Interview Fintechs fast-paced evolution in Australia

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    Jamie Ng, Global Head of Finance, Funds and Restructuring at Ashurst in Sydney speaks to Debjit Sarkar, Global Head of Finance and Partnerships at Visa in San Francisco, about the rapid growth of fintech in recent years, his experience leading digital payments initiatives and building financial partnerships. He also delves into some of the top factors driving surging growth in the fintech industry. 

    JN: I'm excited to introduce a good friend of mine, Debjit Sarkar, who's going to share his experience on all things fintech. Debjit is Global Head of Finance and Partnerships at Visa in San Francisco. He leads digital payments initiatives and builds financial partnerships. Before joining Visa in 2011, Debjit managed credit card portfolios for Wells Fargo and for HSBC. He lives in Silicon Valley with his family and a big fan of sports, especially tennis. Debjit, thank you and welcome.

    DS: Thank you. It's a privilege to be part of this conversation and thanks for inviting me, I appreciate it.

    JN: To kick us off, we'll just start very high level. Being in the industry, what is your view on how fintech evolved over the past several years?

    DS: Fintech is a massive industry, but let's define it as best we can to begin with. Fintech is an umbrella term for technologies powering innovation in financial services. It is disrupting multiple segments within financial services, including banking, payments, lending, wealth management, insurance and regulatory compliance. The real momentum in fintech started in the late 90s. If you recall, we had online stock trading, online banking and so on... The second wave came somewhere around 2000, and again around the time of financial crisis when the door opened up for non-banks to participate.

    Today, we are experiencing the third wave of fintech growth and innovation. There are five top factors driving it. First, I would say, is the regulatory changes, sweeping regulatory changes across the globe, e.g., Dodd & Frank in the USA, PSD2 & Basel III in Europe, RBA in Australia, and India. Key objectives of the regulatory changes are - Lower reliance on brick-an mortar banks, greater participation of non-bank, better access to consumers, drive innovation and stimulate the economy. Against that backdrop, the non-banks are seeing an opportunity to participate and bring innovation to provide better services to consumers.

    The second most important reason, I believe, is the technology, particularly cloud computing, artificial intelligence and big data. Fintech companies can very quickly put their business model into action and that has definitely helped them a lot.

    The third one, I would say, is innovation, to tap the untapped market. You can see that Alipay and WeChat have dramatically changed the landscape in China, so it is changing in India or Kenya and other parts of the globe.

    Another important factor is, you see, because of a rise in technology, different business models are being developed; e-commerce, marketplaces, GIG economy, mobile commerce, and so on

    And another important factor I would say is the availability of capital and support; the incubators, the venture capital firms and sovereign wealth funds are all investing in fintech.

    JN: It's interesting to see how it's not just one thing that's driving the rise of fintech. It's not just consumers; for instance, there's a whole raft of things you've just outlined where which are converging to really push the sector forward.  

    DS: Absolutely.

    JN: Where are the most dramatic changes occurring in the fintech landscape?

    DS: The area where of most significant changes are happening is Consumer Payments. Because consumer payments is not just one piece, the multiple businesses come together to create a consumer payments ecosystem, e.g., card issuers, payments network, acquirers and Payfacs. If you look at Stripe, Adyen, PayPal, these companies are changing the e-commerce side of the equation. On the other hand, if you look at Square, SumUp and similar fintechs are focused mainly on enabling SMBs and small micro-merchants to reduce SMBs' start-up costs. And the QR code-based payments, the innovation that has happened in China, have dramatically changed the landscape and spread in India, Brazil, and other parts of the globe. 

    Contactless is another critical emerging form factor. Australia is one of the pioneers, a pioneering country in terms of rolling out contactless cards. Along with contactless, mobile wallets, particularly Apple Pay, are changing the consumer experience. And, the last one I would like to highlight is peer-to-peer payments. What started by Venmo and Square Cash is going to change in the coming years dramatically; how consumers pay to each other, how consumers pay to businesses, and how businesses pay to some of their suppliers - instant payments is going to be huge in the coming years. 

    Next thing I would like to high-light is Open Banking. The concept behind Open Banking is to allow non-bank third parties access to customers’ bank accounts (with consent). The moment fintechs have access to banking data, they have a huge amount of information on consumers' behavior that they can leverage to create a range of services, e.g., create credit products or other products.

    You can also see that many of these digital banks are operating out of a mobile wallet or mobile phone. It is going to change consumer experience and how consumers behave. In addition to that, artificial intelligence-based underwriting, either credit underwriting or insurance underwriting, will change how customers are served and how digital banks scale up their operations. 

    JN: And I know digital is very close to your heart and it's a real passion of yours. Can we talk a little bit about the AI aspect? I know you and I have spoken a lot about Ant Group which have done just a sensational job in terms of leveraging data and building this AI machine to enable them to grow so dramatically. Are there any other examples, in your experience, that come to kind where a really sophisticated AI has been leveraged in a really scaled and expensive way, in the financial services space?

    DS: Yes, absolutely. AI is one of the hottest trends in the financial services industry because of its use in payments, banking, capital markets, wealth management. AI can be deployed both for driving revenue and/or managing costs. So how is it going to work? On the front-end, if you really want to attract and retain customers, you can personalize, you can deploy a customer engagement solution. AI does that: voice recognition, voice assistance, authentication, and biometrics are examples. AI runs all those platforms. On the back-end, if a company really wants to scale up its underwriting operation, it could deploy AI to speed up the processes and scale processes. Additionally, for the back-end, AI has a massive benefit in fraud detection and regulatory compliance including KYC/AML. AI can also support complex legal and compliance workflows. Over time, I see AI will significantly expand its footprint and refine what it does well today to an even more sophisticated level.

    JN: With the increasing use of AI in conjunction with a strong financial services sector, you also need to have a very solid tech sector as well. I know in Australia, fintech is a very big part of our business across many practice groups in Australia and so we like to think of ourselves as a bit of a hot bed of fintech innovation. With your global remit in this space, what's your view in terms of are there clear hot bed regions or is it actually quite global such that fintech is doesn't necessarily need an adjacent strong tech centre as well? What's your experience been there?

    DS: That's a great question. See, Fintech is a global phenomenon. Having said that, there are hot spots all across the globe. The fintech hot-spots are listed by a company called Findexable, which follows all the fintech activities across the globe and they provide the rankings; the top six hot spots are San Francisco, the number one, followed by London, New York, followed by Singapore, Hong Kong and Sãu Paulo. If you look at the top 40, there are a few new cities that have shown up. Three from India, three from the Latin America - Melbourne and Sydney are also part of the top 40. In the United States, there were 1,500 fintech start-ups, $60 billion worth of investment has happened. In the UK, about 500 fintech start-ups and approximately $20 billion investment have occurred. The third is China, including Hong Kong, where somewhere around $40 billion to $45 billion has been invested. India is catching up; surprisingly, over the last couple of years, two hundred fintechs have been established and about $12 billion investment has gone in. These, I hope, give you some sense. If you really want to focus on digital payments or the banking domain, I would recommend focusing on these four hot spots: London, San Francisco, Mumbai, and Hong Kong.

    JN: It's actually a fascinating mix of emerging markets as well as very developed economies. 

    DS: Yeah, definitely. I missed out one country which is Singapore. Definitely another country to add.

    JN: And, yeah, they're probably acting, as well, as a bit of a hub for South East Asia as well in that regard.

    DS: Absolutely. Absolutely. 

    JN: You mentioned the amount of investment going in to fintech. Sixty billion in the States I think you said, around 20 billion in the UK?

    What's the VC funding environment? I'd be interested to know that because we do a lot of work for those very early stage companies in fintech. It would be good to get your sense of the VC market for these types of investments.

    DS: The VC market, if you look at 2020, VC investments came down a little bit. It came down from about $70 billion in 2019 where they funded about 1,300 fintechs. In 2020, it came down to about $45 billion, so some drop. Having said that, it's not the VC investment that should be the primary focus, but you can also consider mergers and acquisition activities. There has been a seven-fold increase in mergers and acquisition in 2020 and … from a dollar perspective, it went up from about $7 billion or $8 billion in 2019 to around $55 billion in 2020.

    JN: That's interesting. Actually, we're starting to see some M&A activity in that space here as well. Okay. We might just change gears a bit. Going back to Visa, how have you seen the impacts of COVID impact Visa's business? Or even more broadly in the digital finance space? Accelerant? Has it changed operating models? What’s your experience been? 

    DS: So look at it from three different angles. If you look at it from the consumer's angle, right, a lot of consumers have shifted their spending pattern. They've gone from physical to digital. This significant shift has happened in the digital side of the business. From the merchants’ perspective, as this shift occurred, merchants had to reconfigure their business model. And to support both the consumers as well as the merchants, payment companies really needed to up their game to serve both the consumers for their digital needs and the merchants for their digital needs. 

    At Visa, we, being a central hub for payments, support both the issuers and the merchants. We needed to be vigilant around providing to both and kept the machine going. From a business perspective, not only Visa, the entire industry, is suffering from both gain as well as losses. On the gain front, a lot of cash got converted into digital payments, which is definitely a gain for us. The government stimulus potentially helped increase the payment volume. Some businesses were negatively impacted because travel was dramatically down and cross-border spend  was dramatically lower, which is also one of our key revenue sources. So that has definitely impacted us negatively. 

    There are some positives and some negatives but the momentum has shifted towards digital, so I strongly believe we are on a good track to increase our volumes and grow our business.

    JN: Debjit, just one final question and it's about you as a leader. You're running a global business, you have a global remit, I know you're very passionate about energising your teams. Can you share maybe some of your tactics for a flexible workforce; you know, a world moving closer towards remote working, the impacts of COVID? As you would've heard, we are dealing with similar issues in our industry as well, so keen to hear from you about what you've found effective.

    DS: Sure. Thank you for asking that question. We have taken a very serious approach to engage our workforce. We do multiple things. The first and foremost thing that we do is, you know, communicate. We try to communicate to our employee base in many different ways. Our CEO sends out, every week, a message to the employees in a video recording. We have weekly team meetings and, although those meetings are optional, we make sure that people are engaged and we celebrate their birthdays and other events. More importantly, what we have done is we have started a new policy where employees can complete their 40-hour work-week by Friday noon. If they can do so, they can take the afternoon completely off. It really is helping our employees to get some extra hours to focus on their health and personal wellbeing. 

    The second thing, we have done is we've started mindfulness meditation programs. And another important thing that we have done is that we have sent out across the organisation a message that we need to respect, unless it's very urgent, the time beyond work hours, particularly the weekends. Let's not send out an email, let's not plan for work, let's not bother our employees during those times so that folks can re-energise and get back to the job. And last but not least, we are driving what we call “intentional inclusion”, making sure every employee knows that they are part of the overall team and care for them.

    JN: That's excellent. A lot of inspiration there and it looks like Visa's really leading the charge. 

    Thank you very much for sharing all of those insights. An absolute pleasure speaking with you. Certainly an exciting time for everyone associated with fintechs and the digitalisation of finance, and certainly we want to be at the centre of this evolution over the coming years as well. So, Debjit, thank you very much. I really appreciate your time today.

    DS: Thank you very much, Jamie. I really appreciate that, and it's a privilege to be part of this conversation. Thank you.

    This article was first published on LinkedIn Pulse.

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