c2c #36: Challenger banking, Hong Kong, sound money

I’m the author of Cowries to Crypto about the history of money, and the c2c newsletter is my personal take on innovation in finance and capital. In here you will find:

1.???Work from the Week: highlights from my day job covering fintech

2.???Talk of the Town: internet hot takes on tech and finance

3.???c2c: thoughts on innovation and related topics

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1. Work from the Week: Stories from DigFin, August Sept 11-17: Tyme Bank, Hong Kong’s future

Neo-banking X-border | Coen Jonker, Tyme Bank | DigFin VOX Ep. 39: Does a banking strategy focused on financial inclusion make money? Coen Jonker, CEO of Tyme Bank, told me that’s the best question anyone’s asked him.

In our discussion we explored the ways Tyme is generating revenues, first in its home market of South Africa, a model it hopes to replicate in the Philippines. We discussed sources of revenues and of funding, as well as the cost base and the role of technology in keeping a neo-bank like Tyme competitive.

Tyme is not 100 percent digital, as it relies on a series of vending-machine-like kiosks that its distribution partner (conglomerate JG Summit in the Philippines) installs in malls, grocery stores, etc. I asked Coen how he manages relations with a local partner that is far more powerful than a neo-bank.

Can Hong Kong still attract fintech talent? There’s been no end to media stories about Hong Kong’s self-inflicted woes. Sit me down over a drink and I’ll bitch and moan like a pro. So here we are.

In fintech, though, hiring challenges are nothing new. This town has always been about traditional finance and never about technology.

OK, that’s not quite true: in the 1960s and 1970s, Hong Kong was the region’s leading manufacturer and assembler of low-end chips and consumer electronics. People forget that. Hong Kong was actually a bigger tech player than the other “Asian tigers” of Taiwan, Korea and Singapore. At one point in the 1980s Motorola considered establishing chip-making fabs here. (I learned this from the YouTube channel of Asianometry, a super-valuable resource.)

Hardware, semiconductors in particular, require vast amounts of capital. The other tigers saw the need to climb the value chain, because if you are just winning business based on cheap labor, there’s always somewhere cheaper. Their governments invested heavily in semiconductors, OEM, and other parts of the tech world. Some of these panned out, others lost zillions, but those other markets are today relevant tech players – even Singapore, which despite the ultimate failure of Chartered Semiconductor, developed a tech ecosystem that doesn’t exist in Hong Kong.

Hong Kong was a colony and the British had no interest in pouring resources into developing a tech hub. Hong Kong existed to serve the likes of Jardines, Swires and HSBC, so Hong Kong became a pure offshore finance hub.

The universities here produce excellent research but the talent doesn’t stay unless there’s a local niche to exploit, like some parts of fintech. The reason Hong Kong’s society is so unequal, with families living in terrible conditions and old people pushing trash up Lan Kwai Fong, is because once the post-war manufacturing boom shifted to Guangdong, there was nothing left. No chip fabs or other manufacturing to support a middle class.

Today we’re still impacted by those decisions from the colonial era. The tycoon class that’s dominated the city post-handover only knows how to make easy wins in real estate and finance –?which is why the city’s most active “tech” scene is crypto. But even crypto has been pushed out by regulators, with Singapore and Dubai reaping the benefits.

All of which is to point out that fintech, and tech of any type, has always struggled to attract strong engineering talent here. There’s no homegrown base for it. This predates Covid, and the problem will endure once the stupid zero-Covid restrictions and quarantines are finally scrapped.

My story is an attempt to inject some constructive ideas into the debate, leveraging the city’s genuine strengths to change the game. While I don’t think Hong Kong will ever be a true tech hub, it can do a lot more to attract or otherwise align the enormous pool of talent in Shenzhen.

DigFin awards open for all submissions! I hope to see your firm step into the arena, whether you work at a financial institution or a tech company. Our awards are independent and pan-Asia.

2. Talk of the Town

?Urge to merge

The big story in fintech this week was Ethereum's "Merge", combining its consensus and its transaction layers to change the way it validates blocks and transactions: from proof of work to proof of stake.

Some people celebrated.

Some got political.

Or philosophical.

Others were wistful.

There may have been some examples of cynicism.

It's not clear the Merge led to all the outcomes that Ethereans promised. Bitcoiners rejoiced.

Indeed, Proof of Stake will change the power dynamics within Ethereum. PoW or PoS, these are all still human systems!

There's a big argument in the crypto world with Bitcoin maxis on one side, Ethereans on another, and then a bunch of ETH miners who are sticking with the old ETH PoW chain, like those Japanese soldiers on Pacific islands that refused to surrender until, like, the 1970s.

Beyond crypto, the big fears regard inflation and how central banks are responding.

3. Weekly c2c: Sound money?

The Ethereum Merge went off successfully this week. HashKey invited me to a cocktail party at their office to celebrate the event, while the Merge was also how I ended a talk I gave the night before about “Cowries to Crypto” at Q9 Capital.

I’m not a developer so I’ve only been half paying attention to updates about the Merge from Vitalik Buterin or others, mostly on Twitter. For a while I wondered if the whole thing was vaporware, but once the Beacon Chain went live last year things began to progress faster. Last week I wrote a big piece on it for DigFin.

My talk at Q9 was to ask, what is money? Based on a whistlestop tour of world history, I argue public debt is an indispensable element. This is what the Bitcoiners never understood, or want to hear about. This is also why Bitcoin is a 100 percent fail as money. It’s a speculative digital rock, and while I have no clue how its price will perform, but its long-term value is zero.

Some people in my audience took issue with this – we had a lively debate – but in my mind this is a settled question. Partly because of my own historical judgment, but also because Ethereum, with its move to Proof of Stake, has demonstrated itself to be a superior technology. The rigidity that Bitcoin maxis love in their block sizes and issuance parameters are, to me, a total red flag. Rigidity is fragility.

It's still early days with the new Ethereum. The community has developed models to predict how its supply and value will change, but now we're in the real world. (There’s a rearguard action by some ether miners to do a hard fork and keep an Ethereum Proof of Work chain – hard to take this seriously.) But ETH PoS's parameters are meant to replicate Bitcoin’s hard-money features, with more flexibility. So is Ethereum money?

My argument remains no. Money is what we use to pay our debts, and without a credit element or a fractional-reserve banking system within crypto, these tokens resemble features of money but are not the true thing. That’s not to say there’s no value in Ethereum – on the contrary, it’s a useful tool, and I believe this will be transformational to securities markets. But that’s not the same thing, and over time, the things that matter move from infrastructure to applications. The World Wide Web wouldn't exist without a standard like TCP/IP having won universal adoption, but who today thinks about TCP/IP when planning their business? It's just there.

Eventually we will judge the Merge a success if nobody talks about Ethereum ever again.

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, an online media covering digital finance that is part of the digital arm of Hong Kong-based financial group AMTD. 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.