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FINTECH FRIDAY$ (EP.13-Oct 12): Road to Fintech IPO: Capital Networks, Scalable Solutions, Putting People First with Ali Pourdad, Co-founder and CEO Progressa

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NCFA Canada | Oct 13, 2018

Ep13-Oct 13:  Road to Fintech IPO:  Capital Networks, Scalable Solutions, Putting People First

About this episode:   On this episode, NCFA show host Manseeb Khan sits down with Ali Pourdad the CEO of Progressa who recently closed out an $84 million dollar round. They talk about P2P loans, loan services operating within the blockchain and why being people first business matters. Enjoy! (see Transcript)

Host: Manseeb Khan, NCFA, Fintech Fridays show host

Guest:  ALI POURDAD, Co-founder and CEO, Progressa (LinkedIn)

Bio:  Ali Pourdad has been CEO of Progressa since its inception in 2013. Under his leadership the Company has raised over $40 million of investor capital and invested over $2.0 million dollars in its proprietary "Powered by Progressa" decision engine for Canadian Enterprise partners looking to enhance collections strategy in a positive way. The company has grown to over 110 employees in Vancouver and Toronto. Ali has decisively positioned Progressa for its next generation of growth by recently executing on several initiatives, including creating one of Canada's most popular Exempt Market Bond Offerings and securing an $11.4 million Series A financing .

Prior to co-founding Progressa, Ali worked in both corporate restructuring and audit & assurance, with the bulk of his professional career at PwC, where he managed top-tier engagements of financial firms. Born and raised in Vancouver, BC, Ali holds a Canadian Chartered Accountant degree and a BBA in Finance from Simon Fraser University. He began his professional career at a young age, co-founding a leading IT services firm with locations in Edmonton, AB and Vancouver, BC in 1998. Ali is also a regular contributor to Business in Vancouver's weekly radio technology panel and was named to BIV's Top 40 under 40 in 2017.

 

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Transcription of Interview

Manseeb Khan:  Hey Everybody Manseeb Khan here. And you are tuning in to another episode Fintech Friday. Today I have the amazing the incredibly talented Ali Pourdad CEO Progresa. Ali thank you so much for sitting down with me today.

Ali Pourdad: Thanks for having me.

Manseeb Khan:   Yeah so Ali could you just give the audience a little bit about who you are and essentially who and what Progresa is.

Ali Pourdad: Sure. I'm happy to. I think for those who are not aware of myself or Progressa I have a background as an entrepreneur. I've been there for about 20 years. This is my second business I had to get out of high school. Pre Dot-com which shows was my age. This is my second life. We started Progresa back in 2013 in Vancouver . Me and my co-founder originally started off as a straight consumer finance lending business. And sort of quietly behind the scenes we were building software. And today. I would say we're sort of a full-blown financial technology company and we have a lending business. That drives a significant amount of revenue but we also. A multitude of software offerings for our major Canadian enterprises. We solve problems for Canadian business.

Manseeb Khan:  Yeah that's incredible. So, this might be a silly question, but I guess we'll make you a little bit more different than Money Mart and any of the other loan services out there.

Ali Pourdad: Sure. Yeah but you don't see companies like money mart or other loan services, companies as a competitor because. We don't we don't go direct to consumer like they do. So. A company like many of markets has branches, HYG online but there are really seeking consumers and going directly at consumers for lending products and offering them. Credit where they actually paying cash in their pocket and not necessarily helping them  helping them. Progressa fundamentally different. All of our customer acquisition comes from other businesses. And we're typically solving problems for those businesses and probably problem for those consumers. And what I mean by that is our software is setting up and offering a number of services. But the main purpose of at least  two thirds of our software solution. Revolves around enterprise collections and try to have a healthier and more of a holistic approach to the recover money as a Canadian enterprise so. That would be an example of you know a young lady or a young gentleman who's going through a tough time in the past that. They owe. You know Roger or TELUS money. Progresa is the company that will come in and help facilitate that recovery for those enterprises. Help them recover money but also offer a better experience. To that young lady or that young gentleman who might be going through that tough time or stressful time. Ultimately. What that means is that larger TELUS, Bell, and other enterprises that use Progresa. Will have better net promoter score. Better. Which is better customer satisfaction. And ultimately manager their risk better for them. There's been real demand for differences between that and traditional lenders. All of our loans for example the customers will actually not seeing money, we're helping pay their debts and pay down the debt. And leaving them into better financial life.

Manseeb Khan: You guys also do. I mean I've from looking from your website and from some of your past blog posts you just do go a little bit more deeper than credit scores. You start building I guess a customer persona. And just like a characteristic of like who this  person is their past history someone is not in and of itself is pretty incredible because now the loan is a lot more  personalized, it's a lot more individualized`.

Ali Pourdad: Yeah exactly and that's a very good point. I mean we do have a proprietary technology that we built over the years. Technology is quite different than what's out in the market today, what's out in the market today is, you put it very well it's not personal. It's very generic and it's very archaic. And so, it leaves a lot of the population in a position where. They can't be helped even though they might be financially responsible or living within their budget. You are doing all the right thing but. On paper it doesn't reflect that. That's where Progressa shines that. That's why we've been successful even quietly growing behind the scenes because. We'd be making major investment. And that technology that allows us to evaluate these consumers just fundamentally differently and give them credit for things that might you might not necessarily see as a traditional lender.

Manseeb Khan: So, you recently raised the 84 million dollars round which is absolutely incredible. Previously you raised a 10-million-dollar round. You took a much more alternative approach compared to the other startups out there. There were a lot more loud a lot more bullish. In a sense they have the mentality of You don't need banks, we don't need do we need the old world because we're building the new one right. We don't need your guys help you guys look much more silent a lot more tactical route of quietly building partnerships with banks and credit card companies. Could you talk a little bit more of that approach and what that approach looks like and what would your advice look like to other startups on collaborating with banks and other institutions.

Ali Pourdad: Happy to answer that question. I would say there was always a very well thought out plan in the early days when we first launched there was a lot of fintech’s out there that. We’re making quite a bit of noise in the marketplace. A lot of that noise revolved around either taking down the bank or replacing the need for banks etc., etc. . And you know in the Canadian marketplace we have an affiliation with the bank that's going to be quite hard to displace. And we saw that in the early days. So, you know what we decided to do is just invest in. Trying to tackle bank problems. What are the things that the banks are trying to tackle and how can we? Help them be more successful. That was a fundamental decision we made early on. We did it quietly and without making noise because. Frankly we weren't ready to scale the business and have been a business that had both. Technology and lending. You're not going to scale until you have scalable technology and you can't have scalable technology until you have a track record behind with. Very chicken and egg. You have the built of a little bit slow and steady or you risk blowing up your company. And that's what we did. And we now reach the point this where we that we have a very strong foundation as you mentioned. We raised a big round that round the reflection of. The sort of the order that we chose to tackle problems. And investors saw that they saw that we hadn't blown up our business and that. We're you know conscience of investors capital. And they doubled down and supported that next stage. You know my advice entrepreneurs considering building disruptive technology you really need to evaluate what your road map looks, what's you path revenue. Or if you have a better revenue try to disrupt banks or try to work with banks. Sometimes both can be achieved at the same time and. That's the route the Progressa chose.

Manseeb Khan: Some of the investors mentioned that you've actually from day one you started operating the business as it was a public company. You know you talked about how you guys built the very strong foundation. Could you just give us a little bit more detail of what that foundation looks like and how you pretty much just muted out everybody else and just put your head down and just build Progressa.

Ali Pourdad:  Sure. Yeah, I mean I know my background in between my first business and Progressa sort of pivoted professional services I became a chartered accountant I worked at PWC for a number of years. Really built up my professional skill set so that. I knew that one day I go back entrepreneurship and I really wanted to have a good tool kit. To build a business in a proper way. You can help businesses any number of ways a lot of entrepreneurs get lucky, some of them blow up their businesses. I knew that this type of business was going to be successful I need to build the skill set. So, with a professional a background I very quickly started to build the team and the right spot. And we focus on things that we knew were going to be needed to rebuild capital. Making sure we have proper financial reporting, making sure we have things like insurance, making sure you know we have good controls, getting audited financial statements and so on and so forth. And we made all of those investments right off the bat. To raise money in the Canadian marketplace. Well there's a lot of heavy regulation. You know the government securities regulations in each of the provinces. Is there to protect investors and rightfully so as a company that you know had a strong report below like we do. We had to have all of these checks and balances in place . In order to be able to successfully raise money. Today, that got an easier because we're more on the radar. But as early stage startup when you're going through these things. Such as one of one of the things you might not think about that makes  will make life easier for you. Make those investments. So, you know allocate capital to proper lawyers. Allocate capital to make sure you build your finance team. Have that reporting to share holder reporting as well it's very important in the early days. To keep you're a shareholder in the loop people and keep them happy. Because you might be going back to them for more money and investors are happy to see the right track to a great growth story. But you've got to deliver what you say.

Manseeb Khan: So, I guess sticking with the same chicken and egg analogy that you previously mentioned you want to make sure you have all your ducks in a row before you start bringing on investors and everybody right.

Ali Pourdad: Yes exactly. I mean we would I mean nowhere we're 6 years in, and we bootstrapped for the first couple years we've totally bootstrapped the business. I don't remember having a management team up until two and a half years into the company. So, we were probably. 20, 26 people before I hired my first other senior manager. You know Ali was HR, He was the CFO. He was legal. I did. I'd basically over just over 20. Individuals in the organization. And tell that point you know as an entrepreneur when you reach that point and your business is run rate is reaching a point where you. De-risk the investment. To the point, we have reached that. You know we've got to the point where the business has started to prove it or start to prove that. Even if we do start to make the right investments and people and scalable technology that we could build something big. Once we had the core competency of the central bank when we take. Both decisions. You know I would be going any other way. in any  entrepreneur that's looking to start a business today. Simply understand you're core competency first. Do that. Make the investment and understanding that before you build. Anything scalable on top of that. You want to make sure that you're building on the right foundation because you'll still move faster you pay your investors a lot of money

Manseeb Khan: You guys are also gearing up to go public by the end of 2019. So. Again just talking about the huge round that you just raised. What got investors excited? Was that a marketing experiment?

Ali Pourdad: To give credit to the investment bankers that were involved in our fund raise they did a good job positioning Progressa of the Canadian marketplace. Listen we may go public, we haven't officially announced anything, but the reality is that a lot of the market driven. we're executing on growth right now. The business is reaching record run rate on revenue and the bottom line and it sets us up to go public nicely. That's what our Board decides to do and our shareholders support. We do have a number a lot of shareholders. They were already about 200 shareholders are Progressa today. So, you know as a small business with 200 shareholders everybody has to be on. The same page about a decision like that. There's lots of avenues for late stage private companies to. Create liquidity for investors if that's their plan. My personal plan is to continue to execute on our strategic plan that our board has signed off on. It's ambitious and it grows this business into a very credible player in Canada. One thing that you mentioned earlier that all sort of reiterated that we had. Very much flown under the radar for 3, 4, 5 years and now we're trying to get on my radar. Where you can fully expect that. So, we're going to be. Doubling down quite hard on that side of things and therefore you know we're going to be more on the radar than ever before. And that's very much a function of launching our technology offering publicly. And you know all of our technology offerings that we made all these investments in. Have supported a growing lending business. But today they're ready to support. Other companies and support them and help them achieve their business objectives. And  you can expect to be hearing a lot more about Progressa as we roll up those products in the coming weeks.

Manseeb Khan: Yeah, I'm super excited just to see like what's going to be like the changes that may or may not happen now that you guys are going to be a little bit more on everybody's radar. So how are you going to keep the team and Progressa motivated healthy and productive and how do you see I guess the environment changing I mean I a rumor going public?

Ali Pourdad: Yeah, I mean there's different challenges for us as a Toronto and Vancouver company as they try to make. There are two very different cultures. I think.,  The first point is that you have to put the people first if you want to grow your team in a healthy and productive way. you make investments and bringing the right leaders in the work of younger teams that motivate them. But you also have to keep an eye on market trend is that you know you're out there especially in a large organization like we are. They're always talking they always have their eyes and ears on their friends that other organizations to stay competitive truly competitive you need to have a proactive strategy with your employees and not reactive. You know as it relates to Progressa today we really doubled down on people we've made serious investments in our senior H.R. people. We just went on Merit Finley the senior executive from over venture just literally started and this last week, really big win for a company like Progressa because you can't navigate this late stage try this. Potentially IPO scenario without a person like that. The IPO that just leads to bigger and better things. I mean I would expect our team to increase in size modestly. But I our H.R function that really where I would be focused. If you were to IPO, you suddenly now have different challenges and risks. And you need to keep people first That have a people first philosophy. As long as that  doesn't change, and you double down with  everything else. Then post IPO should look really good.

Manseeb Khan: There are a lot of startups that both have either office in Vancouver and in Toronto. I guess your best advice to them would be just double down on people focus on HR and just be there for every single individual in the company because they're the people that are going to help build your amazing building and your business right.

Ali Pourdad: Absolutely. I mean are companies are complex, as an entrepreneur you may not see that on day one. You may be just doing everything and happy to do it and that sort of learning things on the fly. But as you build out teams and build out processes start making investments and technology becomes very. Sort of evidence to how complex it is. And., I think. You know my advice obviously try to simplify it as much as you can and keep things simple for yourself and for your senior leaders that you bring on. Businesses are inherently complex and if you don't keep people first they get  burnt out They don't grow. They get frustrated. You really have a people first mindset to drive that. We haven't always had it right. Progressa it's not something you get right. Right away, you sometimes make mistakes you hire the wrong people and you just need to iterate just like iterate technology iterate on your team and get it to a place where it becomes scalable. Because it's not just technology scalability that. Drives businesses like fintech its's people scale ability. Have the right people at the right times. And. You have to know when it's the right time for those people to move on. These companies evolve very fast. I mean you know in the early days you might double, triple, quadruple revenue year over year. If you maintain those run rates for two three four years. And haven't paid those investments in people get burnt out really fast. And so. That would be my advice.

Manseeb Khan: Yeah, I love that people scalability. That's incredible. So, I guess you have mentioned that a little bit early on like how much harder it is for Canadian  fintech companies to get Canadian investment money. What is your perspective on the regulating sector. So, for example consumer loans. Do you feel that the government is including regulators? And do you think they're striking the right balance between investor protection and enabling market innovation?

Ali Pourdad: Yeah, I mean I think certainly some regulation is needed across the board. Otherwise you know you get your in situations a country that things don't make macro sense anymore. The best example would be in 2008 there's no lack of regulation that caused banks in the US  to have aggressive underwriting practices and that turns into major problems. So, you don't want that. Sort of worst-case scenario. In Canada. You know people I think people would be quite surprised to understand there is a fair amount of regulation out there in consumer loans. We know we have a very heavily regulated mortgage-based payday loan base. And even other types of lending were very heavily regulated. You know in my view household debt to income ratios are quite concerning in Canada. That is, you know that could easily be correlated. Other things that may not be a regulation issue simply could be. You know high real estate prices the low interest rate. Those are very hard things the regulators control. So, balance is tough  question the answer from an investor standpoint I do believe provincial governments have worked hard to find that right balance investor protection and enabling innovation. You know a major issue that we continue to have in Canada though. Is that these provinces that security regulators aren't harmonized yet and that may. Make things complicated for starts to navigate and innovate quickly.

Manseeb Khan:  Touching back on what you said you guys have invested in a lot of the technologies right? Do you see the future with digital banking by offering a full range of services. And if so I guess what technologies you are most excited about and that you think is going to have the most impact.

Ali Pourdad: Yeah, I mean I think we're already a lot of the way there in Canada. I think our  major banks have fairly strong digital banking offerings themselves. And so, you know there's lots there's a there's a lot of room for disruption, but I think the single probably the single most important legislation required to. Fully complete digital banking roadmap for all Canadians and probably the one I'm most excited about. Is the open banking concept? And that's something that governments started to get wind down in the year they. Have already started to empower consumers with data. Once the banking data is back in the control of the consumers and not the bank. Then you really will have a truly digital banking environment with a full range of services. And you know the ability to unlock full potential. And until then you know you know I think Canadian fintech’s will continue to innovate. You know again Progressa we play behind the scenes we try to play it with. Predicates. Where that. Adds value to a bank and credit cards and so on. Solve problems. You know. What that could lead to it. The regulators don't offer it if they don't move quick enough on open banking, then the banks could just snap up fintech’s one at a time as they see fit. I think. You know you. Have. Different data that are still around after five six seven years. They are well positioned to. Sit down with parents who are having those conversations hoping they can change the environment in Canada significantly. As it relates to digital banking operate because it could really make life good for Canadian's for Canadians and either the playing field for a lot of consumers out there without traditional access to credit Or Just traditional banking products simply because their data is in the control of the banks. Is not doing anything with that.

Manseeb Khan: So essentially the old gatekeepers of helping Canadians in the past are going to be greatly diminished just making it ,like you mentioned a couple times or just making lives of Canadians that much more easy.

Ali Pourdad: That's the idea. I mean banks I think banks do a  great job I've got. I'm not in the camp that banks need to go down or fold or be this be disruptive. Certainly, there's a lot of services and banks that are frustrating to the consumer to deal with. At the end of the day they happy they think large investment digital banking offerings. The issue is less to do with those offerings and more to do with. Empowering the consumer. As a consumer of a bank. You sometimes feel handcuffed. And. I you know I think fundamentally that a lot of upside here for Canadians. If the government does step in and offer you know to open up the data again it's kimono and give power back to the consumer. It just opens up a wide range of opportunity to offer service that. Really. You know make life good for that consumer I mean best examples are the social media companies in the U.S. that. Are able to take data and improve. And again, depends on who you ask. But if you ask me and you've offered your consent really improve life for you and they think very sort of seamless day to day. There's no reason they can't be in that situation in Canada with banking data and make a well thought out plan.

Manseeb Khan: So, speaking of peer to peer you're seeing a lot of people starting to shift into getting into crypto and very much getting into blockchain and how do you see loan services like yourself getting into blockchain and how do you see loan services in the blockchain and different from existing services that we have today. And what I'm asking is What do you need to see be a KYC, be it regulatory to make an actual shift to be 50/50 blockchain or if not just go all in on blockchain.

Ali Pourdad: Yeah. So, I think the answer to that question is simply to look at where the regulations are heaviest and where. Block Chain can solve those problems. And in lending you know I think those questions are still being asked. There not fully fleshed out but certainly where you have heavy KYC the mortgage space and other types of lending in Canada. Yes, the blockchain can solve a significant problem as it relates to onboarding customers and making sure that there's a paper trail for everything. And so, from that perspective the block chain has some real application. Things more seamless for consumers. I think. You know the parts crypto is concerned there is a lot of the young population out there that. Has been investing in cryptocurrency. And the average age of a crypto user is quite young. And they're building up cryptocurrency wallet. With real financial holdings there so. That money is available.  but not in their Canadian or Canadian bank account it's not available under U.S. bank account. It's available in their crypto account. And so. Naturally. You know there's going to be. Sources and uses for the money and the lending is one option for the cryptocurrency you're going to start to see platforms. That offer peer to peer lending options for the crypto currencies. Simply because people are going to be sitting on those currencies and are going to want to get that money to work and try to generate a return just like any. You know company or other peer to peer platforms the in  U.S.  for example, trying to achieve. Definitely we're going to see shifts into crypto I don't think it's to take over the world as far as lending is concerned, I think lending is just A function of whatever currency is sitting on out there whether it's crypto or fiat. But certainly, the block chain going back to that will make life good. And I think that the companies right now that are Again asking the question when. Where are the problems? Where the pain points? And how can I use blockchain to make things better? At Progressa that  We're certainly exploring a lot of those things but not haven’t decided to use the blockchain yet.

Manseeb Khan: So, you did mention peer to peer loans right. So, do you see peer to peer loans disrupting your business given that it would make it a lot more easier for just Canadians and if not under serviced  Canadians to get loans or just to make sure they can pay the Rogers bill or the phone bill or what have you.

Ali Pourdad:  I don't necessarily see that I think offering credit is a core competency that you have to learn over time. It was something that is easy to reproduce. We have learned by mistake. The have to have money loose. Because you definitely will lose money in the beginning and it takes time to. Again, understand that core competencies that you can start to scale it and make money in greater amounts you know is it possibly disrupt able ? absolutely there is possible disruption there in the future. I think in Canada probably a lower chance of that happening. Peer to peer lending in Canada first of all is being banned by securities regulators for quite some time. In the U.S. certainly you see peer to peer lending is much more prevalent. And you're already seeing a block chain-based companies tackle peer to peer lending. But there is just a drop in the bucket and the reality is the block chain is at this point heavily correlated with crypto currencies. And are like crypto currencies and so that's the main driver. You know if somebody borrowing and they don't need crypto currency then there's really no use of the platform. So. As far as I understand there's we're still talking about tens of millions of crypto currency users across the world not hundreds of millions or 200 you know are billions yet. And so, it's still a quite a small market. Relative  to the overall market and something that. Companies just to keep their eye on and evaluate as they grow and look at market opportunities and pounce on it if you think there's something there to. To grow into.

Manseeb Khan: Yeah no absolutely. Like we said before the average crypto very young so it's tens of millions 100 to hundreds. So, it's not a very young, very infancy stage for companies to pounce on it right. So, I guess one of the things that is out there that's very prevalent in the business media would be alongside of crypto and blockchain would be AI right. AI is definitely going to be disrupting the banking industry for sure in the past couple episodes. It was also mentioned that AI is also going to be very disruptive for the insurance business. How do you see AI either disrupting or helping the loan services and Do you see as an opportunity or do you see it as a threat?

Ali Pourdad: Oh, I mean perhaps this is an opportunity for sure want to be very people are asking this question because I don't know that I would recommend. You know getting into lending if you have an AI that's not the reason to get into lending and I don't think you can use AI effectively right off the bat anyway. I think you have to grow into AI. AI is by its inherently is reliant on big data. You're not just sitting on that data when you launch a business. You have to build the data over time, you need to make sure it's a scaleable data. It's being housed properly that a lot of an investment you have to make it into a  data infrastructure. To leverage AI effectively. So, from our perspective I mean we definitely see it as an opportunity because we've made those investments. Heavy investments in technology and our data infrastructure. I mean we have a  full data team in Vancouver. That to use AI effectively to have automated credit models and use sort of machine learning to automate the recalibration process that we that we currently have humans doing you know. And so that that's all upside for business that make those investments. But it's not something that I don't think  it's not practical for a number of years. You have to you can't just acquire the data, you have learned by mistakes. And build up to date on an appropriate way so that when you're ready to build scalable technology you know they you add AI to the list.

Manseeb Khan: Yeah. So, all of that is just testing and learning right? Where do you see yourself in Progressa the next three to five years? I mean given that we talked about block chain and crypto and AI?

Ali Pourdad: Three to five-year progress as generating, I mean you can see us like a traditional online lending business. But over three to five years Progress is going to generate the majority of its revenue from that technologies. And a minority of its revenues is from the lending business. I mean we made a  significant investment in software. That are driving great growth in  our lending business today. But over the next three to five years you know I fully expect that we'll be able to service our much larger enterprise partners in more meaningful ways as a software provider and much more so than a lender. For me personally you know I'm having fun. We've made significant investments in building out a great team. And I want to see this team be successful. I work closely with our board and I'll continue to run Progressa as long as they have me with the job. At the same time, you know Progressa has set me up for many great opportunities personally well had to get involved with many younger entrepreneurs as I can. And guide them and share my voice. I had the privilege of contributing weekly for a couple years on the Business in Vancouver the technology panel and continue to do that and have fun. You know I'm in a mode personally where Progressa even though we've been flying under the radar behind the scenes. Progressa has set me up to contribute back how meaningfully and guide younger entrepreneurs and try to get involved with younger businesses that have disruptive technologies. But I think that's what I see for Her my future.

Manseeb Khan: Yeah that's incredible it's actually very humbling to hear that like even though you are I guess relatively compared to traditional businesses you guys are a very young company, but you already have the mindset of Yeah, I know I'm still a startup and I'm still building a great business, but I still want to give back to young entrepreneurs. someone to guide them like hey that mistake I made over there yeah don't do that to just do this instead this was going to make your life so much easier. That's absolutely incredible. So as an aspiring young entrepreneur myself I wholeheartedly thank you and amazing entrepreneurs like you for helping and just guiding us and giving back.

Ali Pourdad: Yeah. Thank you. I appreciate it and thanks for having me on the show.

Manseeb Khan: Absolutely. So, what will be the best way for young entrepreneurs out there to contact you. Could we snapchat you. Do you up on Twitter. What we the best way to contact you?

Ali Pourdad: Yeah for sure. I'm on Twitter as my handle is  Ali Pourdad. It's my first name and my last name. You can find me on progressa dot com as well. I will have a bio on there with my name, so you'll find me on Twitter, you'll find me on Instagram. And happy to chat with young entrepreneurs. I mean we certainly have a handful of Progressa. But again, I'm also on LinkedIn. Always a good way to find me in on LinkedIn. Happy to chat with young entrepreneurs  and add I value where I can.

Manseeb Khan: Awesome. Ali thank you so much for sitting down with me today and I can't wait to have you on the show again hopefully post IPO.

Ali Pourdad: I'd love to be back thanked you !

 

 

 

 

End of Podcast

 

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BusinessWire release | Accenture | Oct 17, 2018 Digital-only banks, fintechs and big tech companies are quietly gaining customers, while incumbents struggle to make strategic investments in their digital future NEW YORK & LONDON & HONG KONG--(BUSINESS WIRE)--New entrants to the banking market — including challenger banks, non-bank payments institutions and big tech companies — are amassing up to one-third of new revenue, which is challenging the competitiveness of traditional banks, according to new research from Accenture (NYSE:ACN). “As the banking industry experiences radical change, driven by regulation, new entrants and demanding consumers, banks will need to reassess their assets, strengths and capabilities to determine if they are taking their business in the right direction” Accenture analyzed more than 20,000 banking and payments institutions across seven markets to quantify the level of change and disruption in the global banking industry. The study found that the number of banking and payments institutions decreased by nearly 20 percent over a 12-year period — from 24,000 in 2005 to less than 19,300 in 2017. However, nearly one in six (17 percent) current institutions are what Accenture considers new entrants — i.e., companies entering the market after 2005. While few of these new players ...
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FINTECH FRIDAY$ (EP.12-Oct 5): Building Blockchain Products & Decentralized Solutions for Enterprise and Startups with Mathieu Glaude, President and CEO of Northern Block

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NCFA Canada | Oct 5, 2018

Ep12-Oct 5:  Building Blockchain Products & Decentralized Solutions for Enterprise and Startups

About this episode:   On this week's episode of the Fintech Friday$ podcast our host Manseeb Khan sits down with Mathieu Glaude the CEO and president of Northern Block. They talk about having a sovereign digital identity, the excitement behind stable coins and why supply chain in blockchain shouldn't be overlooked. Enjoy!

Host: Manseeb Khan, NCFA, Fintech Fridays show host

Guest:  MATHIEU GLAUDE, President and CEO, Northern Block (LinkedIn)

Bio:  Mr. Glaude is the President and CEO of Northern Block, a Toronto-based blockchain product development company building decentralized applications, enterprise solutions and developer tools for blockchain ecosystems.  Mr. Glaude brings extensive expertise to product development in the enterprise technology space. Prior to Northern Block, he worked for Capital One Bank where he led many large scale customer-facing software development initiatives.  Additionally, he owns a private equity fund focused on making early stage investments in the blockchain and emerging technology sectors.

 

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Transcription of Interview

Manseeb Khan: Hey this is Manseeb Khan and you are tuning into a brand-new episode of fintech Fridays.

Manseeb Khan: Today I have an amazing guest today. I got Matt Glaude from Northern Block. Matt thank you so much for sitting down me today. I know like every entrepreneur your days slammed packed. So, thank you for taking time out of your super hectic schedule to make it.

Mathieu Glaude: My pleasure. Thanks for having me.

Manseeb Khan: Absolutely. So, Matt could you just for the audience give us a little bit of who you are and a little bit of who and what Northern Block is?

Mathieu Glaude: Sure. So, my name is Mathieu Glaude. I'm a CEO, president of Northern Block, Northern Block is Toronto based Blockchain product development shop focused on building enterprise Blockchain solutions. So, we've been around for just over a year now. We're still a small team just under 25 employees but we're dabbling in all sorts of areas, so we're doing a bunch of interesting projects in the supply chain space and the identity space building tools and developer tools for writing smart contracts and doing a lot of cool stuff in the space working with many different clients in the business verticals.

Manseeb Khan: you have worked with some of the past bigger enterprises and now you guys are moving to smaller enterprises. Could you talk a little bit more of the challenges, trials, and tribulations you have had experience implementing blockchain technology into a bigger enterprise.

Mathieu Glaude: Yes sure. So just a bit of a background on when we first started Northern Blocks so my co-founder Sasha and myself have experience working both startups and larger enterprises. But prior to northern block we were both Capital One Bank building digital products for them. So, I personally was a product manager working on a bunch of different products. For example, the online banking space and payment infrastructure, some Agent desktop servicing and my co-founder Sasha was Agile coach grand master and we were partners the other they're executing on a lot of cool projects. so, when we first started getting into block chain technologies when we were still working on capital when we were looking in the enterprise space because that's where we were at the time that's what we were trying to investigate just specifically for the firm. We were out at the time if there was any applicability of these technologies so when we first started getting into it we were taking the lens of how you make this work within a larger enterprise right. So, once we finally decided that we saw enough of the market to go out there and there was room for a service shop because we really felt that there was a lack of execution in the enterprise block chain space. When we left Capital One we really took that approach of how we could build stuff internally and inside the larger enterprises. So, when we made that leap we got a few contracts with some larger firms, so some stock exchanges some consulting firm’s government agencies as well built a bunch of different projects. It wasn't us. There was some overlap and some of the stuff we're doing but they're very different verticals very different products. But I mean you were good at building products, so it doesn't really matter what industry we're in. I mean we work well with the clients that know their industry and know their  stuff and we're good on just building products and executing so doesn't matter. But anyways all that to say that's when we started we were doing larger enterprise work I guess pretty rapidly.  We found that it was difficult to get stuff beyond a certain point. We knew that right coming from larger enterprises. I don't know what drove us to go back there. But yeah there's a lot of barriers that we can get into those. But you know we really wanted to take stuff to production. We really saw the disruption that this technology could actually bring to the various industries and to the world itself and the benefits it has to the end user and returning the control of that ownership back to the end user. And we really didn't feel like this vision and these goals that we had to try to achieve this by taking stuff to production was the easiest to do within the larger enterprise. So that's when we kind of switched. switched  our route and focused more on building outside.

Manseeb Khan:  Blockchain all everything, that you hear in the news either positive or negative a little bit more positively skewed. Is that how incredible blocking technology is and like how incredible and beneficial it would be to I guess enterprises and just like big conglomerates. Do you see any disadvantages, enterprises be medium or big size integrating with block chain technology?

Mathieu Glaude:  Yes. Not necessarily a disadvantage. There's a lot of proven use cases. If you look at the most popular things that are being worked on. This was from a Deloitte survey. Either this or last year. It seems like most large enterprises are doing something in blockchain right whether it's just building a  proof concept or trying to do a pilot seems like over 80 percent of executives in these large companies I think are with over 500 companies surveyed are doing something so people are learning people are investigating. People are dabbling with it. I don't think there's a lack of use cases and I think there are tremendous advantages of building these solutions. I think the difficulty of getting past a certain barrier to implement is just the products that you build using blockchains are totally different than any existing product. If I'm if I'm a bank and I see that I could potentially leverage block sharing technologies for KYC for example to store customers data on there and there might be an advantage to share this customer data amongst a consortium of other banks. But it sounds like a good idea. But you know it's that there's a lack of economic incentive for them past a certain point to even want to do that. So, one thing is like the learning to get up to speed with this stuff and see what the advantages are. But these people know that you know they're smart people they know what advantages these things could bring but there's a lack of incentive to want to follow through with these programs. Often, we see that you know these large enterprises already have existing businesses that are doing very well and they're very profitable for them. So why would they want to build something totally new totally disruptive that would disrupt their existing moneymaking either. Exactly their current moneymaker. To do this new thing. Right so it's a big gamble and obviously seen as a gamble. There's a lack of success stories and stuff but it's definitely one of the big difficulties we're seeing is just like the incentive to go on to do with the economics.

Manseeb Khan: Yeah, I mean that seems to make sense right because it's a very you see with a lot of the bigger corporations a lot of the bigger conglomerates the current way of doing things the best way to make the money. And it's very hard to say if it's going to be disruptive how things are currently happening and flowing why would we want to do that. I wouldn't invest millions if not billions of dollars into this new thing that's going to destroy what I currently have going on. This is amazing. I'm comfortable doing this.

Mathieu Glaude: And at the same time when these large enterprises the number one risk factor is cyber security. Yes. And like you're seeing repeatedly all these hacks happening there was just last week that massive Facebook when it's nonstop and like the ones we're seeing in the news are only the ones that are being broadcast. Exactly and to you most.

Manseeb Khan: Yeah there's so many of them that none of the companies that want any publicity behind right.

Mathieu Glaude: Right. So, it's a big factor as well. If I'm an executive driving blockchain technologies or driving innovation within my firm. I if I was going to say OK let's invest in this product. I think we're going to be able to create a competitive advantage by doing this and create a good business model on top of this. Well then watch right. I'm going to build this decentralized ledger technology or whatever I'm doing and then like every other piece of technology inside my company I'm going to need to wrap it up with a thousand layers to make sure.

Manseeb Khan: That it's all secure it's good to go. Yeah.

Mathieu Glaude: So, you know back to that incentive why would I spend. Call it a few millions on this one I'm going to have to spend ten on top just to secure its rights. Yeah exactly. So, a lot of these things really impact why you know what we're not seeing things progressed as fast as we would like. It's really not. It's really not a lack of technology it's really one of the big things. So, a couple of times there's is just incentive to one.

Manseeb Khan: Yes absolutely. Absolutely. So, you did mention on the top of the episode that one of the things that Northern Block does focus on is supply chain. I think one of the big parts that a lot of media coverage is not getting behind is how important supply chain is in the aspect of block chain. So, could you share a little bit on your opinion on why we think supply chain is very important. And I guess some use cases for it.

Mathieu Glaude: Sure. Yes, it was. We have a couple supply products that were building back by block chain technologies. A lot of the stuff we do is I mean we dabble with public block chains depending on the use case and the business requirements. You can make a distinction, right? between the public watching and permissions or consortium or even private auctions. A lot of the stuff that our partners and our clients want to build require consortium style. So that means identifying a bunch of parties that want to partner together to share data or share assets between themselves on an open ledger between themselves between the whole world just between them. So if you're saying I want to do a supply chain solution if you imagine McDonald's for example wanting to do a  block chain based supply chain solution to track the quality of their ground beef or their meats through the whole supply chain from time the cow was born to someone who consumes a hamburger you know you probably wouldn't put that on a public block chain like Ethereum or Bitcoin or you know whatever. I don't necessarily need the whole world to see how the access to even though you can encrypt stuff to have access to you know the patterns and data and what's happening so maybe in that case I have a let’s call it a hundred different parties. Probably more complicated than we think it interacts with you know from cow to hamburger. So as an end user it would be important for me to know that what I'm eating is actually what it is exactly. I've seen more and more of this stuff especially in the social conscious stuff like I want to know that what I'm getting is what it really is and so then that really comes down to how are you able to properly track the provenance of whatever good or whatever you're consuming. So back to that McDonalds example if I have 100 people in the supply chain then potentially there is all these touch points where people are interacting with the product or whatever the product is at that point. I might want to capture datapoints though might want to capture it you know, and it could be data points from an actual person that's touching it, or it could be data points from an IoT device or sensors or whatever for example that temperature controlling or whatever you know whatever success metrics we have for this product. So, get McDonald's I want to build the solution that every single person is going to use at the same time. It's hard to do.

Manseeb Khan: It's like No absolutely especially like we talked about McDonald's it's a huge franchise such a huge company it can be very hard to implement block supply chain solution for hamburgers or even French fries.

Mathieu Glaude: And then do they want it to do they want. At the same time if now I'm implementing this solution on creating a lot more audit ability and visibility into what's happening in the supply chain through all the different members want that's some of them are probably making a decent living there and maybe they're not bringing as much value to this whole thing but they're making money out of it so why would they want everyone else to see that exactly. So, there's an incentive there as well. But you can imagine if someone like McDonald's tried to implement all these people are most likely so dependent on that client they would have to buy into that. Yeah but so these are some of the types of things that we're doing is that we're building these consortium networks of parties for specific processes that we could go capture and we're very aware how hard it is to you know scale something that size that example we just gave. So what we do is with our partners in the industries that we're working in we really try to get a specific slice of that supply chain and we try to get everyone on their approved the concept do a pilot run it's successful with them once we've proven that there's enough value for the users and everyone involved and that's when we can start kind of expanding it in whatever direction we want to.

Manseeb Khan: Yeah absolutely. So, it's important to have a niche target  base. And speaking of all this McDonalds is getting a little a little hungry. So, you did also mention that northern block is doing some work in the digital identity space. Could you talk a little bit more about I guess in your terms what digital identity is and the advantages of implementing digital identity.

Mathieu Glaude: Yeah sure that's one of those big problems that a lot of different people are trying to solve. Back to the Facebook example it's like Facebook owns all their user’s data so their users are their product, or their site and they use that data to make money. So, the promise of digital identity is back to the fact that you can return data ownership to the user. So, you have this thing called sovereign identity as an individual I should own who I am. And so, what I interact with different people whether it's at the airport taking a flight and I need to show ID or I'm at the LCBO trying to buy a bottle of wine and then to verify my age or whatever it is that people need access to my personal information. I should be able to choose exactly what I shared with these people without them having access to all my information not just decentralizes the process right. Instead of all these different parties having their own databases that are vulnerable to attacks with my personal information on it which could harm me instead I have my identity and my personal information stored in a decentralized manner and then I could who's who I share it with. And, what you share essentially with who. Right exactly. And so, like I mentioned that there's a bunch of different people that are trying to do stuff in that space. I mean you hear about the Uport or civic and those are some of the leaders in the space right now. We haven't seen much adoption yet. Of course, this is  indicative of the whole space. So, what we're doing is, so we had worked on a couple of concepts. So, we got familiar with the topic how can we use the benefits of it since Northern Block builds decentralize applications, identity is a big factor for every single one. Identity is at the center of every single application. And so, if I want to for example in my supply chain solution if it's decentralized enough I want to make sure that the data that is being provided is coming from a certain person. I want to verify it's coming from that person. I want to know that it's that person driving the data. So, it's clean data. There's no applicability there. If I have trade financing tool or asset trading or whatever you need to know who the person is right based on whatever jurisdiction you're operating in they're making or rules or regulations whether you need to be accredited whether KYC has to be done to be able to transact. So all these things could potentially be decentralized so we could actually stop having hundreds and thousands millions of companies just hoarding everyone's personal data and you really return ownership of the owner which is the user which is yourself and then you could actually just control we share it with and who sees it and you know how it's being used and you could potentially imagine a future where you could actually make money out of sharing that stuff right if you want and share it.

Manseeb Khan: Yeah absolutely. A very interesting use case and everybody gets to be like their own influencer in the sense of like oh hey this Car company has tried to target me. Ok cool I'll share this information, so they know that I want a minivan or what have you. Right.

Mathieu Glaude: Yeah and then imagine like every time you go online now you're seeing all these websites that tell you that there are other browsing the cookies. And so, what if you had a decentralized browser and then your identity is attached to your usage right. So instead of all these websites taking cookies your taking the cookies and then if they want the cookies and they could ask you for it and then you could start creating markets like that. Right. So more. It's just that it's a win for the user for people.

Manseeb Khan: Yeah absolutely. And it goes back to like what we started with is like it comes down to reclaiming who you really are and your sovereign identity and just taking it from there right like you have ownership of who you are. Ideally you want to have the exact same ownership in a digital space.

Mathieu Glaude: And it removes friction like you don't have to do all the repetition everywhere. Yeah. Oh, my goodness. Every time you need to consume a product or service the same thing you're providing the same information. So, it removes friction for you and ultimately back to this whole incentive thing but ultimately it will be cost savings for all these companies as well having to manage and secure  your private data. They would own it

Manseeb Khan: Or even like personally like I know. I can count the number of times I forgot my ID and I go to bar, and they ask for my ID. Like just Google my name. I've pretty good SEO behind name, you can just Google me. I'm who I am.

Mathieu Glaude: If the data is as trust it's trustworthy enough that's what we're trying to get like authentic data that people trust is accurate then you could start getting in situations where I don't even need to share like a certain piece of information if they need it. If another trusted party let's call it a bank for saying a bank is trusted enough to make an attestation that I am who I am, I live at this address and whatever right. So potentially you could limit the amount of information that's being shared. If people are trusting what other people have said about you.

Manseeb Khan: Yeah exactly. That's a cool concept. Yeah that's like that's exactly what going to touch a little bit more next if there's more than enough opportunity of people becoming trusting parties like trusting party don't necessarily have to be institutions or an organization they can just they can't even be individuals of like yeah this is. That's him that's my little goofball boom.

Mathieu Glaude: And you know if you're storing all that data all these transactions on an immutable ledger one could think that there are projects in space as well and I think this is going to be huge. It's the whole status of reputation side of things that now it could actually create a standard for a status or reputation of someone that impacts what these people are allowed to do or potentially if these people are interacting with other people and impacts the quality of the data they're testing to something that I know there a reputable person and I know they're a reputable person because they've done all these things and it can start screening business logic around the stuff and you know really decentralized it no longer I can actually focus on the bank or exactly realty companies.

Manseeb Khan: And it's more power to the individual right. It goes down to back having sovereign identity and just having even more validation in I guess the blockchain ecosystem or what have you. Exactly. So other than supply chain and having a digital identity what else excites you about the blocking space?

Mathieu Glaude: There's a lot of cool things that have a lot of potential. Just starting in the public space taking a step out of the enterprise where like the enterprise you talk about supply chain stuff and IoT stuff, identity stuff we could get back to. But some of the some of the things that we're seeing that are really exciting in the public blockchain space. One is the decentralized exchanges. Once the hit once they get it right and you're able to do a true peer to peer exchange of assets and you're able to create a market that's going to be very powerful. So, we're excited about the decentralized exchanges. Stable coins have been a huge topic of discussion. Basically, a stable home just  a better asset to trade because it just holds its value. Whereas people aren't comfortable right now using a lot of the crypto assets as a leverage or to move around just because of the fluctuation in prices right.

Manseeb Khan: So, a stable coin be something like an asset that is like I guess tied down with gold or like a legit like physical commodity or?

Mathieu Glaude: Yeah there's a bunch of different ways to do it. It could be tied to a commodity it could be tied to the U.S. dollar right. Or it could be tied to a bucket of crypto assets. There's a bunch of difference approaches there and what we're seeing all these different things take a couple of weeks ago the exchange Gemini's and the U.S. exchange owned by the Winklevoss twins. Right. Right. Those two, the Facebook guys. So, they launched the stable coin pegged to the U.S. dollar. So you know if I think about a used case that I want to do cross-border remittances it might not be the greatest right now with the current market conditions tend to use ether or use lite coining or to use bitcoin just because if you know from the time I send it and then the time it gets to a place in this transaction someone else that value fluctuates so much and so people are looking to solve that problem of how could you use distributed ledgers for these transactions that are pegged to something more stable or if it's fiat or a bucket of crypto.

Manseeb Khan:  Right. Right. if I accidentally send somebody even more money than I should I get pissed. Like I couldn't imagine sending somebody the exact Ethereum that they requested like oh it's a skyrocket 15 percent, like god.

Mathieu Glaude: Yeah, it's just that it's not usable in the real world. Absolutely. Absolutely. You can scale that business. So yeah, it's an interesting space as well that there's a bunch of stuff that is super exciting that people are working on in the public space. I mean there was a personally in Northern Block  we're working on a lot of developer tools. so the technology is still very early on and depending of where you're building on what the block chain you're building you're not necessarily going to get the same help from tools and documentation and stuff like that which makes it easier to develop which in a lot of you know software development outside of outside of smart contracts and blocking technologies like it's more mature. So, you have that subsets of developer that there are less barriers to execute and implement stuff whereas if you're smart contract developer the time you'll have is probably developing on Ethereum just because they're the most mature platform and mature block chain and set of tools right. I mean even at a lot of the tools are very fragmented and need to go all over the place right. What we're doing and what we're trying to help the developers because you know that's been a big pain point for us trying to build this stuff. Yeah how can we bring everything together to make it super easy to rights to deploy smart contracts to test that trust us networks to the point nodes to deploy API is all the stuff that there's a lot of commonalities for any developer that's trying to do this or trying to build blockchain products. so, we're implicated in that space as well and we're happy a few team members of ours are going to San Francisco on Friday this week actually. To participate in San Francisco Ethereum hackathon so exciting to see just what the people are working on and trying to move forward.

Manseeb Khan: Yes. No absolutely. I mean I'm very excited to see you creating a I guess central hub with all the developer tools for everybody out there like that be. That's got to be more than more than valuable to everybody.

Mathieu Glaude: Ultimately, it's the developers that choose where things are being built. Exactly. It's not the business of the business as have other requirements and everything but at the end of the day it's a developer that pulls the trigger on it. Yeah. If you could give them proper toolkits to be able to execute better. Yeah, I think that that's it's a win for everyone right. And so, us being a first user of that it's really helpful building and because we're building it for ourselves and we're using it ourselves. And we're looking forward to growing that product into the market.

Manseeb Khan: So, Matt if people want to get in touch with you or Northern Block or even one of the amazing devs that you're sending are San Francisco will be the best way to contact you guys would it be to Twitter or Snapchat you. How do we. Well the best way to get touch with us.

Mathieu Glaude: We're not on snapchat but you could just Google US Northern block online. Northernblock.ca  or on most social channels. We're active on Twitter LinkedIn so you could find us pretty easily there and that but please reach out if you have any questions. We love talking to people about this stuff.

Manseeb Khan: Well Matt thank you so much for sitting down with me today. I learned way more about supply chain and blockchain than I ever would have even. I'm very excited about having a sovereign identity and I'm very excited to see what's more in store. Other than the developer tools and just the amazing work that you do in Northern Block. I can't wait to have you on the show again.

Mathieu Glaude: Thank you. I appreciate  you have a me. This was a fun conversation.

 

 

End of Podcast

 

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FINTECH FRIDAY$ (EP.11-Sep 28): How Amazon Bank is Dominating and Risks of a Digital Bifurcated World with Paul Schulte, Founder of Schulte Research

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NCFA Canada | Sep 28, 2018

Ep11-Sep 28:  How Amazon Bank is Dominating and Risks of a Digital Bifurcated World

About this episode:   On this weeks episode our host Manseeb Khan sits down with Paul Schulte Founder & Editor of Schulte Research, whose insights have reshaped the finance world for the past 30 years. They talk about how Amazon is the biggest bank in the world, China being 2 generations ahead compared to the West, and what his next book could be about it. Enjoy!

Host: Manseeb Khan, NCFA, Fintech Fridays show host

Guest: PAUL SCHULTE, Founder and Managing Editor, Schulte Research (LinkedIn)

Bio:  Paul Schulte is founder of Schulte Research, set up in 2012 researching financial institutions and financial technology. He has spent 3 decades in research on financials. He has worked for all 3 branches of US government, including the NSC at the White House. He currently teaches in 3 universities, has written 3 books and authored hundreds of articles. He has worked for the Number 1 investment bank from US, UK, Japan, China & Switzerland starting in 1990.  He has taught on 4 continents. His focus is technological change in banks & insurance. He has been a source for the WSJ, NYT, Bloomberg, Nikkei, FT, Economist, Barron’s and Forbes. His clients include some of the largest sovereign, pension, mutual and hedge funds globally.

 

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Transcription of Interview

Manseeb Khan: Hey everybody how are you today. Manseeb Khan here and you are tuning in to another episode of Fintech Fridays. Today I have an incredible guest. He is a veteran in the industry. He's been in the industry for over 30 years. We have Paul Schulte. Paul thank you so much for making here today. I know I'm catching you in the middle between flights so thank you so much for taking time today to sit down with me and to chat.

Paul Schulte : You're welcome.

Manseeb Khan: So, Paul just for the audience could you just for a minute give us a little bit about who you are and essentially what your research firm does?

Paul Schulte : So, what I do is we look at we've been looking at financials and financial institutions, banks, insurance, broker dealers, investment banks for like 14 years and then about four years ago I wrote a book about that called a revolution in financial technology that's coming, and we decided that this was extremely important. So, I've been really taking a big turn and focusing much more on the ways in which financial institutions are being disintermediated by the explosion and financial technology especially of the Far East.

Manseeb Khan: So, could you talk a little bit more of what your research firm does. Are there any current trends that you guys are currently focusing on?

Paul Schulte : So, we work for. I work for sovereign wealth funds, hedge funds,  mutual funds, insurance funds and we do two things really work the boards of directors in terms of understanding their own needs for technology but also, I look at public equity of private equity activity and you know advise on you know what's hot. what's not. what's good. what stinks and you know what is. You know looks iffy. What is you know very interesting? And so, at the moment we just finished some work on the way in which Ali Baba, Tencent, Amazon and Wal-Mart are heading into India in a very aggressive way looking at you know where the winners and losers in India are. The sort of this big battle royale for the financial activity for payments, ecommerce, lifestyle, lending and so forth in India but also in Southeast Asia.

Manseeb Khan: Oh yes so kind of like how Wal-Mart recently acquired Flipcart to start making moves in the industry right.

Paul Schulte : So, looking at the strategies of Wal-Mart and Amazon and Ali Baba really are the three big players against each other. They're all doing slightly different things but they're going down of course very, very rapidly. And I think once again catching the banks by surprise.

Manseeb Khan: Why do you think that is. Is it because of because you were previously you did work with institutions. You have a very extensive background of being part of that world. Why do you think they're going to beat banks to the punch?

Paul Schulte :  I've worked with you know Credit Suisse and ING and Lehman Brothers, and then you know went Nomura bought Lehman Brothers. I worked with Nomura as well. Fundamentally I think it is an issue of shareholders. the shareholders of banks expect and want and will not tolerate anything other than a dividend you know of somewhere between 3 and 5 percent. And this means that the banks have to pay out 30, 40, 50 percent of their profits get paid out in dividends. and Amazon and Ali Baba pay out zero. And so, you're looking at you know billions of dollars in extra R&D you know investment spending that these guys have relative to the banks. So, if the banks really want to get serious about competing they have to go to their shareholders and say we're just not going to be able to have a payout ratio of 30,40, 50 percent of profits. The second thing is that you know banks fundamentally aren't allowed to collaborate and are not allowed to collaborate because of regulators. So, it's good to be regulated because you're sort of a cartel, you're a protected cartel. But on the other hand, you miss out the capacity to change quickly to collaborate to open up your ecosystem to the outside world where regulators are very you know hypersensitive. So, banks are coming out of a period where they've been in the doghouse because of all this bad behavior 10 years ago. And so, the regulators are putting them on a very short leash. So, these are all the reasons why the banks are having a very difficult time adjusting to these new realities. And then it just tends to be a sense of you know entrenchment and legacy. You know history institutional inertia that also work against you.

Manseeb Khan: So that they're just taking  advantage of it essentially. You recently posted a video on how China is pulling ahead of the U.S. in the battle of AI. Could you explain a little bit more the reasoning behind it and it is because like what people think of AI they don't China's not the first place that really comes to mind. Right. And secondly how do you see Canada's role in this battle being that it's there's been a lot of buzz that Canada does have a booming AI market.

Paul Schulte : Yeah Canada does Canada that was one of the first people to do quantum computing that there was a very active you know great stuff going on in Toronto. I think the smart city initiatives the Toronto house are great. So yeah, I think Toronto's fantastic. But West has you know a lot of things against it. The West has a 50-year-old legacy system of credit cards and  sort of antiquated payments that were there to put all these fancy apps on top of that. So, this is always going to be a problem with us. Regulators Attorney General upstate and the FCC. and we know  Washington D.C., regulatory bodies, and lobbyists you know who don't want this to happen. So, you know I was giving a talk to one of the well with the Minneapolis Fed group and you know what I was talking about China and all the stuff that China is doing. You know the guy stopped me and said hey wait a minute you know we're still trying to get people stop using paper checks. So you need to slow down here in terms of trying to think of what the U.S. can do to catch up to China. China is one the two generations ahead and payments, e-commerce. the integration of payments and e-commerce to civic activity like people paying tickets, fines, entertainment travel, movies ,lifestyle, leisure, venture, travel all of this has been integrated into one stop shopping for the entire system. And this is, and this also includes insurance, peer to peer lending, money market invested in  tax. It's all that everything is online and everything's integrated and everything's in one place and people have the choice of looking at Alibaba or WeChat. But Ali Baba tends to have the one of the best integrated platforms and this is the way in which we're seeing this go into you know Southeast Asia now and  Alibaba so all these problems going into Paytm in India. It's going into Tokopedia, Masada and Indonesia and so Alibaba is really gluing itself into you know another country with a billion people and another country with 350 million people. And so, you're looking at having a pretty good chunk of the world. you know covered in you know you know India Southeast Asia; China the U.S. hasn't done any of this.

Manseeb Khan: Yeah that's kind of what I want to touch on next. How do you see the western world kind of adopting? Right. would be like working with regulators would be working with lobbyists and lawmakers and everything would it be more of like hand-holding situation?

Paul Schulte : No. No, I don't think that's the case. We should have expected that. But I think Amazon's done something that's really unique and brilliant. They just said we're just going to go outside the US. We're going to start and do all this in a country called India and so Amazon has been laying out billions of dollars in very aggressive impressive expansion both in terms of indigenous internal organic R&D implementation of different types of structures for services for MSR customers but also making a lot of acquisitions in the last 18 24 months. So, from a standing start two years ago where Amazon was nowhere and was being highly criticized for being the. you know as I should be the biggest bank in the world two years ago it was nowhere. Two years later in India it has a compared to Amazon offerings to the standard chartered India offerings and quite frankly standard Amazon has everything a standard traveler can offer or basically 18 months and so from a standing start Standard Chartered can't hold a candle to what the offerings of Amazon. I believe Amazon has very aggressive ambitions to export that to many other emerging markets and potentially export that back into the U.S. This is what I am thinking.

Manseeb Khan: You did recently write an article. the article's title fintech is emerging with the internet of things that aim to challenge banks. How entrenched interests can prepare. Banks are not only the western world banks and institutions are not only losing opportunity in the expanding markets like China and Indonesia and India like you've mentioned. how unprepared are they in terms of A.I like we're hearing institutions starting to earmark for crypto and block chain? How prepared are there for this whole AI revolution?

Paul Schulte : Well I think I think it's getting a little bit better. You know I believe HSBC has at least a dozen and could be up to 20 plus blockchain initiatives currently. I think the one bank who gets it you know better than anybody else is Goldman Sachs. I think you know Citibank and JP Morgan  are pretty much rushing ahead. I think the European banks just don't have the capital or the spending power to be able to engage in this right now and so banks like Deutsche Bank are barely standing on two feet. And so, they're being knocked out of the game. And then you have you know some of the other banks that just are where they need to be. You know Barclays and so some of the regional banks are just not in a position to be able to spend. You have to spend a lot of money on this stuff, if you just want to do nickel and diming you're going to get left behind.

Manseeb Khan: Do you think it's more of like a is it because more of like a legacy thing that they're not nickeling and diming it or is it. They don't really believe the hype. What's your take on that.

Paul Schulte : Well you know I was reading this book chapter 7. They called the innovator's dilemma. It's the Christensen book and in chapter 7 it talks all about how the corporates of the 70s 60s and 70s with America were like these mighty engines of innovation and you know technological growth. top line growth. And they just stopped doing that. He was talking about corporates and then I when I read that article I was so struck because this is just absolutely applies to banks and so there's just it's institutional inertia. There are fewer positions are available people today and they just are becoming yes men because there's fewer promotions available. So, they shut their mouths and they don't know, and they don't dare innovate because if they make a mistake they get fired because there's always an excuse to fire people and try to reduce costs. And so, when you go down that rabbit hole of trying to reduce costs as your number one goal rather than improve innovation you're dead. And I think a lot of banks are going down this road. So, this is a problem right where you have a terrible return on capital. You have shareholders demanding a very high dividend and you just don't have a lot of money left over in absolute dollar terms or a dollar stand against Alibaba which has like a billion dollars to spend. Amazon is spending in India alone which is spending 5 billion dollars. And so, you're looking at a tremendous capacity for spends and a lot of different areas. Plus, Amazon is also moving into a farm to market food distribution as well. So, when they start to get all these different businesses you've got a tremendous synergy of business of agricultural, financial, lifestyle and civic activity together which gives you know a real unbeatable combination.

Manseeb Khan: So essentially, it's very much a evolve or Die mentality when it comes to compare to banks and to Amazon and Alibaba and all the other companies like that right.

Paul Schulte : Yes, exactly that system and that's life that we all we all have to do that even as adults in our 30s and 40s we have to keep on learning if we don't keep on learning where we're in real trouble. I think the times of getting a four-year degree or getting an MBA is that those times are over. Right. There's a constant need for learning and it's painful and I say to people I have two jobs. I'd have my old job which is looking up financials but also, I have another job which is learning to understand financial technology which has been exhausting but also very stimulating and exciting and interesting.

Manseeb Khan: I totally agree that it's kind of funny because I just came back from writing my accounting exams was kind of hilarious that we talked schooling. You’re probably a little bit more closer to understanding AI and seeing its evolution other than just in the banking space. Where else do you see it just making a massive impact?

Paul Schulte : In the area of Block Chain  is all about digitizing assets and only a very tiny portion less than 1 percent of the physical asset world in digitized. So, what we have is a world where when you digitize assets you do three things you turn it into a provenance right and then that's the whole foundation of auctions. auctions and auction houses whatever they are Kristie. Sotheby's big banks guarantee that this thing is true and real and is owned by X is being sold to Y. That's what blockchain does for physical assets. Number two it's a sense of collateral. collateral is what you use to create a loan. And number three and most important of all one of the greatest things that we can Digitize and one of the greatest values we have is that our parents spent you know between 500000 and 1 million dollars to get us to become 22-year-old educated people our body. And this is the area of insurance. And so, I think that insurance is probably the most it is going to be disrupted more than anything else. As more and more of the parts of the human, our cells become digitized and become a real value. so, we can be given the identification independent of government. We can be given Providence we can be given a sense of collateral and we can include 1 billion people who currently don't even have an identification or a bank account or you can include millions of that SME's on by three four five people you know all across the world who previously had to go to loan sharks to fund themselves. So, the possibilities are endless and of course lastly and most importantly in terms of our lifespan in terms of current kinds of things that we can learn about our bodies to employ preventative medicine to improve our life expectancy and to get you accurate pricing on insurance for physical movement and for our life.

Manseeb Khan: Yes, speaking of Insurance I should remind my dad that I need a life insurance policy. So, thank you for reminding me of living.

Paul Schulte : You are going to live to be 100 don't worry.

Manseeb Khan: Could we. Other than the articles and research papers that you say they produce regularly are we expecting a book anytime soon. If so what would like what are the topics that are frequently passing through your head that you'd probably want to put on paper or digital paper in this case.

Paul Schulte : Well we're yeah to a book with Professor David Lee in Singapore who is one of the leading thinkers in the world. Block Chain and we're doing some work on blocking insurance. We're doing some work on the movement of these Chinese financial technology companies out into the outside world into Southeast Asia and South Asia and we're doing an update a deep dive into what PingAn's doing. PingAn is  I think one of the most innovative companies in the world and we're also going to write a chapter on something that's very important which people need to be paying attention to. Right about now which is quantum computing because the cyber security implications of quantum computing are very important.  And last but not least we are looking at something that's really important. I think it's going to be the most core issue of 2019 and that is the way if the US increasingly goes on its own and sort of alienates Canada and alienates you know Europe and alienates China is it going to go along a road trying to bifurcate, trying to cut the digital world to have a Qualcomm. Qualcomm, Amazon, Google, Apple world, a Huawei. Amazon, Tencent digital world. And I don't think it's possible to do that. But trying to do so could be quite destructive know example I would give you is that Microsoft and Amazon have 31% market share in the cloud business in China. What if says you know you've invited out Huawei and you were basically expelled Ali Baba out of the U.S. Well how come we're letting Amazon and Apple. I'm sorry Amazon and Microsoft have you know a 31 percent market share in the cloud business for AWS and of Azure. and I think questions like this come up and so this is going to become problematic if this thing continues down a road of increasing tension between China and the U.S. So very important topic I think it's the number one topic of 2019.

Manseeb Khan: Right and that's you have mentioned in the past that's why you're seeing companies starting to enter emerging markets just in case something like that happens. They have remote offices they have remote sites, subsidiaries just in case those kinds of things may happen right.

Paul Schulte : Yeah pretty much. I think that's right. And I think that Amazon is truly an international company. Right. So, I don't know what political weight. They pull in Washington D.C. but I'm sure that there are  opposition forces at play in Washington D.C. to counter this desire for the U.S. to isolate itself. I think that's a minority opinion and it's not part of the mainstream and yet it seems to be having an immense cast has immense momentum right now. And so, it's very disturbing to watch this. You know what was played out yesterday at the U.N. and especially when you look at it from the Far East people are aghast at why the U.S. is doesn't have you know America first policy it's basically America alone policy. And I think there's no people who are more like gob smacked by this than the Canadians. And so, we've got to be very careful about where this is all going. If power is some of the powers in Washington want to bifurcate the digital world because I think it's impossible to do that. I think we've gone down we've gone too far down the road on this. And so, I'm just wondering what this all means. I think the physical bifurcated world has already occurred right the manufacturing world is already the supply chain already been broke about past tense but the digital world is a very different world that just doesn't lend itself to being broken into.

Manseeb Khan: Right. Because the whole the world the whole the pull for is the whole globalization rights that everybody is on the same team. We're here to help everybody and if a country is going to try to isolate itself from everybody else then it's going to be kind of hard of work with them. It's kind of like work like everybody playing in the sandbox where we have the one kid that like we're trying to include you doesn't want to come with us. It's kind of hard to like feet won't we'll can ask him so much.

Paul Schulte : Yeah that's right. That's right. That's right. Well thank you so much free time I have to jump on a plane. I'm going to a retreat with actually people from Monash University to discuss this topic in terms of the future of education. OK so this is important. This is an important topic for universities as well as universities risked being sort of cut out. Well if they don't change faster. And so, I personally have a similar problem with the banks.

Manseeb Khan: That's interesting. Well  Paul thank you so much again for your time. Enjoy your flight enjoy your treat. I'm very excited to see what you've learned, and I can't wait to have you on the show again.

Paul Schulte : OK. Thank you so much.

 

End of Podcast

 

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FINTECH FRIDAY$ (EP.10-Sep 21): A Regtech-based Blockchain KYC Solution for Document Custody with Brice Penaud, CEO Commercial Passport

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NCFA Canada | Sep 21, 2018

Ep10-Sep 21: A Regtech-based Blockchain KYC Solution for Document Custody

About this episode: On this episode, our host Manseeb Khan sits down with the CEO of Commercial Passport Brice Penaud. They chat about what KYC looks like in blockchain, how fintech and regtech can work alongside with governments, and the benefits of creating a digital identity. Enjoy!

Host: Manseeb Khan, NCFA, Fintech Fridays show host

Guest: Brice Penaud, CEO, Commercial Passport

Bio: Commercial Passport provides global digital KYC solutions, helping financial institutions reduce the time to on-board clients by automating beneficial ownership analysis and client document maintenance. Based in Toronto, Canada, Commercial Passport’s Universal KYC Solution is a paradigm shift in KYC collection, providing senders and receivers a clear chain of custody for KYC documents through blockchain technology.

 

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Transcription of Interview

Manseeb Khan: Hey Everybody how are you doing today Manseeb Khan here . And you tuning in to Fintech Friday's today. I have. OK. I know I see this every episode. But I do have a really incredible guest today.

Manseeb Khan: I have Brice Penaud from Commercial Passport and Bryce pretty much is on the forefront of all the regulation tech. And all of the blockchain KYC that are going to be what are going to be hopefully implemented in the next 18 to 24 months that are going to help either investors or aspiring investors. Brice Thank you so much for sitting down with me today, I know you are super busy. This means the world to me.

Brice Penaud: Thank you so much for inviting me I'm happy to be here and help or share what I understand about the industry and where I think it's going and what people should expect to be doing and what the future kind of looks like for the space.

Manseeb Khan: So, could you I guess for the audience. Tell us a little bit about who you are and essentially what commercial passport is.

Brice Penaud: Sure. So, I'll start with who I am. So, my name is Brice. The company is called commercial passport and are like what you might guess by the actual name. The idea behind our business is that entities and companies should have a passport just like an individual. That's right. The difference is that it's a commercial passport it's a digital I.D. identity that basically verifies you our as a business. So, there is sort of different categories of KYC or KYB some are you know your customer, and some are not your business were obviously sort of more focused on the complex legal entities that need this IP and so that can be a mutual fund. If the sovereign funds it could be hedge funds from banks know wealth management arms so on and so forth. Anywhere where there is are even offshore component or sort of a complex environment that sort of who we're looking to help the most those people who have you know very complex ownership structures where there is an identified need for analyzing all those relationships and then which documents you need for which people based on the jurisdiction that you're in. So that is essentially the problem that we're tackling.

Manseeb Khan: You could you just touch base a little bit more of why is focusing on regulation like regulatory tech. So crucial for businesses like be it in just the regular fintech space or even if they are in the blockchain space why is either understanding regulatory tech and looking into regulatory tech why is it important?

Brice Penaud: Well I guess you have two ways of thinking about it. One is sort of like the legal legislative regulatory jurisdictional perspective which is mostly about staying in compliance and you know not getting slapped with fines or fees or getting caught doing something you're not supposed to be doing. So, from that perspective it's more about avoiding pain than anything else. But then the other perceptiveness about being I guess it’s OK forward thinking or forward minded or futuristic. And that is sort of hopefully what we want to inspire and the people that we work with. It's not just the fact that you know we're thinking about solving these you know problems that are regulatory based that are becoming more and more complex for sort of each line of business that you might associate KYC with for example you know typically it was only for you know large corporates who had all the sort of complex stuff that they need to submit. But now you have you know things of real estate that are coming out and insurance in the medical world this is slowly coming up as well. So, you have this creeping sort of KYC expansion that's reaching and touching these other industries that weren't necessarily always affected by it. Now we see that now with ICOs and sort of other sort of token offerings. So, with that happening we want people to think about OK how do we solve this in a way that's kind of frictionless in a way where we do some work up front to create this digital identity. This commercial passport. And then from there you're now being able to use that interchangeably with sort of a whole host of different businesses who you might do business with. And I think that's what we want people to sort of be aware of is not just reducing the pain but actually being proactive about what it means to work with other people so that you're not stuck in this world of Excel spreadsheets and PDF's and e-mails and sending faxing paperwork you know back and forth with just that that happens.

Manseeb Khan: I totally agree with that you don't want to be stuck in that little purgatory of Excel sheets and e-mails right just not just time and energy that's getting wasted and not being put into business to make you as incredible as you aim to be right.

Brice Penaud: So while it also prevents you from being productive in your job right if you're absolutely out doing all this paperwork you're now focused on oh what do we need right now and let's not get caught being behind on work versus we have what we need let's be proactive about how do we manage our relationship with our clients and also how do we seem modern ourselves. Right. You know how do you feel if someone's managing a fund of let's say you know 10 billion dollars and they're still asking you to fax stuff over it doesn't really seem like current does it. You know like you have some of the best traders in the world or whatever who are executing some and incredible investments on their behalf using all kinds of you know you are a crypto slash you know algorithmic analysis of different things that seems quite a quite cool and high tech but how does that sort of relationship juxtapose itself to you know saying hey the media that some this documentary or PDF or an email or your fax right that seems kind of a mismatch.

Manseeb Khan: Yes. It's not is not as efficient and fast pace as it really should be and that's the whole purpose of being in financial tech and being in the block chain space is like hey we want to be as we want to move in microseconds when it comes to these things.

Brice Penaud: Exactly.

Manseeb Khan: What does blockchain KYC look like?

Brice Penaud: So, I guess there's a couple different ways of thinking about it but for us we're using just the business application of blockchain. So, we're not necessarily creating any kind of you know new currency or anything like that and we're not necessarily taking people's ideas and putting them on the blockchain. where we're doing essentially is gathering the necessary documents for you know all of the due diligence or the compliance checks that people might have. Instead of publishing these ideas on the watch and what we're doing is we're publishing a hash of these documents so that there is a ledger as a chain of custody of all these documents somewhere that says hey isn't these documents have integrity they haven't been changed they haven't been altered. They're real they're the ones that have been submitted by clients. So, on and so forth so that when you have this sort of proof of sort of kind of like you would like track changes in Microsoft right it's kind of like the same idea. The difference is that here as you know that nothing has been changed be published. And even though the Hash presented documents no one has no access to the actual document itself. so, no one can reverse engineer what that document looks like. This is obviously quite sensitive as you let know personal and sensitive data. So that's kind of how we see KYC fitting with blockchain. We don't necessarily see it as you know you need to take people's ID and distribute them across the ledger. We don't necessarily think that that's the safest thing to do. But what is safe for us to sort of keep a track record of all these super sensitive documents that people want to make sure are valid and they're legal and they've been certified properly.

Manseeb Khan: So, some of the challenges that KYC may face I'm going to try to break this down is as detailed as I can. Sounds good. Yeah as the disparity of specification. Right. So, every bank has their own specifications that they adhere to. Some of them also might be stringent regulations by regulation. Rules are often changed they're often even added more. The compliance burdens on banks and the adverse impact to relationships with customers because banks is constantly have to keep hitting up the exact same customers even though they have the information. Again, it comes on the faxing right like a fax to one bank, but this other bank wants it. But OK. Right. Right. It just it just gets so troublesome and you just get and just get really angry. On top of that it starts escalating costs right. I mean like Reuters even talked about how like onboarding a KYC can increase your costs to go up above 18 percent. Right. And it takes a minimum of like 26 days to completely onboard a customer. How do you see commercial passport tackling these problems?

Brice Penaud: Well whether it's our company or another company I think that what you want to get access to is documents are being updated in real time that are also either changed or sort of you know Evolved with the regulation. So, like you mentioned if things change right. Because we know that all these new laws come out every year that sort of change the gathering or of a certain specification of these requirements. So, whether it's our company or someone else's that you know these financial institutions work with what they what they should want is to make sure that whenever someone says something they can send it in real time that can be updated that can be changed. And another way of thinking about this is if you know documents going to expire for example you won't be able to know that AND track that. And that sort of helps you stay ahead a little bit of the sort of regulation you know nightmare and the other piece too is you know kind of lobbying some of the you know bodies that sort of decide on these legislative matters. Right. Is giving them also the best information that fintech companies have because they actually deal with this on a day to day basis and giving them the information so they make you know informed decisions about what it means to have great data that is actually helpful to both you know the people who are supposed to be overseeing these financial institutions but also for them and for their clients.

Brice Penaud: So, what you really want is the synergy between you know the government and the fintech companies and the large institutions that are sort of now somewhat being sought after in terms of being you know compliant and you know being you know sort of responsible with the way that they're gathering information. So, I think whoever it is that is doing this needs to keep that in mind throughout the entire time. So for us obviously that's one of our key priorities and why we see the future for KYC of being you know in one sort of central location that has real time changes and updates that are going to be complaint with these banks don't get in trouble so that these financial institutions have exactly what they need without having to do this paper based chasing.

Manseeb Khan: Yeah. And to make sure I like we dot our p's and q's to make sure that everything is adds up.

Brice Penaud: Absolutely that that's exactly right. I think most people will subscribe to that idea but it's harder to implement in real life right and that also has to make a mental shift in their mind and say OK we understand it we've been doing it this way for 50 years and whether it's through fax or e-mail or PDF sharing or order or courier or whatever it might be. So, it means that whoever is you know leading inside these institutions they have to be willing to make a decision to say we understand that this process is outdated and it's not really going to be fit for purpose anymore. And so, if they want to you know be a leader is in that sense. I think they have to come to terms with the idea that no solutions are available out there we're not the only company doing that. But in either case, I think that there has to be a sort of a wave of a recognition that this change is coming and that these digital solutions are going to be a part of the future. And you know that's led both within the people who are you know innovative inside these institutions but also know from people in government we need to recognize it as a solution. It's better for everyone involved. So, there's sort of you know multiple layers of complexity of you know making this sort of happen. But it is going to come one way or any other and I think it's better to be sort of prepared and proactive about it then just wait and let it take you by storm when it's kind of too late and you suddenly have to do all these changes and be kind of unprepared for it.

Manseeb Khan: Yeah no I absolutely agree. I think if we start educating some of the lobbers and make them understand like hey this is the new tech that's coming in without like all the flash and bling. This is exactly what it does. This is why implementing companies like commercial passport and other KYC companies like us.  It's going to help just move faster and we're smoother I'm just going to be so much more ease of use. Right. I mean I don't like everybody knows the joke that like government officials and government workers are overworked already. Let's just try to make the jobs that are easier. So, we have to start moving and things a lot smoother.

Brice Penaud: That's exactly right. I mean and part of that you know helping people do that is having you know a digital version of things that's available to for example auditors. Right. I mean I don't know who really wants to sit through you know hours of paperwork and scan documents so on and so forth. You know people have this sort of no digital I.D. or version of a digital passport. Then you have something that actually people can look at in a currently you know I guess it's a speedy way to say hey this you know checks of all the compliance things that you know you know financial institutions are supposed to be doing. So, you're out. You're also helping. You know one hand kind of leads the other all the way up down the value chain of you know the KYC world. I think part of that needs to be taken into consideration. While the lobbying happens right. While the advocacy of this change happens is that this isn't just for the institutions or just for the fintech companies but it's also for the people who are supposed to be overseeing the process.

Manseeb Khan: Yeah, I love the how one had feed the other I know we touch this a little bit prior so some of the caveats of having KYC's in blockchain is having trusting parties right the trust factor that's built in block chain. It's very crucial to have to make sure OK how do we verify these trusting parties. what are the checks of the check off on the checklist to make sure hey this is up this is Manseeb's bank. This is. I meet all the regulations cool, you can move money and move crypto through me. dealing with the nature of blocking itself right, we have to decide OK we'll block chain be private will be public would it be a hybrid and just tracking variabilities right. So, which changes a lot. Right. So, investors and like people that have stake under 25 percent in a client’s company that's very hard to track, because it's such an it's such a minuscule amount. Right. It's like. So again, how do you how do you see commercial passport tackling this problem.

Brice Penaud: Well whether again whether it's us or another company that does things similar to us part of it is building tech that can help map what you just described out so you know mapping out you know who owns the interest and you know all those key things that you need to know to make sure that you're gathering the right documents from all the different entities or individuals. But the other key is that you get from about you know all the you know how is this trusted and how does that function within the greater scope of the longevity of the idea. And I think part of that is making sure that you're choosing you know a ledger or block chain that essentially you know is going to be around for a while. Right. There’re different ways of thinking about that but for us it's pretty obvious that you know Bitcoin ledger the public ledger makes more sense for now. It's the one that's been used it's one of the ones that has been you know sort of surpassed in terms of security flaws that it may have but even the application of that isn't necessarily to just secure a document it's more to secure the variability of what you said a change in the document. So even from that perspective we're safeguarding you know the documents and just publishing a hash of those documents. So, if you're thinking about how you know trust is built in part of it is how you're using the technology. It's not just using blockchain and the idea that oh well it's pretty secure right because it's decentralized. You can't just be thinking about it from those simple terms that have to also be OK but how does it specifically you know benefit us and our customers. Why do they get a benefit from us? Oh well they get a benefit. Because we understand that they can work at any of their documents being you know changed or signed or sent over to anyone without having to expose any real you know sensitive data. So, I think that's the way that we think about.

Manseeb Khan: Do you have any questions you want to you want to throw in or they've come up with on the the way?

Brice Penaud: Well sure. I mean I think that there are more questions for the greater community. You know people who are in regtech or fintech or the KYC side. which is you know if you are an innovator in this space and you're trying to help financial institutions are seeing the light and you know some of these changes that are coming I think part of it has to do with asking yourself how do I make sure that people who are going to be using these kinds of services or products from a fintech perspective how do we make sure we serve them in the best way possible but that fits current regulation. And there's some really interesting companies are doing great things out there. I'll mention one from the U.K. called Cube for example where they gather all the regulatory changes that happen every day and they have an ability to sort of source and track all these different jurisdictional changes. And so, if you're a company that's in that space. you need to be thinking about how to create partnerships with those kinds of businesses because not one company can do it all. So, a lot of that has to do with integrating and partnering to make sure that when this innovation does happen we have at least sort of cohort of solutions can coexist with each other right.

Brice Penaud: So, for example I think in the early days of Salesforce didn't necessarily do everything. But now the Salesforce exchange where no other parties can come in and help build top of what they do. And I think that that's essentially what's going to happen with the KYC space I think will be a couple big players who will of Win the sort of core of what KYC, you know automation in happens for you know from the digital perspective. But then there will be other people who come in and sort of build off that. And so, I think that the way to do that is to think about how do we best serve the people who are going to be using it and how do we best serve people. We need to follow those kinds of laws so that's just one question that poses you know how people think about that and how to focus to make sure that you're serving all the parties that are involved.

Manseeb Khan: It was mentioned a couple of episodes back but this whole thing is just it's a grand experimentation right. we're just testing and we're learning and we're failing and we're saying OK what works what doesn't work. OK what if we service our customers this way with this. OK. OK. Kind of sort of we did. Eighty percent. OK. Well I was going to get some next 20. How do we automate a couple spaces here? And we know it is an educational factor that we are throwing in. It's all we're all just like playing with the clay and hopefully molds into something.

Brice Penaud: That's exactly right. That's exactly right.

Manseeb Khan: Thank you so much for sitting down with me today. I definitely learned a lot more about KYC than I did 12 hours ago. so, thank you so much for sitting down with me today, very much educational and I'm very excited to see the journey that commercial password is going to embark on and all the other KYC companies

Brice Penaud: Thank you I really appreciate you having me on the show. And if anyone wants to reach out to me they can if I can be of help in any way and whether it's competitors whether it's institutions or people who just want to know a little bit more about the space and I'm happy to help.

Manseeb Khan: Awesome. What would be the best way to contact you would be through Twitter with snapchat you.

Brice Penaud: Yeah, I'm just I'm just on LinkedIn. It's just Brice Penaud. B.R.I.C.E , P.E.N.A.U.D and that's the easiest way to get me.

Manseeb Khan: Ok awesome. Brice Thank you so much again for sitting down with me. I cannot wait to have you on the show again.

Brice Penaud: Thanks so much for inviting me. And hello to all the listeners out there.

End of Podcast

 

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FINTECH FRIDAY$ (EP.9-Sep 14): Curexe’s New SmartPay Product & Front-line of Global Digital Payments with Johnathan Holland, Founder of Curexe

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NCFA Canada | Sep 14, 2018

Ep9-Sep 14: Curexe's New SmartPay Product & Front-line of Global Digital Payments

About this episode:  On this episode our host Manseeb Khan sits down with the CEO And founder of Curexe, so chat about their new product called SmartPay! They also talked about how A.I is going to touch the payments and every other industry, regulations that could be in place when accepting crypto and many more. Enjoy!

Host: Manseeb Khan, NCFA, Fintech Fridays show host

Guest: Johnathan Holland, Founder and CEO, Curexe

Bio:  Johnathan Holland's experience comes from a decade of learning about capital markets and a relentless pursuit of providing better customer experiences in the payments and currency exchange industry. Johnathan’s advantage has been to look at the currency exchange industry in a new light, which enabled him to create a new, better way to empower the businesses that are underserved by their current solutions.  Johnathan graduated from the 2016 cohort of the Next 36 accelerator program that helps young entrepreneurs build high impact businesses and is currently running the company out of the DMZ.  LinkedIn profile

Join NCFA's weekly Podcast series 'FINTECH FRIDAY$' where we sit down with the incredible people in the Fintech community and talk about leading fintech products innovations developments and challenges!

Subscribe and tune in each Friday to check out the latest movers and shakers in fintech.

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Transcription of Interview

Manseeb Khan: Hey Everybody Manseeb Khan here and you are tuning in to the NCFA's  newest podcast series Fintech Fridays. Today I have an absolutely incredible guest. I know I say this every week, but I truly, truly do have an incredible guest today. Today I'm Johnathan Holland the CEO and founder of Curexe and he's my boss. So, everybody please play nice.

Johnathan Holland: Johnathan how are you doing today man? I'm doing well Manny how's it going?

Manseeb Khan: I'm doing really well.

Manseeb Khan: So, for the audience who don't know who you really are could you just for a minute give us a little breakdown of who you are and essentially what Curexe does?

Johnathan Holland: So yes, basically I look at the world of banking like know technology hadn't really affected it in a meaningful way, it’s as one of the last industries to really be innovated. So about four years ago I decided to build this business basically out of necessity. I applied to all the banks. I wanted to be an investment banker. Nobody would give me an interview. So out of that I decided to build a foreign exchange business and out of that business. We essentially help small companies in need to send money to different countries and different currencies and then we launched another product which allows them to accept debit card payments online when I say debit card. I don't mean to Interac rails and definitely avoiding Visa, Mastercard rails and it allows any e-commerce business to integrate our one line of code. And you can accept debit card payments in 10 minutes. So, kind of built those two businesses and now we're starting to roll and feels good.

Manseeb Khan: Awesome, so the secondary product is under a whole different name which was originally. So, it's under SmartPay right. So initially started a SmartPay then you changed it to Curexe. Now back to SmartPay I guess. Why do you go back and forth like why don't you just kind of stick to one topic and is it? Are you building two different companies. Is it under a whole umbrella? How does it really work?

Johnathan Holland: Honestly Manny it’s a mess bro, so basically what I did is it started out as student currency exchange. So, I started the business it was to help international students pay for tuition around the world of course. From there I realized that it was hard enough to get banking relationships in our own country here in Canada let alone get relationships globally. Because I'd have to set up to accept money from India for someone in India to come to school in Canada and make those payments. So, it was student currency exchange and then it basically pivoted to what I called SmartPay. It ended being our legal name SmartPay incorporated and that was basically an online foreign exchange business for the small business owners that are out there. And then from there it essentially kind of changed. We kind of did it doing business under a name called Curexe C.U.R.E.X.E that ran for you know a number of years. And then when we launched this new debit card payment processing company which is still the same company is two different products now but because you know we still use that SmartPay name before, so that's what we brought back, we have a logo. You know we got the domain. So, it was easy to kind of jump into it. So, there's no real rhyme or reason it's just hop and the like name changes and pivots  and all that kind of good stuff for the start-up.

Manseeb Khan: So, could you talk a little bit more of the whole debit processing side because I'm pretty sure probably not many people know of the fees that entails. If you're using Visa MasterCard and or PayPal as an online merchant, as an online seller. could you talk a little bit more of why you decided to just build a whole different system and kind of why we're doing this whole David versus Goliath.

Johnathan Holland: Yes definitely. Yeah like it came out of necessity from our customer. so, all of them had a need to make payments to international suppliers in different currencies that was Curexe the after the first product and then they all kept complaining about accepting PayPal payments and it wasn't necessarily PayPal that was the problem. The system works fine. The problem is the fees for the business keep in mind this should be clear. If you're an online shopper out there you don't ever pay anything. You never pay anything to PayPal or credit cards. When you're online shopping and the business owners always charge this two-point nine percent of their revenue that never seems to go away. But if you're accepting money from different countries PayPal is going to force you to exchange those different currencies from say U.S. dollars accepting U.S. customer payments back to Canadian if your bank accounts are in Canada. But with that conversion there's an added cost of three and a half percent, two to three and a half depending on different credit cards and stuff as well. So, a six-point four percent of your topline revenue. And if you look at a business with a net profit margin of 10 percent you're eating into a profit. So, the businesses were complaining we realized that we had the technology to basically make it easy to collect the information we needed, and we had the bank accounts and the bank relationships to be able to pull funds from an online shoppers account. So that's what we've done. We've made it very simple putting in your credit cards easy. I'll be honest I have good credit. I don't even think I would ever use my product. I always use credit card. I'm not a points junkie like some people. some people care about their points other people there's a percentage of the population that don't like getting in debt because they're starting to learn more or they don't even own a credit card at all for that reason they just don't want to be in debt but there's no option that's not viable to buy a product online, outside of credit card or PayPal. So, what do you do have to sign up for a PayPal account or if they don't offer PayPal you have to get a credit card. So, some people just don't shop, or they drop off in check-outs.

Manseeb Khan: Yeah, I think it's I think it's a lack of education thing. right? I think it's like now kind of what you have mentioned of what you mentioned right. Like people are getting a lot more smarter and knowing a little bit more of how credit score works. What you should and shouldn't do when you get a credit card and just like what good credit really doesn't like how much it opens so much more doorways right. So, it's incredible. You guys are ,we are kind of providing a not only a great system to help business owners save a crap ton of money that can go right back into the business. Help them grow but you're also providing a very good education behind them and like teaching people. hey that's not the only way you can do it. There’re other ways you can do it and we're building a system to help you understand that.

Johnathan Holland: That's definitely right

Manseeb Khan: Could you talk a little bit  more of the regulations behind this and just regulations being a money service business in general?

Johnathan Holland: So, we have these special bank accounts that essentially that allow us to pull money from any Canadian or U.S. bank account. now because we have that capability there's a lot of responsibility that goes with that. So, we're registered what's called a money service business as a money service business. We're very highly regulated it's Fintrac in Canada, FinCEN in the U.S. They basically have very strict rules that apply when you're dealing with money launderers out there, terrorist financing. There's a lot of like global sanctions list that we scrape, screen names that we need to make sure that the bad guys aren't able to move money around with our system and the regulations make sure that we're reporting and at least giving them all the information that they need that if there was a deep investigation that they would be able to at least maybe track down those individuals the bad guys, the bad actors and then do something about it. So, what happens is Fintrac or FinCEN and we'll collaborate with law enforcement and they'll be able to essentially help stop terrorism or funding I guess of terrorism and money laundering. as well which is obviously a big issue with lots of criminal organizations and the bad stuff that can happen with that. So, we're very regulated. We have annual reviews there's like every two years we ever review from our federal regulator which is a very serious kind of event and we just always have to make sure we're on top of this stuff for moral issues and for the laws that we have to follow the law.

Manseeb Khan: So being a money service  business you're definitely going to deal with a lot of fraud or have you have a way higher potential risk of fraud. Could you talk a little bit more what fraud prevention you're putting in place and talk a little bit more of what you're seeing that's there. And like pretty much the loopholes or fraud prevention your kind of hoping that kind of gets filled in moving forward?

Johnathan Holland: Yeah, no absolute fraud happens. money service business is a broad term, so money service business could be that little kiosk in the mall. where you can go to exchange or Canadians in euros before you go to Europe. I mean you could wash money through that stuff, but fraud is probably less prevalent. Assuming they check the Bills under lighting and everything because there could be against counterfeit. But with online money transfer businesses there's always that risk right. I mean you can create a business fairly easily get it registered open up an online store start accepting payments with no intention of paying the people basically just ripping off shoppers never send in products out. So, us as a business we have to be able to combat against this stuff, so we have a really strict analysis on the business. How long have they been in business? Identify all the individuals in the business pull Corp reports from different sources who can make sure the business is legitimate. We'll even go as far as talking to their end customers making sure that things are smooth. So we do a lot of in-depth stuff that a fraudster pretty much can't avoid which is what really helps us kind of combat against these guys and then outside of that a lot of fancy technology stuff or we track IP address as we screen different computers we have different recording systems and being very vague here for a reason because the deeper I go, the more knowledge I'm giving out there and then these fraudsters because there's an entire industry around the stuff that there's conferences that I've been that, that explain to me there's conferences for hackers and how to rip off credit card lists like you know all this stuff that's happening so the conventions in Vegas to teach people how to rip people off with their credit cards right.

So, the credit cards are very easy to rip off. Luckily your credit card company reimburses you of course at no cost to them. And shoppers don't realize it. But if somebody steals your credit card but has a product from the store. Visa MasterCard or not out the money. That's why their stock charts a 45 degree angle up and to the right. Essentially the business owner loses that money. So, this could be a small business owner. You know you name it. That are now out funds and that's a loss of they have on their books. so, it's definitely a serious thing. That's why people should be very diligent about making very secure passwords my passwords are anywhere from 25 characters to 64 characters. Random numbers letters and symbols. It has to be that way. Use a password manager that makes it easy. You don't have to be typing anything off the piece of paper and type it in and it makes your life easier and safer and then you're helping business owners that are out there as well because the fraud that happens in this industry it's amazing what they've came up with to fraud systems and everything so that there's a lot of stuff that we do.  I just want to make sure I don't give away too much. Yeah nation's nerve. Can somewhat crack the code which they sill. We have endpoints that are manually can't but still helps.

Manseeb Khan:  Right .Canada has been on the up of A.I. so do you see I guess A.I playing a role in helping Curexe and other businesses like Curexe in the future

Johnathan Holland: No absolutely. I mean AI is going to touch every industry I think in a very meaningful way especially in the payment side now. The ones that have the most advantage are the ones with the most data. So, you have to work with banks, you have to work with organizations that are willing to share data.  Visa ,MasterCard have built some pretty good rules you'll notice now if you go on a trip oftentimes will say you don't have to call the credit card company. It's because you probably booked it through flight through a booking thing and they're sharing the data back and forth. There's such a good thing for the end customer. But yeah, I mean in general there's a lot of interesting things going on in the space from that angle and we're all just doing. We can I mean A.I will change a lot of this and I've haven't seen a lot of very developed A.I that really has helped us this besides maybe Visa MasterCard and what they do. Keep in mind online shopper it doesn't matter how you pay you never to charge anything. you never get frauded any money. You'll ultimately get your money back. I mean if there is a unique scenario where there was big complications that just make sure like I said Protect your passwords securely. What happens is we'll take a longer period of time for the resolution to happen if it was something bigger. So, if you're wealthy individual and you listen to this just be very secure with all your passwords and stuff. which you probably already are because you probably had an incident happened at some point. For anybody that's just using typical credit card .they just give your money back off the work. So, there's no stress about buying something online and that's why the market's growing 15 percent year over year with online shoppers everybody is going online. It's easy. You know people are starting to order groceries online. It's becoming a more convenient world. And I think that there'll be more shopping online.

Manseeb Khan: Yes, speaking of online shoppers you are seeing a growth maybe not. Nothing too crazy. We were seeing a growth of people buying items through crypto. Right. So, do you see how do you see crypto playing a role in this do you. Do you guys see that. Later on, accepting crypto. Do you guys see maybe launching an ICO like what's your take on servicing cryptos.

Johnathan Holland: So, the reason I love cryptocurrency is because I started studying it in 2014. I looked at crypto like this is going to be the next thing that could rip away my business. Now a lot of interesting things have happened with Bitcoin the way it took off it is honestly like magical is the best word to describe it because for the network effects and everyone to get that on board with you know really what it is. Now finally someone can compete with money transfer businesses and banks and stuff like that. So, it was very exciting to see the way it took off. It still hasn't proven itself to be viable in the market. And what I mean by that is the volatility. And I'll explain if a lot of viewers aren't very finance savvy but the volatility. so, Bitcoin can move 5 percent in a day. If you're a business owner accepting 100 bucks with crypto and within that day it drops to 95 that literally with the PayPal fees as well could cripple a good or 10 percent net profit margin like we discussed before. So, the volatility in the movement of it can go in your favor and you make 105 bucks. But it could also go against you. the business orders aren't typically comfortable with our kind of risk. So what needs to happen and any bankers listening please push for this within your banks, become a market maker for crypto and market makers. Basically, you provide a lot of liquidity a lot of dollars like billions of dollars and buy and sell and take both sides of the trade. So, you sell side buy side in any given market and that's why you have a very liquid market get in and out in seconds.

So, for example you could buy a Wal-Mart stock your order executes instantly, if you buy a small cap company meaning they're you know a smaller size company who might only trade three times throughout the day. so, you can only have three times where a buyer and seller are willing to agree on a price. And then and then a change happens. So, a crypto more liquidity spreads are still crazy like the volatilities moving about 5 percent a day. So, if you have market makers come in it basically reduced that volatility not 5 percent but smooths it out. And if it's more smooth then at least the business can accept the crypto and then you know convert back to fiat and not have to worry, ideally in a perfect world for like I'm talking to consumers, business owners everybody adopts crypto and everybody just uses that as a currency because the fees are much lower. The system is very secure. It's a secure network of nodes and all those nodes literally have to agree on all the transactions that happen, or it doesn't go through. There's no duplicate of money. There's oftentimes the SWIFT network our international payment network gets hacked and money gets lost. You hear about it, but they keep it very quiet as the like. What's actually happening around the world. crypto and bitcoin has risks like this as well because it's early, but it does have the potential to become something that would be very viable. I personally didn't invest in crypto because it's a it's a buy sell thing. It's like Warren Buffet says why would you buy a piece of gold. And the reason he says have a bar of gold and you have to buy things so what you do is you clip off a little piece of gold. And you paid for your groceries at a clip of a piece of gold and he buys clothes for the day of your family whatever it is that you clip off in a little piece of that bar. You don't even have a gold bar at the end of it. Warren Buffet would rather do is buy a piece of land that has a store value  you which is what crypto kind of has. I mean bitcoin with the scarcity of the coins gives us somewhat of a perceived value like the scarcity of diamonds and gold. Right. So, if you have a piece of land and that produces you crops every year you can mine those crops then buy your food and beverage and you still have a piece of land you still have that store value. with Bitcoin. You're saying it's worth 10000 but you're only saying we're 10000. Everybody's agreed it's 10000. If everybody agreed that tomorrow that it's worth hundred it'll go to a hundred or go to 100k some people are predicting. So, I'm unsure where the price of crypto will go. But I love the fact that it could actually come in and start to transact the businesses have to accept that widely. And individuals have to start paying with it and then hopefully we see the network effects take off and maybe commerce will begin.

Manseeb Khan: Yeah, I mentioned in a couple of episodes past you're seeing a lot of institutions and banks started to get on the crypto market like trying to in a sense bring both worlds together where you have like the regulations unlike the traditional marketplace into the new marketplace the whole decentralization everything. So, you're seeing like a bridge if not a maybe arranged marriage being built around it. So yeah it should be very interesting to see how it goes the next 18 to 24 months to wrap this up. What would be other than make sure you secure your passwords make sure you're paying attention to where your money is going. What would be your advice to either online merchant’s small business owners and anybody else that's in the industry.

Johnathan Holland: I mean it depends it's a very broad questions of we can go in a number of different ways but online merchants there are other services available like now because we've launched this debit card solution. I know there's going to be several other players that are coming in and they're going to build there a new type of credit card or different type of payment systems using crypto to make online payments. That's some exciting areas that can move into. So, I would say the online merchants especially if you're doing big volume that 2.5 percent and then FX stuff as well that you're getting dinged that matters to your business so look for other solutions it doesn't necessarily have to be lower cost and sacrifice quality. Right because there's products out there that can still have the same quality, but you also get to save a bit of money while you're doing it. So, the merchant should do that, online shoppers I mean ultimately you know your personal finances are important. Do what you can to save your money and getting into debt is obviously not that smart. Interac in Canada a lot of ads but this like back in the black meaning you know back in the positive. I don't think the general population you know is that black is positive and red is negative. But you know maybe this is where that degree maybe I'm given them you know some food for thought there but, so you know it's good I think as a consumer to make sure that you're saving your money. so be mindful of what you're spending on. And when you do spend it I would say use debt but I'm biased. I think it's better to not get in debt.

Manseeb Khan: Awesome. So, Johnathan thank you so much for sitting down with me today. This has been very educational for me even though I'm in the company but I'm pretty sure a lot of people might have learned a thing or two and hopefully it will change the passwords like I'm going to in the next 30 seconds and I can't we talking on the show going man.

Johnathan Holland: Happy to be here Manny. Cheers.

 

End of Podcast

 

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The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with fintech, alternative finance, blockchain, cryptocurrency, crowdfunding and online investing stakeholders globally. NCFA Canada provides education, research, industry stewardship, services, and networking opportunities to thousands of members and subscribers and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: ncfacanada.org

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FINTECH FRIDAY$ (EP.8-Sep 7): Institutionalization of Crypto, China’s Ban and the Potential of Blockchain Decentralization with Juwan Lee, Founder and CEO of NexChange

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NCFA Canada | Sep 7, 2018

Ep8-Sep 7:  Institutionalization of Crypto, China's Ban and the Potential of Blockchain Decentralization

About this episode: On this episode, our host Manseeb Khan sits down with Juwan Lee the founder and CEO of NexChange. They talked about institutions investing in crypto, some the up and coming players in the market and China being pro blockchain. Enjoy!

Host: Manseeb Khan, NCFA, Fintech Fridays show host

Guest: Juwan Lee, Founder and CEO, NexChange

Bio:  Juwan Lee is an entrepreneur, VC, blockchain and finte professional with three decades of investment industry portfolios and organizations on behalf of multi-billion dollar hedge funds, proprietary trading desks, asset management and venture capital firms.  He is the Founder and CEO  of NexChange, a venture innovation platform, CEO  of Arrakis Ventures and co-Founder and Director of the Blockchain Centre of Hong Kong. He is a co-founder of tokenScale, a blockchain accelerator created in partnership with brinc. Along with Cyberport, he co-created the Fintech O2O brand. His firm,  NexChange, created the Block O2O brand connecting the global blockchain sector and the Healthtech O2O brand for the healthtech community.  Mr Lee was formerly the CIO of the largest Shanghai-based asset management firm. He spent numerous years at JP Morgan in a variety of roles from principal investments to heading equity within the asset management division. As an early pioneer in managing technology portfolios he worked with SAC  Capital, Osprey, Rothschilds and Montgomery. He funded many star companies in Silicon Valley (including Netscape, Yahoo and Eidos - Tomb Raider), Taiwan's Hsinchu Science Park, Bangalore India, Korea and Israel.

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Transcription of Interview

Manseeb Khan : Hey everybody, Manseeb Khan here and you are tuning in to the NCFA's newest podcast series Fintech Fridays. Today I have an absolutely incredible guest with me. He's an incredibly busy man. You may have seen some of the stuff online because he's very big in the block chain, crypto space. Today I have Juwan Lee. Thank you so much for making it today. With all the delays everything you still made it. I'm very thankful.

Juwan Lee: Well Manseeb, thank you so much for having me. I'm so glad to be here.

Manseeb Khan : No absolutely. So, for the audience, for the I'm pretty sure three or four people that have no idea who you are. Could you just for a minute give us a little bit of your background and a little bit more of who you are and what your company does?

Juwan Lee: Yes sure. Well my background originally stems from investing. I spent many years in the Silicon Valley. venture capital and late stage investments and then did money management and hedge funds asset management. So, my background is mostly in investments. The company that I started about four and a half years ago is called NexChange and we are ecosystem as a service and people always ask me what does that mean. Well we're in the innovation space and we do a number of things we either market invest or create innovative products

Manseeb Khan : Awesome. So, I guess going through some of your past successes you've been you've been a very early Yahoo. And Netscape guy so could you. And being very much in the Crypto and blockchain space could you give us a little bit more insight of where you see the market going when it comes towards crypto?

Juwan Lee: Well I think the first thing I would say is that it's very early stages of crypto. It's really if you look at the size of it. I mean the price of Ethereum the price of Bitcoin has come down dramatically. So, the size is about 200 billion. So, when you compare that to the size of capital markets which is based on our estimates over five hundred trillion. I mean this is tiny and where we've seen is a kind of the normal growth pattern that you see in any form of technology. We saw Bitcoin have come down precipitously in price. I think it was driven by a number of things. You know ICO prices have come down dramatically. The use case Tokens have come into question. And you know just sheerly the idea of building community with entrepreneurs that have very little experience. So, a lot of things have in the short term come into question. However, this is a viable industry. We're in the early stages and either I'm very excited about the bright future for cryptocurrency and the decentralization world of blockchain.

Manseeb Khan: That was 500 trillion you said?

Juwan Lee: 5 trillion is the size of capital markets when you include real estate, gold, bonds you know equity as a very large market this is not cryptocurrency. This is our current capital markets and other assets.

Manseeb Khan: I guess speaking of current assets and current capital markets how you see institutions being part of this new wave is that a very much evolve and die situation. Or how do you see them play a role. And if a factor in the new space.

Juwan Lee: Lot of people been talking about the institutionalization of the ICO market, but I think even more fundamental than that is the institutionalization of the crypto fund industry. We've seen a rapid increase in the number of funds. I think it's now over 400 U.S. is still the largest. Institutions are getting them all like traditional VCs setting up their own crypto funds. Some VC's are ear marking their assets for crypto projects. So, what we're seeing is a lot more interest from institutions to get into this space was appealing for them. Is this is a uncorrelated asset highly inefficient still. There's a lot of opportunity for Alpha and a new investable asset class so definitely we see evolution not a die situation.

Manseeb Khan: So, you are based out in China. So, could you just talk about a little bit more of we hear about in the news about the Chinese developments, Chinese regulations. I guess what that really means for North America.

Juwan Lee: Sure. So, I'm based in Hong Kong but just a stone's throw away from China recently. I was planning a trip to China and that same very day was the announcement that was made that all up crypto events were banned. Now you can imagine that if this happened in North America. The execution of that will be very difficult. But in China they were able to execute it very quickly. What does this mean. I believe that the prices of cryptocurrency coming down. I believe that just the amount of fraud and scams that put a lot of alert to China in terms of putting a stop to a lot of this.

Juwan Lee: But also, there's a dynamic to China that is very different than say in North America which is capital outflow. They want to control capital outflow, crypto currency something that they cannot control. This is something that's very important to them. What does this mean for North America. I believe in the very near future we'll start to see really more thought process and comments made about what can and cannot be done in the cryptos space and over the next that's you know one year or so we'll start to see a lot more what I call firmer a firm regulations that are at least self-regulating bodies creating guidelines that are much easier to follow for what is the best practices for cryptocurrency.

Manseeb Khan: No, I totally agree with you the execution of banning all crypto events in North America that just pulling that off in and of itself would be. Wow. I’d be very much impressive being.

Juwan Lee:  Well I mean that happened. Literally almost overnight. So, you can imagine the level of execution the government literally sent out a notice to all the hotels and public places where you can have events and it was done very quickly.

Manseeb Khan: I assume the crypto events managers was not too happy about that.

Juwan Lee: Well it's a bit like prohibition right. I mean people are still doing it and they're doing it in other venues and all of these activities that are being banned only provide you know other creative ways of finding out how to meet. And because you cannot stop the movement of crypto. you can just put roadblocks in place and oftentimes that creates more of demand than actual squashing of it.

Manseeb Khan: Right so they're just adding fuel to the flame that has crypto right? like they're just going to find new different ventures and opportunities to grow and expand because this is a never like a snowball. You can't really stop.

Juwan Lee: It's definitely a snowball.

Manseeb Khan: Do you see I guess China coming back probably in the future?

Juwan Lee: Well I think it's important to know that China is very pro block chain and the technology they promote that. is just crypto currency they're trying to control and ICO your market right. So, this is very important delineation. So, if you see the activity and the development of block chain and looking GitHub Shanghai and Beijing isn't the top you know four or five in the world in terms of the actual development. So that part has never slowed down in terms of their evolution and what they want to do with regulation. It was a surprise to many that he got even more strict and oftentimes before anything changes you you'll see a lot more stricter regulation until they figure out what they want to do. at this point. I don't have a real opinion about what the next steps will be. I am a firm believer that you know several years from now we will be able to coexist in China out with cryptocurrency and block chain.

Manseeb Khan : What institutional or hedge fund interest is there, and we do like kind of roping back to what I asked before right. And if there is any truly moving the needle right what is needed to ramp up interest or just are there any couple of examples that you can come up with. Are there any current players that you're kind of keeping an eye on or do you see any up and coming game changers in the space?

Juwan Lee: Well institutions are getting involved. But for them to get more involved you really need proper investment strategies that can scale. I already highlighted how small this space is in terms of overall size. proper risk management and also the volatility is way too high. So there's not much liquidity there's not the proper back office operation but I think what I think the single most important reason why more institutions have not gotten involved in the crypto space and investing in crypto funds is due to the problems of custody, the security behind it, the institutionalization right now is an experiment that most of the crypto funds are conducting. And you know large institutions cannot deploy assets into an asset class where they don't feel comfortable where the money is being held in terms of the number of players that are coming into the market. I think that this is an industry ripe for to I guess traditional managers to come in. One is the hedge fund managers have already started to come in and there some of the larger players that are in the market some of the former hedge fund managers and wealthy VCs coming in in the form of either setting up their own fund or carving out a piece from their own portfolio some of the more prominent names. I think if you look at the some of the largest crypto funds you see Pantera, Dan Morehead the CEO is a former Tiger Management hedge fund alum. And you know we've seen other hedge fund managers like Michael Novogratz from Galaxy. So, this is really a space that combines a couple of skills one skill is the ability to trade and understand the macro environment what's happening in the crypto space and the other one is finding early stage ideas whether venture capital have an advantage. So, if you have both of those backgrounds I see a lot of those kind of managers coming into this space in the future.

Manseeb Khan : What would be your golden nuggets for either up and coming crypto and blockchain companies. something that it could be something that  you got when you started on your early to the Silicon Valley and brought it over to Hong Kong . I guess what is your golden nugget that stood the test of time.

Juwan Lee: Well I think most importantly when we look at projects and we look at the execution and the actual outcome of what they become the most important thing is not the product is actually the timing of the product and also the management team. These are the things that are important. We all know that the beginning of a product and where eventually ends up will be vastly different. So, a management team has to be able to be flexible and execute according to the changes that take place. I believe that you know what we're seeing is a much higher-level management team coming in the ICO market and I also see that happening in the fund space as well. So, it's very promising.

Manseeb Khan : Yes, very excited to see the new movers and shakers the space and kind of see where it's what's going to happen in the next 18 to 24 months. Juwan, thank you so much for sitting down with me today. I know you have a crazy hectic schedule being one of the forerunners in the blockchain community. so, thanks so much for sitting down today. I had an incredible time and I am very excited to have you again.

Juwan Lee: Thank you very much and I love to come back again.

 

End of Podcast

 

Interested in getting involved as a partner or participant? info@ncfacanada.org

 


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with fintech, alternative finance, blockchain, cryptocurrency, crowdfunding and online investing stakeholders globally. NCFA Canada provides education, research, industry stewardship, services, and networking opportunities to thousands of members and subscribers and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: ncfacanada.org

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FINTECH FRIDAY$ (EP.7-Aug 31): How to Structure an ICO and the Mind of a Fintech-preneur with Gary Schwartz of Pegasus Fintech Inc.

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NCFA Canada | Aug 31, 2018

FINTECH FRIDAY$ (EP7-Aug 31):  How to Structure an ICO and the Mind of a Fintech-preneur

About this episode: This week our host Manseeb Khan sits down with Gary Schwartz the Managing Director of Pegasus Fintech Inc.. They covered how to structure an ICO, to surgary donuts , and impacting investing. Enjoy!

Host: Manseeb Khan, NCFA, Fintech Fridays show host

Guest: Gary Schwartz, Managing Director, Pegasus Fintech Inc.

Over the past 20 years, Gary has played a leadership role in the high-tech industry founding, investing and managing a number of companies in the health, marketing, social media, automotive and financial sectors.  He is a six-time recipient of the Deloitte Fast 50 Award and was recognized as the "2013 Mobile Commerce Evangelist of the Year" and "2014 US Retail Innovator of the Year."  Gary is a Simon & Schuster NYC author with titles that include "THE IMPULSE ECONOMY," "FAST SHOPPER, SLOW STORE" and is presently writing a book on the AI called "IF THINGS COULD SPEAK."  He is president of the Canadian Lenders Association and Managing Director of Pegasus Fintech. Gary is alumnus of Columbia University in New York and the Stanford University Center in Yokohama, where he was the recipient of the Asia and Japan Foundation Fellowships.

Join NCFA's weekly Podcast series 'FINTECH FRIDAY$' where we sit down with the incredible people in the Fintech community and talk about leading fintech products innovations developments and challenges!

Subscribe and tune in each Friday to check out the latest movers and shakers in fintech.

Listen to more Fintech Fridays podcasts here


Transcription of Interview

Manseeb Khan: Hey everybody Manseeb Khan here and you are tuning into the Fintech FRIDAY podcast today I have an incredible guest. You may have heard of them before I got from Pegasus fintech. If you haven't seen any news blog post on Medium or if you haven't seen any of his stuff on LinkedIn, you are truly missing out It's an absolute goldmine of information.  Gary thank you so much for making it here.

Gary Schwartz: Thanks for having me I appreciate you inviting me on.

Manseeb Khan: No absolutely. So, I guess for the audience could you just give a minute of who you are, and a little bit of what Pegasus is?

Gary Schwartz: Sure. So, I'm you know I'm a fin-tech guy. I've been in space for 25 years as an entrepreneur. Right. So, I've started a number of companies in the space everything from obviously fin-tech through to health-tech, Mar-tech, ad-tech, social-tech etc. You know starting them as baby upstarts in the garage and taking them through to exit.  So that's what I do. And its sort of a natural progression that the block chain space is hugely attractive for an entrepreneur because it facilitates the growth of the business in a very aggressive fashion. And a Pegasus was conceived of about a year back with a bunch of folks with different skill sets that go together to accelerate incredible use cases on a block chain. And we will bring different skill sets the table our CEO headed up blockchain for Accenture in the valley. She did all the due diligence on Ripple, she comes with a wealth of information and insights into you know framework and governance and other team members you know focus on structure and compliance. And you know I'm the soapbox guy works on strategy and positioning and we've got amazing team and we work with companies all around the world in accelerating the use case and driving their capital formation goals.

Manseeb Khan: That's incredible. Could you. So, speaking of Ripple could you I guess deep dive a little bit and talk about the difference between a crypto investor compared to the regular traditional street investor?

Gary Schwartz: I think that's what really, we're all grappling with right now is you know the crypto community is evangelist community they're very different from what we would treat up as the incumbent investor. They serve the anti-investor right. So, you look at them as sort of a little bit libertarian you know wild west posse guys that at least out of the gates in the 90s that that was birthing ground up of you know what we now know as a block chain. It was very much of zip drive and shotgun under the pillow. You know very anti-establishment which is fantastic right, because that's the root of what we know as a block chain and that the first currencies that came out like Bitcoin,

Gary Schwartz: right? But when you're an incumbent investor you look at and it is incredibly scary right. There’s not the structure that you expect of as a traditional mainstream investor. At Pegasus look at this. You know we talk about you know we have this analogy where we talk about there's a mountain right in it and it's sitting right smack in the middle of this marketplace. On one side of the marketplace you get these crypto bugs on the other side the marketplace you get your incumbent investors in street and they really can't see each other and they just they look across and on one side they think of you know incumbent investors look across and go. Oh, it's a wild west I don't want to touch it. And then the crypto investors look across the street and think of them you know think of the street as dinosaurs. Right our job is to tunnel a hole between these two sides. Really when you think about it the crypto community know that they need more structure. They know that they need things that the Street has nailed the street wants to you know take advantage of this new marketplace with this fluidity the opportunities that are obviously in this new more fluid marketplace.

Gary Schwartz: So, the whole goal is to really get the vernacular consistent across both sides and get the things in place. So that you know what the crypto community self-policed now becomes more what the street sees as compliance and so that whole structure and nomenclature around compliance you know for the street to know that there is they are investing in something that's the security that they're holding provisions. that that people aren't taking their, you know cash out early and leaving the other investors you know holding the bag. The early days of folk taking their money and buying Lambo's I think is gone. The two sides are meeting. What I find so interesting about community is libertarian the crypto community is very much what I refer to as a ME and WE marketplace. So, they like the street they care about making profit. They care about you know doing well with their investments. And so that's the ME. You know what's in it for me. But isn't there it much. I think a huge group of individuals that care about the we. What does this mean to the global economy? What does this mean to the future of the marketplaces?

What does this mean to the environment? What is this an impact investment, or do you think of this as my analogy is sort of like you know it's a sugary doughnut right. So, you have sugar on one side you know the me, you want the sugar on the other side. But there's a big hole in middle and the hole in the middle is great because these guys don't want the middle. They don't want government banks, multinationals. they want that minimize. Now that that story is great and if it's optimized it creates huge opportunities for incumbent investors to come in and appeal to me. create a me scenarios that they know how to do. You know how to take advantage? How to drive liquidity and a website? What are the models for the new economy? models that will really not just make the middle fatter but actually get to the end constituents the people that really need their cash to drive their businesses, to drive their services. So, it's huge. Advantages to this new economy and we just have to make sure that the incumbents street you know sees how they can play safely.

Manseeb Khan: I absolutely agree with you. I think it should be interesting to see how regulation and institutions come in and build that bridge between crypto investors and Street investors.

Gary Schwartz: the boat slipped the harbor it's not just S.E.C. throwing out subpoenas. it's guys proactively understanding that they need to work within the structures that are out there. so, you know security is a security is a security. Yes, a utility token is not a security, but it still needs to be on a compliant exchange. It needs to drive liquidity and therefore needs to be on the exchange which can manage that to the highest possible standards the marketplace.

Manseeb Khan: I know that you focus on market use cases right. So, what is a key use case for most ICOs that you're seeing?

Gary Schwartz: Yes, you know there's such exciting stories out there of companies that are trying to solve. Using the blocking and we read about them every day. for me I want to get back to you know fundamentals. One of my partners says there's no fun in fundamentals but I personally think that fundamentals are the most fun because people understand them. They will invest in them. So, for me the block chain the biggest use case the block chain is capital formation and as you guys you know as national crowdfunding and FinTech association, you understand the need you know how hard, it is to drive you know capital engagement marketplace. how to create that market that you can get investors to come in and support your ideas like go back to Bill Clinton's campaign. You know I remember James Carville you know who his campaign strategist was.  He coined the expression which was “the economy stupid”. that was getting back to fundamentals. Dude it's about the economy. I like to sometimes just turn off the hype on the block chain and say what the block chain does fundamentally is allows for crowd sales structure globally sort of structure allows for capital formation. That is the underpinning of most businesses that are out there and that's what they need to establish as a bulkhead no matter what. There is no specific dynamic you use cases on the block chain an ICO is about driving engagement around the investor community and around participants.

And why is that so exciting. You guys get this at the NCFA is that a crowd sale or you know reaching what we call a democratized audience has two goals right. One is you're going out to a global community and say invest in me. Right. Here's the value proposition. Here's my white paper. Here's my OM. Here's my you know almost prospectus style document and I want you to invest in me. At the same time because you not going to 100 people to give you a million bucks. You're going to a million people to give you a hundred bucks. You're building a loyalty network of folks that believe in your solution and will use your solutions. The whole crowd sale process and the capital formation process is also a way of evangelizing your solution to the marketplace and creating a network effect and ultimately the investor piece. And you know loyalty to your specific solution and new technology is like the Met cafe network effect right. The more people you get in the more successful you're going to be. And that's why we at Pegasus we like B2B to B2C models because it's exponential growth right you're going from a business to another business that has a community of interest and they are amplifying your use case. So, we love that network effect because it drives investment and it drives and loyal supporters of your solution.

Manseeb Khan: The fundamentals are really like that because there is a lot of hype behind Crypto and there's a lot of hype behind any ICO that you're seeing that up and coming and it's like OK well what does it actually do. how is this going to be an integral part of the block chain.

Gary Schwartz: more fundamentally how is this make money. Exactly. Absolutely right. Explain to me how I am going to get a security token a return and a utility token how is it going to drive scarcity and value in the market explain to me from a fundamentals perspective what is the team? What is the solution? How are you going to make money? who are the initial investors and how is this going to drive democratized flood of investors to the table? What's your long-term strategy? At the end of the day a company that is not going to make it raising capital through traditional means is probably not going to make it on the block chain. block chain not a place you can hide. It's just a way of accelerating a good business use case and that's exciting.

Manseeb Khan: Yes. No, I absolutely agree with you I think because of block chain and everybody's kind of getting exposed is a lot of light being shed and there's slim to none that you can really hide when it comes to starting a crypto, starting a block chain company. Could you talk about regulation and could this be the answer for instability and unpredictability?

Gary Schwartz: When we started Pegasus think a lot of people sort of looked at us the cross-eyed and said What the hell are you doing. I mean the whole beauty of the block chain is there's no regulation. What are you doing talking about regulation? what are you talking doing talking about compliance? And we stayed the course and really 2018, 2019 what we evangelize is become common practice you know an ICO is a new asset class in the marketplace. it's different as it is not unlike a stock you don't have an equity position. It's more like an investment in future success of the company right. But we know whether it be a security token. Looking at the value of that token it's a utility token you're looking for potentially scarcity as a play and demand that utility that will drive up the value. but ultimately the asset cost must be treated. in a way that will drive confidence in the marketplace. If it's a security or treated a security if it's an it's utility you still must treat it as a compliant play. And so, regulation is not only a good idea. It's a central component to the ecosystem. that oversight is there to protect all players. Right. And regulation. Yes, it does potentially slow down certain components of the process, but it also speeds up liquidity and it allows you know feel confident in what they do because there have been bad actors right there. There's no doubt. And so how do you navigate this marketplace?

Gary Schwartz: How do you know that you're swimming in a pond that is that you can feel confident? that the company and the stakeholders are a you know a kosher and that you're not going to get screwed. That's the regulation is important and it's one of our pillars, right? The key is balance because that's So to foster the libertarian values, the block chain you want to drive that fluidity. But you know a little bit of KYC upfront. a little AML making sure that you're on the right exchange. Make sure that you've done the right due diligence on the team that they passed they perps. All these things are fundamentals. These are fundamentals and running a company and the block chain doesn't change that.

Manseeb Khan: I absolutely agree with you the touch a little bit on liquidity right is it crucial for crypto investors to consider liquidity?

Gary Schwartz: Oh yes, I mean you know at the end of the day especially if you're holding a security look how do you make money right. You buy something, you hope that it has increased the value. you hope you get some yield on it some dividend. You hope that whatever you buy grows in value. you believe the business you believe in the marketplace but that value you know even if you have a hard luck mentality and you want to hold that as a crypto gold at some point you've got to pay your bills. at some point.

You want to cash out at some point you want to say look I made you know 200 percent, maybe 300 percent or a thousand percent on my investment. I want to cash out so liquidity with the structure that facilitates. liquidity is essential to consider and essential to offer your community. And so, when you run a nice ICO, you have to put it on an exchange which allows for that liquidity and so there are tons of compliant exchanges that are coming on line. that we work with very closely is the GBX the Gibraltar block chain exchange. which is a utility exchange it's a peer to peer exchange. which is a compliant exchange and we one of the sponsors to that exchange. So, we use that exchange as a marketplace for a number of our ICOs. We do the due diligence, we position them and we on board them onto the exchange because that exchange now allows for that token to trade, to grow in value for the investor or the participant in the situation. to have some sort of approach to value and to exit that value. into other investments or interfere. The World Goes Around everybody's happy right.

Manseeb Khan: No, I totally agree with it. How can I make money right? If I'm going to invest in a coin and I can pull out.

Gary Schwartz: Yeah, I mean to ultimately again as Bill Clinton quote it's about the economy stupid right. It's about how do I get my money right. My money's valuable.

Manseeb Khan: Exactly right. Tell me a little about, some of the ICO's that you're watching and some of the technologies that you are kind of keeping your eye on.

Gary Schwartz: I'm sure you stay all day and talk about all the different ones that I find interesting, but I'll tell mention maybe a few that are from different verticals that I'm excited about with we are participating in as an accelerator. is one technological cabin network cabin spelled K A B N, KABN.network a very exciting play.  For me sometimes you know the gold rush you have to look at the picks and shovels and the KABN is a great play because it is again a fundamental technology .it allows in a very innovative way in the market to grow to accelerate compliance by facilitating KYC AML. So what it does is it allows participants token sale to come in to go through the compliance checks to verify their documentation in an active way , in a bank grade way.  Not only do that only do what's so they hold the registry on the block chain which allows hundreds of thousands if not millions of Accredited Investors to come in do a check and then all ICO has to do is go in and ping the registry and they are either compliant or not. So instead of a lot of the solutions out there focus on doing a sovereign identity check of the consumer. We do it once and put it in a registry so that again you can come back time and time again. And it allows for and facilitates the speed that we need in this marketplace. So that’s a great technology because it's facilitating business as usual in the block chain space. There's another company that is Europe that other working on which is called GEON, geon.network which is a location-based marketing solution. Basically, it allows brands and retailers to mint and mined coins to drive their brand objectives. so, to drive people into their store, to reward people based on being in a certain place and for that again business as usual. we've been using location as a way of driving value for brands for a long time. But there's no way of doing it with a block chain layer. So, these guys allow brands to participate in a block chain to mint and mine their own coins and to reward their customers using a blockchain currency.

There is another company called mortgage blox, B l o x which is again this is such a fundamental business. hey, we will raise capital to invest in real estate. Well here's a 200-million-dollar pool, that is has me tokenize. so instead of going to one or two or 100 investors. you can go to thousands of Accredited Investors and pool those funds. So again, a fantastic use of capital formation. a company which is a spinoff from a hard fork of a ripple called Yaka labs and we're doing a lot of consulting with them in the valley. Another great use case because what they are trying to do is use the ripple backend to create a new coin and you transactional economy for certain global marketplaces. I mean there's so many fun and powerful use cases again you know as an investor and as an accelerator. we look for great teams we look for are really good business plans that we can see how they can generate revenue. how they can scale? how they're going to use network to scale and we know that with those fundamentals and with the compliance that we throw into these deals. we can help them reach the marketplace and hit their capital formation goals. So you know maybe one thing I'll mention because it's come up recently is people think that a lot of use cases out there are frivolous and some of them have had a lot of attention over the last few months sort of waned in participation and a lot of people are sort of nay saying the block chain and I refer to one because it was just put up this week which is crypto kitties basically this collectible game where people collected literally Kitty's.  They used ERC 721 which is basically an Ethereum coin which has certain attributes to allow it to be a collectible, but you know maybe people lost interest in collecting kitties. But the whole idea of digital collectibles is a phenomenal use case. Oh my gosh. You know the Pokémon and on steroids. the opportunity for sports and for music to use this as a new currency to engage with the fans is phenomenal. When you look at something like crypto kitties you don't want to look myopically these things in the actual content use case may have failed but the underpinnings of the technology. the underpinnings of what it can do globally to drive engagement and to make money for Marketplaces that had a hard time raising money on their base. like music, sports need to accelerate the way that it drives mech because cannibalized by fraudulent merchant you can't control that. suddenly these immutable structures like ERC 721 there going to change the way business works substantially. so, I'm hugely excited and so many use cases are out there right now.

Manseeb Khan: I love it. I think the GEON one's very interesting the location-based marketing is very interesting it’s that in Toronto probably is not going to work in San Francisco because San Francisco has a sort of culture of what have you compared to Toronto so that I like that one.

Gary Schwartz People don't change the way run businesses, the way we see value doesn't change the mechanisms for allowing us to make money on that. The structures change my background is more about technology, so I made a lot of money on SMS estimates gave birth to ringtones as a content phenomenon ringtone if you remember them were just a little smidgen of a song.  I mean it was it was ridiculous. Songs were to be downloaded for free on Napster, but you had a pay 5 bucks for a few seconds of a cannibalized version of a course Why. Because they were a business model, around the a closed network which was telecom provider and the OEM the handset will because their business model.  There were billions of dollars of wealth created around the world. well the blockades the same, block chain is another mechanism to create value and create a new distribution mechanism around that. So, if you can create a mutable asset, asset class like ERC 721 you can really exploit that and make you know copious amounts .value in that new model but it's the same business it's the same. at the end of the day we're still humans. we have the same motivations.

Manseeb Khan: I absolutely agree with you. It's like Pokémon way back when and then when Pokémon go came back the exact same thing Could you tell the audience a little bit more about block chain what should we focus on?

Gary Schwartz: One of the big things that people chat about is that the technology will not scale that sort of like you know a one to one panel that every single blocking conference that I go onto. You know it's not scalable.

Gary Schwartz: You know look at Ethereum and look at Bitcoin. Bitcoin 10 transactions a second, Ethereum 25 transactions a second and then everybody turns around and looks at VISA these and says oh well they have a peak transaction rate of 65000 transactions per second. You know we'll never get it. And I've always said you know this is the Internet back in the late 90's your dial up modems and you have these primitive browsers and you have to try and explain it to your mother and she didn't know what the hell you were talking about Nothing new. This is just another wave of technology, which we all know is accelerating much faster than internet.

You know I like to look at you know the advances that we've made even in the last year like your proof of work networks like block chain like Ethereum through there hashing process. It's how they achieve the desired difficulty, through the random number hashing it is a very slow process. And we know that’s not optimal, you know sustainable in network model, but you have new chains like Solana that work fundamentally differently they work by starting with a random hash value and then hashing from the prior hash value which basically makes it much faster to get to consensus right. Guys like that say at least that they can you know do upwards of you know 700,000 transactions per second. You know that's phenomenal. And if they can do that and then they put Visa and MasterCard networks to shame. Right. So, the technology will scale.  And because we have so many smart people that are focused on making this work. because it's a trust-less economy because it's open and it's an open source economy. You have so many people incentivized to make it better and work to make it better. I think that's a crucial piece. You know to throw out there to the audience.  I mean what else to say. I mean we all know that that a lot of people think bitcoin is block chain, but we know that that not the case that block chain is powering bitcoin and fundamentally block chain is an enabler for so many other technologies  But you know ultimately a distributed ledger technology has so much power in solutioning and we've talked about some of the solutions earlier. Scales for me I think is the big one to nail because those are where all the naysayers go whenever they talk about the block chain.

Manseeb Khan: A lot of people may have heard of it in the news. I know I've seen a couple articles here and there Could you talk a little bit more of what impact investors are. And I guess a little bit why it's important to you?

Gary Schwartz: impact investment that's a little bit like me and we thing. it's more the we like. What are we doing here? What are the businesses we're creating?

Gary Schwartz: How is it having impact on our world. How is it having impact on to better our economy to drive sustainability to drive. You know empowerment for women and all those things. Those are crucial, and I think very passionate goals of a lot of people in the block chain give me some examples of how this is going down, but I was born in Africa. I was born in a small country called Zambia. And if you look at those economies and you look at Africa I mean they there is so much graft, there is so much corruption. Money doesn't get where it needs to go and even if it gets there the process is also cumbersome. And there's no transparency, there is no efficiency in a lot of the solution in the block chain really can make a difference it can it can help. And this is not just Africa, but it can help with you know security and transparency and voting. You know which a big thing is obviously globally. Voting fraud and optimizing that process Accessing ownership of data, medical data. how do you in a lot of these places. There's no I.D. So how do you identify somebody. How do you create some sovereign wallet which with? which can hold their personal information, so that they can get information, can be connected to them in a more efficient way. Obviously, land is a big thing in Africa. So, the reliability, reliable secure you know a land registry are essential. And then you know the whole idea of managing money.

Your audience knows about M-Pesa and other payments. But in Africa you can use your phone to transfer money through SMS is called M-Pesa. And again, a primitive solution that is solved so many problems for the continent. Well those a digital wallet using and M-Pesa. Now can it can be a distributed ledger. So that not only are you using your phone to move money, but you're moving money which is tokenized. which can be controlled in such a way that it doesn't end up as graft it gets directly to a farmer. The farmer uses that. that it doesn't get affected by the vicissitudes of the local currency. This is exciting stuff and it empowers women because it gets to farmers which are much part of you know women in market place that's just an example from Africa. But this is happening all over the world. We're optimizing urban cities, we're creating solutioning around and micro loans. A guy I know in Berkeley in the U.S. is trying to put together a solution to solve for solutioning around a municipalities in Berkeley. looking at bonds optimizing process you see taking out the guns the existing solution and getting more money to the end recipient. So, to all these that this stuff is part of this new economy. The distributed ledgers allow for optimization of certain business processes and transparency. And so, it's a brave new world it's very exciting.

So, imagine using remittance services to send money from one country to another. you have to go to a money market. You have to pay a service fee. first, you must take a time of your day to go somewhere. Physically you must send money with the fee. It takes a long time to get to the end. The other person must go to the next town potentially to pick it up. They pay there's their exchange rates. It's an it's a mess.so this time and there's capital impact. well if you using the you know the block chain as a remittance service. That huge efficiencies because It's instantaneous. There are fewer hands in between two to take fees and you don't have the same issues with the arbitrage on currencies and so you don't get dinged on the FX. So those exciting things that we all know need to change and are changing as we speak.

Manseeb Khan: I absolutely agree with it. So, to wrap this up Gary could you give us some tips on an ICO structure.

Gary Schwartz: No absolutely. I mean that's sort of I guess that's a really good way of summing up because really you know all of this comes down to running a good initial coin offering. We talked about a lot of those elements compliance make sure the team your team, it's a good business model. It's a good block chain use case. There's a market for that use case that that you put it you structured in such a way that there's liquidity for investors. All those things are key. But we maybe one of the things I'll leave you with then is to talk about. difference maybe between what I would run as a startup and how the block chain and for me. When I run startups the last 20 years I never really care too much about the advisor. A quick cohort around me it was all about my core team. But with a block chain thing are different and this is one thing that strikes me is when somebody at least when you're a Crypto investor and investing in an ICO. You know they may read the white paper they'll probably actually just read summary, but they look for certain shorthand due diligence when they when they are looking at an ICO.

And one of the things that they look at and they there's a lot of scrutiny on is the advisers that you have in your ICO. And it's interesting for me because yes, it's important to have advisers is no doubt and to have you know good people around you in any business no doubt. But for some reason in the ICO world because this is a global economy. People are moving very fast on decisioning they are looking at who's in it now. who is advancing things initially you would look at early investors in ICO that would be then advisers to the ICO as a shorthand way of seeing a credible and investing with them. But now you know I think there's a bit of maturity now. You're looking for advisers who explain your business that they come from the vertical that you pushing into. and that that's all good. But it is important to build, narrative around those advisers. so that when somebody comes to your ICO and they and they are paging down and they see the description of the business and they see that is they read.

Again, the probably the summary the white paper and they go through things and they get to the advisers. It needs to tell a story and it needs to tell a story that it really screams credibility. It shows that that you have stakeholders in there that not just stakeholders that have invested in you but that are known in the investor community it can be which is obviously very important. But also, people who understand your business and having them attached to your business really speaks to the credibility of your business. So, for example if you have a location-based marketing know arena. you'd want to have people in there that really can talk to and brand engagement. If you're in the payments base in the identity space like KABN you want to make sure that you have people in there have a background in identity in record management, in payments from the incumbent world that speak to the fact that that you nailed this. that's probably one thing that I think we all know it's important. But I think it's probably one of the most important things in fashioning your narrative to the marketplace.

Gary Schwartz: we could speak for hours but this kind of cool and we touched on some fun things and hopefully you'll invite me back and we can take a deep dive into some other areas.

Manseeb Khan: Oh no I can't wait. I'm so excited for that they are a sponge. I want to learn as much as I can. ` from amazing people like an industry. So, Gary thank you so much for sitting down with me today.

Manseeb Khan: This has been an amazing time. I learn tons I'm pretty sure the audience has learned a lot. And thank you so much for dropping by. And I can't wait to have you again.

Gary Schwartz:  Yeah. If I could just end up just if anybody wants to reach us and find out more information just go to Pegasusfintech.com. So that's one-word Pegasus as in the flying horse and fin tech dot com. look forward to being heard from anybody if you want to directly reach me it's gary.schwartz@pegasusfintech.com

Manseeb Khan: So, on the behalf of the NCFA Canada's leading crowdfunding fintech association we wish you an amazing fintech Friday and weekend.

 

End of Podcast

 

Interested in getting involved as a partner or participant? info@ncfacanada.org

 


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with fintech, alternative finance, blockchain, cryptocurrency, crowdfunding and online investing stakeholders globally. NCFA Canada provides education, research, industry stewardship, services, and networking opportunities to thousands of members and subscribers and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: ncfacanada.org

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