About Haseeb Awan

Haseeb Awan is a Financial Technology (FinTech) entrepreneur with a track record of two successful business exits, raising over 100M in venture capital & growing the customer base from 0-4 Million users & expanding to 15 countries across 4 continents within 18 months. He has been included among the top 100 influential people in FinTech globally, won multiple international awards, wrote for and is mentioned on multiple international media & frequently speaks at international conferences & government committees. He is Engineer by degree with Master’s in Engineering Management & also has studied Financial Markets from Yale University & holds Project Management Professional (PMP) designation. He is also a Y-Combinator Alumni as well Next Founders & couple of other associations. He is among the earliest entrepreneurs in blockchain space & personal investor in 30+ companies & advisor to over 10 companies.

Weaker Loonie against USD – Who’s getting hammered here ?

From Acuras to iPhone applications, suits to sweet potatoes, Canadians will be paying more for imported products, on account of the loonie’s fall against the U.S. dollar. It has dropped by almost 10% in last 12 months which is a significant drop in a short horizon of time. Although it’s not the highest one, but certainly rank among them.

Weaker Loonie

“Who wins and who loses when the loonie gets hammered”

Obviously it’s the end customer who will be paying more. Increasing costs are passed on the end customers and if they are earning in CAD, too bad. It’s now happening . Food costs have been expanding for quite a long time. Attire, while regularly made abroad, has a tendency to be evaluated in U.S. dollars and has additionally been getting more costly. So too a first-class thing that Canadians are purchasing in record numbers. Automakers have begun to raise sticker costs on Canadian vehicles.

The Automobile Protection Association says Toyota and Honda, among others, brought costs up in the primary week of January. A few extravagance brands, including Lexus, Acura, and BMW have additionally rolled out improvements to their valuing, with Audi purportedly set to follow in mid-January, the affiliation says. The APA says the greater part of the expansions are unassuming, an additional couple of hundred dollars for every vehicle. Be that as it may, it says Honda has raised the proposed retail cost on its 2015 CRV Touring, all-wheel-drive model by an amount of $750.”Auto organizations will take each open door that they can to expand exchange costs or minimize their introduction to the conversion scale,” says Jason Stein, distributer and supervisor of Automotive News.”We do see costs expanding. We’ve seen costs expanding crosswise over North America. Will they build a smidgen all the more quickly north of the fringe, because of the conversion standard? I believe that is presumably the case.”

It doesn’t cut both ways. Stein, a Canadian who lives in Windsor, and goes for work in Detroit, echoes a portion of the disappointment of some Canadians, who feel automakers were much slower to drop costs in this nation when the Canadian dollar was high. “Interestingly, when the Canadian dollar was over the U.S. dollar, a year, 18 months prior, you didn’t see costs dropping.” Loonie oil costs could fall much even further, Don Pittis said.

A week ago, Apple brought costs up in its Canadian App Store. The 99-penny applications will now cost $1.19 Canadian, a 20 for every penny increment. Different applications under $10 went up by around 15 for every penny. Apple says the expansion is connected to the conversion scale. Different countries feel it as well

However, it’s not every terrible new. The loonie isn’t the main cash falling against the greenback. “This is not imagination of a powerless Canadian dollar story. Some of it is a solid U.S. dollar story,” says BMO’s Porter. “The U.S. dollar is inclining against a considerable measure of monetary standards. So a few things we won’t not be paying significantly more for. For example, a few things from Europe or from Japan, won’t not be going up that much in cost in light of the fact that their monetary forms are additionally debilitating.”

In any case, with the U.S. representing about portion of all Canadian stock imports, the dollar’s doldrums will hit most Canadian shoppers in the wallet.

2016-03-09T16:47:55+00:00March 5th, 2016|

Negative Interest Rate Policy (NIRP) – Friend or Foe?

Whenever we borrow any amount, we expect to pay an interest on top of the principal amount. Recently it was increase after almost a decade however buzz word of negative interest rate have started to circulate in financial world. It’s not a new concept and currently exist in multiple EU countries.

Banks - Haseeb Awan

“Consider it as a Tax on your balances without even defining it to offset loss in revenue due to reduced economic activities”

NIRP is a desperate attempt to boost economy in tough times. As the name states, instead of giving the depositors profits, they are punished to hoard the money by returning them reduced amount. As an example if the interest rate is -.03%. In this case banks will start deducing .3% of the total amount from the deposits. Now consider if your cash is decreasing day by day, you are more inclined towards investing it in alternative asset such as real estate, gold etc. Interest rate operate on pure principle of supply and demand however NIRP is like a steroid for the economy.

NIRP is an incentive for individuals and institutes to circulate the money rather than hoarding it. During challenging times, fear leads to cutting down costs and saving as much resources as possible to overcome any unforeseen circumstances. This creates a ripple effect with conditions getting worse and recovery becomes more challenging in such stagnant society.

Here is excerpt from Mises in 1912

[This view of money] regards interest as a compensation of the temporary relinquishing of money in the broader sense — a view, indeed, of unsurpassable naiveté. Scientific critics have been perfectly justified in treating it with contempt; it is scarcely worth even cursory mention. But it is impossible to refrain from pointing out that these very views on the nature of interest holds an important place in popular opinion, and that they are continually being propounded afresh and recommended as a basis for measures of banking policy.

Cash register
NIRP is charged by central bank and in few cases retail banks take the hit themselves without affecting their end users. While negative interest rate does circulate the money, it drives up the valuations of possible investments such as real estate, gold etc. high creating a bubble. Recent hike in stock, tech and private companies’ valuations are by-product of decade old almost zero interest rate.

People take more risks due to availability of cheap debt & have led to economic crashes. People buying houses at high rate and in-experience people starting their businesses are all high-risk loans which are threat to the financial system. While it looks pretty lucrative to implement it, best practice is to leave it as it is, so businesses can at-least be certain about this aspect.

2016-03-06T15:44:34+00:00February 29th, 2016|

11 facts about Cayman Island

I was in Cayman Island recently and was fascinated by how developed it is. Sharing some of the interesting facts here

1 – Cayman has its own currency; the Cayman Island Dollar (CI$). This is tied to the U.S. dollar and does not fluctuate from it. The cash exchange rate is CI$1.00 = US$1.25.

2 – There is no income tax, capital gains tax, or corporation tax. There is a 10 percent government hotel tax and a stamp duty ranging from 7 ½ to 9 percent on the value of real estate at sale. A departure tax of CI$20 is also collected when you leave the Caymans
3 – Grand Cayman is the 5th largest financial center in the world. It ranks after London, Tokyo, New York and Hong Kong.

4 – There are more than 449 banks and 115 trust companies licensed in the Cayman Islands.

5 – There are no casinos on the Cayman Islands.

6 – You will see equal number of left hand and right hand cars.

7 – The world-famous ‘Seven Mile Beach’ is actually only 5.2 miles long.

8 – There are no embassies in Cayman Island but 13 consulates.

9 – The birthplace of recreational diving. There’s over 150 diving sites on Grand Cayman Island. The island will soon have 365; one for each day.

10 -There is a place called Hell in Cayman Island.

11 -The Cayman Island Turtle Farm is home to 16,000 green sea turtles at any given time.

I have posted few pictures at my facebook page.

Cayman Island

2016-03-06T15:44:45+00:00February 10th, 2016|

Three Ways To Stay Current In The Financial Services Industry

The financial services industry is a cutthroat market with razor-thin margins, making it one of the toughest industries in which to generate profit. Yet, for Fintech startups, it is one of the least chartered, most lucrative sectors.

Accenture recently reported that fintech investments grew 201 percent in 2014 compared to the previous year. As a comparison, overall venture capital investments grew only 63 percent in the same period.

There is little doubt that today’s financial systems are inherently complex, outdated and inefficient. The potential to innovate within this sector has never been higher. Because of wide-scale technology adoption, mobility and digital money, banking and financial institutions are facing imminent threat from fintech startups for products such as loans, money transfers and stock trading.

Indeed, customers today have more options with third-party financial service providers when it comes to choosing products. However, running a profitable fintech startup is very challenging.

With higher cost of customer acquisition, most fintech startups are surviving on venture capital funding. Because they are new, Lifetime Value (LTV) is not yet realized. It would be very difficult for a financial institution to survive on a single product, so they must diversify their portfolio of services to maximize LTV.

No one can unequivocally predict the future. However, here three ways to stay current in the financial services industry.

Existing Banks Must Innovate

Banks are not as slow as they are perceived to be. In fact, they are very smart at focusing on revenue-generating sectors and ignoring less-profitable ones, such as money transfers, small loans, etc. While startups in the space are claiming to take over the money-transfer business from banks, this area is purposely ignored by the banks.

As an example, Western Union, a money-transfer company that controls approximately 18 percent of the money-transfer market, had revenues of $5.6 billion last year, while JP Morgan earned $102.1 billion.

Lending, on the other hand, is considered a profitable service, but bank shares within this sector are decreasing. As per a Goldman Sachs estimate, 20 percent of money lending will move to alternative finance companies, costing the banks $12 billion in lost revenue (this is 7 percent of the total profits for the banking sector).

Banking and financial institutions are facing imminent threat from fintech startups.

Banks have the resources to acquire the best talent, infrastructure and whatever it takes to get the job done. However, the scale of business reduces chances of upward mobility. Fortunately the banking sector has an extremely low churn rate when it comes to core products — deposits and lending.

As per a Consumer Intelligence survey report, approximately 3 percent of people change their banks in any given year. Other findings indicate that 57 percent of people have been with their banks for the last 10 years, and 37 percent are trusting their banks even after 20 years.

Banks have the leverage of a huge customer base, experience, licenses and deep pockets. They will try to stay relevant, but if they fail to innovate faster, they could be looking to acquire winners in the niche product markets. In this case, financial companies retain the monopoly.

The Emergence Of Fintech Banks

The biggest challenge for any company is to acquire customers. High acquisition cost can kill any venture. However, once you have acquired a satisfied customer, you can always cross-sell other financial products to maximize ROI. For instance, a lending platform can sell mortgages. Once they are selling mortgages, they can sell insurance and ancillary services, and so on.

Banks initially started with deposits and lending, diversifying their product offerings later on. Most startups are currently focused on a singular niche product to take incumbent market share away from a profitable line of business. Because of the technology-centric nature, they are better at analyzing data and offering better products and a better customer experience.

The key here is to expand horizontally by being equally good at it.

If you are already using a money-transfer company, why not store money with them, as well? Or, if you are a lending platform, why not take customer deposits to strengthen the deposit base? Rather than going through resource-intensive banking licenses, there are many financial institutions open to giving access to their licenses. This will not just be limited to fintech startups, but also social giants like Facebook, WeChat, etc. that are eager to enter the financial space.

In this case, a technology startup can be the bank of future.

3.0 Brokerage Banks

There is no secret sauce to running a financial institution, but the bottom line is always the same: Keep your operations as efficient as possible.

However, it is almost impossible to be good at every product facet. A lending platform might not be able to beat their competition in the money-transfer space, and vice versa. Similarly, the lending company may struggle when it has to issue insurance.

If banks are unable to innovate faster or startups are struggling with distribution, this creates an opportunity for a marketing company to consolidate all the services under their brand name.

There is little doubt that today’s financial systems are inherently complex, outdated and inefficient.

Rather than developing any expertise, they just take the role of an intermediary and route the transactions through the best possible partner. For example, they may direct a money transfer of $150 to Pakistan via one of their partners, whilst they might use another provider for mortgages. It is not an uncommon practice in other industries. However, such an amalgamated model is rarely found in the financial space if you are just a marketing company.

It would not be out of place to say that by 2020 you might be a marketing brand, showcasing and selling repurposed/repackaged products to the consumers — but at the back end, you are neither a technology company nor a bank.

There might not be enough space for multiple players to exist without venture capital in this cutthroat industry. It will be interesting to watch who wants to be the bank of 2020.

But be it a financial, technology or marketing company, the customer will always win.

This article originally appeared in Techcrunch.

 

 

 

2016-03-06T15:45:08+00:00January 27th, 2016|

Interest rates increased after almost a decade

So Finally FOMC increased the interest rates this week by .25% after almost a decade as expected. Though it was fixed since 2008 at 3.25%, June 2006 was the last time it was increased.

Federal Open Market Committee (FOMC) mandate is to determine the prime interest rate & money supply.It was formed through the  Banking Act of 1933 & were supposed to meet four times a year. However since 1981, they are meeting every five to eight weeks at least 8 times a year to fulfill the same mandate.

Federal_Open_Market_Committee_Meeting

Increase in interest rate indicates confidence in the economy by the Feds. Although they would be aiming for much higher increase, this increase would be a litmus test to see how far can they stretch. Higher interest rate means it is expensive to borrow money driving valuations of assets down. For a common man, increased mortgage rate makes it less affordable to own a house.

This increase in interest rate was expected and overdue. A twitter survey indicated mixed result as below.

Screen Shot 2015-12-16 at 7.41.49 PM

Increase in interest rate will strengthen the dollar because it attracts more investment in the country. Investors can earn more money by keeping their money in saving accounts in US and demand of US dollar goes up. Interest rates are still very low. Just as a comparison it was 21.5% on December 19th 1980. Following is the graph of interest rates since 1947.

Interest Rates

We are living in economy of 3.25 prime rate for the last 7 years. Higher interest & dollar rate have negative impact on international loan-burdened economies . They are already struggling with repayment of loans & now they have to pay even more. On the flip side, it will make it difficult for US vendors to sell internationally because their product have became more expensive and the competing products from other countries have became cheaper. At the moment, effects would be minimal but it would be interesting to watch out for their next meeting on January 27 & 28.

Looking forward to post 3.5% economy.

2016-03-06T15:46:03+00:00December 18th, 2015|

Will FOMC end the history’s longest interest rate freeze tomorrow ?

Prime rate is the interest rate at which bank is suppose to lend money to their best customers. It is set as a reference to determine what are the best possible terms at which some one can get interest. In actual, interest rates could either be higher or lower than the prime.

Federal Open Market Committee (FOMC) mandate is to determine the prime interest rate & money supply.It was formed through the  Banking Act of 1933 & were supposed to meet four times a year. However since 1981, they are meeting every five to eight weeks at least 8 times a year to fulfill the same mandate. FOMC is meeting again today and tomorrow to see if any changes are required before the next meeting in January 26-27th.

Federal_Open_Market_Committee_Meeting

Interest rates are frozen at 3.25 since Dec 16th 2008. As a reference, it peaked at 21.5% on December 19th 1980. This is the longest unchanged interest rate in the history.

Here is a historical data on interest rates.

 

Interest Rates

With such low interest rates, it is becoming more and more difficult for banks to offer saving accounts. Margins are shrinking for them and people are looking for alternatives to get higher returns. Lower interest rate is responsible for the higher valuations of companies & real estate.

Technically any deposits in saving accounts is the money lent by banks to lend it further. If they are unable to lend it faster than they are getting deposits, they have to pay interest from their own balance sheet. This is why banks are allowed to lend up-to 9X of the deposits they have. Just as an example for every $10, they can lend up-to $100. Bank with higher lend to deposit ratio will always have a healthy P/L statement.

Higher interest rate will hurt the banks with lower lend to deposit ratio.

There is a high probability that this meeting will end the longest interest rate freeze, it would be a good news for bank stake-holders. It would for sure lower down the demand for capital since it is more expensive to borrow, however will also correct the market valuations. Not correlated, but the oil price have rebounded above $35 for the first time since 2009.

Let’s wait till tomorrow to see if there are any changes announced.

2016-03-06T15:44:51+00:00December 15th, 2015|

FinTech startups don’t want to be a Bank

Banks are boring & claim to be next generation bank is rarely heard in startup world. Banks were born out of need to store the cash safely.  Banks generally have a very good perception of trust & security among masses which led to position themselves as one-stop shop for anything financial related. Over time they built the brand , distribution & resources to up-sell other financial products such as loans, insurance, money transfers etc.

As any other business, competition have started to hurt the banks. However, new entrants are not keen to attack the core competency of the bank i.e holding people’s money. The main reason behind lack of competition is the resource intensive regulatory process. With low ROI. it’s not worth the effort for startups. Although bank fees brings lot of revenue to the bank, holding money is not profitable. It’s more of a liability than an assets.

Startups will take away the profit-making products of banks leaving them with liabilities to hold cash only

When it comes to retention, banks are doing really good job. When was the last time you changed the bank ? As per a survey, approximately in any given year 3% of people change bank. While 57% of the people are with their bank for last 10 years, 37% people are still trusting their bank even after 20 years.

For startups, it is easy to launch other financial products due to less barrier to entry in terms of regulations. In no specific order, popular products are

  • Lending
  • Remittance
  • Bill payments
  • Credit card processing
  • Insurance
  • Hedge funds
  • Credit cards

Lending being the most popular product, FinTech startups are focused on creating the most efficient P2P lending marketplace. As per Goldman Sach estimate, 20% of bank lending will move to alternative finance, costing 12 billion dollar in profit loss for the bank. This is 7% of total profits for the banking sector.

Over next few years, due to regulation burden, number of players in banking will reduce. More and more consolidation will happen in the industry due to shrinkage of profit margins. Industry have already started to search for solutions to sustain their retail locations with reducing operational expenses and innovating to compete with startups in term of products & services. Though they have an edge in term of resources, corporate culture makes it difficult to innovate.

It a race between Innovation vs distribution as beautifully written by Alex Rampell .Will FinTech startups be able to get the distribution first or banks will be able to innovate first ? Race is ON.

2016-03-06T15:46:14+00:00December 3rd, 2015|

Biggest challenge for a money remittance company

Every week, a new startup is born to grab the 600 Billion remittance market volume . With an average fee of 7% approximately 40 billion dollar are paid in fees and despite dozens of startups trying to reduce it, fees are not coming down as anticipated. Even though we blame the remittance companies for higher fees, the industry have some additional challenges which other industries haven’t even heard of.

The biggest challenge in running a MSB ( Money Transfer Business ) isn’t higher cost of acquisition,  technical debt, marketing but a Bank account. All MSBs are considered High Risk Accounts (HRA) irrespective of size. It started with the Operation Choke Point which was announced in 2013 by United States Department of Justice. Every bank which is doing business with high risk clients such as payment processors, payday lenders, cheque cashing business & money service businesses are being investigated under this operation. Things have gone worse since then and accounts are being shut down. “De-Risking” is the common term used while closing a bank account. Banks are not interested in dealing with the MSB due to redflags that are raised both internally and externally in terms of compliance.

Maintaining a bank account is the biggest struggle in a money remittance business

Banks are justified on their end since in some cases, the cost associated with enhanced due diligence outweighs the cost of maintaining certain accounts. In other cases, banks mitigate the problem by charging premium fees to certain types of customers. This issue is not just limited to agents but the company itself.  Here is an excerpt of World Bank survey report.

“A Significant portion of MTOs declared that the MTO principal (28% of the respondents) or its agents (45% of respondents) can no longer access banking services. Of that smaller group of MTO principals without access, 75% are maintaining their presence in the market by using alternative channels to clear and settle the amounts at international level; the other 25% of MTO principal respondents are currently unable to operate regularly through bank channels.”

Derisking Money remittance

Issue is that even though a MSB is 100% compliant, their account could be shut down without any reason. Regulators are well aware of the issues, however, none of them are super interested in solving this issue because there is no incentive. It is a continuos battle between the bank, MSB and regulator with no clear winner.

As per WorldBank recent report, 69% of the MSB are impacted due to recent account closures.

A bill should be passed by the assembly that as long as the business comply with the regulations, banking services shouldn’t be denied because it leads to either shutting down the business or using alternative underground routes such as Hawala. Bank account for a legally operated business should be a RIGHT. As an example; In Canada, even though basic banking services is a right for individual. Unfortunately, same rule doesn’t apply to businesses.

So next time, when some one plan to get into this industry, they should consider banking issue as the biggest hurdle, rather than the UI, logo or branding

2016-03-06T15:46:24+00:00November 24th, 2015|

What is your management style ?

Someone asked me a question about my management style. Let me give a disclose that I have not been very good at it and this is the most difficult task that a founder has to encounter.

Management Style

While I am not pro at it, I thought of asking this question from myself for days and came up with following

Ideal management style is a style in which people don’t have to be managed

Now it goes more about the culture where everyone can think themselves accountable. I am lucky to attend lecture by Brad Hams and the way he explained the subject was great.While I recommend his book a lot, I would rephrase his book title as following

Create a culture of accountability, purpose & profitability & eliminate the entitlement feeling.

 

Any one who can master this won’t have to adapt to any culture.

 

Management Style

2016-03-06T15:46:33+00:00November 5th, 2015|

Millennial – Generation of two decades

Everyday, we come across the term “Millenials” or “Generation Y”. Companies/Startups are overusing this term to define their customer base. From just the sound of  it, image    portrayed in mind of a Millenial is a teenager who is snap chatting on his new iPhone with music played on his flashy expensive branded headphones.

However, it’s not quite right.

Kid Snapchatting

Any person born between 1980 – 2000 counts towards Millennial. As of today, it’s the generation aged between 15-35. That’s a difference of two decades.

Millenials

I am personally unable to identify anything that is equally appealing to people between 15-35. This  is the most exciting age bracket &  statistics show that people have already experienced 70% of their AHA moments before the age of 35. Once you cross 35, it gets difficult to change your personality, habits or behaviours.This is the reason why it is lucrative to attract this age bracket while one is learning new things and adapting to new habits.Few of the interesting characteristics are

  • Early adopters – They are OK with being the guinea pig
  • Social – They share their lives publically and not much of a private person
  • Adventure – They take more risk and are not in rush to settle down  
  • Informed – They are probably the most informed generation based on the content they consume

These all characteristics make them ideal customers for a new product that might or might not work, however, remember, they range from a high school kid to a mid-level manager, so it’s a broad market size. In US alone, there are expected to be 80 million millennials. If brands are able to capture their minds before 35, chances of upselling them for rest of their life becomes bright.

Millennial generation

 

I am part of Millennial & you?

2016-03-06T15:46:54+00:00October 27th, 2015|