“Most people think of FinTech as a revolution… I like to think of it more as an evolution. We still have mag strips on the back of our debit and credit cards and that was invented in 1966.”
Warren Fisher created Manole Capital which is focused on investments in the FinTech space.
The payment space is the quintessential FinTech business model. It represents one of the most dramatic shifts in consumer behavior as we see the use of cash steadily decline. The trend is driven by millennials and Gen Z who are more digitally native and continue to gravitate towards cashless transactions. “The expression is ‘cash is king,’ but we like to say ‘free cash flow is king.’”
The concept of buy now, pay later has grown rapidly, especially among younger generations. The space is dominated by three companies: Affirm, Afterpay and Klarna. These offer the buyer at the point of purchase equal installment loans, marking another shift in payment behavior. “Gen Z is in love with Buy Now, Pay Later. They don’t look at it as a $100 dollar transaction, but instead four $25 monthly payments.”
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SPEAKER
Warren Fisher
Founder
Manole Capital
MODERATOR
Anthony Scaramucci
Founder & Managing Partner
SkyBridge
EPISODE TRANSCRIPT
John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Saul talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which were, uh, proud to say resume in September of 2021. And actually this morning, uh, mayor bill de Blasio just said that they're fully reopening New York city on July 1st. So we're full systems go for salt in New York in September, but our goal with those conferences and our goal here on these salt talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.
John Darcie: (00:56)
And we're very excited today to welcome Warren Fisher to salt talks, where it started his career at Goldman Sachs asset management after graduate, uh, graduating with a bachelor of science degree in accounting from Lehigh university in Bethlehem, Pennsylvania, while on G Sam's growth equity team Warren was, was responsible for both the financial sector as well as service companies in the technology industry. Hence how he's found his way to the intersection of finance and technology today. Uh, in addition to his analyst duties, Warren was a portfolio manager on several of the portfolios over his 19 years at GE Sam Warren was a co-portfolio manager for the Goldman Sachs growth opportunities fund, which is a mid cap fund, the Goldman Sachs, uh, capital growth fund, which was a large cap fund, as well as the Goldman Sachs flexible cap growth, which obviously was an all cap portfolio.
John Darcie: (01:45)
He then joined fortress investments in 2013, affirm that we're very familiar with here at SkyBridge to help build Logan circle. Uh, first equity franchise, uh, Warren co managed three large cap growth portfolios as well as one mid cap portfolio. And in 2015, Warren created a Menaul tappable to exclusively focus on the FinTech industry, which is going to be the focus of our conversation here today. Hosting today's talk, making his debut here on salt talks is Jason Zen. Who's a partner at SkyBridge capital, which is a global alternative investment firm. And Jason also heads up our FinTech investing initiatives at SkyBridge. So looking forward to a fascinating conversations today between Warren and Jason regarding FinTech. And with that, I'll turn it over to Jason for the interview.
Jason Zins: (02:30)
Thanks, John. And, uh, thank you Warren for joining, uh, my first day back in the office, actually. So I'm not Anthony, uh, who usually hosts these talks, but I am in his office right now. Uh, and, and thanks Morgan for, uh, for joining us. So w why don't we dive in, um, I'll just start with a, a quick intro. Um, obviously it's SkyBridge, we're, we're very bullish on the FinTech space. We've been very active on the private side this year with names like chime and Klarna and others. Uh, and it's really based on a view that financial services has been ripe for disruption for some time now. And while innovation has been going on, uh, over the last number of years, it was really the pandemic in our view, that was a catalyst to accelerate. A lot of this disruption. Uh, UBS came out with a report recently, very bullish on FinTech, longterm, uh, looking at some of the secular growth drivers, uh, going forward over the next decade. You have none other than, than Jamie diamond at JP Morgan, uh, who in his shareholder letter, um, really endorsed or at least embraced FinTech, um, all recent developments, but Warren are our guests here today. You've obviously been a FinTech investor for quite a while now, uh, both on the public markets and private market side. So why don't we just start with your general view on FinTech, uh, and maybe touch on whether that has evolved pre and post pandemic?
Warren Fisher: (03:57)
Sure, thanks for having me today, looking forward to our discussion. Um, maybe the best place to start is, is how we define FinTech. And for us it's anything utilizing technology to improve, uh, an established process or procedure. And that could mean various things to various people. Um, obviously you guys, uh, have a background on the blockchain and the digital currency side. Um, you can have digital banks, alternative finance plays, uh, reg tech, InsureTech, um, robo advisors, financial advisors, the exchanges, um, but for us, the quintessential FinTech business is that the payment space. Um, we love the predictability, the sustainability, the recurring revenue, um, business models that these companies have. And, uh, you know, that for us is, is the quintessential FinTech business.
Jason Zins: (04:53)
Terrific. And before we dive into payments and some specific names in general, um, can you touch on a few of the other verticals just round out the FinTech ecosystem for us?
Warren Fisher: (05:05)
Yeah, so, uh, last week, or a couple of weeks ago, we had a big news and FinTech land with, um, the, with Coinbase going public. Um, certain people may not consider that to be FinTech. Uh, we have invested in the derivative exchange space for a number of years, and that covers the names like CME or ice, um, who owns the New York stock exchange. It could be NASDAQ or CVOE does options. Um, and for us, you know, a name like Coinbase is no different than a derivative exchange. They're the intersection, the marrying of buyers and sellers of assets and a Coinbase, um, which right now just does what four or five dozen different digital currencies. Um, but it also does storage and custodial work. Um, it's just a really interesting company. It's just fascinating for me to kind of see the market cap of it, have a name like Coinbase coming up, coming to the market, doing a direct listing, not an IPO and having a market cap in the 60 to $70 billion range to kind of put that into perspective.
Warren Fisher: (06:11)
That's bigger than CME. And I see him he's been around for over a hundred years and, uh, I certainly, while has a 20 year history, um, certainly can go back over 150 years with its ownership of the New York stock exchange. So a lot of change, a lot of, uh, new names coming into the space. Um, it just kind of reminds me that, you know, most people think of FinTech as being a revolution. Uh, you mentioned earlier, you know, Jamie diamond, uh, doing a shot across the bow to his own employees saying that we need to be aware of FinTech and technology and embrace that change and not look to do a kind of put our head in the sand. You know, I like to think of FinTech as much more of an evolution, not a revolution. You know, I've been covering the payment space for over 25 years and, you know, to me, it's fascinating to see it's not a speedboat, it's not terribly nimble.
Warren Fisher: (07:08)
It's more like an aircraft carrier. Um, you know, we still have max stripes on the back of our plastic credit and debit cards and, and they were invented in 1966. Um, the U S got, uh, EMV technology that chip in your debit and credit card in October of 2015, but that technology was in the mid nineties in Europe. So, you know, things happen in payment. And, um, I like to say slowly and steadily evolving. And, you know, for me, as, as we look at the space, the biggest market share donor is cash. And that might be a, uh, area that we talk about today. Just the steady market shared donor for all of these digital payments and FinTech names is the use of cash.
Jason Zins: (07:55)
Absolutely. The, the, the death of cash is as you call it, we will touch on in a, in a few moments, but I just want to pick up on, on one concept. Uh, you just, uh, you just described, which is really, um, the Coinbase versus the incumbents like CME and others, but you can apply that to really any FinTech vertical, depending on the day, PayPal might be bigger than bank of America square might be bigger than Goldman Sachs. So can you touch on a little bit, the next five or 10 years FinTech generally relative to the incumbents?
Warren Fisher: (08:29)
Sure. So I think the best place to start is maybe the financial sector. If you look at the S and P as a whole, uh, the financial sector is roughly the third largest segment in the market. If you look at the 11 GIC sectors, uh, the S and P and 80%, roughly 75 to 80% of the financial space is comprised of banks and insurance companies. And one of the areas that we do not invest in, we have no exposure to any banks or insurance companies is we're really just chickens where, um, we're, you know, w we stay away from banks and essentially digital banks, nouveau banks, alternative finance companies, because I don't want to take bounce sheet risk. I don't want to own a company that has opaque, uh, an opaque balance sheet. That's taking credit sensitive, um, interest rate sensitive that's, um, I like predictable, sustainable recurring gravity.
Warren Fisher: (09:29)
We like to make money per transaction in a way revenue per swipe. And it goes to, you know, we have certain characteristics that we look for in companies, whether it's market leadership, a durable, competitive advantage, what Warren buffet likes to call a moat around the franchise. Um, just those high barriers to entry, and when it comes to a bank, um, there really are no moats around that franchise. That commodity is the us dollar. They're borrowing it from, from their DDA accounts, their checking and savings accounts ended up renting it out. And that for us is not an ideal business. Um, we want to have companies that have, um, secular growth, not cyclical growth. And so we stay away from that alternative finance part of the, of the FinTech space. We just think that, um, banks are ripe for, um, for having their, their business really stolen over the next five to 10 to 15 years.
Jason Zins: (10:30)
Well, we, we certainly agree with you there. It'll be interesting to see, uh, which banks are able to innovate and navigate this. Certainly hard to bet against the Jamie diamond at JP Morgan.
Warren Fisher: (10:39)
Yeah. I mean, you look at JPM and they have a fortress balance sheet. Um, but our issue with it is, is that balance sheet transparent? Is it sustainable? Um, can you model in free cashflow? And when it comes to financials, we saw this with the, with the financial crisis. The most important thing is our mantra teams rationally allocating capital, and with financials, with banks, with insurance companies, unfortunately you don't find out who's swimming naked until the tide rolls out to use it another Warren buffet quote. Absolutely.
Jason Zins: (11:14)
So we'll touch on a few hot FinTech companies, uh, during the salt talk. And I want to start with plaid. Um, we're extremely bullish on the company. Really think it represents the FinTech ecosystem more broadly. They obviously just, uh, raised their series defunding, uh, led by altimeter and silver lake and ribbit capital. Um, so blue chip, uh, cap table, big jump in, in valuation, uh, companies currently valued at 13.4 billion. Um, give us a sense of your view on the company, how you got involved, uh, and, and what your view is on plat.
Warren Fisher: (11:52)
Sure. So, um, the Manoir FinTech fund is our hedge fund. And one of the nice things about our hedge fund is we can do both public and private. We married those two areas of FinTech and the vast majority of our positions are public. Um, and that gives us the ability to have a good amount of liquidity and transparency for our limited partners. But we can, like you said, own a handful of, uh, private FinTech companies. And we came across plaid back in 2018. Um, we made our investment, um, in December, 2018. And if you recall, the S and P in the fourth quarter of 2018 was down significantly. I want to say about 13, 14% in December of that year, the S and P was down over 9% and we made an investment in plaid and they had just done a series round valuing unit around a little bit, over $2 billion.
Warren Fisher: (12:53)
We actually got a discount to that. So we were pleased with that. And, uh, we owned it for, uh, 13 months. And then January of last year, we were reading our wall street journal like you, and, uh, opened up and saw that there was a transaction where visa was acquiring plaid for $5.3 billion. So obviously a positive for us. Um, we envisioned like most deals at that would be a, uh, six to nine month kind of closing and visa would be the new shareholder and owner of plan. We actually wrote a note on plaid before we purchased it, and I don't know how many people read it. It might've just been my mom and dad, where were the only two people that read it, but we called plaid the sets, the sexy plumber, and it's not a, a flashy business. It's not one that builds a, a great brand name like you have with visa and MasterCard debt, signified trust.
Warren Fisher: (13:50)
They were 200 countries around the world. Um, plaid is very much on the backend of a most transaction, similar to a lot of our payment processors who authorize clear and settle a transaction names like, like a global payments or first data or an FIS or five serve. Um, these are names that don't have great brand names, and we never really envisioned plaid having a, a great brand name. What they do is they're connecting, um, hundreds of financial apps, FinTech apps, um, to the funding source. So if you're opening up a Coinbase account, um, and you want to fund it, um, we just did this recently. We saw when we, when we connected our Coinbase account to our bank of America account, that transaction was done by plan. Um, if you opened up a Robinhood account and millions of gen Z and millennials opened up Robin hood accounts over the last 12 to 18 months, when you fund that brokerage account from your bank account, plaid is acting as a connection to that bank, that funding source that validation.
Warren Fisher: (15:03)
And, um, over the course of last year, um, initially the UK came out and, um, wanted to analyze Visa's acquisition of plaid. Um, they, at the end of the summer approved that transaction, but then in November of last year, the U S department of justice came out and said, you know, said time out, hold on. Let's, uh, let's take a look at, um, this DCIS acquisition of plaid. And they sued to block the transaction. Uh, initially visa came out and said, well, we've got a lot of high priced attorneys and lawyers on staff. We're going to go ahead and go to court. Um, and then in January of this year, they decided, you know what, let's just go ahead and terminate the acquisition of, uh, plaid. And, um, we'll use it well, we signed the long-term contract to use plaid services. And, you know, for us, we were kind of at a, at a pressure mark here.
Warren Fisher: (16:04)
We don't see a lot of deals get broken up. Uh, we actually own visa in, in our portfolios. So here we had one of our companies acquiring another one of our companies. And, um, it's interesting, the reason and the rationale that the DOJ gave for, for breaking up the visa transaction was visa has a huge market share in the debit space over over 70%. And one of the visa executives, you guys should Google it, or anyone watching should Google it. If you just do visa plaid, sketch iceberg sketch, you'll see that there was a, a doodle, a sketch, if you will, that a visa executive did. And the DOJ used that sketch as their ammunition for shooting down this transaction. And in an above the iceberg, you see bank connections and, uh, account validation. And then below the iceberg, you start seeing items like credit decisioning.
Warren Fisher: (17:04)
Um, you see, uh, marketing and advertising, you see financial management and identity matching and fraud detection. And that is really what the DOJ got worried about. That a visa owns plaid, and it also dominates debit that this could be a another monopoly. And so they, they kind of walked away. Visa walked away in January of this year. You talked about the valuation of it. Um, actually more than doubling, almost tripling from what visa was going to pay for it. I look at it and say, visa, put the good housekeeping seal of approval on plaid. It dominates this space of a bank connecting invalidation and the movement of funds. And, uh, you know, we still own it. We envision either a stack. It might be too big for us back, but we envision the company maybe having an IPO later on this year or internet year. And it being the latest tech company to kind of come to the markets.
Jason Zins: (18:07)
Great. So I want to, I want to zero in on the DOJ complaint, cause to your point, it, it is fascinating and the, the iceberg or the volcano picture is sort of becoming
Warren Fisher: (18:17)
The volcano, at least
Jason Zins: (18:19)
In, in nerdy FinTech circles. But the DOJ complaint, um, to us is almost an investment memo for plat, right? And, and one of the key quotes that I love from one of the visa executives is that they view plaid as an existential threat to their debit business, which as you mentioned, they, they more or less have a monopoly on with, with 70% market share. Um, and so now that the, uh, the visa deal and the acquisition is falling apart and plat is moving ahead on its own, uh, obviously a very different environment for plaid, right. That acquisition was pre COVID. We're now in a different world. Um, where do you see plaid, uh, going forward? And what do you think the potential is over the coming years?
Warren Fisher: (19:06)
Well, I think, um, if you look at the, kind of that sketch in the bow, uh, uh, waterline, uh, if you will, um, I think it has a lot to do with fraud detection, um, and identity, you know, confirming identities. Um, we're not really envisioning it going into the advertising and marketing space, but just the ability to move money from point a to point B. Um, we talk a lot about visa and their capabilities. You know, visa does 150 million transactions a day. It could do 1700 transactions a second, and, um, their capacity, their spare capacity is 40 S that they can do 65,000 transactions. A second, uh, PayPal during the holiday season did over a thousand transactions a second. And so it really is the, the, the middle of moving money from point a to point B from point B to point C. And, um, to me, it goes to our definition of FinTech is, is visa or PayPal because they moved money.
Warren Fisher: (20:14)
Is it a financial company? Um, is it a tech company because of the capacity that they have and the millions of transactions that they do a day? I don't really care. Um, for me, it's not a matter of, um, are they financials? Are they, tech companies is, is plaid a, uh, financial because all of their customers are banks and brokers. Once again, it doesn't matter to us what we're looking for. Those companies that can generate predictable, sustainable recurring revenue. And we think the future for plat is really bright. It's going to have, um, a business model. That's, transaction-based, that's very scalable. That's going to generate very high operating margins. Um, and it, it should generate, um, absolutely growth for the next three to five years and beyond.
Jason Zins: (21:04)
But we, we certainly agree. We think that the flip side to not having a sexy consumer facing business is obviously a much lower cost structure, much higher margins to your point cloud does have a recurring revenue model. Uh, and we think, again that the DOJ really laid out the potential on the disruptive nature of plaid. Really just to hammer home. The point visa is this $500 billion company doing $25 billion in annual revenue. Um, Plaid's ability to disrupt this monopoly on money movement in the United States, uh, we think is, is, is very exciting and, and has the potential to be, um, to be massive. So, um, let's, uh, let's transition into, um, a concept that you, you mentioned earlier, uh, and you have a presentation on this, the death of cash. Um, and I think you had some pretty interesting statistics, uh, really just about the rapid decline of cash in the last decade, certainly has accelerated as a result of the pandemic.
Jason Zins: (22:05)
A lot of it is generational or demographic with, with millennials and gen Z. Um, but I think you estimate that about 30%, only 30% of transactions in the U S today involve cash, uh, in Sweden, that number is 6% and they have a goal to be entirely cashless by 20, uh, 2023. And that sort of be consumer behavior, uh, has massive implications, um, for various verticals, certainly payments, uh, and others. Um, but I want to focus for a second on Sweden, um, and touch on another company, uh, Klarna, which is a Swedish company, uh, the global leader in the buy now pay later space, also raised money, uh, recently at a $31 billion valuation making it the largest European FinTech company, uh, on the private side. Um, so touch a little bit on, on this buy now pay later vertical, which is sort of inside of payments or an adjacent to it. Um, give us your view on the space and Klarna in particular.
Warren Fisher: (23:08)
Sure. Um, so a lot in there, on, on cash, maybe, um, we always like to say, you know, you know, the expression cash is king for us, it's free cash flow is king. Um, I joke around and saying the depth of cash, but cash is still 75 to 80% of global purchase transactions and, uh, countries that are very institutional and sophisticated like Germany and, and, uh, Japan, Japan is still at 82% cash based, um, in terms of purchases, uh, Germany's 84%. So on the flip side of those two countries is as you mentioned, which has that goal of, of going cashless, but, um, there is a slow and steady decline. We talked to a moment ago about that, um, decline of cash usage, but it's, it's going to take years. Cash will always be a part of the payment chain. If you look in the U S about a third of transactions are still done in cash, but if you look at the $10 transaction size and tend to add $10 and less, it's still 55% of those transactions are done in cash.
Warren Fisher: (24:15)
And so that will continue to move down. Um, whether it's the one New York program in the subway system, that's the MTA is coming out with to allow contact list and mobile based payments, the ability to use your phone at the turnstile to go into the subway, the train, or the bus, um, clipper, um, is in San Francisco for ferries and transit San Fran that just got announced last week of all things. Um, but here in Florida, where I am the highways, uh, no longer had people taking cash on the highway, it went, um, entire digital and automated, um, back in 2011. So the transportation space is really an interesting area for where we're seeing cash being removed from our society. But, um, on the flip side of that within payment land buy now pay later is really fascinating. It's taken us a while to get comfortable with it because in our mind, um, we tend to look at more digitally native products, whether it's, you know, the payment networks, visa, MasterCard, or PayPal, the payment gateway is like an Adyen or Stripe, um, a Braintree at a PayPal or the payment processors, or even the merchant acquirers.
Warren Fisher: (25:34)
Um, it's taken us a while to get comfortable with buy now pay later because it really is just an installment. If we go into a home Depot and buy a hundred dollars, our, uh, drill, um, the ability to make four twenty-five dollars payments over the next four weeks, um, that's an installment, but, uh, we'd come around to this concept. And there's three companies that really dominate the space maybe soon to be four. Um, you have a firm that went public in January, uh, did very well on its IPO. You have Afterpay out of Australia and you have, as you mentioned, the third, the largest of the three, um, being corner out of Sweden. And what they're doing is they're essentially offering, um, consumers GMCs and millennials, the ability to make transactions at the point of sale and do that equal for equal installment means. Um, and for that they're charging merchants upwards of five or six or even 7% to do that.
Warren Fisher: (26:40)
Now you have to compare that to a hundred dollar transaction in the U S a hundred dollars credit card transaction will generate about two to two or four, maybe on an online transaction two and a half percent in fees. So a hundred dollars transaction generates fees of $2 and 50 cents, um, in terms of a cost for the merchant in a buy now pay later environment that merchant on a a hundred dollar transaction might pay $5 or $6 to enable that gen Z, uh, consumer to transact that hundred dollars transaction at home Depot. So, um, there are significant costs when it comes to buy now pay later, but merchants are, uh, excited to offer it to their consumers. And it's just another way for consumers to transact. They can use cash, they can use their debit card, they can use a credit card, they can use buy now pay later. Um, and so we're really are seeing a transformation with online or at the physical point of sale for brick and mortar retailers. Um, how the consumer wants to transact and merchants want to enable their consumers to transact any way that they want.
Jason Zins: (27:52)
And, and to your point, it does seem that despite the higher cost, it's obviously growing rapidly with merchants, seeing the benefits of, uh, acquiring or attracting, um, these newer, younger shoppers, um, who really view buy now pay later. And the companies that you mentioned as really an alternative to traditional credit, um, and the credit cards, which as you know, younger generations are, are increasingly, uh, avoiding, uh, having, having credit cards in your wallet. Um, you, you mentioned or alluded to the, the differences in consumer behaviors across countries and regions. On the one hand, you've got a country like Japan. On the other hand, you have a country like Sweden. The us is probably somewhere in the middle, maybe closer to the Sweden side. Um, but buy now pay later in the U S is relatively new, I think, uh, penetration for buy. Now pay later as a percentage of total e-commerce is around 2% or a little bit less, but growing rapidly, um, to the tune of 200% or even 300% for a company like Klarna. Um, do you think this is a fad, or do you think this is part of a longer term, um, trend that will continue to develop, uh, as the younger generations continue to participate in the consumer economy?
Warren Fisher: (29:12)
Yeah. Going back to maybe what I said earlier for us, it's much more of an evolution than a revolution. Now, the, the growth rates that names like affirm and Afterpay and coroner are generating are eye-popping, but they are coming off a very small base. Um, we, we needed to embrace and understand millennials and gen Z and how they are transacting. We do a, um, a survey, uh, several hundred, um, gen Z, uh, consumers. And we, we ask questions on four key financial services areas. We do, um, digital currencies, Bitcoin. We do brokerage banking and, uh, we do payments. And one of the takeaways from our survey work is that gen Z is in love with buy. Now pay later, it comes a little bit down to almost the us mindset of they don't think of in that example, I used earlier that a hundred dollars drill at home Depot.
Warren Fisher: (30:13)
They're not thinking of it as a a hundred dollar transaction. They're viewing it as four equal $25 transactions over the next four weeks. And so, um, you know, some people buy a car or lease a car or, you know, acquire a car, and they're not looking at the cost of the vehicle. They're looking at what are my monthly costs. Um, some people buy a house and say with interest rates at this amount, um, what are my monthly costs going to be? And so I now pay later really is an environment where for us, we get worried that these companies are giving out credit, um, and not doing the analysis, their credit decisioning on those consumers well enough. And so that goes to the opaque balance sheet that some of them might have, but there definitely is a ton of growth there it's part of, you know, a lot of gen Z and millennials grew up seeing their parents deal with the financial crisis.
Warren Fisher: (31:12)
And a part of that problem was their parents may be getting in trouble with credit cards. Um, that's why we're seeing a resurgence on debit. Debit usage is a way to maintain and control your spending. Um, buy now pay later is, is essentially just, uh, an extension off of debit. And it's kind of weaving in it's maybe at middle ground, which we debit and credit. It's, it's really fascinating. We do think that there's going to be, um, multi-year growth, kind of, for all three companies, one name that's getting into this space as well as PayPal. Um, they certainly have the capability to do it. And so, um, you know, we're excited for that, that space. And once again, that's a private name in Florida that we can own inside of our hybrid hedge fund FinTech fund.
Jason Zins: (32:00)
Well, we, we certainly agree with the long lasting nature of, of the growth story here. Um, obviously, you know, really just getting started. And you mentioned clearness monster, I, excuse me, a firm's monster IPO in January clarinet with, uh, a big private funding round. I likely to be a public company in the near term. So we'll, we'll continue to, uh, to monitor that space, um, shift gears here in, in the minutes that we we've got left, um, into contact lists and mobile payments and digital wallets more broadly, which is, uh, I think a space that you focus on. Um, obviously some of the biggest fintechs out there, like a Stripe and PayPal Addie, and you mentioned, uh, really enabling this shift. Um, can you just talk a little bit broadly about the future of mobile payments and tie in digital wallets there? Of course.
Warren Fisher: (32:51)
Sure. So, um, I still have in my jeans on leather wallet and it's got, you know, a couple of different plastic debit cards. It's got, you know, visa and MasterCard credit cards from multiple, multiple banks, whether it's prepaid cards as well. And I have a couple of dollars in cash. Um, we envision over the next three to five to seven years, being able to replace that wallet in your pocket with this, your iPhone, your mobile based, uh, payment, it will be the way that you transact. So instead of going out with a wallet, uh, we had the visual going out to the store, going out to your local coffee shop, going to Starbucks or Panera or CVS or Walgreens, as you knew your shop and using your phone to transact. We're seeing that already with what I'm going to call that bridge, which is QR codes.
Warren Fisher: (33:40)
Um, they were not developed for payment. They were QR codes were developed for manufacturing and supply chain management, but the payment area has embraced QR codes. And you can turn your iPhone, your Google phone, your Samsung phone, whatever phone you have into a point of sale device where you can accept payments from someone else via your phone. We know the success of, of PayPal's Venmo in doing P2P transactions, simply moving money and texting money. Um, you know, for me to you, if I were to lose a golf bet or a split lunch with you, and that is taking off square and their cash app has as a great product as well. Um, and, and we really envision, you know, if you look at COVID last year, it was obviously awful. Um, global pandemics are never good, but if there was one benefit in, in a way it really benefited and acted as a tailwind for a lot of our payment companies, it forced the adoption of digital currencies and contactless payments and, um, you know, foreword by either a couple of years or maybe even a decade as, as some industry experts have articulated.
Warren Fisher: (34:56)
If you go back 10 years to 2010, and you looked at the us market in terms of retail sales, you're talking about a $6 trillion annual spend on the U S retail side. And 10 years ago, e-commerce was four and a half percent of that total spend. And then by 2015, it continued to go up steadily marching higher to, um, 7.3%. And last year it got into the double digits. So we had a kind of huge way of adoption of digital payments and e-commerce usage. Um, you know, people know that the flu can on paper currency for 17 days. Um, the CBC came out and said, last year, if you touch and handle paper currency, you should immediately wash your hands in the U S a dollar bill changes, uh, hands 55 times over the course of a year. And so there's a dirtiness, um, to paper currency.
Warren Fisher: (35:59)
And that just goes to what we talked about earlier that, that depth of cash. And so we really see kind of the biggest and easiest kind of donor being cash as a tailwind for the digital payment space. And then second, we see big growth in continued growth, um, away from physical brick and mortar locations, physical retailers towards e-commerce and retailers and merchants need to have a bio wine pay in store or an omni-channel kind of presence in order to survive. And that was one of our big takeaways from last year. And COVID-19 is companies need to be able to adapt. It's not just the banks and Jamie diamond who need to adapt and embrace technology. It's your everyday restaurant needs to be able to do takeout. Um, it's your stores that need to allow their consumers to shop online and maybe even pick it up in store or have it directly shipped to them.
Warren Fisher: (36:56)
I don't know about you guys, but I have, um, a box outside of my door or each and every day from Amazon prime. And, um, all those transactions have to be done via a digital payment. And it just so happens that the largest payment gateway for a company like Amazon is Stripe, which we own in our fund. So, you know, we, we like the, the marriage of public and private FinTech companies in our fund, and we're seeing great growth opportunities and enormous opportunities on the private side. But I would still argue that the names that many of us know the visas, the MasterCard, the PayPals, um, have wonderful growth opportunities that are having them as well. So
Jason Zins: (37:40)
We're gonna, we're going to bring in Bitcoin here for a moment. I'll be back on to those without it. Um, but specifically as it relates to payments, I think obviously Bitcoin, at least in our view, the discussion has been settled as far as the store of value. We, we certainly believe it's it's digital gold or gold to point out. Do you think Bitcoin or more broadly blockchain, um, has a space in, in, in payments, uh, five, 10 years from now?
Warren Fisher: (38:10)
So, so, um, you know, we like to say that any currency needs to hit on two different requirements and you mentioned it there's store of value, and we are slowly coming around to it. Anthony and Brett have, have done a good job of beating us over the head with this. Um, and it does have for certain institutional investors, um, a store of value, digital gold, um, I think it has a market cap, Bitcoin, at least of a trillion dollars, comparing that to, um, gold being, you know, 10 to $11 trillion. So there will be, um, a use for it as a store of value. It really needs to, our issue comes down to, it needs to maintain that value, not have a ton of volatility, and it can't really depreciate too quickly. And, you know, we can see Bitcoin and other digital currencies have, you know, 10 and 15% moves over the last weekend alone.
Warren Fisher: (39:08)
Um, you know, so the store value we're on board with that, but for us, the medium of a change part of your question, doesn't really suffice. Um, now names like square cash app, like, uh, PayPal are trying to enable their digital wallet holders, um, who had transacted in Bitcoin. If I bought 5,000 or a thousand dollars with a Bitcoin, and I want to use that to shop at CVS or Walgreens or Starbucks or whatever it might be. They're going to enable that consumer to transact. The problem with that is the IRS does not consider Bitcoin a currency. It considers it an asset. And because of that, you have capital gains taxes if you transact using Bitcoin. So if I walk into CVS or Walgreens and I spend $20 and I have in my digital wallet at PayPal and embedded paper gain in Bitcoin last year, it was up 300%.
Warren Fisher: (40:11)
It's more than doubled this year. So most people have a paper gain on their Bitcoin in their wallet. At the end of the year, I have to give PayPal a 10 99 a w nine. And so they're going to get, um, at the end of the year, an eyeopening tax hit for that transaction. And so, you know, also that's just on the tax form. Um, we see problems with the medium of a change. You also have to look at, um, the ability to return items. So Elon Musk, um, what makes some, some fanfare for a Tesla, um, a month ago when they bought $1.5 billion of Bitcoin, put it on their balance sheet and said, anyone who wants to buy a Tesla, um, can now do that with it. The problem is what happens if I return my Tesla, or if I buy a television at best buy, and they're allowing me to use Bitcoin, what happens when I return that item is the merchant acquirer and the merchant going to give return to me Bitcoin or dollars.
Warren Fisher: (41:17)
And what happens with the volatility of Bitcoin, if it has a five or 10 or 15% move either way from when I purchased it to when I return it. And so we see problems on the return side, and then frankly, just on speed. And we talked about the ability of visa to do 65,000 transactions a second. Um, if you look at Bitcoin and digital currencies and how many transactions they can do a second it's seven. And so they, they're not at a level of scale. Um, certainly that the payment processors currently allow me to transact. Um, and so we see some issues on the, the medium of a change. Um, you know, we're, we're there with you on the store of value. Um, the medium of exchange we're not there yet with. And, and we always go back to, you know, May 22nd. Um, the anniversary May 22nd, 2010.
Warren Fisher: (42:14)
Uh, there was an interesting guy who used the first ever a Bitcoin transaction, um, was what occurred when, when lastly went ahead and use 10,000 Bitcoins to buy two large Papa John's pizzas. Um, and in 2010 lasso thought he was getting a great deal. Um, you know, those 10,000 Bitcoins now have over $500 million worth of value. So I don't care how good those, those Papa John pizzas were. That was a bad decision to use Bitcoin to transact. So, um, you know, maybe, maybe that kind of hits on some of your medium of exchange, uh, on the Bitcoin and digital currency side,
Jason Zins: (42:54)
Hopefully Papa John is still sitting on that those 10,000 Bitcoins,
Warren Fisher: (42:59)
They probably are not,
Jason Zins: (43:01)
Would be worth, I don't know, hundreds and hundreds of millions of dollars today. So I'll end with a final question. We've discussed a couple of different payment or money networks today. Um, the big incumbent being visa, we talked about plaid, uh, and their emergence as a, as a real-time money movement network, which has discussed Bitcoin. Uh, I agree some of the, the immediate challenges for day to day transactions, although there does seem to be applications for large cross border instant transfers of money. Um, but a decade from now, what do you think money, networks and payments look like? Um, with, with some of the ones I just mentioned, visa, something like a plat and alternative network or a Bitcoin on a blockchain.
Warren Fisher: (43:48)
Yeah. I mean, um, the people have called for the death of cash for a number of years and in our lifetimes, cashflow will still be around, uh, people have called for the death of the, uh, remittance market. You know, the Western unions of the world, there are 170 years old. Um, and so I think, uh, maybe the calling for the death of a MoneyGram or Western union probably is premature to, there will always be a need for me, transacting with someone, whether it's cross border for a remittance of even a couple of hundred dollars that transactions still might happen in cash in a decade from now. But we really think, um, the big shift is going from your wallet to this, your iPhone, and being able to move money. Um, PayPal's Venmo really, uh, dominates the PDP space, but it shouldn't be the only one.
Warren Fisher: (44:43)
There should be apps, whether it's the cash app from, from, um, from square or Venmo's, uh, PayPal. But the ability for me to send money to you instantaneously through a text is to me where we're going, that's the revolution. It's going to take a little bit of time to get there. Um, that's kind of one. Um, and then to the other really big items we see, we talked about it earlier is, is e-commerce trends. I'm not going to be surprised if e-commerce goes from the mid teens to the high teens, low twenties percent of total, uh, us retail sales of that $6 trillion of spending. And the big three in that space are Adyen in, uh, Europe. Um, PayPal's Braintree and Stripe Stripe is, is our single largest holding. And we envisioned just years and years of continued growth on the e-commerce side. And, and frankly we're earning money on every one of those transactions multiple times, because I can use my visa or my MasterCard, um, account LinkedIn through Stripe. Um, so we can earn merchant acquiring fees, payment, processing fees, payment, gateway fees, um, network fees. And so we really view that as being a wonderful avenue of growth and where we're comfortable investing as opposed to the banking channel, which, which unfortunately still has. It's a cyclical model and it still has opaque balance sheets.
Jason Zins: (46:17)
Terrific. Well, we certainly touched on a number of different FinTech themes and exciting companies out there. Uh, of course we had SkyBridge are very bullish on the space going forward. Uh, but Warren, thank you for joining us and for giving us your thoughts, uh, on the, uh, the broader FinTech space. So with that Donald, turn it back over to
John Darcie: (46:37)
You. Yeah, Jason, that was a fantastic debut. I don't know if I'm going to get my job back in hosting. Some of these salt talks
Jason Zins: (46:45)
Twins right now, so
John Darcie: (46:47)
Hopefully nobody can tell the difference, but Warren, it's great to have you on, obviously we're very excited about the FinTech space and it's great to have an expert like you on here to break down everything we're seeing in the space. So thanks for joining us from beautiful Tampa, Florida, and, uh, and Jason, good to see you in the office. I'll see you on Monday. We're we're returning to office work on Monday, so excited about that. Very excited. Yup. Thanks Warren. And thanks Jason again. And thank you everybody for tuning into today's salt talk, uh, focused on FinTech with Warren Fisher of Minola capital. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them on our website@salt.org backslash talks or on our YouTube channel, which is called salt tube. Uh, on social media. Twitter is where we're most active at salt conference, but we're also on LinkedIn, Instagram and Facebook as well. And please spread the word about these salt talks. We love educating people, especially during the pandemic, the ability to, to stream these salt talks and, and educational resources into people's homes, uh, you know, through digital recording. Hopefully we can see warrants sometime soon in New York, including our salt conference in September. But, uh, again, please spread the word about these salt talks. And this is John Darcie on behalf of the entire salt team and Jason here making his debut on salt talks signing off for today. We hope to see you back here again soon.