In an interview with Collin Canright, Emmanuel Daniel, founder of The Asian Banker and author of The Great Transition: The Personalization of Finance is Here, shares his insights on the evolving FinTech industry. We discuss the significant trends shaping the future of finance, focusing particularly on the challenges and opportunities in the sector.
The State of FinTech Investment
Collin: The state of investment is traditionally a measure of market health, and the CB Insights report on the first half of 2024 just came out. It’s still a down year after a record in 2021 and a good high in 2022. Now it’s like a second hangover year. What’s your sense of FinTech investment and growth today?
Emmanuel: The thing about reports on FinTech is they tend to be incremental in their views. The reason I wrote my book is I tend to take the long view. I looked at the numbers in the report, both the U.S. and Asia, and what I see happening is that 2021 was the period when you had a number of platform opportunities. FinTech was being treated like any other platform play, and platform plays tend to get higher valuations in venture capital funding. From the CB Insights trends report—not just the latest second quarter, but also last year’s—you see investors beginning to distinguish between platform plays and credit plays. The baseline credit plays are maturing, and they require a treatment that is unique to them.
Navigating Regulatory Challenges: The Case of TransferWise
As the conversation shifted towards the practical implications of these trends, Daniel highlighted TransferWise (now Wise) as a prime example of how FinTech companies navigate regulatory complexities while scaling globally.
Emmanuel: Take TransferWise, for instance, which is now called Wise. Its original proposition wasn’t even about technology. It started simply as a netting of payments between its home country, Estonia, and the U.K. If you wanted to send a remittance from the U.K. to Estonia, they would deposit the money in the U.K., and it would never actually leave the U.K. Similarly, money deposited in Estonia never left Estonia. These amounts were netted against each other, and then the payments were sent.
“They went into remittances in a big way and realized that you needed to put in a lot more technology. A few jurisdictions required them to make actual transactions. In other words, the foreign exchange actually enters the country; otherwise, they would not get a remittance license. So, they needed to modify their business model.
“In countries like Singapore, TransferWise was forced to work with banks on either side of the transaction for KYC (know your customer) reasons. So, the regulator will not allow them to originate their own customers except for customers that already have bank accounts (in country). There was a fine line in replicating the original business model in new jurisdictions. So TransferWise (now Wise) has now become an incredibly complex company with as much infrastructure as traditional players. And that’s where a lot of the cost of the business is today.”
“And no matter how low you bring the transaction costs in a remittance or a payments business, the real income is still in foreign exchange. So, they need to preserve that advantage to the extent that they can keep their own Forex cost lower than that of their banks. If not, they simply will not be able to upset the banks. But these are still early days.”
This is just a brief excerpt from a much longer, in-depth conversation with Emmanuel Daniel. In the full interview, Daniel dives deeper into the nuances of global FinTech trends, the evolving role of regulators, and the future of digital assets. To gain access to the complete discussion and insights that can help you stay ahead in the rapidly changing world of finance, be sure to check out the full article on our Substack.