486 The Future as Seen at SXSW Successful Strides in Financial Inclusion

Become a disruptor in the emerging fintech space through NYU Stern’s new Master of Science in Fintech program. This one-year part-time program is designed with full-time working professionals in mind. Welcome to Breaking Banks, the number one global fintech radio show and podcast.

I’m Brett King. And I’m Jason Henricks. Every week since 2013, we explore the personalities, startups, innovators, and industry players driving disruption in financial services.

From incumbents to unicorns, and from cutting-edge technology to the people using it to help create a more innovative, inclusive, and healthy financial future. I’m JP Nichols, and this is Breaking Banks. All right, good afternoon, everyone.

Welcome to the Fintech House. We are recording live at the Alloy Labs Fintech House at South by Southwest. Amazing sponsors.

I’m Dara Tarkowsky. I’m the managing partner of Actuate Law and the host of the Tech on Reg podcast on Provoke.fm. Super jazzed to guest host this very special episode of Breaking Banks. And with me this afternoon, we’ve got two fantastic guests, Mike Bechtel, chief futurist at Deloitte Consulting, and David Reiling, chairman and CEO of Sunrise Banks and author of Fintech for Good.

And for those of you who don’t know, Sunrise Bank not only is a founding member of Alloy, is a B Corp, CDFI, and a member of the Global Alliance for Banking on Values, one of those financial institutions truly committed to promoting financial empowerment for all socially responsible banks. Very excited to be sitting here with you two. Yes, absolutely.

Yay, Sunrise. Mike, I actually don’t think I have seen you in a very, very long time since back in your lab days as we were hoarding boxes of chocolate out of Mike Redding’s house. So consider this an official shout out to all of the Accenture Labs alums.

Mike, anything you want to say to that crew? Just Labs legends represent. Hello to a certain Adam Tarkowski, who I may or may not know is related to certain Dara Tarkowski. And yeah, yeah, go Labbers.

Go Labbers. All right. So as we have promised the audience today, it has been an absolutely wild time for the financial services industries from so many different angles.

Increased regulatory scrutiny. I feel like we’ve gone through 30 news cycles in the past 10 days. We’re here at South by Southwest, which has doubled down on its focus on technology, innovation and the deployment of technology in our everyday lives and in our businesses.

So it seems as though we’ve reached an inflection point on the proliferation of technology into our daily lives. Mike, I would really love to start with you. It seems that every day we’re talking about a new app, a new tech fad.

It’s ChatGPT. It’s AI this. It’s building algorithms.

Technology is good. Technology is bad. And as a woman who generally likes to cut straight to the point and through all of the nonsense, I’d love to hear from you to tell us where you think the real opportunities in these evolving technologies lie and what’s just hype and nonsense.

Clear it up for us. Yeah, a simple question. I’m timing you.

All right. Great. Okay, for starters, I don’t think tech’s good or bad.

I think it’s a force multiplier. It’s a tool. And that can sound kind of weak.

But here’s why I really believe it. I studied anthropology back in undergrad. And we talked about human history, pre-human history.

And whether people were talking about sticks and stones fashioned into tools, the fact was even back then, those tools, which for those folks were technology, right, could be used to get your dinner, could be used to do harm to your neighbor. And so, futurists are low-key, secret historians. And when we look at the history of technology, we tend to reject everything being like a revolution, a change of kind, not just degree.

And so, dare I say, give you that concise answer you’re after. Whole history of technology, at least for business, if interactions are getting simpler, it’s probably a path to profitability. If information insights systems are getting smarter, probably a path to profitability.

If the number crunching in the basement is getting more capable, it’s a path to profitability. If it ain’t one of those three, right, simpler interactions, smarter, right, information, more capable computation, it might be snake oil. Well, you made an interesting comment before because, for example, the tools that we developed to hunt and gather and feed our families, you mentioned also were the same tools that we could use to murder our cave neighbors, right? So, we also talk about the ethics and morality of technology and the way we use it and the way we deploy it.

That is the defining difference. So, David, let’s talk about the ethics of a lot of the technology that, you know, the world is experiencing right now. And then sort of specifically in the financial services world, what’s your take on that? Yeah, I think it’s a great place to start in terms of, again, the anthropology in the history.

I can tell you from working in the low-income communities my entire career, I can tell you what the credit score difference is between a person who lives in a low-income community and one who does not, who lives in the suburbs, with the exact same profile. It’ll be at least 40 to 50 basis points or points different. And so, these are just functions of algorithms and so forth in terms of a credit score.

But we know that they exist. And it’s so, as we look at the future, in my opinion, like as we use, I’ll use chat GPT and open AI and so forth, it still needs human interaction. It’s not perfect.

And I do think AI does need parents, maybe specifically grandparents, to put some wisdom over the layers of the algorithm, because you just can’t put everything into code or all the perspectives. One of the facial recognition issues at the beginning was for minority communities. It didn’t recognize at the same kind of accuracy rate as it did Caucasians.

So, that’s an issue, right? They just couldn’t, they just didn’t do it or think about it in its development. Well, and Dave, to your point, one of the things that we’ve been researching, so Deloitte’s been in the business of researching tech trends for the last 15 years. And when you study all things newfangled, you start to see patterns in the patterns, right? And one of them this year that we’ve really picked up more than ever is that trust trumps tech, right? That, you know, remember that scene, right, from Jurassic Park, Jeff Goldblum, right? Your scientists were so busy wondering if they could.

They didn’t ask if they should, right? We’re seeing that in boardrooms all over the place, where people are saying, man, we’ve got this magical brain in a box, ask it anything, it’ll blow your mind. And that’s a recipe for a bad time. Sure.

That’s weapons in the hands of children. That’s mindless harm to your neighbor. And so I think intentionality, to your point, that’s going to make all the difference, knowing that we’re approaching this stuff like adults with a mind towards mindfulness.

Yeah. Yeah. Well said.

I think there’s a lot of concern, you know, and this goes broader than just the financial services industry, but we are going to come back to banks and banking and what this all means. But in general, we’ll talk about AI, for example, because, I mean, God bless the OpenAI team and, you know, the press releases and the media surrounding, you know, the deployment of chat GPT, the way, you know, anyone, my 12 year old can go, you know, create an account and start playing with the technology. But really, truly, there’s aspects of that.

And I was reading a piece and I can’t remember if it was Alex Johnson or, you know, one of the other, you know, brilliant writers that I follow all the time that made the observation that this was just the appetizer and not the entree for artificial intelligence. I would love to say that those words are mine, but they belong to someone much smarter than me. David, what are your thoughts on that? I couldn’t agree more.

I think chat GPT is the warmup. It’s the, oh, this is really what AI can do. It can write this letter for me and be 80%-ish, 90% right.

And then it can learn from that. I just think we’re at the very tip of what artificial intelligence is going to take us down the road. I think it’s just going to get better and better.

Now, it’s a little scary. I mean, I hope you can appreciate that as a lawyer, how much that terrifies me to hear you say. But as long as it’s only 80% and then like I get to okay the last 20%, then I feel much better about it.

Save you shorter time. But one of the conversations that I have with my clients pretty regularly lately is it’s about the standard that we use to judge AI and specifically generative AI, right? They’re, you know, nerd alert. The best description definition I’ve ever heard for AI was from Larry Tesler.

He was a researcher at Xerox PARC back when we thought of Xerox for hardcore R&D and not as this thing we used to do. And he said, listen, AI is whatever computers can’t do yet. I always loved that because it worked in 1956.

It worked in 1996. Like AI can’t play chess. Watch me, right? Worked in 2011.

Jeopardy? Not going to happen. Happen. What’s different now, right, is it’s making its way into the sort of white collar, sort of journalist class, chattering class, you know, like creativity in silico.

What? And back to the standard. I’ve got some clients who say, I’ve seen those paintings. It’s no Picasso.

The standard isn’t Picasso. The standard’s utility. I bet it’s good enough to make a greeting card, right? And I’ve seen that writing.

It’s no Keats. It’s probably good enough to do some ad copy, right? And so I think we got to just remember the standard is utility and that’s going to free up time for our people to do higher order things. Yes.

Well, I may or may not have asked ChatGPT to write a sonnet in Shakespearean voice for me at some point just to see what it could do. And it might not be Keats, but it’s kind of close to Shakespeare. All right.

So again, countless discussions and debates about the ethics, you know, the ethics of artificial intelligence. And I want to get a little FI specific and financial services specific, particularly because I think some of the first headlines we really saw years ago, and I think this was back in 2019 when they were talking about, you know, disparate credit outcomes with the use of with the use of AI. Pretty sure that was, you know, surrounding the whole Apple card debacle, you know, several years ago.

How much of that do you see as being problematic now with today’s evolution of how sort of those scoring and those credit decisioning issues are being dealt with? You know, CFPB is dipping its toe into the use of alternative data and trying to attempting to create some sort of standards around there. So, you know, as the chairman and CEO of a bank, particularly a socially responsible bank, what are your thoughts about how we can make sure that we are using AI ethically, specifically around, you know, making sure that, you know, those consumers are and small businesses are getting the right products and services for them and not experiencing those disparate outcomes? Yeah, it’s a super easy question. Yeah, super easy question.

So let me answer it this way, because I’m going to it’s really easy to go to what’s wrong and what’s negative. But how do you use the AI to constantly monitor your origination and underwriting practices such that you can detect that disparate impact on people in real time, as opposed to waiting months and months for data? How can we make sure that as applications are coming in and being approved, that we have some tolerance of ethical boundary, that we’re not favoring one over the other? And as we put in new data sets, then we can test it. Does this create does this particular new data set create a problem in the algorithm in the outcomes? Is it leaving somebody out that normally shouldn’t be? Or is it putting somebody in who might shouldn’t be? And then you have, let’s say, a credit risk.

So there’s going to be, I think, a lovely and robust ethical decision. But can we use the power of AI to do good and to get ourselves out of problems that we always looked in the back saying, oh, I already did the lending in the past year. And I did leave this particular class of people out.

It’s done. But can we do that now by 2 o’clock in the afternoon? Also, please CC your lawyer on all of those communications. Of course.

Mike, from your perspective and stepping back because you have such an interesting exposure to a cross section of industry, including financial services, but also well beyond. How important is that sort of thought process and analysis at the governance level? What type of resources do you need to be putting at your board level, at your risk committee level to ensure that boots on the ground are doing it right? But buck stops with the board to make sure that the practices of any organization are not going to land them in hot water? So sort of concentric circles from down in the server room all the way up to the board room. I think something we’ve seen across industry is that if we train our models and our algorithms and our AIML on the data we’ve always used, we’re always going to get what we always got, which is, I think, a butchered Yogi Berra quote.

But you know what I’m saying? One of the frames, you said it so well, Dave, this idea of parentage or grandparentage. We’ve got to take this mindset of like, teach your digital children well, right? Now we’re bringing in Crosby, Stills, Nash, and Young. Right, exactly.

But keep them coming. I have an inexhaustible supply. But here’s the idea.

To do that, an old colleague of mine, a fellow by the name of Raed Ghani, works at Carnegie Mellon now for their Center for Data Science and Social Good. He said, step one is the uncomfortable act. He testified before Congress on this.

The uncomfortable act of making tacit biases explicit, which is fancy talk for naming these things we’ve done wrong. Because the machine, to be trained, needs to see it in zeros and ones, not whispers and winks, right? Right? Great point. Yes, exactly.

So the first step is admitting you have a problem, right? Yeah, totally. Like, isn’t it classic? Everything begins with the truth, right? Amen, amen. And then step two, right? And this is still down here a little bit.

But two, three, four, five years ago, it was all about using the best machine learning model, like deep adversarial generative networks, yada, yada, yada. Here’s the thing. Those things tend to be black boxes.

And if you have kids, right? Kids, kids? There’s a reason math teachers say show your work. Because it’s not enough to get an answer. How’d you get your answer? Those black box models don’t do it.

You can’t audit, you can’t govern, right? What you need is a glass box. And so what we’re seeing a lot of our clients do is they’re willing to trade off a little bit of performance on the RoboMine so that they can get a show your work model. With those two, the left hook and the right jab, then, right, you can get the DevOps folks, the tech folks, the C-suite folks to govern and audit, and then show that work to your board and say, here’s what we decided.

Here’s how we trained it. Now you can govern. Well, you not only have to show that work to your board, ultimately, you’re going to have to show that work to your examiners and your regulators and the CFPB.

Because, you know, we’re all still fallible, right? Mistakes are going to happen. And it’s really how we manage and react to those situations. And it’s a lot easier to do with a glass box than it is a black box.

For sure. So we have a few minutes left. And I know that several people would literally kick me if we did not talk about the absolute circus that has been the financial services and the banking world for fintech in the past week or so.

So we’re going to spend just a little bit of time talking about Silicon Valley Bank, SVB. And for the bankers and fintechs that are listening, it has certainly been a wild few months in general. Regulatory scrutiny had already been at really an all-time high.

And then several months ago, we all got SBF’d. And now we are getting SVB’d. So, David, can you give us just a real quick update as to what SVB really means for those banking fintech right now and the fintechs who are caught in the middle of it? Yeah, I mean, it is an unfortunate place to be.

And that is certainly understated. And on both sides of this fintech equation, if you’re a fintech and your money is stuck in the process, obviously there’s payroll, there’s payments to be made, there’s all sorts of things going on there. And your business and your livelihood is at risk at the moment.

And you’re looking for solutions. And I’m sure there’s real fear out there as to what is going to happen. We will see things happen.

And I think my opinion of the FDIC and so forth is they will likely move things along quickly. Because it’s in everybody’s best interest. And so hopefully that freeze on deposits will thaw awfully quick and things will start to come back to normal and people get access hopefully to all their money.

Now, I don’t work for the FDIC. But I think in my own opinion, it would be a huge mistake if the depositors were shorted even one penny. That confidence in the financial system needs to continue.

Otherwise, you may have a systemic issue here in terms of confidence. On the banker side, while I’m sure I’ll receive a phone call from my regulator as to what my liquidity position is and so forth as to the real reason of why SVB failed, there’s going to be more, I think, long-term scrutiny in terms of how banks oversee their fintech clients or that whole value chain down to the customer. And so if we thought there was a lot of compliance before, I think you’re going to have more and more scrutiny into it and the need for more transparency across the whole value chain.

And Mike, again, as someone with sort of that cross-industry knowledge, what are your thoughts on sort of the implications that exist for the broader tech community? Well, you know, I was in Denmark last week, which you don’t hear every day. And I had this fascinating discussion with some business leaders there who were marveling about the United States’ ability to innovate, to take big risks and do big things. And several of these very successful Danish leaders just sort of called it as they saw it.

They said, we don’t take those risks. And it got me thinking that, you know, having been a VC, I was a VC for eight years, entrepreneurs, right, they tend to feel like they have nothing to lose, right? They need to feel like they have nothing to lose, either because they’re definitionally broke and they don’t, or they’re sufficiently banked. And so what’s a mill, right? That 85% in the middle, as discussed in maybe different countries, right, where it’s not the extremes, they’re playing not to lose as opposed to playing to win.

And so I just think that as I’ve seen it, I would never wish broke on anybody. But without sufficient access to liquidity and capital, I don’t think we’re going to have people shooting for the stars. So let’s hope that this gets resolved expeditiously.

It’s a great point. And it’s one that as an entrepreneur, that is frightening that there’s no opportunity to start a business, to try something, to fail. And I mean, you can criticize America for a lot of different things, but one is it is a land of opportunity.

And if you can get access to the capital to try an idea, it’s how we move forward. So we go big or we go home or the FDIC sends us home. So I think we’re close to the end of our time.

Given where we’re sitting right now, we’re in the middle of a conference I’m very happy is back, probably stronger than ever post-pandemic. It’s been absolutely fantastic getting to meet everyone here at South by any sort of final thoughts or words for our listeners. Oh boy, I would just say, well, first gratitude.

Thanks for spending some time with us all and for having us team. And then secondly, all these discontinuities feel like explosions that we’ve never seen before. And I think if we just pull it, pull back, you realize that it doesn’t always have to feel unprecedented all the time.

You see patterns, you see signals, a little bit of measured response, resisting the hyperbole, I think is good for the heart, the head, the soul. And I think we’ll get through this, right? I think we’ll get through this. You know, I was in a conversation earlier today and I was talking about, I love mild chaos.

Because mild chaos is where the opportunity lies. It’s not extreme chaos. That’s too much to handle.

And it’s not little chaos because there’s really nothing there. It’s that middle ground where it’s uncomfortable. And I think we’re in an uncomfortable spot right now with what’s happening in the FinTech world on all levels.

But I think there’s great opportunity in there. And it’s really, you know, coming to South by and having conversations with people, you start to discover what is possible and where the niches and the angles are. And again, it goes back to that entrepreneurial mindset of, oh, we got a business idea here that could maybe work.

And so, I don’t know, I think the human ingenuity and spirit by getting together, even in troubled times, I think there’s good that can come out of it. And so it’s fun to be here. Well, the industry was born out of crisis, right? It was born out of economic crisis 10 plus years ago.

And I have no doubt that the industry will come back better and stronger, especially with incredibly intelligent and dedicated people like yourselves leading the charge. All of the people who are here at FinTech House, you guys are all wearing VIP badges for a reason. So it’s been amazing spending time with you all.

Thank you everyone for listening. And thank you for letting me guest host this special episode of Breaking Banks, which will re-air on my podcast, Tech on Reg. And good afternoon.

Oh, and on Next Gen Banker. I didn’t even know it’s on Next Gen Banker too. I haven’t gone twice.

Mixtape. Perfect. Well, thank you guys both for being here.

It’s been a pleasure. Thank you. Thanks, Darrell.

Become a disruptor in the emerging FinTech space through NYU Stern’s new Master of Science in FinTech program. This is a one-year part-time program divided into one online and six on-site modules that take place in New York and in other rotating global locations. The new program is designed for experienced working professionals who want to strengthen their FinTech skills or transition to FinTech leadership positions.

The final application deadline for the inaugural Master of Science in FinTech program class of 2024 beginning May 2023 is April 15. Don’t miss out. GMAT and GRE scores are generally not required.

To learn more about the program, submit your resume for a candidacy review at stern.nyu.edu slash msft dash Breaking Banks. Welcome back to Breaking Banks. I am your host, Brett King.

This afternoon, we thought we would catch up with an old friend who’s been on the show a few times. But just to get a bit of an update, Kostra and I have known each other for about 15 years now. Kostra Peric, who is Deputy Director for Financial Services for the Bill and Melinda Gates Foundation, for the poor, Deputy Director of Financial Services for the poor, specifically.

So, welcome back to the show. Hi, Brett. Very pleased to be back.

So, I am doing a fair bit of traveling at the moment. I just spent some time in Mexico City. And a big topic of debate there is the unbanked.

But we are starting to see some movement in LATAM, for example. New bankers had quite a success at bringing on newly banked individuals. And so, the mobile, again, seems to be moving the needle.

But I saw a post that you’d done at the end of the year, basically talking about the traction that has been making in terms of financial inclusion and gender equality. But you’ve been at this for 10 years. So, what progress have we made in that time? What has moved the needle, in your opinion? So, Brett, just to kind of situate you and the audience.

So, today, there is still, according to the latest surveys, about 1.3 billion people that are unbanked. Meaning they have no access to any kind of banking service. They deal with cash every day.

And the reason for existence of the strategy, Financial Services for the Poor at the Gates Foundation, is to work and assist various stakeholders to connect these people. Because we know that it’s quite beneficial for them in terms of security, productivity, and even lifting out of poverty. It’s quite important for them to be part of the economy.

Essentially, as we say, an economy that includes everyone benefits everyone. So, what has happened over the last 10 years that my interest has been in this, when I joined the Gates Foundation in 2013, the number was 2.7 million. So, there was quite a lot of progress made with governments, private sector companies, many players at work to do this.

And the characteristic is that what has helped is digital. So, digital payments, digital wallets provided typically by telcos or fintechs. So, the major strides of progress have come out of the technical digital space.

The traditional banks, with a few exceptions, haven’t been very active. It’s not their business model. They can’t reach very well and serve the people we’re talking about, which tend to be poor and remote.

But other companies like telcos and fintechs have done that. The pioneer of all of this was in Kenya, the system called M-Pesa, which basically allows you to, even with a very simple phone, not smartphone, send and receive money on your wallet, like you send and receive a text message. One of our most popular shows is a show I did where I actually went to Kenya and I did a man on the street test of M-Pesa and so forth.

I met with Bob Collinmore before he passed away and I had him on the show. It has been a great template for mobile money, you know, with 98% of the Kenyan adult population now on that. Mobile wallets are a game changer, right? Yes, a game changer, because first they allow to have access to a proper financial service that is secure, and as I said, that makes you productive, but it allows other services to be layered on top.

Innovations from Africa for Africans are great. Companies, just a few examples, Sankopa is a company that provides solar batteries on a pay-as-you-go basis. I mean, there is a lot of innovation that is happening.

So that’s a great example. The one thing that… And so we are trying to help other countries and stakeholders to adopt the same trajectory. The path that we follow and that we promote is to deploy payment and identity platforms at a country level or even at a regional level that are intrinsically interoperable.

Because one of the issues of systems like M-Pesa is that they are silo-sys, so both parties of the transactions have to be on M-Pesa. With M-Pesa, it’s not a problem because they cover so much population, but other markets are much more fragmented. Or if you have to do cross-border, you know… Or you have to do cross-border.

So in other countries, we help to deploy instant payment platforms that connect all of these players together. So this is Mojoloop, right? So Mojoloop is one way to do it. Countries can choose the way they do it.

They can deploy, they can go with a commercial vendor, they can do themselves. We have produced with partners this open source software called Mojoloop that is available on open source to anyone. If you’re interested, go to mojoloop.io to learn more.

But Mojoloop allows this to do essentially for countries who are not necessarily skilled and that have the resources. Mojoloop is a great solution so that they don’t have to reinvent all these wheels. Other countries who are perhaps more advanced would go on their own or with commercial vendors.

So there is many ways to do this. And so instant payment platforms for people to be able to transact with any party in the country. And then we also work a lot on digital identity because in order to access a payment system, typically you need to have some form of identity.

Of course, many, many people in the populations of unbanked have no identity. Yeah, this is a consistent problem, right? You know, I mean, even if you look at the unbanked in the United States, a lot of them don’t have a driver’s license or a passport. And so even in the US, identity is a key element of financial exclusion.

So a few examples of all this that have happened and that are quite successful. India is a great example. Both identity and payments with Aadhaar and UPI systems.

They have onboarded more than a billion people on the digital identity system. The UPI system just crossed, I think, 6 billion transactions per month, payments per month. An excellent success that has been built over the years by the Indian government.

Another good example is Pakistan, which we helped the central bank there build a system called RASP. No, RASP in BKash is in Bangladesh. BKash is Bangladesh, I was just going to say.

Yeah, in Pakistan, this system called RASP went live. That is countrywide, interoperable, connects everyone. 200 million people potentially reached with this system.

That’s now operational. PIX, the PIX system in Brazil went live recently with a huge take up. Just in a few months.

And we work in Tanzania. Tanzania is building such a system. The Western African Economic and Monetary Union of Western Africa is building such a system as we speak.

SADC, the SADC region in the southern part of Africa has enhanced their existing system with something called TCIB that enables instant payments. So Philippines, Morocco have adopted digital identity systems. So we have a huge movement where the government realized that these inclusive systems are conducive not only as to your point to financial inclusion, but to actually economic development.

Digital inclusion generally, right. And being capable to deliver welfare. That was a huge thing in the pandemic to deliver welfare digitally with no fraud and pilfering and theft.

So there is this realization now that things like banking, payments, identity are actually strategic assets of a country in their journey going forward. And that’s now what I wrote in my blog, which I think caught your attention, is this notion of digital public infrastructure. Right.

So these things are now considered as strategic assets of the countries. They want to manage it. They want to own it.

They don’t want to depend on others for such strategic assets. And this is where there is this shifting of, you know, usually these platforms were built by the private sector. This is now shifting to governments who are driving the development of this and more with the notion of digital public goods.

So these open source systems that allow them to control, to have a sovereign ownership of their data, to be able to control their system, to protect it and so on. So that’s kind of where we stand today, Brett. Yeah, because it’s… Now it’s accelerating.

It’s an interesting epiphany, but it seems obvious now. But, you know, if you take the Indian market, India struggled for a long time with the unbanked population and they tried many things, including forcing banks to open branches in rural locations. But then the realization was, even if they had a branch there, the unbanked didn’t have an identity to be able to open an account.

So it wasn’t about the distribution challenges. Of course, once you have a digital ID, well, I don’t need a branch to open a bank account for you. So now mobile wallets outnumber plastic card transactions globally now and have done for a number of years.

But are we building two different ecosystems? Because, you know, in the unbanked or the newly banked space, as you’ve pointed out, dominantly mobile wallets and mobile money accounts now. And then, of course, you’ve still got the traditional banking system where you have to go into a branch, you sign a piece of paper, or you could do that online now, but you still send a plastic debit card and so forth. So it seems like we’ve got… Now, obviously, I use mobile wallets and if you’re in economies like China and India, you are.

But from a perspective of the West, there’s very much still married to the card systems and the traditional bank-to-bank payment rails. But the developing world is all shifting to this really interesting real-time mobile stuff. So how do you see that will play out? So today, these two worlds coexist and I think they will remain coexisting.

I think, you know, there is a world of high-value, low-volume transactions for larger amounts that are more B2B. That is there and that is necessary and that will exist, I think. The fastest moving segment, though, is this, in terms of numbers and scale and products and services, is this world of digital.

Yeah. And the… Like, it’s not even close anymore, really. It’s not even close.

Yes, yes. And so the systems that we are helping build make these two worlds interoperate seamlessly. And as, you know, we see that, you know, in the hierarchy and the pyramid, that some people graduate as well, you know.

They start with a very simple wallet. Hopefully, it helps them get out of poverty, launch a business. Then they get more equipped.

They have more needs. Access to credit. Access to credit.

So we see this as a ladder that is there, that is interconnected and that can be helpful to go up, hopefully not down on the ladder. So that’s how I see it. I don’t think there is no need for one of these worlds.

This is not a zero balance equation. There is no need for one of these worlds to win over the other. I think what is happening is the market is expanding with a huge number of newcomers with different needs, different perspectives, different, you know, speed of adoption.

And, you know, like if I take the comparison today, today you still have fixed phone lines, right? Right. But the great majority of people use mobile phones. But it doesn’t mean that there is no more fixed lines.

They do serve a certain purpose and so on. So that’s a little bit the same as I think here. And if you want to call from your mobile phone, a fixed line, there is no problem in that same way.

If you want to send money from your wallet to a bank account for your school, you know, the tuition. This sounds like a story or an illustration you’ve used quite a few times, Costa. Yes, yes, indeed.

There is some drawings I made that illustrate this from the perspective of the user. You always have to look at this from the perspective, ultimately, of the person, the woman, you know, who has a small business that can do all of this. Now, the thing, though, that the next wave of innovation, Brett, I think that is going to be very significant and that may impact the traditional banking is across the border.

Right. And when you start going with smart contracts, obviously, you need digital systems. And then, you know, you’ve also got elements of like when you if you try to use artificial intelligence, you know, again, you should be plugging it into wallet ecosystems.

The metaverse is going to require a wallet ecosystem. And so, you know, the smart glasses, you know, they’re going to require you’re not going to integrate your plastic card and put it in a smart glasses wallet. That doesn’t really make any sense.

So I think it’s all pointing that way. But the identity one is a really important issue because it’s access to a whole range of emerging services from a government perspective, right? Yes. Yes.

That’s how India envisioned the system called Aadhaar. It’s called foundational identity in the sense that it’s not identity for payments or identity for school. It’s a foundational identity that can be used by many government for many government services.

And that’s right. And the nice thing about it is that doesn’t require really any device. The only device is your fingerprint, your fingers with your fingerprint or your eyes with the iris.

And then that gets you a number. And that’s your identity. From there on, you can be known, authentified and capable of accessing many services.

That’s tremendously enabling. You can’t imagine how enabling this is for people that are excluded, that suffer from, and to your point in the United States, there are people who are unbanked, who receive a check for some labor they’ve done. The only thing they can do with a check is go to a shark.

Check cashing. Check cashing shark that will take 10%, 15%. Yeah.

Ridiculous. That’s terrible. That’s terrible.

The other area of this, of course, is if we look at Alipay, Alipay has been extremely effective in managing fraud as an example. So just 0.0006 basis points of fraud compared with the card not present average in the States, between 11 and 12 basis points. So it would appear that the combination of a digital identity in the case of Alipay, facial and voice recognition, biometrics, combined with sort of next generation payment rails is a massive assistance for fraud as well.

Is that the observation? I agree. I agree. First of all, identification of people that is pervasive and authentication tremendously helps.

Instant payment systems are also tremendously helpful just to be technical just for a little second and dig out on payments. But instant payment systems are push payments. That means that I initiate the payment to you.

And when I do so, the system… So if I give the system your phone number, the system will be going to say to me, you’re sending money to Breitking. Is that right? Yes, exactly. So you can prevent lots of scams like this.

So yes, these instant payment systems are designed in such a way to prevent a huge amount of fraud that comes from so-called pull payment systems, which are more of a credit card type of… Yeah, where you request an authorization from the bank. You confirm the person has the balance. You provide all your data and your phone number.

No, it makes a lot of sense. I’ve been spending more time in Thailand, as you know, Kosta. And I use the PromptPay system there, which is a QR code-based system as well as contactless.

But the PromptPay thing is very simple. And it’s so convenient because you go out and you forget your wallet or something. It doesn’t matter.

You’re never going to forget your phone. And it’s just so easy. And I look at that in Thailand now and say, it’s just so much further ahead than the US, where you’ve still got some post terminals where you can’t even take a contactless payment.

So yeah, I’m obviously a fan. And probably you’ve noticed that if you go from Thailand to Singapore, you can use this system in Singapore. Yeah, exactly.

So that’s tremendous. Because now the next wave of innovation with all of this, now that we have more and more of these instant payment systems in many countries, then connecting them together is tremendously helpful for cross-border payments on a regional basis or even for incoming remittances from abroad. Because once you have an instant payment system in a country, when a foreign remittances comes in, it can be instantly delivered to the right person.

And generally the costs are lower. We’re running out of time, Kosta. But I want to, before we wrap up, for the 1.3 billion that are left and for them getting access to these digital services in the future that obviously are going to be a big part of the way we move forward government services and just services in general.

How do we move the needle? How do we close the gap on that 1.3 billion? Two ways. One is to continue and accelerate the movement of deploying these platforms, notably in sub-Saharan Africa, where there is a good chunk of this number, more than 400 million live there. So one way is to continue accelerating.

And I really urge you, and I’ll send you the link if you can put it on the show, our partner Africa Nenda has kind of like an inventory of all Africa and all the countries and what remains essentially to be done in Africa. So I highly suggest reading that report. This is the African Nenda? Is that the one? African Nenda, yes.

Yes, I saw it on your LinkedIn page. So I’ll make sure we tweet that out. Yes.

The other thing, Brett, is that as we continue, it’s going to become more and more difficult because these people will be more and more remote and more and more isolated, meaning also digitally isolated or educationally isolated. Like for example, many of them can’t read. And so another wave of innovation, I think is going to be required in terms of UIs and the way they can work.

We see the emergence of voice recognition, AI. I think, you know, rather than requiring sometimes clumsy interfaces on mobile phones for them because they can’t read, they take time to manipulate the phone. Getting to systems that are more usable by this will, I think, also be required.

I work with a lot of, you know, small entrepreneurs and innovators on that front too, to try to get them to converge, to focus on that last mile of financially excluded people who have very specific needs. I do hope that at the rate of progress that we have seen, I’m so encouraged by what’s happened in Brazil in just less than a year. I think the movement is accelerating.

So I have great hope that we get to really minimal remaining numbers in three, four, five years. Wow, that’s great. Fantastic.

Well, Costa, it’s great to have you on the show again. How can people keep in touch with you and your mission? LinkedIn, Costa Peric. On Twitter, I’m Copernic, if you can put it on the link.

And yeah, I travel a lot and kind of make known when I go somewhere and where I’m going. So on LinkedIn or Twitter, so please reach out. Fantastic.

And I love meeting people. Well, we appreciate the update and, you know, continued success to you and the team. And certainly, I think, you know, what has been accomplished the last decade.

I mean, we’ve made more progress on financial inclusion in the last decade than we had the previous 200 or 300 years. It’s quite exceptional, really. So, you know, the fact that you’ve dedicated a large portion of your career to this, I applaud you for that.

And I thank you for sharing some updates with us. Thank you, Brett. Always a pleasure.

And yeah, let’s keep in touch. That’s it for Breaking Banks this week. You’ve been listening.

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