Pierpaolo Barbieri: prediction

Transcript context

…I can see if what you’re doing is forcing cartelized banks to become more competitive. But it seems to me, in the broader sweep of economic history, which you know quite well, 100 percent reserve banking has never really been competitive. Won’t it be the case you simply evolve into being a bank or merge with a bank, with superior software capabilities, but you have to end up lending just to stay profitable? I don’t think you need to end up lending. I think that lending eventually becomes 20 percent to 30 percent of your revenue share. That’s what we project five years from now, but there are other fintechs that rely more heavily on that because they don’t have a full ecosystem. If you look at the Chinese players like Baba and Tencent — Tencent, full disclosure, is an investor in Ualá — you don’t need to rely on lending for so much if you have a very good payments product and if you have fee-earning products on the asset management side or on the merchant acquiring side. In fact, merchant acquiring, for instance, what Square does, is more profitable on per dollar invested than lending is. Even in geographies like Argentina, where lending has very low competition, the problem at the core is what you said. There are cartelized banks that never wanted competition, that always charged for things that were never a reality in the developed world. It’s the same institutions in Spain that don’t charge opening fees, maintenance fees, renewal fees that do so in Latin America, in places like Mexico or Colombia or Argentina. Every time you go to the bank, they charge you for an opening fee or a maintenance fee or a renewal fee. We insert competition, and we do it with radically lower costs because we lower the cost of running a financial entity by 85 percent. Why? Because we don’t have any branches. We don’t have any other fiscal infrastructure. We don’t do our credit history on paper as the banks still do in Latin America, and we give an account to everyone. That gives us an economy of scale that other people just cannot have, and the banks don’t move fast enough. Let’s say we take away your short-run advantage just from being smart and better at software, and we look at a longer-run steady-state equilibrium. What is the factor or the variable that determines if the market will be filled with institutions that make money from loans as opposed to institutions that make money from payments on fees? What does that depend upon?…

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