Fintech - Balancing Innovation with Risk

foreign [Music] we all made it today I hope you're having a good day look today we're talking about balancing Innovation with risk and it's a timely session as you all know exploring that fine line between Financial Market innovators and building the products that markets love and also need but also protecting against risks and in some cases this can be changed for good in some cases it can be for the bad with unintended consequences so I'm really pleased today to have some esteemed panelists here to help us to share a bit more about what what risk means and what is innovation to in your respective companies and but before we do that I thought I'd let you introduce yourself so I'll start with you Julian uh techy would you like to introduce yourself so my name is Julian I'm the CEO on founder of wefox which is an intro Tech from Europe where just in Europe now but we're extending globally soon and the secret sauce to our business is that we have not tried to eliminate the human agent and insurance but actually provided the human agent with technology so we're the fastest growing and our most valuable intratech in the world thank you and then to your right the founder and executive chairman of Target Global welcome school so hi hi everyone I'm shmuel I've been an investor and an entrepreneur since before the last crisis I think that's how you say it today and I manage Target Global which is a pan-european investor based out of London investing in technology from seed till pre-ipo around Europe Israel Middle East Africa and we are also proud shareholders in both of uh the fine gentlemen to my side the most important thing and then to his right we'd have Dimitri Takara thank you so much for joining us from CEO of copper High metry CEO of copper or we are the largest clearing and settlements service provider in the crypto space we're also one of the largest custodians in crypto space clients like Brian Howard and State Street our clients and 80 percent of high frequency trading firms in in a simple word basically protect client assets when they remain idle but more importantly with events from last week when clients trade on venues connected to our clearing Network those assets don't go to exchanges so we provide this middle layer of protection which all of a sudden become very relevant from last week obviously when the bull market was there and people buying nfts that became it was less of a conversation so but we can talk about the risk and things like that in crypto space there is plenty of that yeah we're going to get into that a little bit more but as the title of the panel suggests I mean risk is a very broad term and can mean many things to many people but I want to start with shmuel I mean with with your uh company what does risk mean to you when it comes to investing in the right companies and how do you mitigate that risk so I I always uh I think that as as Venture capitalists we are in a sense Risk Managers that's our main competency is managing risk and that's not only managing risk down towards the downside protection it's also managing risk up towards the reward side but in the end our job is to balance a portfolio with the right risk reward profile um so I think that's that's the main competency of a venture firm I think that and maybe we can get into it later what what we're seeing right now around the world and what we're seeing in the in very much in the crypto Market uh this last week but generally around the tech world is a bit of a 2008 moment uh for the Venture industry where an industry that was once very small very Boutique very Niche has matured has become systemically dangerous and we're now starting to see that systemic danger come to pass and I think the VC industry will have to understand its role as Risk Managers and um have more compliance baked into the processes I'm sure uh you know I'll leave Dima with the pleasure of talking about FDX but I think one of the things that will be discussed a lot around that crash is what the Venture investors didn't do around uh governance or on compliance around really understanding the things that they were putting their capital and their name onto so that's that's something I think will be a huge change from The Venture industry today to the Venture industry post this crisis absolutely and I do want to go into FTX because there's lots to talk about there but Julian in a way you're underwriting that risk for a lot of companies a lot of individuals I mean the biggest risk to all of us is climate change and the risk that that has I mean how does companies like we Fox help with mitigating that risk yeah so risk is at the core of wefox because we're a regulated company and the way that we handle risk is that we really have certain expertise where we understand and know the risk that we put on our balance sheet and we have a very clear rule that everything we don't know and we don't understand we would never ever put on our balance sheet and in terms of our product portfolio we have two different types of inventory and so we have third party insurers and that's more than 150 on our panel and we have our own balance sheet and only if we see that certain segments are very very profitable and we understand them very very well and we can forecast the loss ratios because we have the data about claims only then we make the decision to put it on our balance sheet we called it the cherry picking approach that allows us to grow very fast so doubling business every single year this year 600 million up from 300 million last year while I'm really having risk under control on our own balance sheet fantastic and if only those users of FTX had Insurance of some form but can you tell me a little bit about how this changes the crypto landscape and what it means for The Wider ecosystem sure echoing what schmooz said around 2008 pre-2008 um there was a lot of uh a lot of collateral almost mushed together and people were producing instruments collateralized and collateralize over and over and over again when crypto space started started generally starting from retail so the market structure in crypto is completely different from the market structure today in traditional Finance Market structure and crypto today that the exchange can act theoretically as custodian clearing non-clearing fcm as an exchange itself so everything is happening there the reason why it stopped existing in financial services was actually a moment of await where a lot of Clearing Houses were introduced basically whereas exchanges match the trades then it passed for risk management to the Clearinghouse Clearinghouse when subsequently checks collateral with a non-clearing fcms and unclear nfcm subsequently custody those assets in a completely segregated way so the mistake there like it's really hard to basically do whatever you want with your clients money it's really hard to also end up in a situation where you mismanage that collateral so you know and this is why we build this this piece of infrastructure to allow essentially collaterals to sit in a regulated insured custody account which is fully segregated from all the clients money where copper cannot misappropriate or reuse or rehypothecate the funds in any shape or form so and that that pushed a little bit well not a little bit actually last last week pushed a lot I mean we for the last eight days we had highest number of clients on boarding highest amount of assets coming in and highest volumes uh coming through through the clearing Network and I think this is just the beginning because LPS now are going to apply much more pressure not only on VCS in terms of like how do you uh do your checks and balances and how the corporate governance of the place looks like Etc but equally LPS in in asset managers which are hedge funds and trade if trading firms you know even if it's a prop Capital uh the due diligence is going to go a little bit beyond whether the person has been on the Fortune Magazine you know and because you know that that standard was a little bit uh poor so generally it's you know the space obviously suffers from it and we only see in the beginning of it don't get me wrong there's going to be a third wave of all of that there were you know we haven't seen it through yet a lot of You Know Places gonna go bankrupt uh but then the the the infrastructural piece the market infrastructure piece is gonna uh go 10 times in terms of stability where it is today providing more sense to LPS and all the market participants small as an investor in fintechs like copper I mean how important is regulation to you when that role in ensuring that the ecosystem is a fair playing field so I think that we we have to all think about regulation I mean I think there has been a conversation around the fintech industry around around the tech industry in general there's been a lot of ignorance of Regulation that's the truth this wave a lot of the companies that began this wave are companies like Uber or Airbnb companies that went against the grain and basically said we are going to do things that are really illegal and regulation will will sort of chase us and catch up and I think that could be okay if you're doing uh ride hailing if you're renting at homes that has no systemic risk it might bother the neighbors it might bother taxi drivers I don't think it's right but it's it's manageable but as as this wave of innovation sort of went into the financial system and into things that are more complex um it's just an unmanageable and unbearable and I think we are at a point in time where Regulators have to sort of up their game to understand what's going on in the fintech world I think one of the biggest problems that copper has is that Regulators just are on in most of the world and I have to say that this is one of the only places in the world where speaking to Regulators they seem to do understand it and be of the sort of level of conversation that allows them to to catch up and that's one of the appeals of this of this region at least uh I think a company like copper but Regulators have to sort of catch up with understanding what's going on and have tools to deal with this constant Innovation with a very very complex Concepts that um that companies like copper and also we Fox offer um and for us as investors I think we also have to start and really look into that piece of businesses really understand it really understand the regulatory risks regulatory opportunities and also be a part of the push for companies to get regulated because in the end we are dealing with more than just our money right we're dealing in in these cases with a lot of other people's money a lot of the Public's money it's not only the big investors that stand to lose and there you just can't we can't afford to take the risk and we shouldn't absolutely but um and Julian I noticed that on your last round of funding congratulations you raised 400 million uh and your series D led by mobadler and one of the largest fintech deals last quarter so um I want to talk a little bit about the new opportunities that this can bring you uh you know obviously in this region Health Tech is growing uh Healthcare so insurance is growing is are there new markets in areas that you would like to expand into yeah I mean so we think we have figured out um kind of our model um how to internationalize the model in further European countries but also then internationally um it's a really risk minimized model um so what we typically do is we would acquire a broker company in the new market and then we would roll out our technology increase their productivity and then bring our own insurance products and launch them in the most profitable segments we see Based on data so we've done that several times now in Switzerland we started this strategy three years ago it was a business with 15 million in revenues three years later it's 180 million revenues last year we acquired a company in Italy it took them 100 years to get to 80 million in revenues and 18 months later they will be ending this year at 200 million in revenues and so we have a proven model and that we strongly believe does not only work in Europe but also outside of Europe and we see a lot of potential also in this region fantastic and I guess um recently with the Abram Accords it means that the tech ecosystem between Israel and the UE can grow even further and and small I mean having been based in Israel how does that make um you feel with the opportunities across that region so I have to divide it to my answer is Israeli and as a tech investor as a two two maybe slightly different answers um I mean is it is really obviously I think it's a an incredibly Brave move and what the leadership of the UEA did is something that will just the beginning of a wave that will positively impact every Israeli I mean positive impact of the whole region and uh as a sort of Israeli Patriot I feel that I'm also an emirati Patriot and that's one of the reasons that I'm here um because of it as an investor I think it's a unique opportunity to combine two um platforms so Israel is apart from Silicon Valley the only other complete ecosystem for Tech where you can find from Healthcare and biotech and clean tech and software you can find everything in a very small encapsulated environment at a very high level but it's highly limited it's highly limited by its Workforce it's highly limited by its small market so it's outwards facing um and I think the UE is emerging as one of the few Global platforms a place where a company can come can build an r d Center can attract Talent from all over the world can use it as a springboard east and west and to everywhere and that and as a source of capital and and many other things and I think the combination of this relatively closed ecosystem and this very open ecosystem can do wonders and it says three hours apart it's culturally I think very similar and easy uh and easy transition culturally um and there's obviously a lot of Goodwill on both sides and I think it's a it's really a a unique opportunity and uh for both both sides of the equation and and Dimitri I mean you're based in the UK and uh you sort of in across Europe as well I just wanted to sort of see you know what what are your thoughts on the sort of differences that you see in the Middle East versus Europe and uh what would you sort of see say is your role in educating different markets uh very good question um generally speaking I think crypto space have done a fantastic job in confusing people um basically saying that this is very different from anything that we've seen whereas it's really not right derivatives are derivatives whether they are basically done on Bitcoins or or on equities they're still derivatives so options Perpetual swaps Futures and all of that so the regulatory regime is already in existence today so I think what uh what UAE does very well is that there is an understanding that this is just another asset class and same rules apply whilst in Europe Regulators are drafting completely new uh regulatory framework whereas I think an existing regulatory framework could be easily applied to this space in the same fashion that applies on anything else because in reality the questions are still remain the same you know what's your AML policy what's your compliance culture can you evidence corporate governance uh can you evidence how risk management governance Frameworks set up can you describe what the risks of the organizations are questions are still the same if you trade underneath Shiba Inu it doesn't really matter so and and the crypto space have been basically completely taking it like on a journey is like nd5 and this and then nodes and blockchain and you know multi-party computations and things like that which is basically allowed a lot of paperwork on their table to to go through and this is I would say fundamental difference I think it will also it's also going to help on the next development stage because essentially the infrastructure that we're creating in the space largely could be applied to a traditional space as well it's it's no secret and everybody is of the same opinion that we're going to see traditional markets moving on to blockchain I think the world definitely now understands that the post-trade infrastructure for settlements is definitely coming onto blockchain but the world has yet to understand that different parts of the world thinking about it differently in here it's actually far Advanced is that we're going to see Superior financial markets products built on blockchain so in the same fashion like in 95 we basically looked at the internet that oh yeah it's just easier way to read the news and see the weather but nobody could imagine that actually you're going to buy and sell everything under the sun through the internet so you will basically migrate completely how you basically access liquidity and how you access financing that's going to be done through smart contracts within five ten year time and if I may just jump in here I have one great example I think how disruptive businesses can actually influence existing regulation so when we looked at the covert vaccine and how it was possible to get a license within a year whether before it took 12 years for a similar activity um how did they do it without cutting Corners the regulator had a 24 7 hotline for all vaccine producers to answer all of the question because typically what you do with a regulator is you would send a letter and they would basically wait six weeks until they answer then they answer you instantly answer again and it's another six weeks backlog right so I went to buy regulator and I said listen um why don't we increase my regulator fee and we put a designated team because what I want is I want to be able to launch an insurance product a week and not like the incumbents you know every six to 12 months right I'm at a completely different pace so please do increase my Regulators fee but put a team there and let me call them and ever we need them to fix things fast and we've done that and we speed up the whole process and I think that's regulatory Innovation driven by disruptive players like us yeah and definitely and you see that happening here in adgm with the sandbox and things like that I mean what is what is that perfect environment is it just about timeliness or was it about sort of getting together and having a collaborative conversations are you interested in hearing from your other fellow in short texts about their pain points I mean I think we have a huge role to play um and that was the initial thing when we started filing for an insurance license right we were the first non-incumbent-backed um startup that got an insurance license in Europe and one of the horror scenarios I had while in this process I was like Wow imagine a world where we have implants in our bodies and then you know the insurer figures out there's cancer cells developing and switches off the insurance and you know then the regulator asked me all these questions about financial solvency and I have to fill out all of these forms right but there's not a single perspective on what happens to contextual data and how can we protect consumers interests and since we understand this technology it is our role to go into a dialogue with the regulator and figure out Solutions how to protect the consumer um in the future and that's what we're trying to do we're trying to set up Innovation circles with our regulator and we try to brainstorm about how we can protect the consumer Better Together absolutely and and and you mentioned earlier that you use a network of agents and that's your distribution strategy do you see technology becoming more of an enabler as opposed to sort of replacing humans and and you know using Ai and such I mean insurance is a product where you have to think about what happens to my family if I lose my job or even worse if I die these are not things like you wake up on a Sunday morning and you you want to think about it right so um this um empathy of a human and when talking about these topics um is an extremely important topic and that's why 9 out of 10 insurance policies today are sold by the human and that's why we believe um the human will stay in the equation we're betting on the human and we're seeing uh significantly um better customer satisfaction we're seeing significantly better growth numbers and we're seeing significantly better profitability so I think we bet on the right horse great well look it sounds like we're sort of needing to wrap up now but if I could just quickly go through and just ask you each um to sort of share one key message about your time here and what you sort of feel are some of the the words of advice for some of our audience members I'll start with you Dimitri actually this will be a little bit of a pile on the question that you guys discussed before I think it's there was a massive opportunity right now which hasn't presented itself in the last 120 years when it comes to Capital markets based on blockchain the requirement for a number of humans operating faults exponentially lower so you will be able to run exchanges like NASDAQ with you know 300 500 people you will be able to run Prime brokerages with a thousand people so and that hasn't existed before so I think the The Innovation piece and the opportunity for the region as well is that if there is innovation culture which there is you know when you work together with Regulators to create those products there is an opportunity to completely reshuffle how financial markets look like in the next 10 to 20 years so that will be I guess my closing thoughts thank you so first uh sell Shiba Inu sounds like an obvious one um but second I think never waste a great a good crisis right this crisis an amazing opportunity it's not the end of crypto I don't think it might be the end of Shiva Inu it's not the end of fintech or innovation of venture investing we are I think at the cusp of the greatest wave of value Creation in the history of the tech industry we're not at the end of it we're just at the beginning and this is an opportunity to do it right to build things right to build things on a solid foundation and the smart investor the smart founder is what that's what they're going to do for the next two years they're going to have a conversation with Regulators they're going to look inwards and they're going to build things right it's more important and that's the lesson by the way of FDX to build things right then to build things quickly and I think that's one thing that our industry will will have to adapt to in this new environment enjoying so I think this region must be all about sustainable Innovation for the future um and what we've seen in the last 10 years was that there were extremes I think the time of these extremes must be over and we need to look at a really fundamental business the fundamentals of the businesses and how substantial they are in really being able to beat the incumbent in a sustainable way and they are out there um I think the extremes and they will be cleaned out and that's a healthy process I'm happy about this process um but the sustainable and business with healthy fundamentals will continue to also support the sustainable future of this region thank you thank you so much well with that positive note thank you very much to my panelists here and I hope you had a wonderful afternoon thank you [Applause] [Music]