00:00welcome to the a 16z podcast I'm Michael
00:02Copeland technology companies are
00:04running hard at almost every part of the
00:07traditional banking business from
00:09raising funds to moving money from one
00:11person to another and as you would
00:13expect that has meant change both in
00:16terms of the banking services that are
00:18available to all of us and the pricing
00:20of those services it begs the question
00:23of what role banks play going forward
00:24and whether tech companies are partners
00:27or competitors or some combination to
00:31the players in the traditional banking
00:33business and finally if banking gets
00:36unbundled by tech if there is a choice
00:38of services what fees and at what price
00:41will consumers be willing to pay a 16
00:45ZZZ Alex rampell leads a discussion with
00:48transferwise executive founder Krista
00:50Carmen and Tilt founder and CEO James
00:53Bashara on the future of money and
00:55monetization this discussion occurred as
00:58part of the firm's UK tech summit Alex
01:01and Christo start things off so one
01:04thing just given that the topic is the
01:05future of money how do you think about
01:08regulation because one thing that I find
01:10very interesting is that how did Airbnb
01:13an uber and lyft get started they didn't
01:15get started by embracing local laws they
01:18almost flatted them because if you can
01:20imagine Airbnb if they were starting
01:22tomorrow and they said okay we're gonna
01:23go to every local town and city and say
01:25can we do this they'd get a lot of nose
01:27challenges if you go into the realm of
01:29money and you say you know what kyc know
01:32your customer laws AML anti-money
01:34laundering laws those are stupid and
01:35antiquated we're not going to follow
01:36those you go to jail so the the
01:38consequences are much much higher than
01:40providing a temporary rental or a
01:42temporary car service so how do you
01:44think about regulation because when
01:45you're touching money things get a
01:47little bit more complicated but if you
01:49follow every law that was established in
01:51the 1500s it's a little bit hard to get
01:52business done to and especially as the
01:55laws are usually written for the fax
01:57machines now they're not for the
01:58smartphones so people have told me that
02:01I was stupid because I chose the other
02:04way I spend about nine months before
02:07showing the products to anyone and going
02:10through the FCA or then
02:12FSA regulation process and licensing so
02:15we took the way unlike uber or Airbnb to
02:19be a fully licensed money service in the
02:22UK before we even before we even got
02:25started and now we have a big team not
02:31just doing everything that the banks do
02:33for adhering to a ml and kyc rules but
02:37we have another team who gets us
02:40licenses in every single country that we
02:43we operate so recently we got licensed
02:46in Japan we're in Hong Kong
02:47licensed in Australia in the US etc etc
02:52yeah I think with with us you know in
02:57contrast to to Airbnb or uber you
03:01actually can work within the system I
03:03don't think you know in many cities and
03:05many markets Airbnb or uber just would
03:07not be able to work there was no system
03:09to work within so so they really had
03:13their only option was to go outside the
03:15system when it comes to money and money
03:18transmission or processing and man
03:22they're there a lot of there's a lot to
03:24the system there's a lot of paperwork
03:26but I think we also similarly chose the
03:29the approach of just get really good at
03:31paperwork and work within the system
03:33yeah and just to just chat about a
03:36regulation question a little bit so I
03:37honestly believe that in a regulation is
03:40not bad if you if you look into this and
03:44we're dealing with money so there should
03:46be consumer protection and we all want
03:50to catch the bad guys so in the kind of
03:52the essence I think the regulation makes
03:54sense and you know I don't feel feel bad
03:57about some particular regulations over
03:58there could the way that they're written
04:00but the the idea is good yep how about
04:04customer acquisition so I mentioned this
04:06incumbents I mean if anything you're
04:08fighting the incumbents in a very very
04:09meaningful way at transferwise because
04:12and it's hard for the Inca it's not a
04:13technological innovation per se I mean
04:15it there is there's a lot to what you
04:17that's technological but if you're
04:19charging a fraction of what they're
04:20charging they can't just roll out what
04:22you're doing because if we cannibalize
04:25sure so I mean how do you think about I
04:27mean I've noticed a lot of marketing
04:29campaigns for you in my limited time
04:30here in the UK how do you think about
04:33acquiring customers and keeping
04:34customers so for us for us the the
04:37customer acquisition problem is really
04:40explaining the problem we're talking
04:43earlier earlier about pricing models in
04:47different parts of finance and what I
04:49believe is it's not that the banks or
04:52banks are bad banks have a very hard
04:56time across the board across different
04:59product lines but it's is just this
05:01pricing model that has evolved where we
05:04decide not to show the real price of a
05:07service and then we hide it either into
05:09the interchange or into the exchange
05:12rate and then the consumer doesn't
05:14really have a choice and they don't know
05:16how much they get charged by making
05:20payments for making payments or or
05:21moving money around and that's what we
05:23believe is wrong and when you when you
05:25ask the customer acquisition question we
05:27find that once people understand that
05:29once they understand how they pay for
05:31the service and once they realize that
05:34they have a choice you know it becomes
05:36very easy so these kind of quirky stunts
05:40that we do these are really just a nice
05:43way how to explain what the problem is I
05:45think when it when it comes to money one
05:48of the biggest benefits of being safe
05:50having such a high barrier to entry and
05:53all the paperwork that that were just
05:54referenced one of the biggest benefits
05:56is as a young developer none of my
05:59friends as developers we're doing
06:00anything with money because it it's just
06:02really hard to do from you know from
06:05your bedroom you know working on
06:07something nights and weekends and so
06:09when you take on and when you bite the
06:10bullet and and get really good at that
06:13paperwork and you introduce an app which
06:15and when I say it's the easiest way to
06:17collect money from group so for your
06:19Christmas dinner or Christmas party for
06:21a group gift for you know renting and
06:24Airbnb with eight friends to fundraising
06:26from four community cause with with a
06:29hundred and fifty people it really is
06:31the easiest way to do it and we just
06:35launched in the UK three months ago so
06:37you can download the
06:38and see what I mean the the ui/ux
06:41it's Garner's a really strong
06:43word-of-mouth a really really strong
06:46word-of-mouth where the fastest-growing
06:47app on college campuses in the US and I
06:51think it's because dealing with money
06:54there's just there not many great
06:56well-designed apps when it comes to to
06:59money and payments so it becomes a big
07:02benefit for the user acquisition channel
07:04yep so one of the things that's that's
07:06nice about this particular panel is that
07:09nobody here is I mean neither one of you
07:11is trying to be the next Bank and kill
07:14the current banks so in many cases or in
07:17all cases it means that you know we need
07:19to work with banks I mean I found this
07:20with a firm where it was very hard to
07:23even open a bank account when they asked
07:24us what our business was and we said
07:26we're gonna loan money and like nobody
07:28would even take a deposit from us a
07:30multi-million dollar deposit of our
07:31first venture capital check so what what
07:34would you like to see banks do
07:35differently if anything because
07:38obviously you know you compete with
07:40banks a little bit at transfer wise but
07:41also like people have deposits at their
07:45bank account that they use to then
07:46transfer money using you so there's a
07:48lot of stuff where you you have to
07:50participate within the financial system
07:52as well what would you like banks to do
07:53differently or change that is a very
07:55very good question yesterday I was in
07:58Finland that a huge tech conference
08:0015,000 people and I didn't even get so
08:05people realized that banking needs to
08:07evolve like you were you were explaining
08:11with the slides out you know different
08:12verticals are are being challenged by
08:16different lenders and payment companies
08:19and so on the question was how quickly
08:21is it going to happen so is it something
08:24that's gonna happen in the next five
08:25years do we have 15 years or do we have
08:2720 years to go and I don't know the
08:30answer but what I see from say uber and
08:33things seem to happen faster than we
08:35then we think and and then the next
08:39question is you know what should the
08:42what should the banks do and I think the
08:46smartest banks and we work with banks
08:48all over the world in
08:49every country where we are we have
08:51banking partners and the infrastructure
08:53so it's about 52 bankers that we that
08:57would pay fees to and you know in total
08:59that's multiple millions a year and we
09:05find that some banks accept and
09:08acknowledge that the world is going to
09:10change and they they get on with it by
09:13looking you know what their role is
09:16going to be in that that changed world
09:19so going that far and I don't want to
09:22blow blow my own horn but there are a
09:25couple of small banks who have decided
09:28that it's better for them to recommend
09:30transferwise to their customers then
09:33offer them the International payment
09:35product of their their own the swift
09:36payment that they can't really support
09:38to every single country around the world
09:41because they don't know how the Japanese
09:43payment system works and they can't
09:44guarantee when the money's gonna hit the
09:46accounts and what the fees are gonna be
09:48taking on the other side so we do see
09:51that there are banks to think very hard
09:54about what their role is going to be and
09:56how they need to evolve to to catch up
09:59with what you were just describing yeah
10:01the - the banks out there in the
10:04audience I would second what Chris is
10:07saying recommend tilt to every one of
10:09your customers that would be great but I
10:13think it more more poignant Lee I'll
10:16tell you a story a company in the US
10:18that has a massive asset it's not their
10:22focus but they have this massive asset
10:24of this infrastructure their focus is
10:26selling books their focuses e-commerce
10:28the company's Amazon and in 2005 started
10:32to make use of this inventory this asset
10:35that they had an infrastructure and that
10:38became AWS and now it's something that
10:40we along with a gazillion other sites
10:43use as an infrastructure and I think
10:46that banks could could use that story
10:49internally in recognition of you know we
10:51have no interest of doing anything in in
10:53banking from the licenses that banks
10:56already have to the safety security that
11:01I think the opportunity that a bank can
11:04can provide for the world it the first
11:06two to really take me up on it James
11:08that tilt is my email is to be the AWS
11:11of money be that infrastructure that
11:14allows for sites and services like tilt
11:18or transfer wise to be built upon that
11:21way we were talking about it last you
11:23know behind the stage that you know
11:25trying to solve the the ui/ux of an
11:29application is really hard trying to
11:31solve the payments back-end it's really
11:33really hard and and banks that have
11:36tried to get into kind of the UI UX I
11:39don't think they'll be able to compete
11:41with 50 really dedicated designers
11:43developers that are just focusing on the
11:45user experience the user interface and
11:48those 50 people will not be able to
11:49compete with banks that have security
11:53safety at their core so I'd say that
11:56would be a really big opportunity for me
11:58yeah it's interesting the Opera it's
12:00almost saying an API for banking and you
12:04know part of the problem like at least
12:05in the u.s. there's been one new bank
12:07charter granted in the last five and a
12:09half years and it was an Amish bank no
12:12exaggeration so they actually had a
12:13drive-thru for a horse and buggy which
12:15is just kind of funny because that's
12:17Wells Fargo's mascot but one of the
12:20other things that we were talking about
12:21backstage was just where credit cards go
12:24so I'm saying credit cards are very
12:25important for you because that's how
12:27people crowd fund campaigns if people
12:30didn't have credit cards that would be
12:32more problematic but also credit card
12:34fees are very high so I was mentioning
12:37target big retailer in the US has about
12:39a 1.5 percent net margin so net income
12:42over revenue if interchange went away
12:44they would double their profit so it's
12:46not a surprise that they're always suing
12:48my former employer visa because they
12:51want those fees to go down but credit
12:54cards have become so pervasive there are
12:56billions of them around the planet right
12:58now Visa MasterCard have become an
13:00international duopoly but it's like how
13:04do you see like where should fees be and
13:06they're the reason I mentioned this is
13:07what we're talking about backstage is
13:08that if fees go down then that
13:12that rewards cards go away and in many
13:15cases that just means a giant transfer
13:17of wealth from a bank to a merchant
13:19without going to a consumer it's one of
13:21these issues of concentrated benefit and
13:23diffuse harm so do you are you
13:25experimenting with other payment models
13:27or methods it ghosts of merchants than
13:29it will go to the consumer and and and
13:34it might not be a complete 100 percent
13:35passed through but I'd say that the
13:38transfer wealth will make it its way to
13:40the consumer it just always does so if
13:43the more if target is able to save then
13:46then I have a feeling that it will make
13:49its way to the consumer but I you know
13:54but this has been kind of something
13:56especially in Silicon Valley so people
13:57have been ringing that bell that yes
13:59there's room for you know a huge huge
14:02room for disruption for credit card
14:04processing because that interchange does
14:07I mean that is a huge pain point and
14:10it's it's something that I I can tell
14:13you as a potential customer of this
14:15mythical product that banks could
14:18provide because everyone that has a
14:19credit card also has a bank account you
14:22know we would buy it we would we jump in
14:24you know headfirst because of credit
14:27cards they really kind of work against
14:29the merge in a lot of ways so I should
14:31motivate here because I know that you
14:33are of the opposite opinion because I
14:36agree with James totally but you're you
14:39know you don't think that it will go on
14:40to the trick you know I mean it's that
14:42the problem is that imagine that this
14:44water bottle here cost one pound and
14:47interchange goes down by 1% will I even
14:50notice or care about 99 pence versus one
14:53pound and I think that's been the
14:54problem historically like so Australia
14:56has interchange at 49 and a half basis
14:58points by law and now I mean and this is
15:01not me supporting Visa it's more of it's
15:04very peculiar that you have an industry
15:05where when prices go down consumers can
15:07be worse off in Australia now there are
15:10no more rewards cards people have to pay
15:13an annual fee to get a credit card in
15:14many cases versus 15 years ago where
15:17credit cards were free and they got 1%
15:21I mean Australia is a case study of how
15:22it did become a transfer of wealth
15:25but it's also kind of interesting
15:27thinking about as an investor now you
15:29know what is there a room for another
15:31payment player there's a consortium of
15:33merchants in the u.s. called mcx and
15:35they're trying to wean people off of
15:37credit cards and obviously if nobody
15:39used to credit card and you paid 0% that
15:41would be great for you what the mcx
15:44merchants have found is that to wean
15:45people off a credit card they have to
15:47bribe them with rewards and all sorts of
15:50other things and those rewards cost 5%
15:52or 10% because I want to change your
15:53behavior and get you to drop Visa or
15:55drop MasterCard I can do it but I have
15:57to say I'm gonna give you 10% if you go
15:59switch your payment instrument but wait
16:00a minute I'm only paying 2% right now in
16:02fees so that's that's kind of part of
16:04the question is like how do you I mean
16:05there is a massive opportunity here
16:07because the incumbents have been
16:08innovated in a long time when it comes
16:10to core payments but the distribution is
16:12just so broad so I'm putting I don't
16:14know what the answer is but we founders
16:16kind of often use this this method of
16:18imagining the future who imagine the
16:21future of you can't really imagine the
16:24future of payments costing even 49 basis
16:26points it doesn't just doesn't make
16:28sense you know exactly how you know how
16:31payments card payments work you know
16:33electrons go from the terminal or one
16:36web browser through the Gateway today
16:39sharing bank money gets deducted
16:40electrons go back and it's done doesn't
16:43cost forty five forty nine basis points
16:46definitely doesn't so so you can't
16:49imagine the future where card payments
16:51are gonna cost as much as they do the
16:54question is how do we gonna get there
16:55and that's probably the excitement of
16:58being a VC of seeing so many different
17:00people trying in different angles and
17:02then taking it back to which one's gonna
17:04go through I personally raised my hand I
17:06don't know I know it's gonna get there
17:07but I don't know how I raised the same
17:09hand so yeah the I would I'd offer the
17:12kind of the analogy of so think about
17:16Facebook and making a you know status
17:18update or Twitter and posting a tweet
17:20it's free and so it's you have this
17:23wealth of communication that is
17:25happening because because it is free
17:27when you get to making a payment online
17:30any type of payment there's a tax so on
17:34tilt where there might be a three dollar
17:36payment or someone's pitching in five
17:39for you know what cause they care about
17:41or or something else happening on the
17:42campus and there's a tax to that and so
17:45I don't know what the amount is I don't
17:47know what what potential would be
17:50unlocked by removing that tax but I do
17:52know that if Facebook tax do you 25
17:54cents every time that you wrote a
17:57Facebook post or or uploaded a photo on
18:00Instagram they charge you 25 cents
18:03there'd be a lot less information
18:05they'll be distributed around the world
18:07through Facebook Twitter you know what's
18:09at charging you twenty five percent it's
18:11inconceivable and I think that that's
18:14happening right now when it comes to
18:15payments and the transfer of wealth and
18:17we don't know the real cost of it the
18:20closest thing that I can get to is I
18:22know in and in some estimations
18:24peer-to-peer payments in the u.s. is 1.2
18:27trillion dollars a year the amount that
18:30happens electronically digitally is only
18:32about five billion so that shows you
18:36that Delta that is happening digitally
18:38versus what is happening through cashing
18:41checks where there isn't a tax it's a
18:44very u.s. thing by the way that and that
18:45could be a very us thing what I'd love
18:47to ask me why do you feel it's a u.s.
18:49thing I've never I'm never written a
18:52cheque in my life right here right so
18:55this is one of the peculiar things which
18:58is every I've seen dozens and dozens of
19:00payment companies and we'll help you
19:03send money to your kids school or we'll
19:05help you do something cheques are free
19:07in the US and all the newfound business
19:09models need to make money so they end up
19:11charging more than this classic
19:13infrastructure which is totally
19:14antiquated like you should never be
19:16writing paper checks but it's actually
19:17cheaper in the US and almost every case
19:19to write a paper check than to make an
19:21electronic payment which is crazy so
19:23what do you guys think about just a
19:26question about advertising or a kind of
19:30advertising driven banking because you
19:33brought the Facebook example the
19:35Facebook can't charge 25 cents for a
19:37post they show us adverts they advertise
19:40what do you think that do you think that
19:42banks are gonna be like
19:44taking peace from advertising in the
19:46future so this is that you know this is
19:48right in line with Alex's side of things
19:50with trial pay love to hear his answer I
19:53think that there is definitely room for
19:56a new model when you have eyes on your
19:58product and in when you when you can
20:00provide for retailers out there next
20:03year is a big focus for us to add in
20:05businesses tapping into the millennial
20:08consumer group that we have on on tilt
20:10to where you can start we have the
20:12Atlanta Hawks tilting merchandise with
20:14JetBlue tilting deals for their
20:17customers on Twitter things like that
20:20and I think that that definitely when
20:22you're providing content for people to
20:23consume it opens up a new a new avenue
20:27to monetize beyond beyond transaction
20:30fees actually we're out of time here but
20:32I'll add my my two cents that was
20:34exactly what I did for nine years at try
20:36all pay I mean I still find it we didn't
20:39quite hit it just because we had the
20:41innovation but we didn't have the
20:42distribution which is why we sold the
20:43visa but if you're buying something it
20:46anything that you can show to a consumer
20:48when they're buying something this is
20:49why Amazon doesn't sell books anymore
20:51they do they sell ebooks and they sell
20:5220 million other SKUs because the point
20:55of purchase is incredibly valuable it's
20:57when you go to Tesco why an endcap is so
20:59valuable so I definitely think that
21:00advertising will play a different role
21:02but it's not banner ads it's not click
21:04ads it's actually things of genuine
21:07value and benefit to consumers and it's
21:09something that all of the card networks
21:10are really focused on right now as well
21:11because if interchange goes to zero how
21:14do they make money and how do they
21:16provide rewards to consumers let's have
21:17merchants fund it well thank you very
21:19much both of you and make you everybody
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