, you know, getting a blockchain developer, the number of times one on our team tells me he’s overpaid. I’m like, “Really?” I mean, it’s market demand. SM: Here I’ve got to know, because we’ve got a room full of people in the industry, and I’m actually going to start with Hannah. Hannah, where are you? Do you own any Bitcoins? HS: No, I do not own any Bitcoin. SM: Ollie, do you own any Bitcoin? OJ: I own three. SM: You own three Bitcoin? OJ: I own three. SM: Michael, do you own any Bitcoin? M: I don’t own any Bitcoin. SM: Mike, do you own any Bitcoin? MS: I do, and a couple of other currencies. SM: So, we’re going to put it over here then, interesting. Do you own any Bitcoin, Dion? DL: Yes, and Ethereum. SM: Okay, so, I’m going to go to the wealth person in the room. April, do you own any Bitcoin? AR: Yes. SM: Interesting, I already know Jo’s answer and I know my answer. By the way, let’s stop for a second, your whole focus is in-, not your whole focus, but a large part of what you do is around wealth management, which we’ll talk about a little bit later. So, I am curious to get your perspective on this. AR: So, I would say the way I look at Bitcoin, the way I look at Ethereum and the way I look at this whole fintech, whatever that means, is that everything is a fad. I don’t know why people don’t understand that. You know, we’ve seen a million technologies come and go in my lifetime, being the elder stateswoman, not statesman, here. So, I remember when, you know, the Wang word processor was here and that’s not here anymore, the IBM PC, you know, technology just comes and goes, but it paves the way for the next one. When I think about Bitcoin or Ethereum, for that matter, I think it’s digital currency and it’s modern money and I get excited about that. Will Bitcoin be the ultimate in terms of digital currency? I would say no, because rarely is the first one, but it really doesn’t matter because all it really does is create a marketplace and it creates excitement on both sides, right? For understanding what can be, in terms of financial services and fintech. SM: So, here’s what I’d like to do, right? Because we do have to go to a break in a minute. So, what I do find interesting is the comment that you had made earlier, Mike, right? About bringing incredibly intelligent people into-, and I’m going to say our space. MS: To question the way things have been done. SM: Right, which is incredibly important. JL: (? 27.09). MS: Doesn’t it? It really makes no difference, because IBM wouldn’t be selling consulting services if their clients weren’t questioning, how do we realign for the future? SM: Here’s what I like, and we need to give Jo a shout out, because we allowed Hannah into our flat, even though she’s still drinking water from IBM. So, we have to talk about their new product launch, so, Jo, I’m giving you your 30-second commercial right now. What is the new announcement you had at Sibos? JL: We launched our new multi-asset, single network ledger, starting with payments and FX. So, using digital currencies, starting with the Stellar Network and Lumens to provide the bridge asset to do payments into and out of emerging markets, starting with the South Pacific. We’ve already found that it has extreme amounts of resiliency, great positive response from central banks there, and as well it’s actually unleashed a whole new level of creativity in the products, such as life insurance and so forth. I would want-, on the digital asset, I want to highlight why we chose Lumens versus XRP or Bitcoin, because those are really the only two that would have worked. Bitcoin would have been a non-starter. One, it’s primarily mined in China, our clients are not there, and I’ll just leave it there. The second one is that XRP, from an ownership standpoint, is opaque, and it would have been hard for us to-, while we’ve done work with Ripple, and will continue to do so, and, in fact, they’re integrated with one of our platforms, FTM, we did not know how we could go without-, we’ve been talking about transparency, without having an asset we use that was transparent. Lumens is managed by a non-profit, all of the ownership is public, it’s transparent, and to us, particularly going to bunches of banks around the world, seemed like the only option. From a scalability and consensus mechanism, we felt that it was, for our purposes, the best. I felt it was important to highlight that. SM: So, here’s what I like, right? The liberal in me, Dion’s happy because we’re both-, everyone that follows Dion on Twitter, if you don’t know he’s liberal, oh my God. DL: I’m actually moderate. SM: No, you’re not. So, anyways, he’s moderate, good God. AR: I know that. SM: Yes. AR: No compliance oversight. SM: We’ll move right past that. Our view on society, right? Using technology for good is what I am extremely thrilled about, and this goes back to your comment, Mike, about bringing brilliant minds into the space in the industry. So, exactly what Jo was just talking about with IBM, we just interviewed the CEO of Ripple and he was basically talking about the same thing. The programme that they’ve done with Bill Gates, right? On a financial inclusion and market, to bring them in, that’s what thrills my soul, is that we’re bringing incredibly bright minds that, in the past, would have skipped this industry to create the next Uber for dog walking, which there actually is, by the way, I think it’s called Wags. What I love is bringing the bright minds into the industry to address real-world problems, right? Thinking outside of North America, whether we look in Asia, whether we look in Africa, the leapfrogging effect, that’s what makes me happy. I think we can all agree on that, and this is a great place to take a break and hear from our sponsors and refresh drinks. Go get drinks. Dion, get the cake out. DL: What’s that? SM: Get those cakes out. [Advert break] SM: Welcome back to our first ever Fintech in a Flat show, Ollie Judge, best name ever, still, for this show. We want to thank our sponsors. Quickly, before we get back into the show I want to say, and we have to say this every time, you’ve heard this a million times, but we do mean it. We never have enough time to cover every news story that’s happened in the last week, bit don’t forget that you can head over to FintechInsiderNews.com, to read more about the stories we’ve discussed and many more besides. In this show we’re going to give you some links to the folks that are here, because I think they’re going to carry the conversation on, maybe in written format, knowing Mike and the loss of his voice. He might have some commentary on some of the stuff we’ve talked about. You can also sign up to join the discussion on FintechInsiderNews.com, with everyone on our podcast and other fantastic names from the fintech world. Tell us what you think about what we discussed this week. You can do that by following us on FintechInsiderNews.com or tweet us @FintechInsiders on Twitter, or look for us on Facebook. Alright, jumping back in, April, girl from Detroit, like me, wealth management, which, by the way, is interesting because you got into that industry in 2008, with some interesting times going on in the world, that’s when you decided, from a marketing side, and a wealth management side, to focus your practice. Why, in 2008, was that the decision? AR: 2008 was really a seminal time for financial services. Everything couldn’t remain the same and I saw it as a real opportunity for big brands, small brands to really differentiate themselves. I was tired of looking at the same ad from every wealth management firm and every bank about their services, with a picture of a lighthouse, a couple on the beach and, you know, there was just really one entry point and that’s what it looked like. So, that’s what I saw as a huge opportunity for people to really differentiate themselves. SM: So, here’s what I find interesting about wealth management, I spent the ‘90s working in wealth management, by the way, working for Northern Trust. So, you started this in 2008, we’re about ten years now, a decade has gone by, and I love this. A study came out focused on the US that said 86% of advisors are male, 43% are over the age of 55. So, basically a bunch of old guys that look like me are the advisors, and yet we’re going through a wealth shift, right? Actually gender-wise, right? AR: Yes. So, I started my business story around three pillars that I saw intersecting, based on my experience and my knowledge. That was wealth, the wealth transfer that you alluded to, next-gen, I have two Millennial kids and saw the way they consumed products and services was very different, and then technology. I’ve been in technology since the late ‘80s and I knew that those three things would intersect, and everything would go crazy. SM: So, are we actually getting any better though? We kept talking about fintech and making-, Mike, your point, getting incredibly bright minds, right, focused into this space? So, when it comes to wealth management, here’s my take on this, right? One, I just turned 50 this year, so I had my AARP card, just like Mike and Dion just went to take a drink, so, obviously maybe there’s a side of this table, and April’s like, “Oh my God, I’m drinking this,” and Jo’s on her phone. So, this side of the room, we all have our AARP cards, damn it Jo. We all know that we have a financial crisis about to hit us in the US, because the majority of our generation, the four of us, haven’t saved squat. They haven’t, and you know that, there’s a very few. So, the retirement age, people-, you go to Walmart and it’s horrible, because the reality is people are going to have to work for the rest of their lives. JL: It’s so easy to spend now. SM: Well, I agree. JL: So, it’s not even a question of, you know, you spend way faster than your pay check comes in, so, you need, like, a Masters in calculus and whatever to just figure out-, thank God we have the tools that we do to figure out if this, then that. We’re kind of like a bank in that regard, you know, it’s even harder to figure out if my bill comes due at this day, will I have cash in my account to pay it? Then, guess what? It takes four days for that account to show. I actually found it was faster to write myself a paper cheque and deposit it than move between my two bank accounts, from two different American institutions. SM: Well, Mike said this walking in, you said it would be easier for you to send money to London by buying a ticket to London and flying there, and handing them the cash. JL: If you FedEx it you can track a bag of cash. MS: That’s true. SM: So, here’s what I find interesting, because, on the flipside of that, I have four kids, I say that every show, because all I think about now is college, college, college, college and student loans. So, on the flipside of that you’ve got our generation, the right side of the table, that hasn’t really saved, right? The wonderful 401K that barely anybody contributed to and Dion took yet another drink when I said that. So, we have that looming crisis, and at the same time we have a lot of kids that are through student debt and student loans, second highest debt category in the US, behind mortgage. So, I’m going to get back to fintech and Mike, I’ll ask you, you invest in this, and Dion, you do too, I’ll start with you, Mike, are there companies out there that you look at and go, alright, they actually are solving a problem, or one that you look at and you would say I’d raise them up and say that’s not a bad-, MS: Well, we’ve invested in easily a dozen companies in the savings, wealth management, etc. space. I think, you know, there was some hope a couple of years ago that roboadvisors would work. A tremendous amount of money has gone into roboadvisors, in terms of venture capital, yet there’s still relatively little assets under management in those companies. SM: That’s a long-term play, right? The reality is (? 36.39). MS: It’s much longer than they thought it was going to be, because creating the trust and all of that is there. So, I think wealth is one of those places where it’s-, there isn’t a better area of financial services for collaboration between fintechs, folks who understand what new customer experiences need to look like, and feel like, and the trust of large wealth management firms. SM: Well, don’t you think-, AR: (? 37.04). SM: Yes, but don’t you think large companies, like Fidelity, right? The roboadvisor came out, if I look at UBS, I look at Fidelity, some of the other players, it was easy for them to make (? 37.11). MS: It is, but all their customer experiences still suck. SM: Well, yes. DL: If you look at the asset shift, where did it go? Who’s grown the most? SM: The 1% and-, DL: No, Vanguard. SM: Oh, you’re talking about assets, I’m sorry. DL: Passive. The most AUM has gone under Vanguard, why? SM: Assets under management. DL: Sorry, assets under management, for your less fintech-y audience. Assets under management has shifted to Vanguard because the passive works, right? Whether it’s robo or a human, the passive asset investment is working very well for people. Why is that? Lower fees, less friction. What I would say, and I’m quoting a VC in the Valley, who I won’t name because I’m not sure he’d want to be, but his theory, and I agree with it, is, fintechs have very narrow focus, but reduced friction. Legacy players have a very wide path, but have high friction. The perfect is where we meld those two, reduce the friction, increase the offering, that’s where the future lies, and it’s a process. AR: Yes, hey Dion, do you know anything about that hybrid advice and world wealth report that was announced a couple of weeks ago? SM: Yes, but April, I talked to you yesterday, right? AR: Yes. SM: You’d come to Sibos and you were looking around and you were looking at-, this is the massive banking conference. AR: Yes. SM: You were looking at the agenda and you were like, “Where the hell is the wealth management?” Or anything along those lines, you couldn’t find anything tied to that. AR: That I thought was crazy, I almost lost my mind, because, really, in terms of global, if I think about financial services, we talked about the wealth transfer, that’s $32 trillion being transferred inter-generationally. That makes everybody or should make everyone sit up straight. Now, instead of just talking about it, it’s actually happening. You can see these assets being transferred inter-generationally, you have another dynamic going on there which is to women, unfortunately for the men on the other side of-, to my left, you know, women do live longer and women are the ones that are the wealth holders and women are the ones making financial decisions for their families. So, to add to the stats that you were giving earlier, Sam, you know, 15% of financial advisors that are women, yet today 50% of wealth holders are women, driving these decisions. So, there’s a huge gap and a disconnect there. Women also have a high appetite for digital, much higher than men, so, all of these things are not playing right and messaging to the right people, they’re just mass-marketing out there, without any regard to who the end consumers might be. That’s one of the things I think that really needs to change up. Another statistic I just want to throw out, which is 75%, and probably everybody knows this, and they haven’t really thought deeply about it, 75% of widows change financial advisors, because they have no relationship with their husband’s financial advisor. 98% of next-gen wealth inheritors also change advisors. I don’t know about your kids, my kids don’t really listen to me. JL: There’s another completely different angle to this. So, before I-, one of the reasons I even got into blockchain was that I was actually in consulting around wealth management and I did a ton of research around trust accounting systems, trust management systems and the integration of custodians. One, experiencing this myself, the ability to even move money between an account that was a trust, versus a regular one, was between this Fidelity. I mean, things have changed, it becomes so complicated. Even more importantly is that I looked at the trends around resident-, not resident, independent advisors, and what ends up happening is it’s so expensive, from a compliance standpoint, to actually maintain your independence, that a lot of them end up going to the big wire houses. Which means that they end up being forced to pedal whatever products are actually from those particular dealers. Just thinking back to now that-, even more so, especially in the wake of the crisis, people are going to be much more critical of what am I putting in my portfolio and why are you selling it to me? You know, hopefully there’s also better education around that. I think that, you know, one, things like blockchain, as (? 41.24) solutions, provide the ability to have new types of capital creation and potentially wealth management products are just going to change to accommodate that. Also, you know, I know my generation and I’m particularly into data and understanding, they’re going to be like, well, I care where my sunglasses come from, and my food, I’m going to care where my bonds come from too, particularly if maybe I’ve heard some buzzwords. So, I’m going to say a sub-prime mortgage, which goes back to the whole question around Bitcoin versus some other shady synthetic product that I don’t understand. DL: So, I’m talking to a company that shall remain nameless where they take a bunch of data and do portfolio balancing, based on exactly that, what are your care about, as an individual? What are the market factors? We’re looking to co-develop a product with them for this exact reason, because people are more sophisticated, in one way, and not, in another, and the wealth transfer is the other part. The wealth transfer, and April, you beat on this drum and I couldn’t agree more, massive wealth transfer. I have a friend who’s a broker, and as he says, “I’ll work with you to make you broker,” the fact is-, AR: We should define a broker, what is a broker? DL: Well, the RIA is something we’re looking at right now. What’s interesting about registered independent advisors is it’s a shifting sand, because people are like, what is the value add? Why do I do this? Where is the wealth transfer? So, my friend, he had a dentist, he took over his dad’s business, as I like to tell him, “You stole your father’s business when he became ill, that was very nice of you.” He now manages, you know, $180 million in AUM, assets under management. He’s taken that, he took a dentist whose son said, “I get it, I know my dad trusted you, I want to put everything in gold.” He then made him sign a letter that said, “I abdicate all responsibility, I can’t advocate for this move that you’re about to do, I’m out, good luck to you.” Gold did what it did, but the point being his relationship was with his father, not with this dentist’s son, who didn’t earn the wealth and didn’t know what to do with it. Now people are going, well, okay, that wasn’t very bright, let’s do something smarter, let’s build tools that do a balanced portfolio. Maybe it’s partly Vanguard, maybe it’s active investment, maybe it’s social investment, maybe it’s I don’t want anything to go into oil or shale, right? Whatever the case may be. So, you’re getting these new sets of tools, some automated, some not, I agree with the concierge solution, which is I want a person to have access to a bunch of tools to be super smart. AR: It’s not the one size fits all, that’s the main takeaway message. SM: Mike, correct me if I’m wrong, isn’t that the concept of what fintech allows us to do, when you take that with the data and everything else, to be able to drill down to that concierge? MS: Absolutely. I mean, the most interesting areas is when you’re using these tools to empower an individual who can then focus on gathering needs, in a human fashion, not in a forum, you know, online fashion, and then figuring out what are the right products and services to offer that individual? Given those needs? Relationship is important, trust is important, but the tools have to advance to allow, you know, if a Millennial is very data-driven, they need to see the data behind the recommendations. SM: Here’s the one thing I found, and April, I’m going to give you the last word on this, because it’s what your passion is. Here’s the thing I find very interesting every time I have talks like this, with everybody in this space, we’re incredibly passionate about it, we drill down and we talk about that. When I talk to my friends, that have nothing to do with this industry, they are bored shitless. They’re like, “I don’t care.” AR: Money’s a tough conversation. Money is a tough conversation, period, and people don’t like to have it. So, the easier you can make that money conversation, whether it’s around education and this is my new message, that we help banks, wealth management firms and fintechs really talk about is how do you talk about money and how do you enter in that conversation? I sent my oldest son, he graduated from college to financial advisor, he sends me a text message during his interview with the financial advisor, this guy wants me to use a roboadvisor and I don’t know shit about investing, why does he want me to use a roboadvisor? Why does he think I’m here? So, what I see really happening is this over segmentation to Millennials only want this, Gen X wants this, Boomers want this, without allowing the marketplace to ferret itself out and people to become people, and say whatever Dion wants could be different from what Mike wants, different from what Jo wants, different from what April wants. I think that’s what will define success in the future. SM: I can 100% tell you what Dion wants doesn’t align with anyone else I know, so, we’ll stop, move on. DL: I’m a segment of one. SM: No, just woof. You break any algorithm that tries to do that with you. Let’s talk about the last one, because this one is actually passionate to me because I’m stuck with it. It’s October, we’ve already talked about we’re at Sibos, literally we have Sibos, Innotribe, Swell going on, the Ripple conference. MS: Fintech Festival in Singapore. SM: Fintech Festival in Singapore, there’s a conference going on in Chicago right now, I don’t even know the name of it. AR: Fintech Festival, don’t even make me cry, who the hell names this crap? SM: We’ve got Money 2020 next week. So, Money 2020 came out, it’s 2018, we’re almost at 2020, so, obviously they have to rename it. They sold the conference, I believe, for $100 million? DL: $250 million. SM: $250 million? DL: Rolodex and logistics, $250 million. Yes, we’re all in the wrong business, that’s a separate subject. That’s a podcast unto itself. AR: Shut this podcast down and let’s figure out our business plan. Mike’s going to finance it, let’s go, we’re ready. SM: Absolutely depressed that you said that, because I didn’t know it was $250 million. Okay, so, on that, I think conferences are broke, personally, especially in this industry. MS: Broken. SM: Broken. JL: They’re like $1.8 million per year. MS: They’re not broke. SM: They’re not broke, because they sold for $250 million, you’re very clever. AR: The entrance fee for this conference that we’re at, Sibos, anyone want to guess? JL: $3,000. AR: More, it’s like $3,800. SM: To come to this? AR: Yes. SM: I don’t go to a conference unless I’m speaking. AR: No, I don’t go paying $3,800. SM: Hell no, we don’t go to a conference unless we’re speaking. AR: To attend. SM: Okay, so, first question, and we’ll come back to how do we-, recommendations to fix it. I asked Dominic Ventura, he heads up fintech for US Bank. I love Dominic, very clever individual, and I said, “What do you do? What do you look for?” Alright, a large bank, how do you do this? He goes, “I look on the edges, I completely get out of financial services, I go to VR, I go to DARPA, I go to gaming, I go to nothing that I expect,” and he goes, “The smaller, the better, that’s what I look for.” I found that to be an interesting comment, right? Because the reality is South by Southwest has become parody, TED Talks have become a parody, the industry, as a whole, has become-, yet we’re all still going, by the way. So, I’ll ask you two, Mike, what do you look for? Because, you know, God you’re buried in this. Obviously, networking, I’m going to guess. MS: Yes, no, that’s it, right? I don’t go to a conference thinking I’m going to learn anything from someone who’s on a stage, I think I-, SM: Unless it’s Sam Maule. MS: Unless it’s Sam Maule, of course. SM: Which is complete BS. MS: No, I go because I’m going to learn something in the hallway conversations, right? I’m a lobby con. DL: We go to conferences non-stop, most bankers get one a year. What are they going to get out of it? One a year. SM: Good point. DL: Right? Maybe they’re going to party, Jo. JL: No, as someone who travels all the time, I was talking to someone, and someone was like, “Oh, aren’t you glad it’s in Toronto? It’s so close.” I was like, “I wanted to go someplace fun.” DL: Exactly, when’s San Francisco? I want to go there. SM: I asked you that, I said, “When you look at this, what would you say?” You said location, which is a very honest answer, and made me smile, and actually everyone that’s working with me in my career goes, “You’re exactly the same way.” April, thumbs down, what do you want? AR: So, what I want is I do still look for-, call me Pollyanna, I’m still looking for a learning experience, I am all about the networking, seeing people doing all of that, I agree. There’s nothing better than in-person, as digital as we can all be. I think what conferences serve is a purpose of being in-person, but I love parlour meetings, smaller meetings, smaller conferences and orchestrate those for my clients, also, because that’s where business gets done. I don’t think any business gets done at a conference like this, I don’t think anything new happens, I don’t think anything happens except the conference organisers make a lot of money and we do this podcast. SM: Here’s what I find, that I find interesting is I have two networks in my life, right? I have the people I know, and the personal ones and I have people that are digital, that I’ve never met in my life, never been in the same room, right? Other than Hannah, sorry Hannah, everyone else I’ve been in the same room as, at one point or another, but it’s actually come through conferences, which is amazing. Okay, this going to be really sad, again, unless I’m on the stage, I don’t go to anything. I find that rather sad. DL: I do, and I’ll tell you why, the way I look at-, SM: I know you, Dion. DL: I’m a fan of Money 2020 and here’s why. First time I went to now, when I get to Money 2020, my LinkedIn network comes to life. That’s invaluable to me and there’s nowhere else I get that, saves me five to eight business trips a year. AR: Yes, but that has nothing to do with doing business, that has nothing to do with the purpose of the conference. Let’s say I had a big party in Las Vegas and I invited your LinkedIn network. DL: Yes, I will eventually do business with them. I’m not going to sign contracts on the floor, but that’s not why I’m there. AR: I’m saying all of these exhibitors are paying-, if you go back to what is a conference? Let’s go back to the whole idea, right? It’s marketing, they’re expecting to have sales come out of this conference, and that doesn’t happen. DL: Okay, I had a conversation with a major French bank here, who I’ve known for years, but the conversation got real, to a specific project, here. AR: Agreed. DL: What more could you ask? AR: It couldn’t not necessarily happen around being-, paying $100,000, $150,000, $250,000 for a booth, right? We could have a networking conference, right? Let’s say we all go back and we just have, like, a speed dating or something like that. JL: Yes, I think, actually, these conferences give the industry and the people doing deadlines, because there is a tendency to be, like, you can go on forever, but we got it done because we were like, come hell or high water, we are announcing this at Sibos, and the next week is Money 2020. It’s a meaningful event for the clients, that we were getting onboard. Without that, what is it? It’s a tweet or whatever, and you don’t get the joy. I mean, I’m not going to lie, it’s great walking around and people know what I’m doing and I’m the offering manager. They’re like, “Oh my God,” and then I run away because I don’t like meetings, but I do like the attention for half a second. DL: You bring up a point, forcing function is worth the price of admission, sorry. You know what though? I think that’s great. SM: I didn’t expect that to be an answer, and I’m very happy because that was a very good answer, to force the deadlines for that. We’ve got to quit, because that was really good. I’m going to end on that note. Jo’s like, “Yes, I got it,” and then she’s going to leave because she doesn’t want to talk to anybody. Alright, so, we’ve got to close out on that note, that wraps up our first ever fintech in a flat show, again, best name ever. We hope you enjoyed this as much as we have, as always if you want to get in touch with us, find us on Twitter, @FintechInsiders, or on Facebook, or on our Fintech Insider page. If you like what you heard this week, don’t forget to subscribe to our podcast, please leave us a review on iTunes, we only accept five stars, for everything else just go to different podcasts. Thanks for listening. End of Audio