Interviewed By TAB RadioFinance
Vladislav Solodkiy, chief executive officer and managing partner at Life.SREDA, discusses the coming of a crypto bank, the future of digital currencies, and how this global trend will affect the financial industry in the next few years.
Foo Boon Ping (BP): It is 4pm here in Singapore, welcome to The Asian Banker RadioFinance Programme. In the next 30 minutes, we’ll be discussing the advent of crypto bank. Cryptocurrencies investure, bitcoin having hawking the media headlines recently. Today, in the US, the first featured contracts of bitcoin have been traded on the Chicago Board Options Exchange. One of two venues that the Commodity and Futures Trading Commission (CFTC) have approved to do so. No doubt will be talking about how bitcoins perform in its first official day of futures trading in this program later on a wider perspective. Some has said that this has brought cryptocurrency into the mainstream. And the CFTC approval is the stem of legitimacy for the cryptocurrency. And will make it a more acceptable, stable, perhaps thus volatile to and certain asset class for wider investment community to consider. However, today, we actually want to talk about crypto banks. Banks that facilitate the use of crypto currency as assets and medium of exchange. As we know, cryptocurrencies are digital assets designed to work as medium of exchange, using cyprtographics to secure the transactions. To control the creation of additional units and to verify the censure of assets. Cryptocurrencies are classified as success of digital currency. And also classified as success of alternative currencies and virtual currencies.Now, with this cryptocurrency very much in circulation in different parts of the world, what exactly is a crypto bank? What are they designed to do, and why do we need them? How this new trend have an impact in the financial industry. In to share his thoughts and insights on this topic, we are very happy to have our Mr. Vladislav Solodkiy or Slava as he’s preferred to be called. He’s the managing partner of Life.Sreda, a Singapore-based fintech venture, mentor, venture capital fund. Life.Sreda was established before 3 years focuses mainly in fintech. The company was previously based in Moscow, Russia before its relocation to Singapore in May 2015. Life.Sreda has invested over the years in 22 start-ups, which seven that have make a successful exit in the US, UK, Germany, Russia, Singapore, Philippines, India, and Vietnam among others. With empathy such as Simple, Moven, Fidor Banks, Come-up, Timers Group, Movicon, Lenddo, etc. In April 2016, Life.Sreda also announced banking of the blockchain finance in London. So, Slava is very well-placed to talked about cryptocurrencies. And Life.Sreda also published a semi-annual fintech research report called “Money of the Future”. And Slava, himself, recently released a book titled “The First Fintech Banks Arrival”. We want to make this session, an interactive one. And we encourage and invite all listeners to participate in the Q&A, after Slava’s presentation. And you can do so, by typing in your question into the dialogue box on your WebEx screen. And that can be found on right lower corner, if you can click on either the chat or the Q&A icon. Okay. Now, before we get Slava to pinpoint the future of banking or the future of crypto bank, or the arrival of the crypto bank. Perhaps, will like to invite him to make a few comments about the implication of first future trading of bitcoin. What do you see are these key implications of, especially I said investment asset, Slava?
Vladislav Solodkiy (VS): Good afternoon everyone. Thank you so much that you invited me to the show. I am glad to share my thoughts, my experience, and several of my predictions regarding the next happening in fintech and blockchain community. So, before to answer your question regarding the future of bitcoin trading, let me to explain my general idea with fintech bank creation and why we decided to launch this project into arrival and to me, this fintech bank crypto-friendly. I’m about to explain my thoughts regarding future of this initial trading of bitcoin as investment in Chicago. So, first of all, I want to spend about ten minutes to show you several slides just to explain main statements and after that, we will have about 20 minutes for our discussion and I will be happy to read, and listen, and answer for your question. First of all, seems like I’m the first person who started to talk about fintech bank concepts,I wrote my first article regarding this next step in fintech about more than one year ago, in April 2015. After that, in September, this year I presented my book named “The First Fintech Bank Arrival” and the,in November 2017, this year, so Kleiner, Perkins, named very famous venture capital fund named this trend that they’re the next big think in fintech. And the, what does it means>What does it mean, fintech then?Because very often when I’m talking about this phenomenon, everybody is reaching, asking what’s the difference between fintech banking and neobank. If we will talk about neobanks, mostly they are trying to deliver very simple product, it is current account or as banking card or as MT apps and manage your current account. And the, if you check whole fintech industry, they can count more than 24, around 24 verticals in fintech. So, when we are talking about fintech bank creation, first of all, it has to talk about shift of mindset, as a strategist.Because previously every fintech start-up which started and the predicted, the potential buyer, they mostly talk about we want to be the quite very traditional bank. Right now, there are more than 5,000 fintechs across the world. And they became big enough in terms of their numbers of their clients, and numbers of transactions to not be salt for traditional bank, we called up that we will have many question how to merge the assets butalso how to merge your different corporate culture, different tech platforms but to be merge between these new players seems like it could be combination of six or ten successful fintech services. And the numbers of verticals, which they are able to serve right now. It would be enough to recreate traditional bank because previously, when fintech industry just started, all of them cannot solve any potential needs from customer side. When we are talking about this, nurturing out our different players, we are not talking just about how to nurture different companies. We are talking about new user experience. It will look like Tesla, Tesla Chase. Because Tesla is not the first electriccar in the world but Tesla is something which understood quite well that just electric cars is not enough for potential customers, you have to provide ecosystem around your core product. You have to create new mutual co-chargers, new insurance for these cars, new customer support service, new distribution channel, and finally why they became so successful in comparison to their previous attempts of electric cars. Because they created and delivered services, for when we talked about fintech bank, it’s not about how many services you are able to deliver for your customers. But it’s about new services.
BP: It’s about the, sorry, correct me, if I may interrupt, when you mentioned fintech banks are you using that interchangeably with crypto banks? If not, what’s the difference. Thank you.
VS: Regarding crypto bank, let me explain abit later because it is just a one element of this puzzle which could be added to this ecosystem. So, you could talk about who can be the first customers of this fintech bank. My own opinion is that we not need to talk about universal approach for everybody. We have to talk about fintech banks for unbanked customers, we have to talked about fintech banks for our next generation, both of the new and old generations they are not customers of any traditional bank right now. And then this case, your fintech bank will not need to replace existing banking card and whether it’s the new one or the new app butthere will because provider of financial services will base to customer. And pre-want errs and preventives of one, independent infrastructures like makers and viewers, I think that this the only option for this for ourselves, for our project which named arrival. And I will explain a little bit later why the, we want to focus specifically on this target audience. If we will decompose fintech bank, we have to talk about three layers. Bank and the service platform or bank as infrastructure and basis of any fintech bank. After that, numbers of fintech services, it doesn’t necessary to provide all of them by yourself. You can establish on the several of them as core products and after that to implement others as step by to providers inside your content solutions. And right now, is to check what financial reports for such company for example like PayPal. They also have chosen this approach not to try to copy each idea, each technology in the market by themselves. But, instead they established some kind of platform and you can easily be in, integrated these platforms to launch a start-up based on this platform and could be integrated into the Bundle, which will be delivered from PayPal sites to their customers. And the neobanks, they are this proof as the most convenient interface and you can plug-in other services inside this interface. And after that, Wells Fargo has mentioned before, can be, you can scale this approach one market to other because this traditional bank created a terms of some geographical borders but if your IT infrastructure are based on open architecture, or open API, so based on this banking service platform, you can integrate strategically which many of them that can in other countries and after that you coordinate other fintech services inside your ecosystem, inside your bundle. Several months ago, with VitalikButerin from Ethereum talks about what about his opinion. Do we need to use blockchain to establish this fintech bank and the banking service platform of this fintech bank? He told that, it’s not so necessary because blockchain is not, it is to big to use it everywhere. You have to use blockchain not only just when something isreally painful for your customers, or some element, or some open APIs of this fintech bank can be replaced here blockchain technologies. So, it sounds logic to implement blockchain technology. And the maybe, first fintech bank could be funded here either to robots, so our projects is not racing right now or even thinking about to raise funds. We are using traditional venture capital to start them to develop this approach but right now everybody sees that this type of crypto, this type of ISO, from many articles, so many people started to use idea in raising their funds, their ISO, to open, for my own opinion. I want to skip settle like, to not waste your time, regarding crypto. Why we want to create this fintech Fundtech, create fintech bank as crypto-friendly bank. Because there are some problems in the market right now. Everybody, in fact, the community knows about it but nobody wants to write about it or event to talk about it on conferences or the means of events. This problem links this, help all this post Asian companies, they will convert their millions and to use this money for their development. Because right now, if you will try to exchange some crypto lower than 50,000 thousand, it will be posted because there’s no enough liquidity in crypto exchanges. And after that transaction, your share transaction from these crypto exchanges you’ll be expected by your traditional bank to current accounts. If you will try to convert between 50,000 and 500,000, quotation will be 50 – 50 because you can be on the radar of compliances of your bank and maybe your current account will be frozen and they will ask you many questions regarding source of the fund. But if your transaction will be bigger than 500,000it is important and necessary assets for the company because they have to run their business. For sure 99% of cases your current account will be called. And you can easily find this information regarding banks in Singapore, when they started to close such kind of current accounts Barclays in the UK, TD Bank and PNC bank in US. So right now, you cannot convert big money, I mean bigger than half a million and to like, use it to develop your business. And after that, we crafted to meet with different banks, small banks, big banks in different countries. Second rank and not so second rank and started to ask them “Why do you not want to work with this shared companies, crypto exchanges, crypto transfer cards, crypto wallets?” And they told that we were able to work with them for example,six months ago, the course, they were not so many players and regarding the numbers of their transaction, it was some small cases for themselves, it was a very small risk. But right now,this marketstarted growing very fast and they are not able unto traditional banks, they’re not able to paid this risk. They are not able to take this risk for three reasons. First of all, conflicts of interest with their current business because these CEOs of these banks, they are hired by their shareholders to manage currently with this traditional business. And you cannot take risk for this banking license only because you want to establish some new, okay growing very hard but you’re new and still small business if it’s only one way to lead your license, to take other banking license and to take risk for other license or otherwise. Second reason, they want employees. Because they employ several thousand or even dozens of thousands of employees for their banks and these employees use to work with traditional banks before. And if you will try to reeducate them, to change their mindset to talk with them regarding what does it mean blockchain or what does it mean ISO, what does it mean with mining, what about digital payments, source of fund. They, it will be a very very long risk and it is easy to establish new banks with new employees which is hard on the work stage as claim. And third one, they want is technologies. Technologies is, they already using for their current business they were work traditional clients especially for geographical borders. But in case of crypto wall, it’s very common when you are for example Singapore Structured Company, most of your developers sitting somewhere in Poland or Ukraine. Your main business belongs to, for example, US market. And your funds, your crypto investments came from for example China or Brazil, help to organize digital currency and IAP process to all traditions online. And in this case, when we spend so much time with all ventures and even regulators we finally found that they are not against crypto. They are against somebody who do not want to be responsible for their transaction. So finally, we decided to buy a bank and also invest to some small vents to clear their current business from whole traditional product services and to be focus only on big kind of clients. We want to be reference for regulators that we are doing this. We’re experts in this kind of creations we really understand what they are doing. We want to be responsible for each in boarding process, in each transaction from their customer. We hired right people who is educated enough to work top clients and we implemented right technologist to support this type of clients. So, this is the aim of our project arrival. We want to start from nice job companies, there are more than 500 of them already. They raised more than 3 billion crypto assets. They are not able to manage as convenient as they want to run their business. After that, secondly, we want to work with other crypto players, like crypto cards, crypto exchanges or crypto wallets. And our main aim, we just want to start from crypto players, but our main is to build crypto-friendly fintech banks for digital economy itself.
BP: Okay, so you want to ask few things to consider from your presentation in terms of the fintech banks. This, if I may clarify this essentially banking as a platform of banking and banking as service base, banks that provides the whole range of fintech solution on banking as a platform of banking as a service platform, building an ecosystem oras you mention the infrastructure where all the different fintech solution can be provided on the back-end that can serve different markets, different consumers. And they are crypto friendly in the sense that the initial funding for some of this fintech banks will be through ICOs. Am I correct Mr. Vladislav?
VS: Yes, you are correct. It is almost step by step. First of all, you have to do your homework so you have to have a bank which is able to work with each type of clients. And you need to use, yeah which came after crypto related source of funds. Second one, you have to have bank as a service platform to on-board these clients because they are also fintechs players by themselves and other fintech players for their needs. And after that to combine different fintech services which can be useful for SME. Because these are all essential and crypto companies they are SME by themselves so we want to combine different SME fintech services like to deal with them with cloud.
BP: Would you be able to share some examples. Basis for example is one of the fintech as developing as banking a service infrastructure and plant form in terms of fintech ecosystem. Fidor Bank recently announces the formation of finance bay kind of an open banking platform that facilitated different fintech and insurtech to end users. Would you consider some of this as, some of the initial steps to what you describe as fintech banks.
VS: Yes, there are so many examples right now of companies which is trying to solve this problem of fintech infrastructure and on how to deliver number of open APIs for your customers and to help them to be launch faster, cheaper and easier than before and how to scale from one country to other country or from one product vertical to other product vertical easier than before. And the basis is one of them and maybe as you know recently, I think two or three months ago Baasis deliver their Baasis ID it is open for digital kycbase solution and this solution is already using by several fintech players, even by one traditional bank for this solution works for them better than their own compliance department. For some reason, all of these customers them paying for their users so this API already generates profit. And what’s more interesting this solution approved by Money Authority of Singapore. And they made the same request and receive the same answer in Australia, Hong kong, Malaysia and Thailand. Right now, they’re working closely with all other country especially US market, how to improve them. The difference also between this approach I mean Basis ID with any other blockchain base digital solutions on the market because they’re already in it. Second one they have customers and their customers are paying for them. And third one, they’re already licensed in several countries and the, soon they will be licensed over other markets. Yes, and they want to use Baasis technologies not only on their own. Theyare also open to any other partnerships, with any other players. Because they think that our main advantage especially during the first year of this project, is we want to, nobody between all traditional banks which already trying to serve these customers right now and they’re planning to help them but in reality, they are not. And they want to stay in bank, specifically for millions of these new types of customers. And we want to be transparent and to the regulator.
BP: And when you mention the banks being crypto frenzy, you mention how a lot of the funding, initial funding will be through ICO and today, not exactly a friendly attitude towards ICOs from some of the regulators for example in China and few other jurisdictions has been in hurdle. Looking in, I saw the questions that come in, what do you think with the, now, with the CFCC approving our futures trading of bitcoin. What does it do for cryptocurrency as a whole? And does it have any implications for ICOs?
VS: Yup. I’m so sorry I forgot to answer the question. I think if we go talk about the future of the bitcoinor any other crypto assets more speculations will be launch to their price and second one, second one question will belong to independent value behind this crypto asset and to my mind all these steps, they are not, the major fight, the issues or even bitcoin trading today on Chicago exchange or some other steps, it’s not over resources, it’s over current. This is why, if you will check what such companies like Facebook, Google, FO and others during the last five years, they’re spending a lot of money to buy companies much to buy their business. But by their team which will be able to predict, to suggest, to create and after that to deliver new services from these company. These companies already extremely profitable, they already infected many customers around the world and the main institution between themselves “Do you have enough currents to save your company to create future products?” And this company started to acquire many other start-ups just for their currents. And right now, you can now suggest, if all of these crypto related players. It could be one company, which means the Bubble Inc.Can you talk about this Bubble Inc. Company? It's the main pennant start-up during the last or the next for example one to three years?What could be the evaluation of your company?Not the number of transaction but the number of believers. The number of talents that have decided to forget about their current jobs and try to establish something new based on the same rules, the same technologies for everybody. So, in terms of corporate culture development and self-innovation, what would be the price? In terms of, or if you talk about for example Japan. Japan is really bigduring largest for several months for crypto community, for crypto exchanges, crypto wallet, crypto assets, crypto currency.
BP: How does this impact cryptocurrency prices Slava?
VS: In the case of Japan, they are not talking about if its bubble or not. Or this bubble can be very big sooner or later. They are talking about, they believe that blockchain technology can be extremely useful to many industries not only for financial industries, also for government services.
BP: Yes. Many applications.Right.
VS: Or even development services. Yes, we do not have enough blockchain talents inside Japan. Right now, we see deprive in crypto walls. We want to be more crypto-friendly rather than other countries just to attract the talents inside japan. And up to that even if this bubble will burst, they still want to see them in Japan because they will decide to launch want something new but based on watching services. I think it’s very very smart long term approach that you're trying to be more flexible, this current need of crypto communities but you expect that later they will be useful for you for other blockchain related principles. And that second one, not only related with Japan but with any other regulators which I’m thinking about assets and crypto right now. We have to understand that all regulators created based on path. So, you cannot find any regulation in the wall which created based on the future. And in this case, you cannot manage your risks. We are all regulated in regulation, but you can see together with these new players. You can educate yourself with this face to face communication and you can create this new regulation together. And I think that the biggest risk.
BP: Can you maybe talk about the significance on these regulations. Right? The move by CFCC and the US to allow our future trading. Is this a recognition that the cryptocurrency such as Bitcoin is becoming a legitimate form of investment asset and by allowing future tradings that it was stabilize and mitigate some of the volatility and risk in investing in cryptocurrency. And what are the implications for IC or there are not a lot of cryptocurrencies built on underlying blockchain technology that has practical application so there is more value to cryptocurrency than just a medium exchange can be useful. Smart contract and themselves are valuable assets when they can be useful those application. Just maybe comment and state the direction for other regulators and exchanges to follow.
VS: First of all,Chicago board exchange for sure it’s quite useful step to legalize Bitcoin and other crypto. But I think that bigger initiative is related not to cryptocurrency but related to its blockchain technology itself and how it demands the technology for example health care or government services or any other services. Yes, right now everybody prefer to talkabout how to buy and sell bitcoin, what is the price, how to speculate with this bitcoin, is this for short term but I prefer to think in longer term. Or what about the other industries that could use not in crypto as exchange to but they could use blockchain technology itself. It’s related to, I think the biggest risk right now, isn’t related to, is it bubble or not? I think that if regulators will try to fight everywhere this new economy. Right now, this economy’s grey area.If regulators will be open or not. I'm not talking about if you're able to do everything you want. I'm just talking about we are open to listen to you, to understand you, to share our thoughts, to listen to your needs and to create something together. So, if they will be open or not so this new economy coming will go from gray area to black area. And in this case, all of our losses in terms of, I mean, potential losses from verse of these crypto bubble, you’llbe massing this all of these problems which we dealt in currency later. Then, all of this money will go to darker label. So, I think that the regulators right now have to talk with this community. I think that our role as this attempt to buy a bank, to convert a bank, for specifically for crypto community is this approach to some kind of mediator between new players and the old players.
For example, you can find several attempts and then some young guys both from blockchain community trying to attract, even raise successful extra millions of trade to create crypto trends in bank but finally they didn’t buy or sell any bank before, they never met these regulators. They don’t want would be in dialogue with them so they just promising that when they will not regulatemoney, they will go to the regulators by risers or advents situation but that’s not you. The main problem that every purchase of the bank it’s not they don’t have enough money. It’s because each person..
BP: So these are the barriers? Okay. So, in terms of legality was granting fintech bank a license to operate is one of the challenge, or what are the challenges for this new generation fintech bank to positioning cumbent banks as you’ve mentioned. Okay. Maybe one last question. You mentioned that you had conversation with a retiree interim on the use of blockchain, or the use of blockchain rails for your fintech bank infrastructure and the conclusion that is not appropriate now. But how do you see, if you can explain what do you mean by blockchain rails infrastructure for banking, or fintech.
VS: As I mentioned, you do not need to use blockchains everywhere because right now it’s very expensive if you go to blockchain of every process or every service or every company and your relation would be 10 times higher than today. So, it’s difficult approach. And the main reason of my question to him was isn’t smart, so useful to try to implement blockchains right. Everybody understands that blockchains are promising for many financial processes, and products, and services but he answered that no.The main answer is, do you need to use blockchain or not? Is it a must thing from your customers? So, you can’t predict why and how you can implement blockchains everywhere but that would be a wrong suggestion because the main judge on the market, it is your customers. And if it’s painful enough for your customer and he or she is asking you “is this process very expensive or very not so fast enough or not so transferring to not what I’m expecting to. So, in this case you have to think about how to command blockchains inside. if not, you do not need to run to users today because if you will track this whole slideshow, start-ups, they are talking about disruption of everything. I mean we want to disrupt music industry, we want to disrupt mainstream, we want to disrupt even film industry by using blockchain. But really not necessary, it’s not so smart. You have to go only where the customers asking you to go solve their needs. Regarding financial services and financial processes, so, as I have mentioned for example, digital KYC and IMET, seems like blockchain is useful for this vertical.This means regarding remittances, regarding ethics, regarding some other verticals, its useful. But with several financial schemes, we don’t have so much demand to implement blockchains they.
BP: Okay. Great! That’s all the time that we have today and Slava you were discussing today the advent of the crypto friendly fintech banks built on banking as a service platform or that incorporates fintech or other fintech verticals solutions. And how the hurdles the fintech start-up appraising in terms of either being able to acquire a banking license or being able to cooperate withincumbent banks because our regulatory restrictions and concerns. On the other hand, a lot of these, on top of these initiatives are being funded by IFRS,by the same time players are also experiencing challenges in IFRS in terms of liquidity or their ability to convert funds raise through cryptocurrency to physical cash or traditional currency because of regulatory KYC/AML is concern, especially when it is beyond half a million so on and so forth. So, in terms of practical use of funds is a challenge but going forward, you’re talking about some of the jurisdictions for example in Japan where the approach to encouraging cryptocurrency,the setting up of cryptocurrency exchanges and initiative are receiving more enlighten approach with the recognition of the potential application of the underlying blockchain and distributedledger technology. Obviously, this is an area that is still veryvast and still developing. But we also see positive steps like from the CTFC in the US. Just today, we are witnessing the very first future contracts for bitcoin and that perhaps is obvious, different approach and mindset towards recognizing bitcoin and other cryptocurrency as perhaps legitimate form of investment and financial asset. And on that note, I want to thank Slava for that insight, to all our listeners for coming in and for your questions this session is recorded. Just go to our website to listen in to the recording. Until our next event we look forward to meeting everyone whether online, virtually or physically. Thank you so much.
VS: Thank you so much. Have a nice day! It will be happy to our listeners to share later their thoughts, needs, to make this arrival project better for them. Thank you so much.
BP: Great! Thank you Slava.