Fintalk #2. The Future of the Fintech Industry

Welcome to Fintalk. Today is our second episode of fintalk. This is a webinar series about FinTech, where we discuss business, product management development, marketing people, and generally, the future of the FinTech industry.
Mykhailo Glodian
Mykhailo Glodian
Head of Growth @ MeaPay
The Future of the Fintech Industry

Our guest is Junaid Iqbal, x-Managing Director at Careem.
We’ve discussed why the platforms are so small, what financial business will succeed in five years, and much more.
More in Fintalk episode #2. Ready, steady, go!
 


 

Episode #2

 
Christoffer: 
Welcome to Fintalk. Today is our second episode of fintalk. This is a webinar series about FinTech, where we discuss business, product management development, marketing people, and generally, the future of the FinTech industry.
 
Fintalk, it’s proudly sponsored by MeaPay the mobile phone app that turns your mobile phone into a card reader, no more clunky and expensive POS readers, no more dongles, just download MeaPay and start accepting card payments directly on your phone with MeaPay you save on hardware, all your employees can have a POS in their pocket. You can easily accept card payments on the go, whether you’re a coffee shop, taxi operator, a delivery service, or any other consumer-facing business, download MeaPay today and be part of the digital payment revolution.
 
That’s my plug, thank you for sitting through that Junaid, and welcome to the show.
 
Junaid:
Good to be here. Chris and good to hear about the plug, I’m going to download it today.
 
Christoffer:
I hope so it is not available on the market yet but we can give you the demo.
 
Junaid:
Okay.
 
Christoffer:
I have to say I’m a new self-conscious about the production quality today and I think, quite explain a little bit about your background, our viewers will understand why you’ve previously been the anchor of Geo TV, and CNBC in Pakistan. Correct?
 
Junaid:
That is true. In another life that did happen.
 
Christoffer:
Does it feel weird to be on the other side?
 
Junaid:
It does but the production. The production issues are the same on either side.
 
Christoffer:
Okay.
 
And you’re obviously, you’re on the show because of your FinTech background you’ve been the official spokesperson for the Securities and Exchange Commission of Pakistan. You’ve been the Chief Executive Officer of BMA financial services, you’ve been head of retail and commodity brokerage at BMA Capital Management, Chief Executive Officer at Alexas securities before you joined Careem, the big, big ride-hailing competitor of Uber, that was subsequently bought out by Uber, where you worked as the managing director of Careem Pay which is their FinTech division. Is that a fair, fair summary of your, your exploits?
 
Junaid:
That is a very fair summary, all of it is true.
 
Christoffer:
Heavy resume I don’t think we can afford to hire you.
 
Junaid:
But it depends on who’s looking at it. If you ask a traditionalist, they’d say jumps around too much.
 

Fintech environment in the Indian region

 
Christoffer:
Possibly, but when industry and tech especially fintech. I think if it’s okay with you, we’ll just jump, jump right in it. I have some thoughts about the Indian Subcon region and the Middle East, FinTech industry that I’d like to ask you.
 
FinTech sort of the revolution we’re going through now is heralding a new age of banking right in the Indian subcontinent, long, long there’s 90 million businesses and over 300 million unbanked adults that are just now getting into the banking fold. What do you think is the next big impact that FinTech will create in the region?
 
What do you think is the next sort of big, big thing, I mean we’ve seen, small businesses getting access to sachet loans disperses moderate interest rates are suddenly available. What do you think is the big thing for this region?
 
Junaid:
I would firstly, split the region. I say there’s two different pieces so I definitely see India as a separate market which is definitely far more evolved in terms of for the customer-facing applications of FinTech the b2b facing application of FinTech, and also the underlying foundational layers where you have interoperability of interoperability between banks, telcos and wallets and that was, of course, supported by the UPI which the state central bank of India Reserve Bank of India started where, as long as you have someone’s mobile phone number you’re able to send them money, and the credentials at the back, depending on whether they’re a bank or a wallet they get connected.
 
When we look at the Middle East, North Africa, and Pakistan. I feel that there are a lot of players that have emerged, who are, who are delivering end-use cases, you’ve got a lot of buy now, pay later companies you’ve got peer to peer transfer companies, you’ve got embedded finance so let’s say within the Careem, you’ve got a wallet or within known you have a wallet. But what’s stopping all of this from starting to explore is the underlying foundational layer, which is interoperability, which is moving, being able to move money from a bank to a wallet, a wallet to wallet and a wallet to a bank, and so the open banking infrastructure that technology is there.
 
But so far, the banking sector has not been really open to exposing their APIs. So let’s say if you’re a Careem pay, you can easily get the tech to pull funds from the banks, but the banks are not willing to integrate with you there is hesitancy on the banking sector side, thinking that if we allow all these various fintechs to start pulling money. People will pull money into their wallets and our deposits will dwindle, this is a big fear that every market goes through.
 
And in some ways, the central banks have also not figured out how they want to deal with this. So while on the front end, you’ve got use cases like E-commerce, food delivery, ride-hailing, or specific financial use cases like peer-to-peer payments, investments, or buy now, pay later. But on an underlying basis, every player has either one mode of payment through a card, or some sort of a cash-based top-up, and so on so forth.
 
This entire piece is not getting connected because open banking has not started now in some markets. The central banks issue. It’s a regional issue, it’s a regional issue you see it all throughout the GCC, you will see it in North Africa and you see it in Pakistan.
 
So either the central bank since, in the West, either came out with, enabling regulations, which encouraged the banks to open themselves up to open banking and interoperability and incentivized them in a certain way, or they put mandates and said that you have to do this.
 
Christoffer:
So, we’ll be pressured by the European their European counterparts to follow suit, or do you think they will build modes and protect themselves in the region?
 
Junaid:
I think the pressure is coming from the end-users themselves. So if you look at the industry now governments are seeing that while you have Amazon and Souq and Noon  And Daraz that have popped up in the region and Namshi. The beauty of this model is that you’ve got hundreds and 1000s of individual vendors who are at the back, mom and pop stores who are supplying and every government wants them to grow a name to be a part of the digital economy.
 
These are the people who are facing problems because the customer pays cash, cash on delivery still use in this region, then the platform collects the money then the platform sends the money to the vendors. If there is open banking, it’s easier for the customer to pay the platform in many ways, and it’s easy for the platform to pay the vendors, and for the vendors on a b2b level, it’s easy for them to pay their suppliers. So, the tech is all there. The money is all there.
 
Either you need the banks to the banks themselves to take a bold move and say, we’re opening our API’s come startups to connect with us. All you need the central bank to incentivize the banks, or you need the central central banks to force the banks, and it’s starting to happen and I think what you will see in the next year or so, country by country, one of these three things is going to happen either bank will see the commercial use case or they’ll be pushed or encouraged by central banks and then you will see suddenly, you’ll see a boom in the economy, you’ll see a boom in the FinTech space
 
Every use case whether it’s peer to peer, whether it buys now, pay later, whether it’s paying in in digital currency for your rides or your food. All of this will grow.
 
Christoffer:
You’re saying that the real growth, the real big sort of explosion in FinTech won’t happen until there regulations is up a bit. But let me ask you a follow-up question on that 2020 even given the current regulation has been a good year for FinTech right online brokerages gained momentum. Mom and Pop show pop investors are able to buy or equities now, there have been several IPOs ETFs, mutual funds UPI payment skyrocketed. More and more people switch to online banking in a bit to social distance themselves and keep safe during, you know COVID And insurance buys have increased dramatically, and key industry players such as SadaPayy in Pakistan, PTM to Dora, grow among others have seen a lot of activity and users user numbers skyrocket right. And most people expect these trends to continue well into 2021, 2022.
 
So my question to you is should FinTech investors be bullish from an investment perspective, do you think, things aren’t going, going to go up from here, will we see more venture capital getting into the fintech? Do you think banks will start acquiring fintechs, what do you think is, is the investor angle in the FinTech industry in the region?
 
Junaid:
So Fintech is actually a complex space to invest in because it is hard to predict which use cases will win, and there are multiple players who could serve as a particular market so let’s, let’s take a small example for a second.
 
Let’s look at the buy now, pay later market. Now theoretically speaking, the banks are already well-positioned to do this, it just that there is slow movement there is inertia, there is a lack of understanding of how platforms work and how customers interact with platforms, and there is maybe even resistance to using quick digital methods of doing a KYC and a credit assessment. Hence these fintechs are coming, they’re tapping a fresh pool of capital, which is more aggressive and which is saying that okay if you look at 100 different data points that you can collect from a person’s mobile phone, give them credit. Now, this makes them grow very fast and so forth right now they’re the darlings of, of the MR world for example by an arbitrator.
 
But is this to say that banks will not, or maybe in every market, it takes one bank to really jump in and say you know what we’re going to do this and we’re going to do this very aggressively with all our, our backing and a large capital base, so it’s unclear who the winner winners will be
 
The second game is when you look at, let’s say peer to peer type of payments are standalone peer to peer apps going to win, or embedded peer to peer apps come to and for example, a player like Careem is becoming a super app where you can find a ride, food delivery, now even cleaning services or so on so forth.
 
So would you rather have a standalone app. Now, in the absence of peer-to-peer ease with banks or in large platforms, a standalone app is doing really well, and it’s growing really well. But what happens when platforms also start offering this and make it easy. And what happens when banks and telcos also make this easy. So, all the use cases are being offered in pockets and multiple basis, and hence it’s hard to predict who will win. And, and so there is a lot of euphoria, there is a lot of investor money going in. And just like any gold rush. A lot of fingers will be burned.
 
The Future of the Fintech Industry
 

Neobanks future

 
Christoffer:
It’s hard to make predictions. So I have some predictions that have been made and I’d love to hear your input on them, since you’re a bit reluctant to say which way things are going. One of them is that neobanks are going to stage a comeback right with the increasing number of startups applying for banking licences and institutional banks looking to expand the digital offering. Neobanks are by many seen as as the future of banking. Do you think that’s a fair prediction?
 
Junaid:
Depends on who’s launching neobanks, if new mines are being launched by platforms who already have a few customer touchpoints, they have a higher chance of success.
 
When it comes to banking, people that trust is an important element. So either they you’re used to seeing a bank since you were a kid you see their branches you see them on TV you see them on billboards, and in turn, your grandfather bank with them before the bank with them should build some trust, or there are platforms who you trust their platforms you trusting with your food their platform so you’re trusting with a ride at 3am. So, so you start, you start trusting them. So it depends which platforms are, who is launching the neobank so I think, I think, neobanks on it.
 
Christoffer:
Sounds like you’re in the Super App strategy of consolidated use cases associated with, with a wallet like the Uber-Careem model you think they are more likely to succeed because of the overlap of use cases in a single user face or you think it’s because of their resources, both financially and technically to deliver better solutions?
 
Junaid:
It’s very interesting because if you look at three regions of the world. The behaviour of the customers is a little different, if you look at China, it’s all integrated. Essentially, like if you look at WeChat that everything that you can do with a bank, you can do with WeChat plus you can any service that you can do with the platform you can do with the WeChat, a screen of WeChat might be seen as a very cluttered screen to a Silicon Valley product purist, so over there.
 
Christoffer:
Facebook even deconsolidated their messenger app from Facebook right so they’re going in the opposite direction of deconsolidated.
 
Junaid:
Over there they’re deconsolidated they’re completely dirty consolidating so in the West, you’ll see something completely purist so over there. You have had Venmo, and Revolute find a lot of success with. They pretty much started with a, with a with a, with an easy way of peer-to-peer payments. Then they started, they gave you debit cards and essentially any, any service that a neobank offers you’re able to get with that.
 
So over there you’ve got purist in, in East Asia, in Asia, you people like all bundled up together, I think, Middle East, North Africa, Pakistan, this region will be somewhere in the middle so yeah so I’m betting, I bet I’m betting that the some of the existing platforms whether they’re e-commerce platforms or food platforms the ride-hailing platforms, food platforms. I think they have a better shot in this region.
 
Christoffer:
As the sort of fog from the pandemic and consequent lockdowns begin to lift business activity will return to sort of pre COVID-19 levels. And the lending activity is expected to pick up, especially as small merchants and micro-businesses start to rebuild their, their ventures, their prediction is that as a consequence of that microlenders are going to really mushroom. Do you think that’s a fair prediction?
 
Junaid:
I completely agree with that prediction, and I think the, our economy generally every economy’s ability to better track and better analyse micro vendors has become better. Back in the day if you wanted to go borrow money from a bank that asked you for all those documents and whatnot.
 
Today if you want to lend to let’s say a corner shop, which is also serves as a doc store for a grocery company. Then on a daily basis, on a live basis, there is, there is data available on how much business they’re doing. And if you lend them for inventory. You have a very fair sense of how quickly that inventory is moving that’s one example.
 
If you’re lending money to a driver who’s driving on the Uber platform or let’s say who’s driving on a trucking platform is also like a micro vendor right, you have live as a you as a lender have live data on how many trips are they doing, and same thing if you are an online seller let’s say if you are someone who’s selling on Amazon on a daily basis Amazon can provide to the micro, microlender, your daily business information.
 
So, so in terms of information in terms of your, your repayment capability in terms of your earning capability, lending lenders today have more possible data than ever before. Again, you can’t say that say that, go ahead.
 
Christoffer:
Sorry, it sounds like you’re saying that the successful microlenders are going to be the ones that are able to effectively leverage data points that are currently not used in traditional banking in the most effective way, looking at really microtransactions and their daily liquidity.
 
Junaid:
Absolutely, banks haven’t understood this right so banks are not even, in some ways lending to the platform’s, let alone, lending to the people who, who sell products and services on the platforms. When neolenders who will understand this will not only lend to platforms or will come to that forum and say hey, tell me who are YOUR 10,000 BEST vendors, and give me a dashboard so I have a high level of look and feel into their daily business, how much do they trade, how good are they in exchanging money with you and. And so essentially, Amazon, Amazon Middle East will be able to give their own out of a credit score to their vendors and based on that a new lender will say well if Amazon’s algorithm for its b2b business partner is saying this is gold. I’m going to lend them money, and, and, Yeah.
 
Christoffer:
This further strengthens what you were saying about these ecosystem, multi-use cases platforms winning this war because they have all this data to draw on that individual use case providers won’t have.
 
Junaid:
Look, people think that platforms are big. I think platforms are very small. If you look at their penetration, they’ve only penetrated high single digits at best in their countries. So you could say that platforms have only done a successful pilot yet their growth phase is just starting.
 
Companies that you see who got a large number of customers and suppliers on both sides, whether they’re doing food, whether they’re doing ride-hailing their ability to strap on more and more services and products on that same platform is very high.
 
Secondly, their ability to start servicing their suppliers and vendors in forms of financial services, insurance, other I mean, for example, let’s say, if you are Uber, Uber hasn’t gotten into the tire business at some point, Uber will get into the tire business right it should, globally, it should be the largest seller of tires.
 
And that’s because you’ve been with Careem, you know that the teams haven’t had time to do this, you’re just building the bare blocks, but five years later when you’re looking for next phase of next phase of your profitability, Uber sells tires, then you’re going to sell cars, and you will be the one, there’ll be lenders lining up outside Uber’s door and saying, hey, who can I, who should I give, car loans to an Uber will say okay give him. Give it to Chris and don’t give it to Jeanette, for example. And, and that’s how. First, they will be act as distributor to financial duties micro-lenders, then they will eventually become sort of kind of brokers. At some point, they will get their own licences and,  and get a separate balance sheet, and become lenders or acquire those lenders.
 
Christoffer:
So you’re predicting both the vertical and the horizontal integration that covers everything from banking services down to tire exchange and automobile services. These types of platforms so that these platforms that are now relatively low as you say penetration in the market, if they’re successful will actually keep expanding both vertically and horizontally in the ecosystems in which they operate?
 
Junaid:
Absolutely. And, and, if you 100% I That’s That’s my belief and for fintechs for fintechs what’s important to at least in my humble opinion, what’s important to focus on is not pick one use case and say okay I’m going to offer this one B to A, B, B to C or C to C use case.
 
Everyone is going out and trying to build an Uber for X and an Uber for Y. And essentially what they’re saying is, every industry that has begun that’s run in an analog manner, let’s go and automate it.
 
As a FinTech, you should sit back and think that okay if here are the 10 big industries which will get automated in the next five years, and more and more layers will keep getting connected. How should I embed my services on a foundational, at foundational matter with these platforms.
 
I think that’s where big fintechs X’s are gonna come in and the companies who you see are slowly building, what will be future 100 billion dollar businesses are your gateway businesses are your argument of your settlement businesses, because if you’re building a business based only on peer to peer in the short run, no one else has that feature so you’re going to win but in the long run and everyone else will build a two.
 
And here’s, no one’s gonna take their money out of the ecosystem in your app and then do a peer-to-peer and then take the money back into another ecosystem.
 
Christoffer:
I think that’s great advice and a good note to end it on. Thank you so much for joining us today, Junaid, live from Pakistan, genetic ball. I’ve been the Christoffer Thorsheim. Thank you guys for joining us and thanks again Junaid, for sitting through a slightly low production episode of fintalk.

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