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