c2c #15: UnionBank, private markets, ESG in Asia, Joseph Schumpeter

Welcome to Cowries2Crypto, my LinkedIn newsletter on innovation in finance and capital. In here you will find:

1.????Work from the Week: aspects of the original work I do at DigFin and AMTD Digital covering digital finance, fintech, and digital assets

2.????Talk of the Town: thought-provoking (or at least funny) hot takes on fintech and finance from around the internet

3.????Weekly c2c (comment2critique): my review, experience, opinion, or other commentary

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1. Work from the Week of March April 10 to April 16: UnionBank, private markets, ESG in Asia

David Hardoon deploys AI at Aboitiz’s UnionBank: David Hardoon is an easy interview. He’s full of enthusiasm about artificial intelligence and what it can do in a market like the Philippines. He provided some insight into what Aboitiz Group, a major conglomerate, is doing with AI-led finance.

FinClear launches DLT-based private-markets platform: This fintech in Australia is chasing tokenized finance through some local quirks, what people in capital markets refer to as “market micro-infrastructure”. This story goes into the weeds to unpack what potentially massive changes could look like.

Fintech in ESG | Jason Tu, MioTech | DigFin VOX Ep 28: MioTech is a pioneer in data analytics on ESG for financial institutions in Asia, first in China and now in Southeast Asia. I spoke with him about some of my big questions about ESG, like, is it working? Does ESG make sense?

Some clips from our discussion:

• Is ESG making a difference?
• Fighting greenwashing

2. Talk of the Town

Fintech wins

Let's start this off with some big-picture positives. As always, click on the images to see the full tweet/thread.

Follows a ton of VC funding last year to fintech in general.

One of the most successful markets (arguably the global leader) in fintech has been China. Yes, yes, there has been a big crackdown on tech. This is in part because fintech has been such a transformational phenomenon in China.

WeChat (Tencent) and AliPay (Alibaba) invented the superapp. The model has migrated to Southeast Asia. Not with the same success, in part because the region has multiple competitors, such as Grab and SEA, making it difficult for these tech platforms to realize a profit. As a result their share prices have tanked. But GoTo, which I wrote about just before its domestic IPO, seems to have succeeded. Small deal, realistic pricing. We'll see if the share price holds up, but GoTo has done everyone in Asia tech a favor.

Meanwhile, India fintech remains on a tear...

Return of the banks

But I'm seeing a lot of comments that suggest the better run incumbents aren't about to disappear.

VCs may have poured tons of cash into fintech but that was earmarked before this year's high inflation, war, rising interest rates, and other disruptions. The sanctions against Russia and the sharp rise in commodity prices is already impacting poor countries like Sri Lanka. Financial markets and global institutions won't be immune. But it will be especially hard on fintechs and other startups. Consolidation is to be expected this year!

Even the big players are starting to feel the pinch...

...including in BNPL, last year's darling.

Although we admire founders and entrepreneurs, most of these companies fail. Often because we're looking at the wrong things.

In fact, we see a lot of digital wallets and other fintechs looking to secure banking licenses. Revolut is just one of many examples.

Although being conservative for its own sake, "because that's the way it's always been done", is not the answer either.

Rather, for banks and fintechs, I think the road to success is more about this...

Crypto

You probably heard about this one. Epic.

I shouldn't take delight in the misfortunes of others. I really shouldn't.

Not when it's insiders such as Jack Dorsey, Elon Musk, Mark Zuckerberg, and Peter Thiel who are hyping this stuff, and getting rich. The guy who paid Dorsey $2.9 million for Dorsey's tweet was just gambling, but so are a lot of people who can't afford to get burned.

Bad business models and misleading, unethical storytelling are poor foundations for "the future of money". Eventually people wise up, or get washed out.

Last week I talked about Thiel's speech at a Miami bitcoin conference. I didn't mention this bit, but Twitteratti picked it up.

Meanwhile...

And CZ of Binance unleashes a little trolling of his own.

Still, it's easy to take potshots (well, some of these people make it easy) but there's still a lot of ferment and change. Disruption isn't about predictable winning models. It's a crazy and chaotic process that sometimes changes the world.

Maybe!

3. Weekly c2c: Joseph Schumpeter and the innovation economy

Joseph Schumpeter was the first economist to put innovation at the heart of explaining the world.

In previous C2Cs, I’ve talked about the first people who thought systematically about what creates economic growth and dynamism, from Adam Smith to Karl Marx. For all their brilliance, though, these classical economists didn’t have a concept of innovation as a key element.

Schumpter was born in the Austrian-Hungarian empire in 1883, which could be a cosmopolitan milieu for a German-speaking iconoclast, not to mention a dashing one (Schumpeter had a series of affairs and marriages with smart, beautiful women, the last of which was to Elizabeth Boody, an important scholar of Japanese industrialization).

After a brief stint as Austria-Hungary’s finance minister in 1919 and then as president of local banks, Schumpeter began his academic career, lecturing at the University of Vienna and other leading European institutions, as well as in Tokyo. Austria-Hungary was dismembered at the end of World War I, and Schumpeter moved permanently to the United States in 1932, to teach at Harvard.

If there’s a single phrase we associate with Schumpeter, it is “creative destruction”. He didn’t invent the term, but he embedded it in novel ideas about what made an economy go.

Schumpeter’s early works advanced the notion of a business cycle, which goes stale without the intervention of entrepreneurs, “wild spirits” who commercialized new technologies that displaced old ways of doing things.

Schumpeter is known for being the first economist to develop a theory of the entrepreneur, but he always viewed the role as tied to “credit” – to banks or others in the capital markets who financed the new inventions and business models.

“A society is called capitalist if it entrusts its economic process to the guidance of the private businessman,” he wrote. Credit was just as important as the entrepreneurial idea. Calling it a “wager on a better future”, credit was used by both entrepreneurs and consumers.

The entrepreneur was the “pivot on which everything turns,” he said. They are agents of innovation and creative destruction, creators of new jobs and of rising incomes and economic progress. But these benefits could not exist in a static world. Existing businesses and livelihoods had to make room – or be swept away.

Capitalism is disruptive because it relies on credit or wealth that doesn’t yet exist. Wealth by itself is static: it must be put to some productive use if it is to grow. This in turn required financial mechanisms to do so.

The Chinese had invented paper money in the ninth century, but Europeans wouldn’t experiment with this for another eight hundred years. The early banking innovations of Muslim trading conglomerates and the Renaissance Italians who copied them revolved around tightly knit groups of wealthy families, such as the Medicis. Their knowledge did not diffuse far. Protean forms of capitalism were designed to serve kings, popes, and a few outlandishly rich families; for the rest of Christian and Muslim society, lending was equated to sin, and the thing to do was accept your sorry lot in life.

Capitalism, centered on the entrepreneur, broke this stasis. The modern businessman could get far richer by mass producing stockings for factory girls than by hand-making silk stockings for queens. It therefore required a mindset that valued the new and a dedication to cutting prices for mass adoption, which meant overcoming resistance to traditional values and the status quo.

I’m not done with Schumpeter yet! As I’ll relate in a future post, we can’t draw a straight line from Schumpeter to today’s venture capitalist. But he is the person who identified the need for entrepreneurs, backed by finance, to effect change, so let’s leave it at that for today.

See you next week

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About Jame

Jame DiBiasio is a book author, financial journalist, media entrepreneur, and a speaker/moderator. In 2015 he launched DigFin, a website media brand covering digital finance, fintech and digital assets. The business was acquired in 2021 by AMTD Digital, part of Hong Kong-based AMTD Group. Jame is also a member of the board of the Hong Kong Fintech Association.

He is author of “Block Kong” (co-authored with Charles D’Haussy) profiling 21 blockchain entrepreneurs in Hong Kong; and “Cowries to Crypto: The History of Money, Currency and Wealth”. He is currently working on a book about the venture capital industry.

Jame has also written books about Asian history, including “Who Killed the King of Bagan?” and “The Story of Angkor”. He writes thrillers too. You can find all of Jame’s published books on Amazon.

A native of the United States, Jame has been based in Hong Kong since 1997. Follow him on LinkedIn and Twitter.