 Now I want to take it from machine learning to our next topic in the financial technologies We have two excellent speakers here with us They will tell us all about digital currency and fintech Trisha Kemp is a general partner at Oakland At Oakland healthcare and fintech. She has over 15 years of experience in investing in financial technologies And before that she worked 11 years in big companies Michael Casey is the senior advisor of the digital currency initiative here at the media lab He was working as a journalist for over two decades in financial technologies for within others the financial the financial times Also, he has literally written the book about Crypto technologies So I look forward to this panel's and would like to ask the speakers on stage Okay, so we are the the gap between Refreshments after the classic last line. So we're gonna make this a nice brief chat. We've got some rolling that we have to do Thanks very much David for that introduction. Yes, so I'm Michael Casey I'm my world is defined by blockchain. That's a word I think you might have heard once they obviously a bunch of you probably know what this is But often it is a technology that is still really quite nascent And so I do find that we're talking to crowds sometimes that don't really understand what it is But that's gonna be a theme we'll deal with here You know, I personally think that it is a It needs to be thought about as the next wave of profound disruption in the sort of the the architecture if like the infrastructure of our You know our digital economy basically because it just changes the framework and we'll get to that in a little while But but fintech is is kind of like the the overarching theme in many respects and it's quite a it's quite a buzzword of them at the moment it seems to be that everybody is wants in on it, but Trisha give us a sense of what the Investment environment is sure So so I'm a general partner with the firm oak hcft and we've done maybe 25 fintech investments over the last decade let's say Fintech investing and the term fintech is can be you know different definitions of what is fintech But it has exploded over the last three to five years. So 2015 2016 both saw numbers like, you know, nine billion in each of those years a little bit off fourth quarter of 16 in US in Europe and that's about ten times what fintech investment was in 2010 2011 just to understand So it's greatly exploded, you know about 40% of those investments have been in both the lending portion And the payments portion so they sort of been focused in certain areas But you know the amount of money that's gone in is going, you know, it's greatly expanded couple other interesting facts to think about when you think about fintech is the valuations have Have remained frothy and are just starting to fall So we kind of track how many down rounds and you can pull it all up in pitch book and you know general tech companies 2016 I think the number was 19% were down rounds, you know 81% were up rounds, you know fintech It's still well sub 10% so they're all still having higher and higher valuations And you know something like health care IT, you know the portion of our business is 30% down rounds So the valuations have kind of started tracking down. So again, this is just kind of all interesting It's still frothier than tech in general even though it attracts a lot of tech investors But our expectation is it's going to start to fall. I mean one other interesting fact that we look at is And again is just of interest if you're thinking about fintech company is Strategic exit is most likely is the highest percentage of exits So if you actually kind of track it, you know 27% of companies sell for under 50 million dollars of the other 73% the vast majority a percentage like 89% Sell between 200 and 600 and sell in a strategic sale to a big legacy player So this is very different than you know a direct to consumer uber or you know guilt or whatever it might be You know there are strategic sales to legacy infrastructure players, you know in the 200 to 600 million range So that's kind of how that market has looked over. Let's call it the last five years I mean, it's interesting that the froth is there because I think that You know we can call that hype or we can call it You know a sense that this something big is happening, right? So I think that you get a lot a wave of interest in something when when the word is out that we are doing something big I think in terms of fintech, you know, I like to I try not to hype But I do tell you this is the first time really in 500 years that we've that we've really just tried it to tackle and truly disrupt Money, right? So it's it's a it's a big deal So inevitably the enthusiasm and the story and people like me who write books about it We sort of help to breathe the hype, but as a result where where is the value? We're you guys looking to invest within this kind of rather, you know Like big vision picture, but there's actually gonna have to be some up some real life opportunities coming to market the next two Or three years. Where are they well? All right, so we invest in largely B2B companies So we're not doing the next direct-to-consumer robo advisor like a better man or a wealth front or trying to come up with the next mobile bank So we think it's far less risky and actually easier because of what I said earlier about valuations To kind of look at the world in terms of all the financial services ecosystems So we kind of frame it if you think of all the stacks, you know banks payment processors insurance companies mortgage processors asset management Companies capital markets companies etc. They all have ecosystems in and around them And they all have stacks from custom acquisition to onboarding to pricing to risk management to you know count management to profiling to claims Processing they all have kind of legacy infrastructures That that is is you know dramatic change is happening a wise dramatic change happening We all know you know cloud AI that we just all heard about you know data and data being used for AI is One of the most compelling cases is within financial services Industry within the financial services industry, you know mobile all those stacks have to have now mobile and instant Uses so all those new technologies are being brought to bear up and down those stacks So what we like to call this is kind of Enabling the ecosystems right so we think one large change and one large trend that's going to happen in you know 17 through the next decade is you're gonna see everything from You know think of your insurance carrier I mean we all see the Geico and the progressive commercials But besides that you know you get eight and a half by eleven pieces of paper and envelopes in the mail once a year and your priced once a Year and your engagement is once a year. I mean you're not you know, there's no there's no mobile engagement There's no online pricing. There's no real-time pricing and pulling in data on you There's no you know take the photo of the fender-bender and send it in and get your claims processed immediately So you can kind of go stack by stack across all those and there has been money put into payments into banking But you're gonna have solutions up and down those stacks being brought to bear by you know cloud-based solutions data, etc Stack is a word that I've suddenly realized as I left the journalism world and came into the tech world So what I love because I it allows me now to think about In a business and and the and the architecture of where we build Applications in an interesting way. So I think really again a little bias But I think that of the blockchain actually as the ultimate underlying stack, right? It is it is the bottom stack because what we're doing here, you know for those of you who may not know much about it I mean we're grappling with a fundamental problem, right? So there's this core issue that is again 500 years We've had this centralized trust model where by Banks and for that matter other institutions have acted as the intermediators of our trust problems We've relied upon these institutions to represent us when we haven't been able to exchange and appear to appear away For whatever reason we don't trust so money is is is the most important application of that It's we trust each other to transfer Cash with a stranger because we've got this one bearer instrument that we all understand is the conveyance of the value That's being conveyed there, but once we move into you know a remote environment How does the world know that the dollar that I'm spending? I'm not double spending somewhere else the monetary system requires some Understanding of how that that exchange happens and therefore we have to invest the trust if you will in a bank And this goes back for 500 years. So now what blockchain does which is the underlying technology that enabled Bitcoin is to create a Decentralized architecture a distributed system in which that trust can now be deferred to a consensus mechanism That's driven by cryptography and a bunch of other things You know there's some game theory involved, but it's it's proven itself Bitcoin is actually the first use case if you like of this and as much as it's it's had its hiccups as As a digital currency people don't think like well, why do I want something that's you know? I've got my dollars and I think of Bitcoin as a digital currency and that's all it is in many respects It's the first use case and it proved itself because it hasn't been hacked It has not been destroyed the ledger is complete even in this decentralized environment So once you start to recognize that you can see it as this Important foundational layer like Mark Andreessen when he was sort of first Confronted with Bitcoin said something like wow This is the distributed trust architecture that we always wanted when we were first rolling out You know the internet that this was this was the stuff that would truly allow peer-to-peer exchange And if we'd had it maybe we wouldn't have these behemoths like Amazon and others that end up Re-centralizing control right so so there's something quite profoundly Opportunistic about this moment, but it's it's very very early days and so Building that architecture is is I think some people compare it to the internet is something like you know Maybe the early 90s right we still haven't got to we've maybe we're grappling with email But we certainly don't have the worldwide web or we don't have mobile You know smart phones and we certainly don't have uber and everything else yet, right though Those equivalent things don't yet exist, but what's also interesting is because I think of this recognition that the track that the The disruption could be so big and the opportunities are so large We are rushing forward with attempts to build applications on top of it And you know you heard you heard, you know the the presentation from Cromwell Romway earlier Which is a really interesting idea that you use this immutable ledger now to be able to sort of provably transfer title and exchange mortgages in ways that Cut out all of that reconciliation But the question is what architecture you're going to build that on and it's it's there's some interesting ways around that You know there's private blockchains, which aren't quite as disruptive as these dental decentralized models But all of that's coming along and and I think that it's going to be very interesting to see how these interplay between what are ultimately like fintech applications and the the rollout of the of the Of the of the underlying infrastructure is I mean the opportunities are huge At the Media Lab. We're looking at things like as a project. We're doing that Mark's actually involved in Mark Webber the Warehouse receipts and so this idea that you could really bring into our financial system is individuals and entities who have been locked out of it because that centralized trust architecture is difficult to get into there's huge Requirements to do so and the the case of warehouse receipts of those farmers that we're looking at in in Mexico who have will get a receipt for the grains that they submit to a warehouse which should be they should be able to use to then get Alone to be financed but because there's no way to prove that this hasn't been double-spent that the same Receipt hasn't been re pledged three or four times They get locked out of financing banks don't want to finance them So what if we place that into this immutable record that nobody can change this decentralized trust architecture you start to see the Possibilities so so these are the things that we're exploring in this in this realm and I think it's it's very exciting But as I say where we're kind of at the very early TCP IP stage of development But nonetheless in in FinTech itself some of them being built on Centralized systems at this stage at least there's a lot going on what what are you? What are some of the other I would just add to what you're saying so you know blockchain has tremendous Promise as we all know and trans use cases There are all these other Things that may or use cases that may or may not use blockchain that which in within financial services need to be fixed You know I gave an example of insurance earlier. I'll give an example of you know identity authentication You know when you show up to open a bank account We all know you have to show up you have to bring like a utility bill You have to you bring you know two forms of where my address is all this sort of stuff That is just 30-year-old technology that needs to be changed Invoicing CFOs the CFOs you know they receive payments in and seven different ways including you know dog and pony And they send them out eight different ways, and it's all you know electronic AR and AP it's all very You know old antiquated is what you'd say so that there so blockchain has tremendous promise But there are also use cases and solutions and services that are needed kind of up and down these stacks We can talk about you know the digitization of payments which everybody's familiar with and I don't know if you know the numbers but consumer payments And this is gonna be approximately right, but let's say 2005 41% and you guys all look too young so you're not remembering all this but 41% of consumer payments were digital You know 60% 59% were cash and check by 2015 that had completely flipped and it's close to 77% digital, you know 30% cash and check B2B payments are still well over 50% Be a check so US companies send around their 70% of the check volume United States They are sending round checks and something like 55% of the cases so you're gonna have you know the continued digitization of consumer payments and you know many people think 2017 is when we're all gonna start putting our our leather wallet away and start using our phone as our full wallet because we all Want you know one touch purchase, etc. We'll see if that happens, but many people think it's gonna happen but you're gonna have this continuation of The digitization you're not only up and down these stacks But across payments and then across B2B payments, which is a much you know larger volume and consumer payments So so digitization of continued payments, which brings up what I kind of say a third area of Lots of promise, you know in 1718 which is what I'd call reg tech regulatory technology So it's fraud. It's risk. It's identity. It's compliance. It's know your customer I don't know if anybody saw that the there's a Wall Street Journal article recently You know HSBC as you know 8,000 people in a tower in Long Island City, New York, and they're literally doing you know Manually I'm gonna call it manually doing background checks you go open up an account They are googling your name and making sure you know you're not the axe murderer or the terrorist or whatever it is I mean, it's all that whole world of compliance is now somewhere between 15 to 18 percent of banks day-to-day costs and As everything becomes more digitized and as all we all have more and more devices those needs and what your identity is and You know the positive history which is your I'm sorry the negative history Which is your background check and your positive history is that you know? Patricia camp paid this utility bill for this many years at such and such address is all going to start to be organized in a fashion Such that it becomes easier. I'm glad you mentioned identity. That's one of the areas that we are Very interested in as a potential blockchain application one of the reasons why is because you start to Think about was a couple things one is one is That compliance problem could be Better resolved by the transparency of the data that resides in the blockchain right so in a real-time way I can start to look at where my flows are I might anonymize that data because we don't necessarily want that data to be Publicly identifying people but at the same time if I can sort of we talked about machine learning and big data earlier on If there's a sort of a big data analysis of what a blockchain flow system looks like you can start to manage Nodes rather than individuals and that's an interesting way to think about this because what what obviously the India's facing this massive problem right now with this you know this demonetization or they're calling it they're sort of moving away from from cash and It's a massive backlash partly because people depend upon cash as An anonymous form of exchange and there's some actually kind of human right almost to this capacity to exchange And so bitcoins very interesting because it says it is digital cash. It's not it's not a new way to do Digital banking. It's literally digital cash You the anonymity that that obviously gets its in truck gets it in trouble in the one hand is a very important feature as well Because it allows for fluidity of commerce. So once you start to think about that Architecture you then think of how might we apply compliance to that how what is what other things that we could do with this? Information and there's all sorts of interesting applications around, you know KYC and you know your customer concepts that or digital identity concepts that that don't necessarily Identify people so knowing your customer is not knowing their name and their social security number and what the utility bills is But it's knowing that this particular entity Whoever it is that you're dealing with has this provable record of transactions that makes them a good credit or a bad credit Or a high risk or a low risk and you have this sort of more automated interaction between financial institutions and the customers And then you start to see okay So we could have potentially a safe world where these these flows are managed in a way that doesn't You know undermine the financial system and we can identify risk from a kind of a pattern perspective But also protects anonymity and privacy and these things which are becoming increasingly important And hopefully that is the sort of thing that that really reduces that massive compliance risk because by the way That compliance problem is is is creating a global problem, which is this de-risking issue There are there are countries all over the world that have had remittance corridors shut down because banks are terrified about being sued For somehow, you know unwittingly funding a money laundra, right or a worse like a terrorist I mean you I don't know if you saw but Western Union was fine. It must be a month ago now like six hundred million dollars You know it's not an insignificant number because they are AML and a money laundering techniques We're not and the answer is to put up all the more compliance officers Correct and or shut down operations with whoever they see risky Which is either way is going to cause the same thing because that just adds to cost Which means the barriers to entry to the financial system higher So we have a duty for the sake as far as I'm concerned to the global economy to resolve this problem And I do think this is where a lot of the great opportunities. Yeah No, and it's a little bit related to the last panel where you know where is data and then you know good use of data AI? applicable, you know financial services is a great use case I mean just as we all now walk through the security things of the at the airport, right? You know ninety nine point nine percent of us who are being double-checked before they let us hope open our you know Merrill Lynch account right and it's only the point one percent that are in trouble You know a lots of AI and lots of data can be used to make all of this a lot smoother It's a great. It's it's a terrific match of use case But a lot of it also in my mind is it is leading us eventually to a Complete reorganization of what we consider to be a financial institution. What a bank. I mean, what do you? How long before you know, we start to think I love asking these questions What it went when will banks be the same as they are now in ten years twenty years time? What what's what's the kind of glide path for this from that big picture perspective that when do it winter banks die? I suppose is the question. Yeah, and they're not wishing that upon the banks. Although I quietly am but no So I don't know the answer and I guess our investment you know time horizons kind of five to ten years And we're trying to do is get them efficient enough right so that they can compete I Mean it is very interesting and Michael mentioned this you know the Indian Demonitization I mean it's as if somebody in the United States said okay every five ten and twenty dollar bill is worth zero December 31st Right and you all have an all merchants stopped accepting it because they're trying to dramatically move that country to being completely digital payments And they announced it. Oh, they now said the night of the US election November 9th or 8th 9th And and they said, you know, whatever value of rupees as of 1231 are no longer of value There's zero and so you had this enormous, you know Massive chaos right so what's my point my point is that you know Does something like that in the United States is this digitization continue, right? There's a concept of a bank how many people walk into a bank, you know If you no longer have to walk into the bank with your utility bill to show who you are then you know What happens, you know, you're gonna see dramatic change or obviously gonna see dramatic change I would counter Michael that it's people's money So I have always said, you know, it sounds great to have, you know Wealthfront and Betterman and Robin Hood and all these sort of things that all sounds great when you have $5,000, right? If you have, you know, whatever number of dollars you're handing it to Vanguard or you're handing it to Chase or you're putting it some place You know, there is this is people's money. So I don't think it's quite the same as get rid of taxis and get into Ubers, right? I think it's I think that it I think there is a difference to this because there's a sense of security There's a heavily regulated environment. I mean, you know, the whole the company has to be heavily regulated and licensed So I don't think it quite shifts like other, you know industries because I'm at risk of losing your fortune or losing your life Big checks on how far this technology can go but at the same time, you know There's a there's a mountain that's slowly starting to move and I think it's gonna be interesting to see how it goes We're gonna call it quits because we've actually both have to try to make it to Transport to get us out of here and further south Sorry, there's no other no questions, but I hope that was interesting and useful to you to you all and thanks very much