“So You are a Fintech StartUp: The Future of the Financial Services Industry”, an interview with Micky Malka, Founder and Managing Partner, Ribbit Capital

An interview from the Vintage CEO Summit 2020

Alan Feld interviewing Micky Malka, Founder and Managing Partner, Ribbit Capital about The Future of the Financial Services Industry.

Interview Transcript:

Alan:

So it’s a huge honor to welcome Micky Malka and to interview Micky at our summit. Micky is the Founder and Managing Director of Ribbit Capital. Ribbit is considered to be the leading FinTech fund globally. We have the honor of being investors in Ribbit. Mickey grew up in Venezuela. In 1993, at the age of 19, Micky co-founded Heptagon Group, a securities and investment broker dealer, servicing the Venezuelan and US markets.

Alan:

In 1998, Micky developed the online brokerage Patagon by merging with Heptagon’s local operations, and Patagon became Latin America’s first comprehensive internet-based financial services portal and dealer. The company expanded its online services to the United States and the rest of South America and was later acquired by the Spanish bank Banco Santander for $750 million.

Alan:

In 2002, he co-founded Banco Lemon, a Brazilian retail bank serving the under-banked population, and became the largest private microfinance institution in Brazil. In 2009, it was acquired by Banco de Brazil, Latin America’s largest bank. Then in 2011, he co-founded Banco Bracce, a Brazilian financial institution positioned as the merchant bank of choice for mid-cap companies in Brazil. And Lemon, a service to help individuals keep track of their expenses.

Alan:

Micky, you’re a very successful, three-time entrepreneur. What made you go over to the Dark Side and become a VC?

Micky Malka:

I will call it very lucky, entrepreneur. Three-time entrepreneur. But I think the idea of the Dark Side was not to me… Alan, you’ve seen Ribbit. We always are worse analogies in our presentations for all of these years.

Micky Malka:

I don’t think I joined the Dark Side. I think I just understood that the Jedi force is much bigger. And as an entrepreneur, what I realized in 2011 was that what’s now called FinTech, because it was not called like that before, was bigger than any one company. And so if you had had a chance to sit the way I was sitting for 20 years or something, building companies, the opportunity was much broader than anything I had seen. So starting Ribbit made a lot more sense as an entrepreneur, operator, getting into the category than just making one more company.

Alan:

Now, Micky, you were one of the first VCs to invest in cryptocurrencies. What did you see then, and what do you see now, that makes you so excited about crypto?

Micky Malka:

Well, you said it. I grew up in Venezuela. So I barely went to college because I was busy starting my first company. And I grew up with hyperinflation. I grew up with devaluation. I grew up with governments possessing assets. So this concept of money to me, has always been extremely interested.

Micky Malka:

My mother gave me album of memories from growing up, and I wrote my letter when I was nine-years-old to the Tooth Fairy asking the Tooth Fairy to pay me in dollars because I didn’t trust my local currency. And this is before the first evaluation that would happen in Venezuela. So when you grow up with those kinds of backgrounds, growing up in emerging markets with that DNA allows you to see opportunities that most people don’t see.

Micky Malka:

And when I stumbled into cryptocurrencies in 2010, Bitcoin was trading for a dollar, or less than a dollar. Around a dollar. And concept of a decentralized ledger that you had to trust, and that it was mathematically not proven to be broken, was a very interesting concept. It had 55,000 ways it could fail, but it was so intellectually interesting to see… There was nothing new on technology. It was just putting together a lot of technology that already existed in a way that was never done before. And that, with my concept of growing up the way I did and seeing what I seen, made us very early on to understand that there could be an opportunity here that was much bigger than just any country.

Alan:

But taking that further Micky, as a technology, looking five years ahead from now. Where do you think the blockchain will get significant traction? Where do you think it’s going to really take off?

Micky Malka:

So I think, Alan, what we need to differentiate is what blockchain is and Bitcoin, because they are two different things completely. To me, the first use case of this technology is definitely the uncensorship of value. And the fact that you can have a system that is completely decentralized that no one can stop, no one, single government can stop, but it will allow you to transfer value in real time.

Micky Malka:

So that is a use case of Bitcoin. Bitcoin is a system that, right now, has probably a hundred million people with wallets that own a piece of a Bitcoin, a fraction, or a Bitcoin, or a sub unit of a Bitcoin. And these people are trusting it as a store of value. So that to me is the first big use case of blockchain because there’s no Bitcoin company. There’s no Bitcoin Board of Executives. There’s nothing. So it’s a perfect example of the best decentralization ever in the modern era. So that to me is one use case.

Micky Malka:

Now, there’s a different set of use cases with blockchain technology, and there’s a whole different set of Layer-1 protocols. Layer-1’s are just blockchain protocols. So Ethereum being one. [Salon 00:06:13], Cosmos, there’s 20 of them. And each region has a few. Asia has a few that are bigger than the Western world. Western world has a few that are bigger than Asian.

Micky Malka:

And these protocols, it’s early to know exactly what they will become, and what are the use cases. Some of them are, right now, there’s a lot of speculation on something called DeFi, which is decentralized finance. Which is how to build and embed financials products into decentralized protocols, and that’s DeFi. There’s a whole train of people using blockchain for file storage, so your files can be stored decentralized. So they’re not stored in any given way.

Micky Malka:

There’s a whole different [inaudible 00:06:56] identity. If we look at the elections in America these last couple of weeks, my one of my first great examples is, all Americans should have a token on a blockchain that represents your identity. And you go online, you authenticate your token, and you vote.

Alan:

Yep.

Micky Malka:

And that key to that token, you only know, and that will have solved the elections in six hours, not six days. So there’s a lot of different examples that can be done, but we still need more regulation, more technology, and more people working on them.

Alan:

Shifting from technology to business models, you’ve invested almost exclusively in standalone businesses targeted directly to consumers. And you’ve invested in some of the most successful companies there are, Hippo, Affirm, Robinhood, Revolut, and other things such as Brex, Next Insurance, Funding Circle, et cetera. Is there a way to make money in FinTech? Or can you make real money selling… Is that the only way to make money in FinTech? Or can you really make any money selling to incumbents? Or do you have to only invest in companies that are displacing the incumbents?

Micky Malka:

Well, I’ll pose a question back to you. If you were in 1999, 2003, and you had the chance to build your own experience in technology direct to consumers, or you could sell to Time Warner, or New York Times, or Washington Post. What would you have done? So to me, the question is very simple. I think there’s a business, and there’s great businesses that are selling technology to the incumbents. Incumbents are not going to away, don’t don’t get me wrong. Banks will be around for as long as we are in this planet.

Micky Malka:

But the concept assign technology to them doesn’t necessarily mean that you’re attracting the best entrepreneurs, or the best opportunities in market size because they are shrinking. The number of banks in the world are shrinking. Their breadth is shrinking. And if anything, after COVID, they always say that people trust in their brands, and their branches, and their names, and their establishments, and COVID has proven that that’s not the case. No one has visited a branch in nine months, and it’s making the banks, all the insurance companies, feel the pain.

Alan:

But when we look at that dislocation of the banks, do you think that those who will dislocate the banks and the incumbents, and maybe not fully dislocate them as you had indicated, but significantly dislocate them. Are they going to be the start-ups that we’re seeing now? Or is it going to be the Facebooks, Apples, the FANGs. Are they going to do it? Or is it going to be the dedicated financial services start-ups that you’ve been funding and others have been funding?

Micky Malka:

When we do our annual meetings, which I know you’re attended, we have the Dark Side and the Star Wars analogy. We always talk about the FinTech being the Rebels. This small battleships part of the universe trying to fight the Death Star and the Empire, which is incumbents. And then we added in the last three, four years, we added a third party to this ecosystem, which is the Republic. And that’s a FANG. Those are the big companies.

Micky Malka:

We always thought that they were a threat. We always think that they’re a threat, and we should wake up every day and we are considering that they are part of the ecosystem that has a lot of action to be done. At the same time, I will say that right now, they’re not in regulatory favors in most countries that matter worldwide for this. If anything, they are fighting other battles because they grew too large in so many different areas of the Internet. That getting into more regulated businesses where, think about it. In the world, most banks, there’s not one bank that you call. In most countries, there’s either an oligopoly of five to seven banks, where each one has a no more than 50% of the market share. Or in the US, no bank is allowed to have more than 10% of the market share.

Micky Malka:

These companies don’t know how to operate like that. They operate in this market share where they own 60, 70, and 80%. Financial services don’t behave like that. So it’s really hard for them to try to apply their mentality of internet into financial products, without violating some of those basic principles.

Micky Malka:

So that’s a challenge they face. They can do it. WhatsApp Payments is extremely big, and Libra can succeed-ly work on it. And Google can launch Google Pay in India. But even in India this last week, the Government of India announced that no particular network on the wallets… Where the three layers wallets are PhonePe, Google Pay, and WhatsApp Pay, can have more than 20% market share, ever. So that’s it. They’re giving you borders and boundaries.

Micky Malka:

Even the [Ant 00:12:09] Financial IPO, there’s a lot of reasons why it got stopped. But one of them is market share, and how to change the regulation. So it’s hard, in FANGs, to really come and make it work in this vertical the same way that’s done in others.

Alan:

Yeah, we’re speaking in front of about 400 or 500 entrepreneurs. And as a person who’s a real visionary in this industry, talk about the two or three themes in FinTech that you think will create huge companies in the next decade.

Micky Malka:

So I’ll tell you what we’re looking for. We divided by both by sectors and by geographies. So we think the most interesting market in the world right now is probably India, and next to it is Africa. India has the best framework of infrastructure that has been put together in the last 20 years by any country to succeed in financial services distribution of products. It looks a lot more like China did in 2005 than anything before, from a FinTech perspective, not from a macro point. A FinTech perspective.

Alan:

Right.

Micky Malka:

We like a lot what we’re seeing right now in Africa. We’re starting to see wallet and financial products start to be embedded online in consumer in ways that we haven’t seen before. So there’s a trend on geographies that we like, the same for Latin America.

Micky Malka:

Now on the sector specific, if you slice it then with sectors, different places in the world… We still think that wealth management is an industry that the technology and FinTechs are just touching the surface. The combined assets of all robo-advisors, or internet money managers slash platforms, is probably not even a trillion dollars of AUM. And there’s many, many, many more trillions of dollars out there that can be captured by this space. So that’s one we really like.

Micky Malka:

We think embedded finance. We call it companies that were not financial services companies, but can now embed financial products into their systems and create ecosystems, or marketplaces, that did not exist before, are going to have a much bigger impact over the next 10 years. We’ve seen that already in e-commerce, where e-commerce platforms have gone from being just e-commerce platforms to marketplaces for financial products. We expect that to happen in very [inaudible 00:14:43] verticals around online marketplaces. And both for businesses, B2B, B2C, B2B2C. And that’s an area where we’re spending a lot of our time.

Micky Malka:

And still in the [CryptoWorld 00:14:57], we’re obviously extremely long, Bitcoin, and Ethereum, and some other software companies. But this is [inaudible 00:15:06] that right now, the market cap of the whole asset, including services companies and tokens, is less than 400 to $500 billion all combined. We expect that to be at least 3 to $5 trillion in this decade.

Alan:

Super-interesting, now let’s take the other side of it. Where is there no opportunity? Let me throw an area and tell me is a too late for payments? Can people still make money in payments, or is it already too busy? And are there other areas that you think that just are too crowded? Stay away from them.

Micky Malka:

So I think, again, it depends on the geography. So for example, in India, there’s no money in payments. The India payment rails move at zero. So there’s no margin. So if you want to do payments in India, you have to be very clever on another business model. In Europe, interchange and payment processing fees are extremely low. So you cannot just rely a business on pure payments, you have to be creative on other lines of business.

Micky Malka:

I think what’s happening with payments is that it’s becoming an embedded service that unless you have the scale of a large player that’s been around for a while, to get to those volumes, you either find a new niche, which is possible. There’s always new niches that you can find. Or you have to embed it with something else that will make it really valuable.

Micky Malka:

Standalone payments, there’s a long tail. There’s still a lot of paper checks in the world. There’s still a lot of SWIFT money movements that run on antiquated systems that you can move to more electronic systems. So that is still the biggest category in the world. So there are opportunities, but it’s not the same, obvious things. There’s not only ten more stripes, or checkouts, or add-ins. It has to be something completely different. And I’ve seen some Israeli entrepreneurs get a lot more into B2B payments. That’s an area that we’re still very early on.

Alan:

Now Micky, you’ve been a great entrepreneur. You’re a great VC. We’re speaking in front of several hundred entrepreneurs. As an experienced entrepreneur, but also as a VC, what should an entrepreneur expect from their VC?

Micky Malka:

Well, the first thing is I don’t call myself a VC. I’m an entrepreneur who happens to be running the business, which is to deploy capital. And so I describe myself as an entrepreneur by heart, and investor by design. Now having said that, I think what you should expect is… You should expect, number one, honesty. And always trying to be there when the moments are difficult. You should expect from them to be supportive.

Micky Malka:

The biggest mandate that I find that a board member of a company has is to fire or hire the CEO. That is a single, sole responsibility they have. Outside of that, it’s how you build the relationships. And what is your level of communication and support to the management team, to the founder… Being a founder is a very lonely place. People are always looking up to you. People are always looking down at you from… You just feel yourself in a very lonely place.

Micky Malka:

When you ask the founders of the companies that we are partners with, who is the first person you call when the shit the fan? And if we are not in your speed dial, and we’re not that first or second phone call, we fail. And that is not by being nice, or being supportive, or patting you on the back. It’s by being a good partner day-in, day-out, and always being extra communicative and detail oriented. It takes a lifetime to build a reputation doing this. It takes one mistake to destroy it. So we’re always one mistake away from not having it.

Alan:

And Micky, my final question. You built a fabulous team. But one of the things you’ve done is you’ve also built a very diverse team. Anything that you can recommend to CEOs about diversity and inclusion?

Micky Malka:

Alan, it’s a topic of the times to talk about how each company has a super well-thought diversity plan and inclusion. To be honest, I never thought about it like that. I just didn’t. It was not by design. I was not trying to fill boxes, or check boxes and say, “Okay, I done this, I done this,” kind of mentality. To me, it lies on passion.

Micky Malka:

First, do people have the level of integrity? Do they have the motivation? And no matter what’s the talent capacity, but if you have those things, you can succeed and you’ll find people that will win. And I find that motivation comes in different shapes and forms. In America, if you are a first generation immigrant, your motivation is to succeed. This is a place where people succeed. That’s why you come to America. So first generation immigrants always have a chip on their shoulder to show that they can work harder than anybody else. And so on, and so on, and so on.

Micky Malka:

So I find that maybe because I grew up in a country that was completely a mix of racial backgrounds. And I never felt any kind of discriminatory one way or the other, nor we spoke about other people in different ways. It’s much more invisible. But it is becoming a topic, and people are trying to check the boxes more. My advice is just find your own version of what fits your culture and why you’re doing it. Don’t do it to check a box. Because when you do it to check a box, it doesn’t work.

Micky Malka:

So whatever the Founder does, let’s make sure that it comes from the right place. You’re generally thinking what works best for you and your organization. Because every company, no matter if it’s one person company when you start it or it’s 10,000 people, the culture that you impress and you imprint as a founder stays. It never goes. So I think it’s important that that’s always part of there.

Alan:

Micky, it’s been an enormous pleasure. Thank you so much for your time and great insights. And again, thank you for letting this be your partner. Have a great day.

Micky Malka:

Alan, we’re honored to have you as our partner. So thank you and congratulations on such an amazing event.

Alan:

Thank you very much. Okay?

Speaker 3:

Thank you everybody, yeah. That was great.

Alan:

Micky-

Speaker 3:

Thank you.

Alan:

Fabulous. Thank you so much. Hopefully you enjoyed it.

 

Meyer Malka Bio

Meyer Malka is the managing partner and founder of Ribbit Capital, a position he has held since May 2012. Ribbit Capital is the premier fintech investor in the world, with over 107 global investments in 16 countries and a relentless focus on investing in innovative companies. Mr. Malka has more than twenty years of experience building and investing in technology and financial services companies across four continents. He currently serves on the board of Mercado Libre, which hosts the largest online commerce and payments ecosystem in Latin America; Credit Karma, a free credit and financial management platform; and Brex, a payments company offering the first corporate card for startups.

At the age of 18, he co-founded Heptagon Group, a securities and investment broker dealer servicing the Venezuelan and U.S. markets, where he served as chief operating officer. In 1998, Mr. Malka co-developed the online brokerage Patagon.com, Inc., which became Latin America’s first comprehensive Internet-based financial services portal and dealer, until its acquisition in March 2000 by the Spanish bank Banco Santander. In 2003, he co-founded Banco Lemon, which was acquired by Banco do Brasil, Latin America’s largest bank. In July 2008, Mr. Malka co-founded and served as co-chief executive officer of Bling Nation Ltd., a Palo Alto-based mobile payments company until July 2011, when the company evolved into Lemon, Inc. Lemon was acquired by LifeLock in December 2013. In May 2011, Mr. Malka co-founded Banco Bracce, a Brazilian financial banking institution specializing in lending for mid-sized companies, which was sold in 2014.

Mr.Malka graduated with a degree in economics from the Universidad Católica Andrés Bello in Caracas, Venezuela, and currently resides in Palo Alto, California.

 

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