All About Blockchain

The Personalization of Finance | Emmanuel Daniel

January 19, 2023 The UBRI Podcast from Ripple Season 5 Episode 6
The Personalization of Finance | Emmanuel Daniel
All About Blockchain
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All About Blockchain
The Personalization of Finance | Emmanuel Daniel
Jan 19, 2023 Season 5 Episode 6
The UBRI Podcast from Ripple

How does highly personalized FinTech change how institutions, markets, & societies run?

Columbia Professor, Agostino Capponi, explores how crypto and blockchain are altering the financial industry while expanding observations beyond finance to how transitions are taking place in society with the personalization of finance in a deep conversation with top 10 global influencer in the "Fintech Power50",  Emmanuel Daniel.

Show Notes Transcript

How does highly personalized FinTech change how institutions, markets, & societies run?

Columbia Professor, Agostino Capponi, explores how crypto and blockchain are altering the financial industry while expanding observations beyond finance to how transitions are taking place in society with the personalization of finance in a deep conversation with top 10 global influencer in the "Fintech Power50",  Emmanuel Daniel.


Hi, I'm Lauren Weymouth, your host of All About Blockchain. Today we're discussing how cryptocurrencies and blockchain paved the way for decentralized finance. I've called in one of my favorite DeFi experts, Agostino Capponi. Agostino is an associate professor of industrial engineering and operations research at Columbia, a member of the Data Science Institute, and also the director of a new center for digital finance and technology. I had the honor of cutting the ribbon with him at the center's recent launch and sit on his board of advisors with other industry members to help inspire future topics of engagement.

Agostino will be interviewing Emmanuel Daniel. He's an entrepreneur, writer, and listed as one of the top 10 global influencers in the Fintech Power50 list. Emmanuel was trained as a lawyer, has degrees from the National University of Singapore and University of London. This is gonna be fun putting these two together to discuss how technology developments are causing transitions to take place in finance and society, specifically personalization where the individual has greater control over their data and their community to the point of generating their own value. Agostino and Emmanuel, welcome to All About Blockchain. 

Agostino Capponi (00:01:14):

Thank you, Lauren. It's a pleasure for me today to interview Emmanuel Daniel. Emmanuel is like a top figure in the financial industry, and I would like to start this interview by asking Emmanuel if he can briefly introduce himself and describe briefly his background.

Emmanuel Daniel (00:01:28):

Agostino, I was very happy to be joining you, I'm Emmanuel Daniel. Everyone in Asia knows me as the founder of The Asian Banker, which I founded in 1996. It gave me the privilege of being able to go to any country from Korea to Australia, from the Philippines to the Middle East, land in any airport, and meet with chairmen and, CEOs, of the largest banks in every economy. And you can imagine,  in that period, uh, Asia was the largest, the fastest growing part of the world. I had a front seat view of a lot of the developments in finance taking place, in that part of the world, trade finance, transactions, payments, and all that. I now spend time in between Singapore, New York and Beijing. and I actually have an office in Beijing and an office in Dubai as well.

The Asian Banker has sort of grown in many ways. We are not Asian anymore. We are not banker anymore because a lot of the innovations taking place in finance today are taking place outside of traditional banking. Most recently, I just launched my first book the great transition, the personalization of finance is here.

And this book is a culmination of maybe about 10, 12 years of incredible personal struggle to understand how the transition in finance was evolving, and how traditional bankers were coping with that transition. what's real, what's not what is the essence of the industry.

So it tested everything I knew about banking, about finance in its traditional form. And then I applied it to what digitalization was  doing to it. And today, we're talking about decentralized finance. What I'm saying to the traditional banking community is that there is a great transition underway.

And that transition is taking us from what bankers thought they knew about the industry to something I call personalization.

My audience originally were traditional bankers, but today I seem to be a very good friend of a lot of the blockchain players and cryptocurrency people and especially traders and those in the DeFi space. That I think is a nutshell, about my own personal journey.

Agostino Capponi (00:03:41):

Thank you, Emmanuel. You mentioned your new book The Great Transition -- the personalization of finance is here. I mean, the title is very topical, and I agree that it's reflecting  a lot the developments that we're observing now in the financial industry.

If you could elaborate more on what you mean by personalization of finance, and how do you view this personalization impacting the financial services. I would be curious to hear whether a personalization you think will have an impact on democratization of financial access or financial inclusion? And if yes, if you can elaborate on why this is the case, if not, I would like to know why this is not the case?

Emmanuel Daniel (00:04:18):

Agostino, that's exactly what I'm telling bankers that personalization is no longer about. Personalization is no longer about taking a traditional banking product and making it highly personalized by packaging it or repackaging it to make the customer feel good.

If you take something like payments, for example, today the money in your wallet just to get there may have actually traveled around the world while it's doing a swift transaction and so on. And then you've got inflation, you've got the economy, you've got trade, you've got bank charges.

All of these elements affect the value of the money that you and I carry. I'm saying to the technology people that even technology is in a transition from its platform moorings today, towards something I call personalization.

When I first presented this argument to people at Facebook and Google they really believe in their platform model, and that it will go on for a long time to come. Although I must say that Google has been investing in a lot of personalization technologies especially in the area of identity.

What we will see happening is that business models that succeeded on the platform economy will now find it increasingly difficult because individuals, claiming back greater ownership of their data of their community, and the people that they want to be able to interact with, the network in which they want to function.

This transition to personalization finance is going to be the core, the center of it, because when we are able to transact value at a personal level, we'll be able to transact anything, information, and relationships and communities and networks.

That's the basic thesis of my book. The individual is able to generate his own value.

Community currencies, play to earn, gaming and so on. These are early iterations of the ability of the individual to create value, and create an economy around the value that he's created.

That's something that  always existed even in the non-digital world. Community currencies are not new. What they are is the willingness of closed communities, to recognize a token that they create. It can be a small piece of paper, that they give each other and so on.

Microfinance was perfected in a country called Bangladesh, where, you lend to small groups of six women.that creates the credit profile. Now, the question how do we carry what worked in such an, analog way into the digital space, and into the crypto space. There are lots of DNA, the original sustainable structure of banking that can get carried into the decentralized world.

Agostino Capponi (00:06:56):

Thank you, Emmanuel. Very interesting. You mentioned like the move towards decentralization and towards digitalization of transactions. To that point, I'm wondering, like, if you could elaborate more on what you mean by the financialization of everything.

Emmanuel Daniel (00:07:12):

By financialization of everything, I mean this, Jeff Immelt, I think it was 2014 or so, said that GE will not be a manufacturing company anymore. that GE will be a data company. And he said that now nearly eight years ago.  I think that a lot of, manufacturing,  industry players take a Tesla car, for example.

It is a machine that has got an incredible amount of data,that it processes, and that it can financialize, if you can produce data and capture data, you can financialize data. It's just as simple as that. Okay.

What that also means is that anything that can be digitized can be financialized, okay? In the most developed of economies, the primary manufacturing has been relegated to the lowest level of economic output, in terms of the value generated from economic output.

it's unfortunate, but that's how it is. agriculture was relegated long time ago. Today, manufacturing is also being relegated. the economies that are going to grow dramatically are the ones that are able to process data trade data and financialize data.

When you think about what derivatives are today and the futures and all kinds of data indices that are traded on they're all financialized data. The world is going to go through a process, in the next, you know, 50 to a hundred years, looking for an excuse to financialize all kinds of data.

We will go through a process of a lot of nonsense activities trying to digitize and mo financialize all kinds of data,and then find that only some are worth financializing.

And then after the trend settles in, then you make an industry out of that. The common wisdom is that. Data is the, the new gold or something like that. To me data is vegetable.

if you have it too soon, you can't use it. If you have it too late, you can't use it. If you have it too much, it will be worth nothing. If you have too little of it'll be, you know, overpriced.

It has to come in a certain configuration for it to be useful. All data loses its value almost as quickly as time, moves on to the next set of data and so on.

We need to take a view of data that treats it as a perishable co- commodity.

We are seeing entire economies starting to recognize the ephemeral aspects of the economy or value that's calculated.

With the financialization of everything, our own ideas of what is valuable changes. The banks' balance sheet has evolved dramatically in the last 30 years. At the time of the 1984 savings and loans crisis, a bank's balance sheet was made up of mortgages sitting on the balance sheet. By 1994, after the 1987, securities crisis, a lot of the banks balance sheet started reflecting securities.

And then it started, reflecting derivatives on securities. Today the bank's balance sheet has a lot more trading assets than it has real assets. And that will be reflected in businesses and in individuals 

More of the assets that are valued, that we presume that we own, will be intangible assets. So that's what I mean by the financialization of everything that entire economies will increasingly value intangible assets, and that the proliferation of data that can be financialized, will create an entire new industry or new industries that generates the value that we want to transact with each other.

What that also means, by the way, how individuals will value their time, their ownership of property, their relationships, and so on. Everything that we deem to be important to ourselves.

So when I say the financialization of everything,I'm actually talking not just about finance, I'm talking about entire societies, how we operate and how we function, as a society.

Agostino Capponi (00:11:06):

Thank you Emmanuel. I think this clarifies a lot what should be our understanding about personalization of finance, financialization of everything. You touched on a very important point, which is the value of data.

So if we think about society, at least before the advent of distributed ledger and blockchain technologies, we have a lot of companies which provide data, right. For example, we have credit card companies like Visa and MasterCard who have access to a lot of data.

And, they can sell this data to companies, for example, investment banks, and other businesses which can use this data to improve their business strategy. Similar, like for Facebook for example, collects data, Amazon has a lot of data about, customer purchases and so on.

What we observe with this company is that this data is somewhat proprietary, and it's not available to anybody. If you want to access the data, then you have to buy the data from those companies.

So now as we move more towards decentralization, which means that this data is not only the property of specific companies, but rather it becomes, a kind of a public good, if we think about permissionless blockchain technologies where data is publicly available in a way because everybody is transacting on this technology, using these technologies will be able to reveal, what it's doing, right.

For example, if you think about blockchain for supply chain, I mean, it's through that most of them are permission, but still like all the companies that were joining the blockchain could have access and see, what other companies, who have joined the same blockchain are doing.

So I'm wondering whether you think that, with this view of data as more as a public good or as a property of, a more democratic technology, which is accessible and affordable by anybody, we would see perhaps also a decentralization of market power in terms of who owns the data, and perhaps like, there might be opportunities to intervene and democratize, services even more.

Because we can observe exactly what is being done using this data, and hopefully maybe, give better benefits to companies or to individuals who are being somewhat discriminated, by others. I'm wondering if you have any view on as we move more from centralized, set of services, decentralized sets of goods and services, what are your views about the value of data?

Emmanuel Daniel (00:13:23):

You know, you asked this question, in a very interesting way because, you asked it from the context of someone who is in a markets economy, an academic that I totally admire, who in 1994 wrote a paper, he was part of the RAND Corporation at the time, David Rothwell.

And he wrote this paper that suggested that society moves in four phases from its tribal to its institutional, to its markets, and then to its network phases. I borrowed that concept, and I applied it, where finance is today, and then I was able to come to terms with a lot of the activities that are taking place today. I think that when we contextualize what is it that we are actually confronted with, whether it's a markets economy, or a network economy dimension or a tribal or an institutional economy dimension.

Today we are properly in the markets economy, which is willing buyer, willing seller. So the questions that you asked, you're assuming that data is an asset that once a buyer sells it, he loses it, and  the next person gets the value, out of that.

But just stop for a moment and think about this. Data is the only asset that increases in value the more you share it, and when you share it, you don't lose the value or the ownership of the data. In other words, when I give you data, I don't lose use of that data and when you give it to someone else, you don't lose that value.

And I become more powerful when that data proliferates in value, across the community. that's a network principle. That's not a markets principle. A markets principle is like, if I had a house and I sold it to you I must make sure I get it at the highest possible price and that then the transaction takes place.

You get something that you believe to be of value, and I get paid for something that I believe was fair value. Data just doesn't operate that way. Data is the only asset that grows in value when you proliferate it, when you, put it out into the network.

Just putting that as the basic principle of data.  Banks and traditional players, have taken a very defensive view of data, thinking that data is something that they need to protect. what is worse is that traditional banks, are protecting data in the network world, totally unusable.

The data that banks have on their customers, like you and me, is historical data, it's balance sheet data, it's general ledger data. The data that is generating value and creating new assets exists outside the banking industry. The data that sits outside the institution is today more valuable than the data that sits inside the institution.

When we put these concepts, in order, then we start to see, where the transitions are taking place and where they're leading to. Data is not something which, we can hoard and therefore it, it has value or that the person who has the data is more powerful than the person who doesn't.

It's more like the person or the entity that distributes the data, creates more power. In fact, when you think about it, right through the FTX episode, the one asset that continued to prove its resilience was Bitcoin. Because the hash rate on Bitcoin continued to go up dramatically. And the greater the hash rate, the more secure the network becomes, that's also the story that's not being told, that cryptos that are being traded widely, actually gaining, even more resilience that are preparing them for the network era,, while we nursing our wounds in the markets era, of that transition.

Agostino Capponi (00:16:59):

Thank you Emmanuel. I like your clarification about like the fact that when we're selling data, we are not really transferring an asset from one party to the other, but, the party still maintains ownership of that.

What would be the concerns if we go more and more towards this digital economy, landscape. One of the point that you mentioned in your book is about, the central bank digital currencies, which could be an alternative, uh, payment system where like the central bank would've access to like a lot of data.

In similarly there could be other ways of setting up payment systems that make this data available to a large ecosystem. I'm wondering whether like there might be concerns emerging in terms of privacy,as the data becomes more and more good, a commodity in a way that is used, to perform transactions.

What do you see the tensions between like having broader accessibility to data and on the other hand protecting the privacy of those who do not want their data to be publicly or privately accessed.

Emmanuel Daniel (00:18:02):

You know, Agostino, the question that you're asking has a very important dimension that we need to add to it, which is identity. Who are you and who am I in the digitized world. How do we validate each other.

if we solve the problem of identity, we solve a lot of the questions that you just asked, how do I tell you that I am who I am, in a digital transaction.

In the world of identity, in order to validate parties, in a permissionless ecosystem, the operating model seems to be that the more data there is out there on you and me, the more we are able to validate each other, okay?

So there's no more hiding, the digital economy is not about how tightly can you close your door so that, people cannot crack into the data that you have.

In fact, if you speak to cybersecurity professionals, they will tell you that the robustness of cybersecurity and the robustness of Bitcoin, is that there is incredible amount of network activity, around the asset in the network.

The way in which we think about security in the digital world is totally different from the way in which we think of security in the analog world or the physical world. In the physical world, you have a door, you close it. In the network world, you need to be out there.

And the more data you have the more security that you define what you want to protect. We need to then think about what kind of business models will work in the future.

Even the permissionless model is going through a transition of its own, there was a time when being an exchange was important. And today, exchanges are losing their business model, cold storage and off ramp platforms and so on are becoming more important.

Eventually it's the individual that will have control over what he wants to be in the digital world. I'm not sure if I'm answering your question, directly, uh, but they're all related with each other, which is identity and then the security, which has to do with being able to manage, the network interactions, in order to secure, whatever there is you need to secure, whether it's a platform or an asset.

Agostino Capponi (00:20:16):

Great. This is a very detailed answer, Emmanuel. We touched on several important points, and it leads me also to wondering whether you think that this digitalization is beneficial, especially for segments of the populations which have been traditionally underserved by the banking services and so on.

For example, if we think about emerging market countries, which typically are difficult to access resources, for example, to get loans or to get access to banking services. Now, if we think about digital, technologies, like permissionless or permission blockchains, they could have a chance to get access to credit, like truth, for example, decentralized finance using like DeFi lending pools or DeFi exchange.

And I'm wondering who you think will benefit the most if we have this transition from centralized financial systems, to decentralized technologies.

And whether, you foresee there will be an increased adoption of these technologies, in emerging market countries, relative to maybe the more developed segment of the population. To that extent, do you think in the very long term, there will be a transition from centralized to decentralized services, or you think the two systems will coexist and will complement each other?

Emmanuel Daniel (00:21:38):

So the first thing I'm telling banks is the product has to change, okay? The idea of digitizing your customer is not to sell him a mortgage. Or a deposit account. In fact, I'm telling banks, look at your, most cherished product and say to yourself that in 10 years, this product will not exist.

And what is the most cherish of products, is the bank deposit, right? I've seen data from the World Bank, the IMF, Asian Development Bank, and all kinds of developmental agencies saying here's the financial inclusion data, 80% of the population in this country don't have access to a bank account. That's what they say.

But, in the digital world, that's exactly what people don't need. They don't need a bank account. And then you say that,, in developing countries,  How do we, give them greater access to traditional banking. This is what I'm saying to banks, give up your most beloved product, right.

Just think about this, today, digital wallets are actually a little larger than all the bank account deposits in the world., I don't have the number in front of me, but the digital wallet world is now going to be like,, $400 billion worth of digital wallets, worldwide.

Going up to like 10 times that size in the next 10 years. Digital wallets are not predicated by banks. They are predicated by a whole range of new players. You see that in the permissionless universe.

So I'm saying to the banking industry that look at the most favorite of your products and say to yourself, this product will not exist in about 10 years or so. And related to that, people don't need mortgages. They need homes. People don't need, a payment platform.

They just need money to transact. Banking is an industry that is a means to an end. It is not an industry that people need to love for its own sake, It's exactly the underdeveloped countries that have figured it out that payments has been reduced to a message between two points.

You go to Africa today in Nigeria, in Uganda,in a whole range of African countries in Kenya, which started with M-Pesa, right. You have any number of payment players who have reduced, what payments actually is a message between two nodes.

And very often it's two mobile phones, and which can be transacted on by a mobile network and not by a traditional bank. The regulators try to bring it back into the traditional banking industry by regulating it and by insisting that it be considered a deposit taking business.

It is in the U.S. where banking is so overdeveloped that it is not able to break into its component parts, easily because there are too many vested interests in the process. In fact, in 2023, the Federal Reserve Bank is introducing Fed Now, which is instant payment between bank accounts in the U.S..

And I think that that will open the minds of many Americans, to the idea of how simple payments are supposed to be. All of these developments are breaking down the infrastructure that we have today that makes it difficult for us to see how the transition is evolving.

The transition is evolving regardless of the vested interest, in place. It's just that at some point the existing infrastructure will not be able to hold it together because of cost, because the technology itself is overwhelmingly compelling.

Difficulties in identification, in validation of transaction and the network effect, eventually gets matured. what I'm saying to banks is that your products have to change.

To the players in the, DeFi space, I think that the way they're looking at their business today, we have a leverage account. you can do staking this way, and then, you can lend it. It's a lending business similar to what, bank lending is.

They should stop thinking that way and trying to map it back to traditional banking products as they, as they understand that to be and start imagining, new products, that exist in the network world. And the new products that exist in the network world is commensurate with how people want to live their lifestyle.

The next generation, they may not be, so interested to own a property for seven years or 13 years or 15 years, they may want to co-own a property, or lease a property where the funding for the, for the lease, is provided by the network effect, that means that people who trust you who, who want to be able to fund your lifestyle, for example.

Products in banking and finance will have to change. Now, let me add one more point here - when I watched how, peer-to-peer lending evolved, why peer-to-peer lending Failed and Why I think It's going to have a second iteration, going forward.

Peer-to-peer lending was meant to be a platform that brings borrow and lender, to each other. the platform doesn't take the asset only to its balance sheet. It's very simple. But what happened eventually was that the platforms, all of the peer-to-peer lenders, imagined themselves that they were selling mortgages, that they were selling loans, just like the traditional bank, except that they weren't taking it onto their balance sheet.

What they were not cognizant of was the amount of data that was being generated in the interactions between the borrowers and the sellers that could have resulted in new products, in new relationships, because it was still early days, the data wasn't rich enough.

But once you go into, quantum computing and greater AI the platform itself would be able to recognize patterns that can result in new products.

What went wrong with the peer-to-peer player industry is that the more they saw their role as to sell traditional mortgages, the regulators got onto them, put a lot of compliance onto the peer-to-peer platform industry, and slowly they started to look like the banks that they said they were replacing, okay?

The point there is this, as long as you imagine your product to be a traditional product in the way that banking has always seen it to be, you will not be able to create the new products that need to exist as we become more networked.

Agostino Capponi (00:27:46):

Yeah, this is very interesting, Emmanuel. Basically what you are claiming is that we will see more a change in the business model of banks from being the traditional intermediaries, to constructing and selling products, which are capitalizing more on the data that they would've access to. So in a way, we will see a disintermediation of financial services, but this will be replaced by increasing capitalization on data.

As we move more and more towards digital technologies and providing infrastructure, to access data, will we have to worry about  educating the users to these technologies, to understanding what are the risks that they will be facing when they adopt these technologies?

How can we simplify the access to infrastructure, how can we create interfaces which are easy to use and where one could basically get access to data or, uh, provide access to data in a simple manner?

Emmanuel Daniel (00:28:37):

All the education that is taking place today is in the markets  phase. Now, everything that Warren Buffet or Charlie Munger says about Bitcoin as a tradable asset is correct, okay?

Because they're treating Bitcoin as one of the different securities that exists in the marketplace, you have to be careful. You have to do due diligence.  You need to understand the nature of the asset. and you have to protect your own assets.

But crypto has a different role in the network world and the network phase that we're going into. all evidence points, in fact, right through the FTX crisis or the FTX episode,the robustness of crypto technology was proven and was established and was strengthened even more preparing for the network world, okay.

The hash rates of all the major, you know, Bitcoin and Ethereum, were very strong, and continued to build on the resilience of the network. And one of the features, interestingly of DeFi is that, it is thousands and thousands, if not millions of programmers creating applications and functionalities and creating security features on a daily basis. And that is,, the nature of the network world which is that entire societies, people working from home, Will be contributing to the network effect, right. That transition is working well. There's nothing that needs to be done to educate anyone.

In fact, banks, miss the opportunity, to benefit from what I call the API effect, on the platform era. there's a blockchain, uh, version of API, evolving. You take any one of the cryptos, Solano, any one of them, you've got hundreds of thousands of programmers working  around it.

So that, network effect of hundreds of thousands of developers checking on each other is the security that you need in the network, in fact, okay. Now, all the education that is taking place today is that, oh, be careful of, bad actors be careful of the way in which algorithms are configured because some of them are oxymoron.

They actually go into a double spiral exactly when they need to be protected, in a transaction.  Or if there are two tokens that are dependent on each other, if you have a bad actor on one, it affects the other token.

These, markets elements, are working as phases right now. but the network element is, on schedule. It is evolving as it should be. And so we need to, separate our mind, uh, what the education is meant for.

if the education is meant for those who think that they become rich by trading in a token, then they're doing nothing different from trading in a security like a share or a bond or, collectible of any kind. the NFT aspect also falls into that category.

NFT doesn't make sense at all as long as it is about giving value to an asset. That's the market's dimension. NFT starts looking different, in the network phase, of human evolution or so social evolution, right. So I think that if we separate it out that way, we get to understand what is it that we need to teach the young people. 

And, not just young people, but old people who, who are, baffled by this whole transition that's taking place. the only thing left to happen in the network world is that it has to, no longer be the realm of geeks. A lot of the DeFi players that I know, they are incredibly knowledgeable in the way that a software programmer would be, which I myself am not, right.

The technology needs to become more commonplace that ordinary people can use it as part of our everyday transaction.and that will take place, eventually, I'm sure I think that a lot of front end,, usability is being created.

But at the same time, the backend is something that all of us need to understand intuitively, especially the algorithms, n the network world because the crime in the markets phase of human society is that I cheat you. I give you a security, and I didn't tell you what the value is.

The crime in the network world is that you and I both have access to the same information as each other. There is no hiding, there's no, you have information that I don't have. the symmetry of information will be achieved by the time that we are fully in the network phase, then the crime becomes something different.

It becomes deception that, although I know all the information that you know, I don't know your intention for the trade or the transaction. there are a number of unsavory activities that you can participate in. So that's the amazing transition that is taking place. 

Agostino Capponi (00:33:17):

Yes. thank you very, very interesting, Emmanuel. I want to switch a little bit here and ask your view on, uh, where we stand in terms of FinTech adoption, uh, worldwide. So you have a broad understanding of financial markets, of global financial markets, because you have worked across the globe, uh, ranging from Asia to South America, Europe, and so on.

And in particular, you are like me, you have a strong understanding of Asian markets. I'm wondering, like how do you see FinTech in Asia compared to FinTech in the U.S.? And do you think, the digital financial innovation that we have seen in terms of payment systems, uh, are both adopted, in China or in the U.S. for example, we have Alipay in China, which you have mentioned also in your book.

We are like fast payment systems that are being increasingly adopted also in Europe and also in the U.S. So where do you see the gap? And do you think there will be interoperability problems across the globe as we move more towards FinTech?

Because like some digital financial durations are still specific to the specific jurisdiction, and they're not yet developed at the global scale. what are your views on that? How can we better integrate FinTech systems so that we can fill any gap between different continents?

Emmanuel Daniel (00:34:32):

The short answer is that FinTech as it is being regulated today  is highly territorial. And every territory wants to define FinTech  in a way that is relevant to its own needs.

But what's common, in the way that, FinTechs are being regulated around the world, regardless of, you know, developed or underdeveloped countries, is that all regulation are designed to perpetuate the existing system as long as it possibly can.

And where the existing system is rudimentary or non-existent, that's where the innovation takes place. Because  innovations being introduced by FinTechs are designed to do away with the need for a traditional banking system, and go right into solving the immediate problem especially in the area of payments.

In the question of interoperability, DeFi is already interoperable from day one. Bitcoin is a global phenomenon. It doesn't need, standards, to be imposed on it or any interoperability discussions. So a lot of the DeFi architecture is interoperable from day one.

In fact, the advice that I would give to FinTech players is that, to avoid, regulations that attempt, to domesticate innovation for any specific market. Because when they try to domesticate it, that's exactly when you can scale and internationalize, an innovation.

Whether it's a software, or a transaction platform or an outright disruptor, always think cross border, always think global. In Southeast Asia, the real disruptors used to be platforms, and today, it's morphing towards decentralized finance. So any, digital bank anywhere in the world, for example, actually designed to be non-profitable, because they can't compete, with the new technologies being created in decentralized finance.

If we paint a picture, of a world where on the one extreme there is a legacy infrastructure, and the other extreme, is open-ended, then we see where the different FinTechs are able to be successful. the big thing is that eventually regulators will need to start to come together.

The one topic that the regulators have come together on is Central Bank Digital Currencies. Uh, they meet every year in Basel, in the Bank for International Settlements. And they have a love fest of how wonderful this new technology is.

And let's all go back to our respective countries and create our own platform, our own technology that we can deploy as a central bank. In Canada, for example, they have a number of CBDC projects, but the regulators just don't take it into account that there is great pushback from the ground, after the truckers riot last year.

That if government can close my bank account I'm not going to allow them to have a CBDC where they can close my money,, directly. and all of the countries that have a CBDC and I've visited some of them, and I'm very familiar with some of them, they are struggling with a technology where the technology actually dis-intermediates the very banks that they regulate.

In other words, the relationship is directly between the central bank and end user of the token. So then they scratch their heads and say, okay, we need to recreate the intermediary function, so we will deliver the CBDC through the banking system. and that's a fictitious  working model or an architecture that has no purpose in the way it works.

Regulators have a role that they need to play, which is to facilitate  the transition towards, the transition of FinTech players towards decentralized finance. but what they are doing is actually to try and protect the existing regime as it exists right now.

This is true in the U.S. as it is in, in the UK, and many other countries around the world. The only thing that the UK has pioneered is this concept of open banking. and recently the OCC regulator in the U.S. had said very clearly that they're committed to open banking as a regulatory concept.

What open banking is simply, again to empower the individual, that is the individual holds his data, and he decides who he wants to share it with.

And when regulators think that way they're actually facilitating or they are incentivizing FinTechs to start making a difference, which is that if the power is eventually in the hands of the individual, then what would the financial architecture look like.

I think that the UK pioneered this and then the EU as well. the initial days of open banking was strange, because in the UK, having liberalized the ownership of data to the individual the individual went back to the bank, the traditional banks, and said that we actually trust the banks more than the new players that are coming about.

Those were the early days. That transition will continue to work its pace and new players with better brands will be able to take advantage of architecture like this to dis-intermediate the banks.

But the ultimate goal really is the empowerment of the individual. And I think that that's where we're all heading, and that's where regulation and innovation needs to be directed.

Agostino Capponi (00:39:56):

Thank you for this great answer Emmanuel. I agree that we should push more towards decentralized finance so that we can solve most of the interoperability problems. And to that extent, I want to ask you for a brief answer on this question.

Do you think the problems that we can face with DeFi, which are primarily related to technological risk, for example, hacking of smart contract code, or hacking of decentralized oracles can be solved? Because every time I think about technological risk, I always think that there could be technological solutions.

And I think if one could solve and, uh, go around this hurdle, then I can see that, uh, there will be increased adoption of DeFi. So what, what are your views on that?

Emmanuel Daniel (00:40:37):

My view is very simple, that the network effect is itself the protection that you need. so when you think of hacking it means that the data resides somewhere where it can be stolen. but if the data resides in 10 different place then hacking becomes meaningless.

I know it's a simplistic  way of looking at it. but the network effect is itself the security that will protect an asset that exists in the network. 

We are right now in the markets phase of human society. When we move into the network phase, the rules, will be very clearly different. And then we will be scratching our heads and thinking why were we thinking this way in the first place, that there is a door to be locked and a key to be kept. In the future it's the network that provides the security.

Agostino Capponi (01:41:21):

Great. If our listeners want to learn more about your views. Of course, they can read your book.

Thank you, Emmanuel.

I hope our listeners have enjoyed this interview, and I would like to thank Emmanuel again for taking the time to share his views and insights with us. Thank you.

Emmanuel Daniel (00:41:40):

Thank you, Agostino.

Lauren Weymouth


Captivating conversation that spans the future of global finance. You highlighted a great transition underway, and we're looking for innovation that changes the rules. Hope that's where we're headed, right, innovation regulation that empowers the individual? Thank you both for sharing your thoughts. And to our listeners, I hope that was as fun for you as it was for me. Thanks for being on this journey of technology discovery with us. Until next time.