June 13, 2024 • 31 mins
Whistleblowers and scandals. What really went on behind the scenes at Wirecard? This episode of The Money Pot, live from the Money 2020 conference in Amsterdam, features an exclusive interview with Pav Gill, the whistleblower who exposed the Wirecard fraud, and journalist Jason Mikula. Listen as we uncover the early warning signs that Pav Gill noticed, including suspicious financial practices and shady backgrounds of key personnel. The conversation takes on a surreal tone, with comparisons to infamous cases like Enron, and even elements straight out of a spy novel. Jason Mikula sheds light on the banking-as-a-service industry and the spectrum of ethical behavior within rapidly growing sectors.
We tackle the intricate dynamics of governance, fraud, and risk-taking within fintech startups. The line between aggressive business tactics and intentional fraud is often blurred, and we explore how the drive for innovation and profitability can lead to ethical compromises. We examine how venture capitalists influence board governance, the pressures on pre-profit companies to meet their KPIs, and the impact of national pride on oversight failures. The Wirecard scandal serves as a poignant example of how these factors can lead to significant fraud cases, creating a cautionary tale for the industry.
Regulatory gaps in the fintech industry present another set of challenges, particularly for companies operating outside traditional banking regulations. This environment fosters innovation but often lacks the necessary supervision to ensure consumer trust and protection. We discuss how different regulatory frameworks in Europe, such as e-money institution licenses, offer alternative oversight models. Potential solutions like creating a self-regulatory organization, similar to FINRA, are also considered. This episode offers valuable insights into the ongoing developments in fintech and highlights the importance of robust governance and regulation. Join us for this compelling discussion with Jason and Pav Gill, and stay tuned for more updates on the evolving fintech landscape.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Rachel Morrissey (00:08):
Okay, welcome to the Money Pot.
I'm Rachel Morrissey.
I'm one of the co-hosts of theMoney Pot here at Money 2020.
And we are here live at theMoney 2020 conference in
Amsterdam.
I've got my host here, MikTesfaye.
How are you doing, Mik?
Micky Tesfaye (00:23):
I am fantastic, Rachel.
We are back in Amsterdam onceagain.
Rachel Morrissey (00:27):
We are and the show looks really cool.
I can't wait for you guys tosee the show.
Micky Tesfaye (00:33):
I've been super excited that we even have Money
Pop branded mics.
I know Wow.
Rachel Morrissey (00:37):
We're going to have to put pictures of this
everywhere.
Micky Tesfaye (00:39):
Yeah, for sure.
Rachel Morrissey (00:41):
So we have two amazing, amazing guests.
We're going to have a reallyfun conversation here today
because we've got Pabgiel here,who is the whistleblower for the
Wirecard.
What do we call that?
Fiasco Scandal?
Micky Tesfaye (00:57):
Story.
Rachel Morrissey (00:59):
Story.
Are we trying to be nice ?
Micky Tesfaye (01:00):
I'm trying to be like the.
Rachel Morrissey (01:01):
Wirecard story , and we have Jason Mikula, who
is here because he's been doingsome amazing coverage of what's
going on with Synapse and Evolveand a lot of the other things
that are happening and howthat's all intertwined, and so
we're going to be talking todaya lot about the nature of what's
going on and whistleblowerculture, how we think about some
(01:24):
of these things and how they'regoing to affect the industry,
the nature of how this makes uslook at what's going on,
particularly in banking as aservice industry.
And so I'm going to turn it toMickey first, because he's going
to be driving this discussion.
Micky Tesfaye (01:39):
Thank you, R rachel.
Yeah, I mean, I think you knowwhen you and I were speaking.
I think part of the thing thatwas super exciting about having
Pav and Jason on is, to a degree, there is a part of a story
there around what's going on infintech, how much progress we've
made, how much are these twothings, these two stories that
happened five, six years apart?
Are they part of a spectrum orare they different things, Right
(02:10):
?
So I guess maybe a goodstarting point to anchor us in
the conversation is to turn toPav.
Thanks for coming from all theway from Singapore to join us as
well.
And maybe I just want to askyou, I guess, to start off with
when did you kind of firstrealize things were amiss when
you joined Wirecard, and howlong did that take?
Pav Gill (02:30):
Yeah, that didn't take very long.
I mean, if you looked at any oftheir subsidiaries financials,
they were all loss-making, so noone understood where the money
was coming from.
I mean, the sales team wasdefinitely very happy because
somehow, you know, numbers wereup and they weren't really
selling much.
So yeah, just from an objectivereading of financials, 95% of
(02:54):
the company was in the red.
Micky Tesfaye (02:56):
And it was just like instantly.
You were like as soon as youkind of, because you went in as
part of the legal team and Iguess you're kind of looking at
all of the paperwork and maybeeven accounting data, and then
it was just very visible to youimmediately and did you have to
start thinking about how to actvery immediately too.
Pav Gill (03:14):
Yeah, it was strange because I was told to get to
know the guy that was runningfinances.
His name was Ido.
He's an Indonesian chap with adubious background.
Cv-wise.
Rachel Morrissey (03:26):
That's always a good sign.
Dubious background CV You'realways looking for that when
you're coming to a paymentscompany.
Pav Gill (03:32):
One of his first few introductions to me was that
he's married to a drug dealingfamily in Jakarta which has the
red flag as it gets for.
Rachel Morrissey (03:40):
NFI.
Pav Gill (03:45):
I mean, he was super flexible with numbers, to put it
mildly.
Micky Tesfaye (03:49):
I don't know if that's what you want from your
accountant right, that kind offlexibility?
Rachel Morrissey (03:52):
Super flexible Until you get to your tax
account.
Micky Tesfaye (03:56):
No, I'm kidding.
Rachel Morrissey (03:59):
That is hilarious.
I love that.
Micky Tesfaye (04:02):
I mean, okay, it sounds like yeah, very instant.
Rachel Morrissey (04:04):
Well, and the other thing about the Wirecard
thing is, the more people duginto it, the more kind of absurd
it became that people didn'trealize this faster.
I mean I think back on previousscandals that sort of resembled
it.
I mean I know it was comparedto Enron a ton, and it had a lot
of echoes of that kind of agroup of people that had some
(04:25):
dubious backgrounds.
So you're like how did thesepeople convince anyone this was
a good idea?
And then, uh, and then thestuff on wirecard that broke
about possibly a russian spy,and you're just sitting there
going.
This could not get any more.
I mean, this is made for amovie.
I can.
Micky Tesfaye (04:44):
Can't wait until the movie comes out.
I mean Netflix were lickingtheir lips when they saw the
story breaking live, I think.
And I remember, like you know,I was an analyst at Business
Insider and I remember readingthe story on the FT being like
this is the most surreal storyto read on the FT, because it's
like a spy novel.
I'm like you know, jan, and sobefore I go to that, you know
(05:05):
I'm gonna go to jason with aquestion.
I've set you up with it.
I know it might not be likethat, but I mean you've been in
the news yourself lately, whichI think is probably interesting.
As a journalist as well you'vebeen, you know a big part of
what's going on, uncoveringthose stories.
Are you seeing any similaritywith what's going on in the
banking as a service industrywhere there is fraudulent
(05:27):
practices, or is it more to dowith just an industry that's
growing and there are misstepsthat occur naturally?
Jason Mikula (05:35):
Yeah, I mean, I think in any industry you're
going to have a spectrum of sortof how ethical or how morally
and legally some of the playersact right.
So, whether you're talkingabout tech broadly.
We have plenty of examplesTheranos, which was an outright
fraud, real estate I'm thinkingspecifically of WeWork, which
(05:58):
was not a fraud per se but waskind of a ridiculous situation,
which I watched all of the Huluand Netflix and whatever.
Rachel Morrissey (06:07):
I know you watched all of the documentaries
.
Jason Mikula (06:10):
I think there was like two or three different ones
, and my partner and I excitedlywatched all of them.
Rachel Morrissey (06:14):
Yes.
Jason Mikula (06:16):
And so I think you know there's no difference in
banking as a service right orthe banks that partner with
those middleware providers andfintech companies.
I think, you do want to becareful about painting with too
broad of a brush and saying.
There's a risk of saying, oh,this entire model doesn't work,
everyone is a bad actor.
We should just clamp down onthis.
I think that would be a mistakefrom a public policy standpoint
(06:39):
because there are benefits bothto the banks that work in this
sector as far as having a viablebusiness model as things move
away from geographic banking tomore digital, as well as to
consumers who use these products.
If you look at a lot of whatfintech in the US is, it is very
(07:00):
geared towards consumers whohave not been well-served by
establishment banks.
Think of Chime and Vero andsome of these earned wage access
or cash advance kind of things.
If you clamp down on everybody,there are consequences to that.
To try to specifically answeryour question, I think in the
Synapse case, there's a lot ofunanswered questions about what
(07:23):
happened here.
Rachel Morrissey (07:24):
Yeah, we're in the middle of that here.
Yeah, we're in the middle ofthat.
Yeah, we are in the middle.
Jason Mikula (07:26):
I've been very careful in how I write about it
to try to highlight, you know,what a lawyer says in a court
filing, or what a lawyer says incourt is a representation.
It is not a fact, right.
And so we have, you know,evolve, saying one thing,
synopsing something else, andeven as well-informed outsiders,
I don't know what's true.
Rachel Morrissey (07:48):
Yeah Well, and you can't.
The other thing that'sinteresting here to me is okay,
so we have Wirecard, we'retalking about some stuff that's
going on right now that we're inthe middle of uncovering.
We're not actually sure aboutwhose story is actually pitching
out, and it could be somewherein the middle, right in all
probability.
And then and then we've hadother scandals that have
(08:10):
happened.
Um, and I'm I'm kind of curiousbecause I sort of think I wonder
a little bit about the um, theexception proving the rule.
Basically, I mean, we couldpaint the whole industry with a
broad bush, but maybe the factthat we did, we were able to
fish out a possible problem or apossible bad actor.
It may not be an indication ofthe business model itself, but
(08:34):
just that there are going to bebad actors in every single
sector.
There are going to be peoplethat take advantage of these
notions of innovation to kind ofcapitalize for themselves right
away.
I mean, the Wirecard one sortof proves that the payments
industry has got tons of actors.
(08:56):
You know lots of people thatare very good and very well
regulated and their books areclean, and it's not an either or
right.
So it sort of was an exceptionto prove the rule because it
made the news.
Pav Gill (09:10):
Yeah, I mean, that's true, and a lot of times you can
put as much regulation as youwant, it doesn't work because
you know, at the end of the day,you still rely on people to
adhere to those regulationsright and at the same time, you
also rely on people to tellsomebody that you know someone
else is not following thoseregulations right so I think
that's where the balance liesand that's where I think
(09:32):
companies need to also thinkabout things, because, you know,
just because something bad ishappening, it's not going to
mysteriously disappear on itsown right.
Someone also needs to, you know,confront that and deal with it
in a sensible way.
Rachel Morrissey (09:47):
And that actually.
So when you guys are looking atthese stories right, I mean
you're from the journalistperspective.
You were inside and going.
I've got to get this story out.
I've got to figure out who totell.
How did you figure out who youwere going to tell?
Pav Gill (10:03):
I mean I did and my mom did.
Mom for the win.
That's where the difference is.
And I think also, I was forcedinto a whistleblowing case
because when I was in thecompany as the head of legal for
the Asia-Pacific region, I wasactually instructed to
investigate an internalwhistleblower that came to me.
(10:23):
So that's what I was doing.
I was actually doing my job.
It's just that when the boardfound out, they were very upset
and we know why.
Micky Tesfaye (10:30):
So you were actually hired to find out who
is a potential whistleblower bywirecard.
Pav Gill (10:35):
I was already in the position of being the legal
person in apex yeah, someonecame to me from the finance team
, fearing for her life, and so Iwas supposed to investigate it
and protect that person'sidentity.
so eventually the board foundout, they tried to shut it down.
They did all kinds of stuffover three, four months to, you
know, try to damage me.
And eventually they even triedto kill me by sending me on a
(10:58):
attempting to send me on aone-way ticket to Indonesia
which I didn't go for.
So that's when the companyfinally, after four months, had
a legitimate reason to say okay,he did not follow instructions,
so we can finally fire him,which is great.
So I said, okay, Wirecard, youenjoy a fraudulent ways, I go
find another job.
But they didn't stop.
(11:18):
They were still sending peopleto follow me and my mom and all
that stuff.
So that's when my mom gotreally upset, because she's a
single parent and I'm the onlychild.
And that's when she decided,from the sofa of the living room
, to reach out to journalists.
And one day she just told mehey, by the way, we're meeting
the Financial Times this weekendand I was like what are you
doing?
Micky Tesfaye (11:39):
Wow, mum for the win.
Rachel Morrissey (11:40):
This is my favorite whistleblower story
ever.
Jason Mikula (11:43):
It makes me want to go scrub my address off
anything on the internet ever.
Micky Tesfaye (11:48):
This is a warning for you, jace.
I mean this story.
I have to say I'm sorry, butthis is truly a story like
stranger than fiction Becauseagain, I remember reading it and
you're thinking FinTech is not.
You know, fintech is FinTech.
I mean, how dark can it get?
And I'm just like where is thisgoing to stop?
Jason Mikula (12:07):
I think that this illustrates sort of the most
extreme end of the spectrum ofintentional fraudulent behavior.
But there's also a whole lot ofgray area of I learned this
working in the lending side andthe banking side what sometimes
feels like black and white froma legal or compliance
(12:28):
perspective, when you'reactually working in those roles
you realize most of it isactually a gray area where it's
like, well, your advice fromcounsel is X, but if you're
comfortable taking that risk,you can do it.
And it makes you wonder howmany of these situations is it
intentional wrongdoing versusincompetence, versus an overly
(12:51):
aggressive business posture?
Pav Gill (12:53):
Something.
Jason Mikula (12:53):
Pav mentioned that I think is very relevant to the
entire startup space is boardgovernance.
I think the VC attitude hasshifted a bit, but for a long
time the emphasis particularlywhen VCs were competing for
investments was to see howfounder-friendly can you be?
And if the founding team, theCEO, has control of that board,
(13:19):
there's not a ton.
Even if VCs have a board seat,they might have visibility, but
they may not be empowered toactually do much of anything,
and so there's a legitimategovernance question here as well
.
Micky Tesfaye (13:30):
And I think that piece is super interesting
because it does turn around.
The idea of a board is to bethe governing institution for a
company, but I think the VCmodel has kind of turned it
around where, as you said,founders are now because VCs,
because they want to kind ofsecure the founder where there's
(13:51):
a lot of competition.
It's actually all about how canwe get that, see, how can we
have control, and that's reallyreflective of where we have been
as an industry.
Rachel Morrissey (13:59):
Right the, for a couple of years their vc
money was flowing.
There was a lot of competitionactually amongst vcs with to get
certain founders right.
So as money has tightened andnow there's more competition for
the money, there's a lot moreof a flip of the founders having
to compete for the VC money.
That kind of changes the natureof that too and what you can do
(14:23):
for that board of governanceand how much influence or
control you can assert rightfrom the beginning.
I think one of the things thatyou mentioned there is you know,
you can do certain things ifyou're willing to take on the
risk right.
So, and in an industry thatencourages innovation, that
encourages this idea,risk-taking is sort of part of
(14:43):
the formula.
You can't people will tell youyou can't be a successful
entrepreneur if you're notwilling to take risks.
And that's where the area getssuper gray because you're taking
risks in certain areas.
So when your legal team or yourboard of governors comes, in and
says you can't take those kindsof risks, or you shouldn't take
those kinds of risks, but yourwhole drive and you've been
(15:05):
rewarded basically for beingsomebody who takes risks.
You're less likely to take thatto heart, I think.
Jason Mikula (15:14):
Well, and something I would point out
again, particularly about sortof venture-backed startups, is
almost universally these are notprofitable companies, and so
the time horizon and the risktolerance can be very different
than a mature, large privatecompany or public company,
(15:35):
because if you're operating inthe traditional 18-month VC
fundraising cycle and you know Ihave to hit certain targets so
I can put it in this pitch deckand go back to investors and
raise more money, otherwise it'sall over.
you have a lot of pressure and alot of incentive to all your
stakeholders, your employees,your existing investors, which
(15:58):
might include friends and familywho invested early on.
There's all sorts of pressureand all sorts of incentives to
make sure that you're able toshow those KPIs and go raise
more money, because otherwisethe party's over.
To try to be a littleempathetic, it's understandable
how that might engender somequestionable behavior.
Micky Tesfaye (16:18):
Especially because I think, as you
mentioned, a lot of it ispre-profit, a huge amount of it
is predictive right.
So a lot of it is up for debatereally and truly, and I think
that's the challenge.
I guess one of the things thatI'm thinking about with wirecard
again, um, to your point, pavis what we were discussing
(16:40):
earlier, and how much of thewirecard situation do you think
is also a result of the broaderway in which fintech, and even
in europe and germany, wildcardwas a real success story.
It was built up.
You know, I think a lot of itand there's my opinion to you
right a lot of it was kind ofmade it bigger than it would
have been, because I think atsome point it was as big as
(17:02):
deutsche it had a biggervaluation than deutsche bigger
valuation, and it was, I think.
So I wonder as part of it, didyou?
Do you think part of that wasto do with just this desire for
Germany, as well as a country,to look like, hey, we're also a
big fintech player.
There's this kind of desire toget payments as an industry, to
(17:23):
be a big player.
There's also there was a weirddesire to have companies really
competing with banks andestablished players, without
always necessarily thinkingabout the underlying piece.
Do they have all the things inplace?
How much do you kind of?
Pav Gill (17:38):
for sure.
Uh, wirecard was like thepaypal of germany right and 24
billion market cap is not asmall amount, uh.
So I think there was a lot ofpressure to not want to look to
some extent.
And the argument is strong.
I mean, if you're a company,you're doing all these
fraudulent things, you'retelling investors why are you
(17:59):
whining?
I'm making you money?
Telling everyone else, like, doyou want to listen to random
people saying we're doing badstuff, or do you want to look at
the big four that just signedoff on our audit, right?
So who do you want to look at?
The big four that just signedoff on our audit, right?
So who do you want to listen to?
And we've been growing for 20years, we are listed, we've got
(18:20):
due diligence requirements on us, so how could everyone in the
industry be wrong, except for afew people that are saying we're
doing bad things?
And I think, going back to theearlier point as well, from an
executive standpoint, like a CEOstandpoint, there is a very
strong tendency to not want tohear bad news, especially if
you're in a very successfulcompany.
So you could be the CEO thattells everyone I don't want to
(18:41):
hear bad news, I don't care howyou do it, just give me the
numbers and hit the targets.
So that kind of instruction andmentality might be taken the
wrong way.
That look, we don't want todisappoint the boss, we don't
want to disappoint our superiors.
We've got KPIs, we've got OKRsto meet, let's just do it.
Jason Mikula (19:00):
I mean, I think it's really easy to ignore red
flags when everyone is busycounting their money right.
I mean out of industry, and I'mnot saying that this company is
fraudulent, but I think Teslais the perfect example of it
right when it's like well, lookat the market cap and Elon Musk
says, well, if I'm doing drugs,I should keep doing it, because
(19:22):
all the numbers are going up andit's just like a complete
abject.
Rachel Morrissey (19:27):
I don't know if that's the lesson to take
away from this.
Drugs are good.
Jason Mikula (19:32):
But just a complete and abject failure of
board governance, becauseeveryone is too busy counting
their own money.
Micky Tesfaye (19:40):
That's such a good point too.
I think you can't be doing duediligence only when things are
bad.
Right, due diligence needs tobe consistent across the board.
I think that's a really goodpoint.
I guess the's a part of thenarrative, right, if you kind of
take some of that at face value, where it wasn't necessarily
(20:09):
fraudulent from the beginningbut it was like a slippery slope
and how much of the wire cardstory I know you started.
You told us there's red flagsfrom the beginning, I know, but
I wonder how much of that was,you know, partly not necessarily
big planned out fraud, right,but a slippery slope.
And how much of that was, youknow, partly not necessarily big
planned out fraud, right, but aslippery slope.
And how much of we've been?
You know, we talk about um, svbor even some of the stuff
(20:30):
that's happening in banking as aservice where you don't
necessarily always need to bedoing intentionally fraudulent
activity, right, sometimes justby mistakes, and then by not
looking, by not wanting the badnews, by looking away, and then
you kind of start fostering thatculture.
How much of it are we?
Rachel Morrissey (20:48):
or you're fostering a culture of overly
creative solution.
Micky Tesfaye (20:53):
Yeah, flexible accounting what I mean.
Rachel Morrissey (20:56):
I think that people are like if I can delay
the bad news, right, if I can, Ican find a way to fix it before
it's a real issue.
And then they get caught in themiddle of fixing it right, and
I think that there's a certainamount of that going on.
So it doesn't have to always benefarious.
I think Wirecard seems prettynefarious.
Micky Tesfaye (21:16):
The Wirecard one yes.
Rachel Morrissey (21:18):
The others.
I think you're right, yeah.
Pav Gill (21:20):
I mean from a fintech standpoint, and also crypto.
The issue with these industriesis that regulation is always
playing catch up.
You can't keep up with the tech.
Even banking as a service isone of those same things as well
.
So when that happens and afintech is getting a lot of easy
money, it's showing profitablenumbers or good numbers.
(21:41):
There's a lot of tendency touse the same argument which
Wirecard also used for 20 years,which is we are a victim of our
own success.
Can you please give us time?
These regulations are coming uphere and there.
We know we need to invest incorporate governance, in legal
compliance and risk, but justbear with us.
We are a victim of our owngrowth.
(22:02):
So I think a lot of companies,including FTX, for example, they
were playing that same card.
It's really cops and robbers inthat way.
Jason Mikula (22:17):
I think a common thread in a lot of these stories
is the tendency to say no, thiscompany is different because
it's doing something special andinnovative.
That was definitely part of theFTX story, Sort of presenting
no, you don't understand whythis company is so special and
so profitable.
It's new, it's complex, it'sinnovative.
(22:38):
You just don't get it.
I feel like there was a kind ofsimilar sentiment around
Wirecard versus some of the morelegacy players in the payment
processing space, and we alsosee that in banking as a service
, maybe to a lesser extent.
It's like no, no, no, you justdon't understand the business
model.
That's why you're so skeptical.
I think that should probably bea red flag.
Rachel Morrissey (23:01):
I can't understand the business model.
You just don't understand it,maybe that is a flawed business
model I mean it should beexplainable.
Micky Tesfaye (23:11):
I've lost my headphones because of how
excited I've gotten.
This is a great conversation,but let me both ask you, jason
and Pav, because one thing Ikeep on thinking about is, as an
industry, how much are weresponsible in terms of the
language we use and the way wethink about things like
regulation?
Right, like in tech broadly,the idea of break things move
(23:33):
fast and in some areas of tech,of course, we've seen where
there's results as a result ofthat, you know for lack of a
better word, but I wonder,within financial services, given
the impact of it, given youknow how much it could transform
people's life, when you've gotmoney locked up in ftxy I got
(23:53):
all of these things people youknow could lose their lives,
even right.
How much should the industry asa whole be responsible in the
way we think about the languageand the way we even talk about
regulation, as becauseregulators a lot of the time
maybe I feel a little bit badfor them.
We're like how the hell is it?
Should we be kind of like, hey,we might need to?
Jason Mikula (24:13):
I don't think it's a coincidence that a lot,
particularly in the US market, alot of what you've seen in
fintech exists outside of thebanking regulatory perimeter.
On the one hand, I understandthat in the sense that it is
arguably easier to innovateoutside of a bank than inside of
(24:33):
it, for a lot of reasons.
Rachel Morrissey (24:36):
Or any company .
Sometimes it's just easier togo outside and just innovate.
That's just true of companies.
Jason Mikula (24:42):
But on the flip side, that also means there is a
specific lack of supervision.
So, using the Synapse case asan example and to illustrate
some of the end impacts of that,users of these products that
were built on Synapse companieslike Yotta, which is kind of a
(25:02):
neobank, juno, which was kind oflike crypto plus a neobank they
saw websites and app storepages that said FDIC insured.
Your funds are held at EvolveBank and Trust and one of the
things I think the Westernbanking regulators, including
the UK, and Netherlands but alsothe US have been very
successful in doing is as aconsumer, you don't have to
(25:25):
worry about where you put yourmoney.
You could put it at JPMorganChase, or you could put it at
local rando credit union.
Rachel Morrissey (25:32):
Anything that's got that logo, that label
on it.
Jason Mikula (25:36):
And you don't have to think about is my money
going to be there when I need it, to pay for this wedding, to
pay for university, whatever?
That is a big success.
That is not true in everycountry, however.
The flip side of that is, Iwould argue, that fintechs,
again particularly in the UScontext, have unfairly benefited
from that trust.
And so somebody thinks well, ifI leave my money in Cash App or
(25:57):
Venmo, or if I use Yotta, itsays FDIC insured, so I'm fine,
it's safe.
And what we've learned is thatis not the case.
And for those end users whodon't understand what is deposit
insurance, what does it protectme against?
They're understandablyfrustrated and angry and want
answers because they think thegovernment, the FDIC, is here to
(26:20):
protect me.
And again, in this specificcase, the Federal.
Reserve Board, which regulatesEvolve, gave a statement that
was basically this is not ourproblem.
Rachel Morrissey (26:31):
Like you said, that is a success story, right?
People misusing that.
It's hard to always govern,like it's hard to always check
on how people are misusing it,because we get very creative
with our language and we saythings that are half true.
Jason Mikula (26:50):
As a recovering marketer, I've been on the other
side of it.
What is the furthest?
Pav Gill (26:53):
I can push this without legal implication.
Micky Tesfaye (26:59):
Without giving Pav like oh stop.
Rachel Morrissey (27:02):
Before Pav goes the line is behind you.
Pav Gill (27:07):
No, the irony is that I'm a lawyer, so I could be
coming up with these.
Micky Tesfaye (27:11):
He's like this is how you do it.
Rachel Morrissey (27:12):
Exactly.
So you come up with theexception phrases that allow for
you to do this kind of thing,and I think this is where the
industry itself has probably gotto worry, because, as you're
saying're saying, fintech hasbenefited from this, whether
they actually have thatguarantee or not, and things
like Synapse, things likeWirecard these are not
(27:36):
necessarily indicative of howthe industry as a whole runs,
but it does give people apicture or allows people to
paint with a broad brush, as wewere talking earlier about the
industry as a whole.
And so what do you think theindustry?
Is there anything that theindustry should be doing, that
(27:58):
sort of pushes back on that andsays, no, we should have some
practices or we should have somethings that are accepted that
allow for us to you us to bemore careful here.
Pav Gill (28:09):
Yeah, I mean, I spent three years in the crypto space
before I founded Confide and Isaw the exact industry issue
there.
So everybody was pro-crypto atsome point.
They're like let's move awayfrom banks, let's get rid of the
middleman, let's just go intocrypto.
And then we saw how cryptoplayed everybody out for one and
(28:30):
a half years, including theindustry, including consumers
and the effect of that wasironic because it went the other
way.
People started saying, okay,maybe we just can't trust these
companies.
Let's go back to banking.
Let's go back to putting moneyin deposit accounts or under our
mattresses or something.
There's legitimacy that comeswith it.
Jason Mikula (28:54):
I would think to try to also include the European
context, since we're sittinghere in Amsterdam Having thought
a lot about how things work inthe US versus how things work in
the UK and Europe.
I do think one of the bigdifferences and improvements is
these alternative kinds oflicenses.
So e-money institution,payments institution.
(29:16):
So if you're a BAS operator,I'm going to be in this podcast
booth tomorrow talking to Swan.
Swan has an e-money license, soit is a directly regulated,
supervised entity on its own,and then it supports embedded
finance for its customers.
In the US context, theregulators, specifically acting
(29:39):
comptroller Sue, has been veryclear that there's going to be
no fintech charter forthcoming.
They're not going to bend therules to try to entice fintechs
inside the regulatory perimeter,and so a lot of these companies
Synapse with an asterisk,because I owned a broker-dealer,
which is weird but for the mostpart, these fintech companies
(30:00):
middleware exist outside of thatregulatory perimeter.
They don't have anyone directlysupervising them, and that does
create these kind of gaps.
Now, what are possiblesolutions?
I've been talking about thiswith Simon Taylor, who I think
is running around here somewhere.
Is there an opportunity forsomething like a FINRA, like a
self-regulatory organization?
(30:21):
I think there's possibilities.
None of them are simple, surely?
Rachel Morrissey (30:26):
No, none of them.
Well, this has been an amazingdiscussion.
We have run out of time, whichis always these favorite words
of any podcaster, but I want tothank you guys so much, jason
and Pav, for being here with ustoday.
This has been amazing.
I'm sure we'll keep talking inother instances about all of
(30:46):
this and what's going on.
This is going to be an ongoingstory with Synapse for a while.
I don't think that's going tostop anytime soon.
We'll probably be talking aboutit in October for the next 2020
.
Micky Tesfaye (30:58):
Probably and you might need to start using
Confide for some of yourwhistleblowing.
Jason Mikula (31:03):
Yeah, I might.
I'm on like a single channel soI'm going to have to check out
Pound Startup.
Rachel Morrissey (31:08):
Okay, so thanks to all of our listeners,
you can find us on the Money2020 website and you can find us
wherever you listen to podcasts.
We love our fintech nerds.
Okay, welcome to the Money Pot.
I'm Rachel Morrissey.
I'm one of the co-hosts of theMoney Pot here at Money 2020.
And we are here live at theMoney 2020 conference in
Amsterdam.
I've got my host here, MikTesfaye.
How are you doing, Mik?
Micky Tesfaye (00:23):
I am fantastic, Rachel.
We are back in Amsterdam onceagain.
Rachel Morrissey (00:27):
We are and the show looks really cool.
I can't wait for you guys tosee the show.
Micky Tesfaye (00:33):
I've been super excited that we even have Money
Pop branded mics.
I know Wow.
Rachel Morrissey (00:37):
We're going to have to put pictures of this
everywhere.
Micky Tesfaye (00:39):
Yeah, for sure.
Rachel Morrissey (00:41):
So we have two amazing, amazing guests.
We're going to have a reallyfun conversation here today
because we've got Pabgiel here,who is the whistleblower for the
Wirecard.
What do we call that?
Fiasco Scandal?
Micky Tesfaye (00:57):
Story.
Rachel Morrissey (00:59):
Story.
Are we trying to be nice ?
Micky Tesfaye (01:00):
I'm trying to be like the.
Rachel Morrissey (01:01):
Wirecard story , and we have Jason Mikula, who
is here because he's been doingsome amazing coverage of what's
going on with Synapse and Evolveand a lot of the other things
that are happening and howthat's all intertwined, and so
we're going to be talking todaya lot about the nature of what's
going on and whistleblowerculture, how we think about some
(01:24):
of these things and how they'regoing to affect the industry,
the nature of how this makes uslook at what's going on,
particularly in banking as aservice industry.
And so I'm going to turn it toMickey first, because he's going
to be driving this discussion.
Micky Tesfaye (01:39):
Thank you, R rachel.
Yeah, I mean, I think you knowwhen you and I were speaking.
I think part of the thing thatwas super exciting about having
Pav and Jason on is, to a degree, there is a part of a story
there around what's going on infintech, how much progress we've
made, how much are these twothings, these two stories that
happened five, six years apart?
Are they part of a spectrum orare they different things, Right
(02:10):
?
So I guess maybe a goodstarting point to anchor us in
the conversation is to turn toPav.
Thanks for coming from all theway from Singapore to join us as
well.
And maybe I just want to askyou, I guess, to start off with
when did you kind of firstrealize things were amiss when
you joined Wirecard, and howlong did that take?
Pav Gill (02:30):
Yeah, that didn't take very long.
I mean, if you looked at any oftheir subsidiaries financials,
they were all loss-making, so noone understood where the money
was coming from.
I mean, the sales team wasdefinitely very happy because
somehow, you know, numbers wereup and they weren't really
selling much.
So yeah, just from an objectivereading of financials, 95% of
(02:54):
the company was in the red.
Micky Tesfaye (02:56):
And it was just like instantly.
You were like as soon as youkind of, because you went in as
part of the legal team and Iguess you're kind of looking at
all of the paperwork and maybeeven accounting data, and then
it was just very visible to youimmediately and did you have to
start thinking about how to actvery immediately too.
Pav Gill (03:14):
Yeah, it was strange because I was told to get to
know the guy that was runningfinances.
His name was Ido.
He's an Indonesian chap with adubious background.
Cv-wise.
Rachel Morrissey (03:26):
That's always a good sign.
Dubious background CV You'realways looking for that when
you're coming to a paymentscompany.
Pav Gill (03:32):
One of his first few introductions to me was that
he's married to a drug dealingfamily in Jakarta which has the
red flag as it gets for.
Rachel Morrissey (03:40):
NFI.
Pav Gill (03:45):
I mean, he was super flexible with numbers, to put it
mildly.
Micky Tesfaye (03:49):
I don't know if that's what you want from your
accountant right, that kind offlexibility?
Rachel Morrissey (03:52):
Super flexible Until you get to your tax
account.
Micky Tesfaye (03:56):
No, I'm kidding.
Rachel Morrissey (03:59):
That is hilarious.
I love that.
Micky Tesfaye (04:02):
I mean, okay, it sounds like yeah, very instant.
Rachel Morrissey (04:04):
Well, and the other thing about the Wirecard
thing is, the more people duginto it, the more kind of absurd
it became that people didn'trealize this faster.
I mean I think back on previousscandals that sort of resembled
it.
I mean I know it was comparedto Enron a ton, and it had a lot
of echoes of that kind of agroup of people that had some
(04:25):
dubious backgrounds.
So you're like how did thesepeople convince anyone this was
a good idea?
And then, uh, and then thestuff on wirecard that broke
about possibly a russian spy,and you're just sitting there
going.
This could not get any more.
I mean, this is made for amovie.
I can.
Micky Tesfaye (04:44):
Can't wait until the movie comes out.
I mean Netflix were lickingtheir lips when they saw the
story breaking live, I think.
And I remember, like you know,I was an analyst at Business
Insider and I remember readingthe story on the FT being like
this is the most surreal storyto read on the FT, because it's
like a spy novel.
I'm like you know, jan, and sobefore I go to that, you know
(05:05):
I'm gonna go to jason with aquestion.
I've set you up with it.
I know it might not be likethat, but I mean you've been in
the news yourself lately, whichI think is probably interesting.
As a journalist as well you'vebeen, you know a big part of
what's going on, uncoveringthose stories.
Are you seeing any similaritywith what's going on in the
banking as a service industrywhere there is fraudulent
(05:27):
practices, or is it more to dowith just an industry that's
growing and there are misstepsthat occur naturally?
Jason Mikula (05:35):
Yeah, I mean, I think in any industry you're
going to have a spectrum of sortof how ethical or how morally
and legally some of the playersact right.
So, whether you're talkingabout tech broadly.
We have plenty of examplesTheranos, which was an outright
fraud, real estate I'm thinkingspecifically of WeWork, which
(05:58):
was not a fraud per se but waskind of a ridiculous situation,
which I watched all of the Huluand Netflix and whatever.
Rachel Morrissey (06:07):
I know you watched all of the documentaries
.
Jason Mikula (06:10):
I think there was like two or three different ones
, and my partner and I excitedlywatched all of them.
Rachel Morrissey (06:14):
Yes.
Jason Mikula (06:16):
And so I think you know there's no difference in
banking as a service right orthe banks that partner with
those middleware providers andfintech companies.
I think, you do want to becareful about painting with too
broad of a brush and saying.
There's a risk of saying, oh,this entire model doesn't work,
everyone is a bad actor.
We should just clamp down onthis.
I think that would be a mistakefrom a public policy standpoint
(06:39):
because there are benefits bothto the banks that work in this
sector as far as having a viablebusiness model as things move
away from geographic banking tomore digital, as well as to
consumers who use these products.
If you look at a lot of whatfintech in the US is, it is very
(07:00):
geared towards consumers whohave not been well-served by
establishment banks.
Think of Chime and Vero andsome of these earned wage access
or cash advance kind of things.
If you clamp down on everybody,there are consequences to that.
To try to specifically answeryour question, I think in the
Synapse case, there's a lot ofunanswered questions about what
(07:23):
happened here.
Rachel Morrissey (07:24):
Yeah, we're in the middle of that here.
Yeah, we're in the middle ofthat.
Yeah, we are in the middle.
Jason Mikula (07:26):
I've been very careful in how I write about it
to try to highlight, you know,what a lawyer says in a court
filing, or what a lawyer says incourt is a representation.
It is not a fact, right.
And so we have, you know,evolve, saying one thing,
synopsing something else, andeven as well-informed outsiders,
I don't know what's true.
Rachel Morrissey (07:48):
Yeah Well, and you can't.
The other thing that'sinteresting here to me is okay,
so we have Wirecard, we'retalking about some stuff that's
going on right now that we're inthe middle of uncovering.
We're not actually sure aboutwhose story is actually pitching
out, and it could be somewherein the middle, right in all
probability.
And then and then we've hadother scandals that have
(08:10):
happened.
Um, and I'm I'm kind of curiousbecause I sort of think I wonder
a little bit about the um, theexception proving the rule.
Basically, I mean, we couldpaint the whole industry with a
broad bush, but maybe the factthat we did, we were able to
fish out a possible problem or apossible bad actor.
It may not be an indication ofthe business model itself, but
(08:34):
just that there are going to bebad actors in every single
sector.
There are going to be peoplethat take advantage of these
notions of innovation to kind ofcapitalize for themselves right
away.
I mean, the Wirecard one sortof proves that the payments
industry has got tons of actors.
(08:56):
You know lots of people thatare very good and very well
regulated and their books areclean, and it's not an either or
right.
So it sort of was an exceptionto prove the rule because it
made the news.
Pav Gill (09:10):
Yeah, I mean, that's true, and a lot of times you can
put as much regulation as youwant, it doesn't work because
you know, at the end of the day,you still rely on people to
adhere to those regulationsright and at the same time, you
also rely on people to tellsomebody that you know someone
else is not following thoseregulations right so I think
that's where the balance liesand that's where I think
(09:32):
companies need to also thinkabout things, because, you know,
just because something bad ishappening, it's not going to
mysteriously disappear on itsown right.
Someone also needs to, you know,confront that and deal with it
in a sensible way.
Rachel Morrissey (09:47):
And that actually.
So when you guys are looking atthese stories right, I mean
you're from the journalistperspective.
You were inside and going.
I've got to get this story out.
I've got to figure out who totell.
How did you figure out who youwere going to tell?
Pav Gill (10:03):
I mean I did and my mom did.
Mom for the win.
That's where the difference is.
And I think also, I was forcedinto a whistleblowing case
because when I was in thecompany as the head of legal for
the Asia-Pacific region, I wasactually instructed to
investigate an internalwhistleblower that came to me.
(10:23):
So that's what I was doing.
I was actually doing my job.
It's just that when the boardfound out, they were very upset
and we know why.
Micky Tesfaye (10:30):
So you were actually hired to find out who
is a potential whistleblower bywirecard.
Pav Gill (10:35):
I was already in the position of being the legal
person in apex yeah, someonecame to me from the finance team
, fearing for her life, and so Iwas supposed to investigate it
and protect that person'sidentity.
so eventually the board foundout, they tried to shut it down.
They did all kinds of stuffover three, four months to, you
know, try to damage me.
And eventually they even triedto kill me by sending me on a
(10:58):
attempting to send me on aone-way ticket to Indonesia
which I didn't go for.
So that's when the companyfinally, after four months, had
a legitimate reason to say okay,he did not follow instructions,
so we can finally fire him,which is great.
So I said, okay, Wirecard, youenjoy a fraudulent ways, I go
find another job.
But they didn't stop.
(11:18):
They were still sending peopleto follow me and my mom and all
that stuff.
So that's when my mom gotreally upset, because she's a
single parent and I'm the onlychild.
And that's when she decided,from the sofa of the living room
, to reach out to journalists.
And one day she just told mehey, by the way, we're meeting
the Financial Times this weekendand I was like what are you
doing?
Micky Tesfaye (11:39):
Wow, mum for the win.
Rachel Morrissey (11:40):
This is my favorite whistleblower story
ever.
Jason Mikula (11:43):
It makes me want to go scrub my address off
anything on the internet ever.
Micky Tesfaye (11:48):
This is a warning for you, jace.
I mean this story.
I have to say I'm sorry, butthis is truly a story like
stranger than fiction Becauseagain, I remember reading it and
you're thinking FinTech is not.
You know, fintech is FinTech.
I mean, how dark can it get?
And I'm just like where is thisgoing to stop?
Jason Mikula (12:07):
I think that this illustrates sort of the most
extreme end of the spectrum ofintentional fraudulent behavior.
But there's also a whole lot ofgray area of I learned this
working in the lending side andthe banking side what sometimes
feels like black and white froma legal or compliance
(12:28):
perspective, when you'reactually working in those roles
you realize most of it isactually a gray area where it's
like, well, your advice fromcounsel is X, but if you're
comfortable taking that risk,you can do it.
And it makes you wonder howmany of these situations is it
intentional wrongdoing versusincompetence, versus an overly
(12:51):
aggressive business posture?
Pav Gill (12:53):
Something.
Jason Mikula (12:53):
Pav mentioned that I think is very relevant to the
entire startup space is boardgovernance.
I think the VC attitude hasshifted a bit, but for a long
time the emphasis particularlywhen VCs were competing for
investments was to see howfounder-friendly can you be?
And if the founding team, theCEO, has control of that board,
(13:19):
there's not a ton.
Even if VCs have a board seat,they might have visibility, but
they may not be empowered toactually do much of anything,
and so there's a legitimategovernance question here as well
.
Micky Tesfaye (13:30):
And I think that piece is super interesting
because it does turn around.
The idea of a board is to bethe governing institution for a
company, but I think the VCmodel has kind of turned it
around where, as you said,founders are now because VCs,
because they want to kind ofsecure the founder where there's
(13:51):
a lot of competition.
It's actually all about how canwe get that, see, how can we
have control, and that's reallyreflective of where we have been
as an industry.
Rachel Morrissey (13:59):
Right the, for a couple of years their vc
money was flowing.
There was a lot of competitionactually amongst vcs with to get
certain founders right.
So as money has tightened andnow there's more competition for
the money, there's a lot moreof a flip of the founders having
to compete for the VC money.
That kind of changes the natureof that too and what you can do
(14:23):
for that board of governanceand how much influence or
control you can assert rightfrom the beginning.
I think one of the things thatyou mentioned there is you know,
you can do certain things ifyou're willing to take on the
risk right.
So, and in an industry thatencourages innovation, that
encourages this idea,risk-taking is sort of part of
(14:43):
the formula.
You can't people will tell youyou can't be a successful
entrepreneur if you're notwilling to take risks.
And that's where the area getssuper gray because you're taking
risks in certain areas.
So when your legal team or yourboard of governors comes, in and
says you can't take those kindsof risks, or you shouldn't take
those kinds of risks, but yourwhole drive and you've been
(15:05):
rewarded basically for beingsomebody who takes risks.
You're less likely to take thatto heart, I think.
Jason Mikula (15:14):
Well, and something I would point out
again, particularly about sortof venture-backed startups, is
almost universally these are notprofitable companies, and so
the time horizon and the risktolerance can be very different
than a mature, large privatecompany or public company,
(15:35):
because if you're operating inthe traditional 18-month VC
fundraising cycle and you know Ihave to hit certain targets so
I can put it in this pitch deckand go back to investors and
raise more money, otherwise it'sall over.
you have a lot of pressure and alot of incentive to all your
stakeholders, your employees,your existing investors, which
(15:58):
might include friends and familywho invested early on.
There's all sorts of pressureand all sorts of incentives to
make sure that you're able toshow those KPIs and go raise
more money, because otherwisethe party's over.
To try to be a littleempathetic, it's understandable
how that might engender somequestionable behavior.
Micky Tesfaye (16:18):
Especially because I think, as you
mentioned, a lot of it ispre-profit, a huge amount of it
is predictive right.
So a lot of it is up for debatereally and truly, and I think
that's the challenge.
I guess one of the things thatI'm thinking about with wirecard
again, um, to your point, pavis what we were discussing
(16:40):
earlier, and how much of thewirecard situation do you think
is also a result of the broaderway in which fintech, and even
in europe and germany, wildcardwas a real success story.
It was built up.
You know, I think a lot of itand there's my opinion to you
right a lot of it was kind ofmade it bigger than it would
have been, because I think atsome point it was as big as
(17:02):
deutsche it had a biggervaluation than deutsche bigger
valuation, and it was, I think.
So I wonder as part of it, didyou?
Do you think part of that wasto do with just this desire for
Germany, as well as a country,to look like, hey, we're also a
big fintech player.
There's this kind of desire toget payments as an industry, to
(17:23):
be a big player.
There's also there was a weirddesire to have companies really
competing with banks andestablished players, without
always necessarily thinkingabout the underlying piece.
Do they have all the things inplace?
How much do you kind of?
Pav Gill (17:38):
for sure.
Uh, wirecard was like thepaypal of germany right and 24
billion market cap is not asmall amount, uh.
So I think there was a lot ofpressure to not want to look to
some extent.
And the argument is strong.
I mean, if you're a company,you're doing all these
fraudulent things, you'retelling investors why are you
(17:59):
whining?
I'm making you money?
Telling everyone else, like, doyou want to listen to random
people saying we're doing badstuff, or do you want to look at
the big four that just signedoff on our audit, right?
So who do you want to look at?
The big four that just signedoff on our audit, right?
So who do you want to listen to?
And we've been growing for 20years, we are listed, we've got
(18:20):
due diligence requirements on us, so how could everyone in the
industry be wrong, except for afew people that are saying we're
doing bad things?
And I think, going back to theearlier point as well, from an
executive standpoint, like a CEOstandpoint, there is a very
strong tendency to not want tohear bad news, especially if
you're in a very successfulcompany.
So you could be the CEO thattells everyone I don't want to
(18:41):
hear bad news, I don't care howyou do it, just give me the
numbers and hit the targets.
So that kind of instruction andmentality might be taken the
wrong way.
That look, we don't want todisappoint the boss, we don't
want to disappoint our superiors.
We've got KPIs, we've got OKRsto meet, let's just do it.
Jason Mikula (19:00):
I mean, I think it's really easy to ignore red
flags when everyone is busycounting their money right.
I mean out of industry, and I'mnot saying that this company is
fraudulent, but I think Teslais the perfect example of it
right when it's like well, lookat the market cap and Elon Musk
says, well, if I'm doing drugs,I should keep doing it, because
(19:22):
all the numbers are going up andit's just like a complete
abject.
Rachel Morrissey (19:27):
I don't know if that's the lesson to take
away from this.
Drugs are good.
Jason Mikula (19:32):
But just a complete and abject failure of
board governance, becauseeveryone is too busy counting
their own money.
Micky Tesfaye (19:40):
That's such a good point too.
I think you can't be doing duediligence only when things are
bad.
Right, due diligence needs tobe consistent across the board.
I think that's a really goodpoint.
I guess the's a part of thenarrative, right, if you kind of
take some of that at face value, where it wasn't necessarily
(20:09):
fraudulent from the beginningbut it was like a slippery slope
and how much of the wire cardstory I know you started.
You told us there's red flagsfrom the beginning, I know, but
I wonder how much of that was,you know, partly not necessarily
big planned out fraud, right,but a slippery slope.
And how much of that was, youknow, partly not necessarily big
planned out fraud, right, but aslippery slope.
And how much of we've been?
You know, we talk about um, svbor even some of the stuff
(20:30):
that's happening in banking as aservice where you don't
necessarily always need to bedoing intentionally fraudulent
activity, right, sometimes justby mistakes, and then by not
looking, by not wanting the badnews, by looking away, and then
you kind of start fostering thatculture.
How much of it are we?
Rachel Morrissey (20:48):
or you're fostering a culture of overly
creative solution.
Micky Tesfaye (20:53):
Yeah, flexible accounting what I mean.
Rachel Morrissey (20:56):
I think that people are like if I can delay
the bad news, right, if I can, Ican find a way to fix it before
it's a real issue.
And then they get caught in themiddle of fixing it right, and
I think that there's a certainamount of that going on.
So it doesn't have to always benefarious.
I think Wirecard seems prettynefarious.
Micky Tesfaye (21:16):
The Wirecard one yes.
Rachel Morrissey (21:18):
The others.
I think you're right, yeah.
Pav Gill (21:20):
I mean from a fintech standpoint, and also crypto.
The issue with these industriesis that regulation is always
playing catch up.
You can't keep up with the tech.
Even banking as a service isone of those same things as well
.
So when that happens and afintech is getting a lot of easy
money, it's showing profitablenumbers or good numbers.
(21:41):
There's a lot of tendency touse the same argument which
Wirecard also used for 20 years,which is we are a victim of our
own success.
Can you please give us time?
These regulations are coming uphere and there.
We know we need to invest incorporate governance, in legal
compliance and risk, but justbear with us.
We are a victim of our owngrowth.
(22:02):
So I think a lot of companies,including FTX, for example, they
were playing that same card.
It's really cops and robbers inthat way.
Jason Mikula (22:17):
I think a common thread in a lot of these stories
is the tendency to say no, thiscompany is different because
it's doing something special andinnovative.
That was definitely part of theFTX story, Sort of presenting
no, you don't understand whythis company is so special and
so profitable.
It's new, it's complex, it'sinnovative.
(22:38):
You just don't get it.
I feel like there was a kind ofsimilar sentiment around
Wirecard versus some of the morelegacy players in the payment
processing space, and we alsosee that in banking as a service
, maybe to a lesser extent.
It's like no, no, no, you justdon't understand the business
model.
That's why you're so skeptical.
I think that should probably bea red flag.
Rachel Morrissey (23:01):
I can't understand the business model.
You just don't understand it,maybe that is a flawed business
model I mean it should beexplainable.
Micky Tesfaye (23:11):
I've lost my headphones because of how
excited I've gotten.
This is a great conversation,but let me both ask you, jason
and Pav, because one thing Ikeep on thinking about is, as an
industry, how much are weresponsible in terms of the
language we use and the way wethink about things like
regulation?
Right, like in tech broadly,the idea of break things move
(23:33):
fast and in some areas of tech,of course, we've seen where
there's results as a result ofthat, you know for lack of a
better word, but I wonder,within financial services, given
the impact of it, given youknow how much it could transform
people's life, when you've gotmoney locked up in ftxy I got
(23:53):
all of these things people youknow could lose their lives,
even right.
How much should the industry asa whole be responsible in the
way we think about the languageand the way we even talk about
regulation, as becauseregulators a lot of the time
maybe I feel a little bit badfor them.
We're like how the hell is it?
Should we be kind of like, hey,we might need to?
Jason Mikula (24:13):
I don't think it's a coincidence that a lot,
particularly in the US market, alot of what you've seen in
fintech exists outside of thebanking regulatory perimeter.
On the one hand, I understandthat in the sense that it is
arguably easier to innovateoutside of a bank than inside of
(24:33):
it, for a lot of reasons.
Rachel Morrissey (24:36):
Or any company .
Sometimes it's just easier togo outside and just innovate.
That's just true of companies.
Jason Mikula (24:42):
But on the flip side, that also means there is a
specific lack of supervision.
So, using the Synapse case asan example and to illustrate
some of the end impacts of that,users of these products that
were built on Synapse companieslike Yotta, which is kind of a
(25:02):
neobank, juno, which was kind oflike crypto plus a neobank they
saw websites and app storepages that said FDIC insured.
Your funds are held at EvolveBank and Trust and one of the
things I think the Westernbanking regulators, including
the UK, and Netherlands but alsothe US have been very
successful in doing is as aconsumer, you don't have to
(25:25):
worry about where you put yourmoney.
You could put it at JPMorganChase, or you could put it at
local rando credit union.
Rachel Morrissey (25:32):
Anything that's got that logo, that label
on it.
Jason Mikula (25:36):
And you don't have to think about is my money
going to be there when I need it, to pay for this wedding, to
pay for university, whatever?
That is a big success.
That is not true in everycountry, however.
The flip side of that is, Iwould argue, that fintechs,
again particularly in the UScontext, have unfairly benefited
from that trust.
And so somebody thinks well, ifI leave my money in Cash App or
(25:57):
Venmo, or if I use Yotta, itsays FDIC insured, so I'm fine,
it's safe.
And what we've learned is thatis not the case.
And for those end users whodon't understand what is deposit
insurance, what does it protectme against?
They're understandablyfrustrated and angry and want
answers because they think thegovernment, the FDIC, is here to
(26:20):
protect me.
And again, in this specificcase, the Federal.
Reserve Board, which regulatesEvolve, gave a statement that
was basically this is not ourproblem.
Rachel Morrissey (26:31):
Like you said, that is a success story, right?
People misusing that.
It's hard to always govern,like it's hard to always check
on how people are misusing it,because we get very creative
with our language and we saythings that are half true.
Jason Mikula (26:50):
As a recovering marketer, I've been on the other
side of it.
What is the furthest?
Pav Gill (26:53):
I can push this without legal implication.
Micky Tesfaye (26:59):
Without giving Pav like oh stop.
Rachel Morrissey (27:02):
Before Pav goes the line is behind you.
Pav Gill (27:07):
No, the irony is that I'm a lawyer, so I could be
coming up with these.
Micky Tesfaye (27:11):
He's like this is how you do it.
Rachel Morrissey (27:12):
Exactly.
So you come up with theexception phrases that allow for
you to do this kind of thing,and I think this is where the
industry itself has probably gotto worry, because, as you're
saying're saying, fintech hasbenefited from this, whether
they actually have thatguarantee or not, and things
like Synapse, things likeWirecard these are not
(27:36):
necessarily indicative of howthe industry as a whole runs,
but it does give people apicture or allows people to
paint with a broad brush, as wewere talking earlier about the
industry as a whole.
And so what do you think theindustry?
Is there anything that theindustry should be doing, that
(27:58):
sort of pushes back on that andsays, no, we should have some
practices or we should have somethings that are accepted that
allow for us to you us to bemore careful here.
Pav Gill (28:09):
Yeah, I mean, I spent three years in the crypto space
before I founded Confide and Isaw the exact industry issue
there.
So everybody was pro-crypto atsome point.
They're like let's move awayfrom banks, let's get rid of the
middleman, let's just go intocrypto.
And then we saw how cryptoplayed everybody out for one and
(28:30):
a half years, including theindustry, including consumers
and the effect of that wasironic because it went the other
way.
People started saying, okay,maybe we just can't trust these
companies.
Let's go back to banking.
Let's go back to putting moneyin deposit accounts or under our
mattresses or something.
There's legitimacy that comeswith it.
Jason Mikula (28:54):
I would think to try to also include the European
context, since we're sittinghere in Amsterdam Having thought
a lot about how things work inthe US versus how things work in
the UK and Europe.
I do think one of the bigdifferences and improvements is
these alternative kinds oflicenses.
So e-money institution,payments institution.
(29:16):
So if you're a BAS operator,I'm going to be in this podcast
booth tomorrow talking to Swan.
Swan has an e-money license, soit is a directly regulated,
supervised entity on its own,and then it supports embedded
finance for its customers.
In the US context, theregulators, specifically acting
(29:39):
comptroller Sue, has been veryclear that there's going to be
no fintech charter forthcoming.
They're not going to bend therules to try to entice fintechs
inside the regulatory perimeter,and so a lot of these companies
Synapse with an asterisk,because I owned a broker-dealer,
which is weird but for the mostpart, these fintech companies
(30:00):
middleware exist outside of thatregulatory perimeter.
They don't have anyone directlysupervising them, and that does
create these kind of gaps.
Now, what are possiblesolutions?
I've been talking about thiswith Simon Taylor, who I think
is running around here somewhere.
Is there an opportunity forsomething like a FINRA, like a
self-regulatory organization?
(30:21):
I think there's possibilities.
None of them are simple, surely?
Rachel Morrissey (30:26):
No, none of them.
Well, this has been an amazingdiscussion.
We have run out of time, whichis always these favorite words
of any podcaster, but I want tothank you guys so much, jason
and Pav, for being here with ustoday.
This has been amazing.
I'm sure we'll keep talking inother instances about all of
(30:46):
this and what's going on.
This is going to be an ongoingstory with Synapse for a while.
I don't think that's going tostop anytime soon.
We'll probably be talking aboutit in October for the next 2020
.
Micky Tesfaye (30:58):
Probably and you might need to start using
Confide for some of yourwhistleblowing.
Jason Mikula (31:03):
Yeah, I might.
I'm on like a single channel soI'm going to have to check out
Pound Startup.
Rachel Morrissey (31:08):
Okay, so thanks to all of our listeners,
you can find us on the Money2020 website and you can find us
wherever you listen to podcasts.
We love our fintech nerds.
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