a16z Podcast - Fintech Fuels Global Payments

Episode Date: October 30, 2023

Software crosses borders effortlessly. The globalization of money, however, is considerably more challenging. This is especially true for multinational businesses, which grapple with managing multiple accounts in diverse currencies, navigating costly foreign exchange rates, and unpredictable money transfers.As businesses increasingly embrace a global default, top fintech entrepreneurs are rising to the challenge, addressing cross-border infrastructure issues and offering comprehensive solutions.In this episode, a16z partners Angela Strange, Joe Schmidt, and Gabriel Vasquez discuss the challenges of cross-border payment infrastructures and what fintech entrepreneurs are doing to create a more integrated, financially inclusive world.Topics Covered:00:00 - Software crosses borders easily; money does not. 03:02 - Why has global payments been a challenge for so long? 05:44 - How global payments and money currently moves07:25 - The metrics used to measure a country's financial health12:13 - The impact of regulation on financial services16:23 - Can the same regulations be applied to any country? 21:29 - Why each country has its own fintech system24:54 - Opportunities in global payments infrastructure34:47 - Advice for founders navigating global fintech systems36:58 - What does a truly global system enable? Read the Fintech Fuels Global Payments package: https://a16z.com/global-paymentsWatch ​​’Foreign Exchange 101: What Happens When You Send Money Abroad?’: https://youtu.be/eoXdyO9oGJc?feature=sharedFind Angela on Twitter: https://twitter.com/astrangeFind Joe Schmidt on Twitter: https://twitter.com/joeschmidtivFInd Gabriel Vasquez on Twitter: https://twitter.com/GEVS94Stay Updated: Find a16z on Twitter: https://twitter.com/a16zFind a16z on LinkedIn: https://www.linkedin.com/company/a16zSubscribe on your favorite podcast app: https://a16z.simplecast.com/Follow our host: https://twitter.com/stephsmithioPlease note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures.

Across the world every year, 5% of global GDP is actually money laundered every single year, which is a crazy number. We did this exercise where we sum up all the regulatory changes that happen in a year, and we divided it by all the days, like 365 days. And on average, you get two to three changes per day. It gets really, really complicated, really, really fast. Many companies are correctly focused on, all right, how do I more cheaply attract my customer? How do I retain them? How do I better monetize them? The answer in that case, in many cases, is

Money predates software by 50 centuries. Yet, while software transcends borders, money movement remains fragmented, to say the least. Not only do companies have to deal with country-specific rails and banking partners, but they also have to navigate constantly evolving regulations and compliance requirements. But at A16Z, we believe all of this is about to change. As the company of the future turns default global, the demand for fintech infrastructure that enables companies to integrate payments, lending, and other financial services globally will grow with it. And we're already seeing the shift play out all over the world, from Brazil to the UK to India, driven by tailwinds in innovation and regulation. Just to put some perspective around this opportunity, every day,

$8 trillion are sent around the world in multiple currencies. That is almost 30 times our global daily GDP, making it the biggest market in the world. And despite its size and importance, there are still so many stories of money getting lost, delayed, at prohibitive cost, or even unavailable. So today, we're joined by A16Z FinTech partners, Angela Strange, Joe Schmidt, and Gabriel Vasquez,

who see the opportunity on the horizon and are actively investing in startups fueling the rise of global payments. Together, we discuss how we got here, how unmet demand is attracting top entrepreneurs to build global fintech infrastructure, how countries like Brazil and Mexico have catalyzed financial innovation, and the opportunity for founders to turn payments global. If you'd like to learn more about this opportunity to create a more integrated, financially inclusive world, check out our full package at A16Z.com slash global dash payments, which by the way includes an amazing interactive global payments map. All right, let's get started. As a reminder, the content

here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16C fund. Please note that A16D and its affiliate, may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16C.com slash disclosures. All right, so I feel like a good place to kick things off is this idea that software is inherently global.

I mean, the three of you made a great point in your package that the Google of Brazil is just Google. But money, for some reason, feels different, and global payments feel so complex. So given the fact that we do have new technology, maybe just give us the lay of the land. Like, why has this been such an intractable problem for so long? Yeah, so you kicked it off. Software crosses borders super easily. It often is just language translation, which in, you know, today's day of AI is even faster. And obviously, money moves around the world, people travel. It just moves very clumsily. And it has become increasingly problematic for global businesses. and, you know, as we're in the post-pandemic age, businesses are in multiple countries

faster and faster in their life cycle. And so two big primary problems. And, you know, the whole reason we're digging into problems is because those present opportunities for new companies that we're excited about. So problem one, if you're a business with a presence in multiple countries, you have multiple bank accounts, sometimes more than one per country, an investment account, banking account. You have expense, opaque, foreign exchange, going back and forth between countries. It is unpredictable when that money is going to land, especially if you're transferring money from the U.S. down to Brazil for payroll, you can be late.

And as a result, finance teams can spend, you know, more than a month just to close their books. So ask many companies in, you know, multiple countries, hey, how much cash do you have on hand? Their answer might be, oh, let me check with the intern whose job is to log into multiple bank accounts twice a day and to record manually our cash position in Excel. So just clumsy financial accounting, a big problem that lots of smart companies are tackling, but this is increasingly top of mind for many CEOs. Problem slash opportunity, too, as I'm fond of saying every company wants to be a fintech company, software companies that are global that want to add financial services, this is extremely cumbersome. And so the example that I love using is let's say you're an operating system for electricians or plumbers

and you have operations in U.S. and Latam and Australia, and you want to add text messaging, well, that's really easy. You can just partner with Twilio. If you want to issue credit cards for your plumbers or bank accounts for your plumbers, that's likely multiple providers per country that you need to stitch together to do that. And so this has gotten us really diving into the areas of, all right, software moves easily, money should move much more easily. There's great companies to be built here, and there's a growing customer base that just has, demand for better solutions here. Maybe you could just double click on why that is. It does seem intuitive to me that money should move as easily as information, but that's not the case.

Angela, can you just give us a quick breakdown of how money really moves? Like, we're both Canadian if we're trying to transfer money from Canada to the U.S. Again, it seems like it should be intuitive, but we both know that that's not always the case. Yeah, and our partner Alex has a great video of this that breaks it down. Let me use an example. I want to move money from my U.S. Bank to my family back in Canada or maybe to my brother down in Brazil. And the simplest version would be, let's say I bank with Chase in the U.S. and my parents bank with the Royal Bank of Canada. Chances are Chase and Royal Bank of Canada have a direct relationship. And Chase would even have what's called a Nostro account, which means ours, which is an account at the Royal Bank of Canada,

where they keep Canadian dollars. And so I can just tell Chase, hey, listen, I want to transfer X amount of Canadian dollars to my parents. They can take it out of the no-show account and put it into our account. Now, that might be a little bit faster. How much is that going to cost? Well, as much as they can extract as possible. Is it going to be immediate? No. Is it very transparent? Definitely not. Does money move on holidays? No. So there's problems there, but that's not the most complex case. Most cases occur because most banks don't have direct relationships with every bank around the world. So insert what's called a correspondent bank,

or sometimes more than one correspondent bank, and now your money has to go through this not transparent, expensive hop multiple times to get to its end destination. I didn't realize before seeing that example and seeing the wonderful explainer from Alex, which will also link in the show notes, just how complex money movement can be. This team also put together a map of different countries around the world to kind of gauge financial health of these different countries. And you chose four metrics. They were banked population, smartphone penetration, credit card penetration, and local payment rails. Give me a sense of why those four metrics were chosen and how they really represent the health of the fintech ecosystem. And then also,

if there's any countries that you're paying attention to, are there corridors that you think are doing things maybe differently than other countries around the world? We included these four kind of general categories. And I don't know if we want to call it health of the fintech ecosystem, but more of like the state of the fintech ecosystem in each of these places. And so we really wanted this show is, hey, obviously the first thing you might be able to do in one of these countries is help a person get a bank account, which is where they're storing their paycheck. And it's the on ramp into all of these other opportunities. Generally speaking, a smartphone is pretty critical in terms of whether it's paying for a good or having that

bank account on their smartphone. And so we wanted to show the opportunity that maybe a more digitally native country versus a less digitally native country might have, which is obviously very different. Credit cards are either super prevalent. Like you see that in many European countries are here in the U.S., but in certain places there really isn't serious credit card penetration. And so we wanted to kind of show the differences there. And obviously that might create an opportunity for a mobile wallet or a different type of payment method that we see maybe in Africa or Southeast Asia or Latin America. And then really calling out certain local payment rails. And so, you know, for example, in Canada, they have Interact, which is like the Canadian ACH.

I know your Canadian stuff. We have another proud Canadian on this call in Angela, but you look down at whether it's Brazil with PICS and really the local payment rails that maybe a country that's operating multiple GEOs is going to have to leverage to, you know, issue local payments. And so we wanted to basically call out some of these unique peculiarities because each one of these markets is so different on that interactive map. And I think this is something that we've been ideating on for all. long time and we were excited they'd make it interactive. You know, we've talked about Canada a few

times, but I think when people say, you know, hey, what corridors might you be most interested in across the world from a cross-border perspective? People think of what maybe a bank or a regulator might call like a higher risk corridor, right? Maybe it's an unbanked part of Africa to the UK or Southeast Asia to the Western world, something like that where banks might not understand the risk profile of the end business as well. But you looked at Canada, the U.S. This is just as big of a problem in an absolutely massive market. So Canada, U.S. is a $1.7 trillion corridor annually. U.S. and Canada moved $2 billion of goods and services every single day. And this is still a massive problem. And you would think, like, oh, the maple

leaves are in the NHL and we have the blue jigs. This has got to be a solved problem. No. And so, you know, like you could take this example of maybe it's a small business that is producing maple syrup, maybe their suppliers are on both sides of the border. You've got a Canadian supplier and you have a U.S. supplier of the maple syrup or the chemicals that go into the maple syrup. They need to figure out how to pay that supplier. And then also if they're distributing in the U.S., they need to figure out how to receive money from that U.S. distributor. And obviously you're going to have multiple entities, as Angela mentioned earlier, where you're managing, you know, bank accounts in the U.S., bank accounts in Canada, hedging your FX risk, moving money between entities, understanding your cash position,

And so for something as simple as a small or mid-sized Canadian maple syrup manufacturer, it gets really, really complicated, really, really fast. And so I think that's a quarter that we're super interested in. It's not the only one, but I think people oftentimes ignore the really obvious opportunities hiding in plain sight. We could have picked 10 metrics. Those were just four of the more illustrating ones. One of the interesting things is to watch how they've changed over time. And my particular favorite contrast is credit card penetration in many.

countries contrasted with smartphone penetration. For instance, and this drove one of our investments in Latin America in Colombia, where the credit card penetration had saved flat for a decade under 20 percent, smartphone penetration went from 10 to 80. And so now all of a sudden, the entire population had potentially a mini bank in their pocket. And that's exactly how a lot of the new companies are delivering these financial services. And so versus the U.S. and many banks are still opening branches, and that can be a viable strategy depending on your market, just the increase in smartphones has been a real driver for being able to offer banking services in many countries around the world. That's such a great point. As you're looking at the map, are there other things

that you're looking for where you're like, oh, I see this one metric surging and another staying flat or stable? Is there anything else that you're paying attention to as you see maybe the confluence or combination of certain metrics put together in a certain region? One of the aspects that we take, A close look is also how regulation can sometimes push forward innovation. So I'll give you the example of Brazil. Let's go back in time to 2010. Brazil had an oligopoly of five banks that were also among the most profitable in the world. And on top of that, only half of the Brazilian population had access to financial services.

But fast forward to today, this has changed dramatically. You know, like now above 85% of the Brazilian population have access to bank account, The main payment method is PICS, which is this electronic instant payment system owned by the central bank. And it also has one of the most thriving fintech ecosystems in the world. But this drastic change was not driven overnight. It is the result of decades of regulatory changes that have happened in Brazil. So let me touch a couple of examples. It started with the merchant acquiring site.

So in 2010, there was this duopoly between Cielo and Reddit, which were the largest acquires in Brazil. And they had exclusivity partnership with Visa and MasterCard. The Brazilian Central Bank ended this exclusivity. And that allowed other merchant acquires to come into the competition. And it also enabled to lower the fees, which enable SMBs to adopt the merchant acquiring services, which led to the rise of large companies like Stone and Paxaguro that served the segments of small businesses and micro-merchers in Brazil. then is another big portion that happened was the unbundling of the banking licenses in Brazil.

I'm going to touch on the two most important ones, which is the payment institution, which enables basically companies that are not banks to offer digital money transfers and opening of digital accounts. So this led to the rise of companies that are very famous now, like New Bank and Neon. And in 2018, the Brazilian Central Bank also launched a new license called, the SET license, which basically enabled startups to operate directly in the credit market. So before that, they had to partner with legacy financial institutions to offer financial services, especially on the credit side. But this license enabled them to bring this economics in-house

and have a more dynamic competition. On top of that, Brazil has continued to innovate. They offer now open banking, which is enforced. And in 2021, they launched PICs, which within a year, achieve 100 million users, which is incredibly the adoption that it has had, but it's also a result of a lot of regulatory innovation that happened within Brazil. And for what we're hearing, it's not stopping there. They're thinking about regulating crypto. They're launching their own digital currency that has plans in 2024. The word is they're expanding picks to Colombia, which is also a testament of the innovation that Brazil has had and how other countries are using them as an inspiration in the region.

So I think that is super impressive what Brazil has done in the last decade or so. Yeah, I think one doesn't generally think of regulation as a tailwind. And I'd say when we started investing in financial services, right, if you contrast that to other markets, like you look at the rise of Uber, for instance, they explicitly broke the taxi regulations and, you know, sooner enough, all the regulators were in Uber and, you know, laws had to change. From a thin fact point of view, like, you can't ignore. or K.YC and AML, you're going to go to jail. So you have to comply with the regulation. And thus,

when a country does something very specific, which encourages new players, or at least makes the process to enter very clear, we definitely pay a lot of attention with that from an investment point of view, because it creates an interesting new tailwind. And you can look at, you know, a lot of new companies have been started at the point of some of these regulatory changes. It's because they really catalyze and capture on those. That's such a good point because we really don't often think, especially about financial regulation as a tailwind. We often think of it as the exact opposite. I'm sure a lot of people in America would think to Dodd-Frank and the thousands of pages and hundreds of new rules that were enacted from that.

But, Joe, can this be applied to America? Like if we look to Brazil or some other countries like the UK that are introducing regulation like open banking, can we just copy and paste those? or is there some other dynamic that we should keep in mind? Is the U.S. fundamentally more challenging? It's an interesting question. And maybe I'll answer it in a slightly different way. You asked, like, how does money actually move internationally? It talks about, you know, okay, the money is moving this way through whether it's a global bank

and then a no-sra-vostra account, the correspondent bank, and then to the receiving bank. That's really one part of money movement. The other side is really where the regulars really care a lot about is basically the compliance workflow around moving money. And so for each one of the parties in Angela's example, there's a major compliance overhead aspect to that, where they need to onboard a customer, or they need to understand who that customer is, right, and then communicating that between all the different parties in that transaction. And as Angela said, that might be many hops between many different banks or financial institutions. And so one really interesting kind

of regulatory tailwind that's being driven here in the U.S. has been the broad derisking that's happening, being driven by the U.S. Fed. And so what I mean by that de-risking process is there are across the world every year, 5% of global GDP is actually money laundered every single year, which is a crazy number. And so in response to this, the U.S. Fed has actually terminated many no-sherobosha accounts for correspondent banks. And so what we're seeing right now is this massive increase in demand for cross-border transactions. We've talked about the company the future is DePaul Global, and there's data on cross-border transactions doubling over the past decade, that's on the one side. And on the other side, we've seen a massive decrease in the number of correspondent banks that are available.

And so this is creating this really interesting time where, one, you can help banks actually solve this problem. And we have a company called Pay All that actually does that, where it helps unoriginating and receiving institution communicate, basically, the onboarding and compliance information across that entire chain in a holistic fashion. So that's the one end, as you could solve solutions to the traditional banking. environment. Or two, you could go and sell as a net new business, right? You might build new infrastructure or a new company that might acquire and use her in a different way. And so that is a really exciting tailwind on the regularsory side. It's being driven here in the U.S., but it's relevant globally as many of the correspondent banks, you know, the money moves in dollars and the U.S. Fed controls that from a regulatory standpoint. Absolutely. And I think maybe before we get into

opportunities, let's just address why this matters now. Right. You mentioned a lot of companies are becoming default global. That is a thesis that, Angela, I know you've presented. And what I'm trying to get at is the fact that money has been around for thousands of years, software has been around for less time. But is there really a why now, like in 2023, where things are fundamentally changing where we need to understand or change our approach to global payments? You hit on part of it, which is it's the default global company. And I think it used to be, you know, a company would start in one country, you'd hire 50 people generally very close to where the founder lives. and then expand gradually over time.

And then as you get to be a larger and larger company, you can hire lots of treasury people. You can have FX people. You can figure this out. It wasn't smooth, software-driven operating, but probably less top of mind. Now companies are facing these cross-border challenges much earlier. And then also just expectations of the quality of software

has gone up dramatically. We have great experiences in so many different areas. and the experiences of software in the treasury and finance and the functions that often the CEO has to deal with earlier in stages are just not at that level. So there's lots more demand and there's lots more great entrepreneurs going into that space. Let's just bucket one. And then bucket two, you know, we're coming off extreme growth in 2021. And in 2023, many companies are correctly focused on, all right, how do I more cheaply

attract my customers. How do I retain them? How do I better monetize them? The answer in that case, in many cases, is financial services. And so we're seeing a large uptake in larger companies and sometimes even, you know, older companies that have been around for 20 plus years in wanting to add financial services and the demand for modern infrastructure. Like there's definitely not cross-border infrastructure in many cases, but many cases don't even have, modern infrastructure just for that single country. And if we're thinking about specific countries, maybe one more thing to address before we jump to opportunities is why the rails in different countries differ, why the payment

preferences differ. Maybe this is obvious for someone in FinTech, but it reminds me of, wasn't there some stunt a while ago where people were like, why don't we all just speak one language? And someone tried to invent one language and they were like, everyone's going to speak this and it all be good and it'll simplify so much. Why is it the case in FinTech? that so many different countries have so many different systems. Also, to your point, Angela, at different levels of innovation or integration of software. I think the example that I love to give here is related to Latin America because there's a huge contrast between the two largest economies, so Mexico and Brazil.

Let me give you an example of this. Mexico, 90% of the population use cash transactions below 500 pesos, which is about $30. Above that threshold is around 80%, but it's still extremely high. You know, in Brazil is completely different. The main payment method, as we discussed before, is PICs. And 75% of the consumers in Brazil have access to PICs or have an account that enables them to use PICs. So that is a huge contrast between the two. And if you think about it, we talk about Brazil as an example of how regulation has pushed forward innovation in the country.

Mexico has had similar initiatives, but have not flourished the same way because it has not been enforced the way that it was enforced in Brazil. So there's also a lot of dynamics that differ between the cultures and dynamics within the country and infrastructure. For example, in Latin America, there's a huge fraud rate. Mexico, the chargebacks are around three times higher than the average global. And it's harder to prosecute because the legal framework doesn't support online evidence. So this is like a huge problem when we talk to Mexican founders when they're like, you know, fraud is a huge problem. So payment providers in Mexico are super focused in authentication, right? Then creating the tools to assess fraud and make this more efficient.

The same goes in a lot of other countries in Latin America. So that is one thing to highlight. In Europe and Asia, priorities are a little bit different, right? Because you have a higher fragmentation within the payment providers or payment preferences. So managing this fragmentation requires, you know, infrastructure providers to not only accommodate this new, to each of the countries, but also have access to the right licenses to operate in this countries. And that can create a lot of complexity because each country might have different requirements that take several months and then to offer the solution regionally can take

up to years. So that's one of the complexities that adds. I think Gabe hit the nail on the head. And the simplest way that I like to say this is the local payment rails really at the end of the day, how the money actually moves. is governed by central banks. And the central banks are a part of the government. And the people that are obviously elected officials that control how things actually happen in a country, you know, the people with the guns effectively, that is who controls how the money ultimately is going to move. So it's not as simple as, hey, we're going to build some new thing that's going to be beautiful in seamless. You've got to navigate all of the different intricacies that Gabe just called out.

And that is going to be inherently different across each and every country because the regulation is so different, which is what creates this global compliance problem is the issues within one are different as they are on another. So I think that was extremely well put. And I mean, Angela mentioned this before, but for every problem, there is an opportunity. So I think that's the perfect segue to talk about the fact that we have a few trends intersecting. We have many companies now becoming default global. There's higher demand for some of these cross-border payments or services. But to this group's point, every country is different. Some countries have set up regulation so that it spurs innovation. Some countries are probably enacting

regulation that perhaps has the opposite effect. But let's talk about opportunities. Where do the three of you see opportunity on the horizon when we're thinking about this global payments infrastructure? I think that there's two areas that give a great example for this. One of them is taxes. So when companies operate across Latin America, they have this general vision that's like, oh, taxes is a little bit different, but similar in certain. aspects, but I'm going to give the example of how different it can be between Mexico and Brazil. So Mexico has a system that we're traditionally used to, which is like they have a fixed rate of VAT, which is 16%. So it generally makes the calculation straightforward. It has some

exceptions based on certain industries and certain regions that are near the U.S. border, but in Brazil is not as straightforward. In Brazil, there's a different tax for goods and a different one for services. There's two different type of tax that you start at the high level. The tax for goods is different if the good is purchased by a merchant or by the end consumer. So that's another level of complexity in the calculation. And then the calculation also depends on both the state that the good is originated in Brazil and the state that is the final destination.

So for example, if the good originates in Minajirae, the state of Germany and is sold in Sao Paulo, both states receive a portion of the taxes. There's 26 states in Brazil, so that can lead to 325 possible combinations. And each state has an incentive, they call it this fiscal war, to incentivize certain industries to lower the taxes and attract those businesses. So there's a lot of complexity depending on the industry that you operate and makes the calculation a little bit harder. On the services side, it's not at the state level. It's at the municipal level. So just the state of Sao Paulo, there's 645 municipalities. So there's a lot of complexity when it comes to calculating taxes in Brazil when compared to Mexico that has like a VAT rate that is fixed.

So that's one example on taxes. If we jump into payroll, pretty similar dynamics, right? Mexico has a centralized tax system, as we just discussed, and labor laws are also less complicated. It's pretty straightforward, very similar to the U.S. But Brazil, the regulatory landscape for labor is actually very complex. So we did this exercise where we sum up all the regulatory changes that happen in a year and we divided it by all the days, like 365 days. And on average, you get two to three changes per day. So if you're an HR department that operates in Brazil, it's really hard to maintain the accurate calculations of what is the appropriate calculation to pay to the payroll. And, you know, we did this exercise.

as well, that people in Brazil spend around eight times more than their counterparts in the U.S. trying to comply with payroll regulation. And errors in this calculations also lead to fines. So people are liable for mistakes. And the market in Brazil is dominated by BPO's that handle these calculations manually. And most of the time, because it's manual, like there's errors and companies are liable for this and they have to recalculate. So it adds to the level of complexity. Can you just clarify why that's the case? Like, why would those regulations be changing so quickly so often? It seems surprising to me.

Yeah, so this is mainly because Brazil has a strong influence from labor unions, and that is why it's driving those changes. And then remember that every state has different priorities on the industries that they want to protect. Brazil generally is very protectionist of its own economy, but that's the main reason why, because of strong labor unions in comparison to other countries. in Latin America. Thank you. That was not intuitive to me.

Yeah. So just to finalize on this point, it can vary a lot. And if there's a founder, you know, trying to decide, okay, where should I start?

You know, I think starting in the hardest place and finding a solution from there could be actually very appealing because there's a clear market need. A lot of Brazilian companies that struggle with this and this is one of the opportunities

that we're excited about. That's amazing. And I think a great example of where, outside of the global context, you're talking about one country where there's just so much opportunity. What other opportunities do you see, Joe? Well, I think we've touched on some of them already, whether it's compliance and what that leads to. So maybe I'll start with that compliance point. If you think about what needs to happen in each one of these transactions, there's an

entire onboarding process. Just as Gabe mentioned, is different based on each and every country that you're moving money between. And so the onboarding process, you could either solve this with infrastructure on the KYC or the KYB side of like actually understanding who is that customer, but it extends beyond that to all the other information you might need in the onboarding process, as well as just complying with other local regulations such as, hey, where can I actually store like my customer data, right? Something as simple as that, right? So navigating this kind of global compliance problem is a major issue for businesses. That is kind of step one. And step two of that is actually like the fraud aspect, right? So, okay, first I need a

understand who my customer is. Second, on the fraud side, like, is this customer that I've now underwritten, is this transaction actually them? And this is another really painful part of, especially in high risk categories, whether it's a small business or an underbank type of company, you know, each and every transaction, there's obviously a high fraud risk. And this is going to get to be more challenging with generate of AI and all the things that have happened over the last, you know, 12, 18 months. And so we really are excited about seeing, you know, how we're going to combat that over the coming year. And so I think that those two things really lead into two different types of opportunity here. And on the one side, there's obviously a huge

existing infrastructure of partners that are moving money across the world today. Global banks, regional banks, equipping them with better technology like Payle is doing is one avenue that we're looking at. And there's a bunch of other ways that those banks can be better served and can do their jobs more efficiently, which will take costs out of the ecosystem and help everything work better. And the major tailwind is the correspondent banking issue that we talked about earlier. And on the flip side, there's a bunch of opportunity to go out there and acquire, whether it's an end customer that's trying to move money peer to peer or a business trying to move money internationally and serve them with a better, more holistic software experience.

And so if you think about all the problems we talked about, whether it was the maple syrup example I used earlier or Angela's example of her moving money to her family back home, there's a bunch of different software use cases around that money movement. And so you can just one, supposedly provide like a multi-currency account of saying, okay, instead of like navigating between all these different bank accounts, abstract that complexity, let's put it all into one simple multi-currency account.

That's the starting point. But what else could you potentially solve around that in like a borderless banking example, right? You might address some of the tax issues that Gabe just brought up. You might bring up some of the Treasury and FX issues. that we've talked about earlier. And so we think a lot about what does that operating system for a global business look like or what is software that powers this cross-border transaction look like for a business or a consumer. And we think there's a ton of opportunity there. And obviously

we invested historically in Wise, which does this really well for consumers and small businesses, but there's tons of other types of businesses that are doing this, you know, such as exporters or other businesses around that. So it's a super exciting time. Very exciting. It has me craving pancakes and maple syrup now. Listen, if I could find a way to have pancakes and maple syrup in our podcast, you know, I just, I feel like I hit my video card. I was going to say, fintech infrastructure has been holding back the maple syrup industry for decades. We've got to fix this.

We're decades. There's no infrastructure reason why Joe couldn't door dash us, some good pancakes in a movie store. Yeah. Canada supplies 85% of the world's maple syrup, but soon it will be 95. We're even increasing Canada's GDP. The room for innovation is insane. We could go on opportunities for a long time. There's so much good stuff here. When we're excited about it, just on the pure infrastructure side, I'll come back to my software platform that provides the operating system for plumbers and electricians.

It might surprise some people to learn that even for a software platform just in the U.S., if they want to let their plumbers, you know, accept money from clients, maybe store that in a bank account that's provided by the software platform, and then provide a card such that the plumbers can use that for expenses. That sometimes is three different infrastructure providers. And so even in one country, this info can get a little bit messy. In many countries to do it, you are either partnering with someone that's been around for 20 years. And clearly, their software probably works, but their documentation is often out of date. If you're a small company, they won't give you the time of day. implementation can take 18 months, that can be fatal for some early companies. And so just

the issuing, allowing companies to issue cards, and then more and more software companies are starting up and they're trying to add acquiring, which is allowing merchants and customers to accept payments in local currency. And there's just a lot of opportunity for modern players to come into both of those spaces. Definitely. You know, as all three of you are pointing out opportunities. The question that's coming to mind is just how you might advise founders to kind of see through the noise of different regulations, different countries who have different approaches, which in a way is amazing because you have all these different testing grounds and you see what emerges in each. But if we have a bunch of founders listening who are thinking about potentially

working in this space, like where would you begin? Many of the best companies in this space are from founders solving a problem that they had. Like you even think about the wise founding story, right? It was Tabit and Christo that we're transferring money back and forth. They said, well, this doesn't make any sense. You know, we should just keep a virtual ledger between Estonia and the UK. And they just deeply understood that problem because they felt it. Many companies that are infrastructure companies,

what happens is they started beforehand building a consumer business or a B2B business and then realized they were spending all the things. this time solving this non-core infra issue that they realized could be a company unto itself. And so my advice or just thoughts to founders is if you find that you've got a, you know, frustrating compliance problem or a fraud problem or you've been searching for this piece of infrastructure that should exist in your surprise that it doesn't, like that might be a company. Yeah, and I would just extend what Angela said to really think about the use case that you're trying to solve for and like the end company that you're trying to solve for and how you can

solve the things around potentially the cross-border money movement aspect, right? And so oftentimes it's not just like moving the money, but everything else around that from a software perspective that might, you know, help you monetize my moving money internationally. And so that might be another potential way of going about this is obviously there's a real opportunity between this corridor or maybe it's U.S. Mexico, U.S. Canada, or non-U.S. and direly, what are a group of businesses that have like a common problem, whether it's tax, treasury, what have you? and think about ways to solve that common workflow-related problem, and then you can get into kind of more of a cross-border monetization method from there,

which is another exciting way for maybe someone that's less fluent to go out and thinking about a way to build a business here. So we've talked a lot about regulation. We've talked a lot about taxes, compliance. These are things that don't necessarily get people jumping out of their seat. But this is one of the biggest markets in the world. Just end things off. Like, paint a picture for folks about what a truly global payment

system, what that could maybe enable. Well, we all jump out of bed, you know, the compliance, you know, and all the different things you need to solve. But you're totally spot on. I think the most exciting part about this category is it's been historically an awesome place to go and build massive businesses. It is like the largest market, I think, on Earth, right? That's not hyperbole.

It's trillions of dollars in size. And there's so many different ways to slice it. So you could look at just different corridors. there are multiple billion dollars companies to be built different use cases right you look at you know wise we started you know 10 years ago just 10 years ago and look at large that businesses now there's so much opportunity here across the globe and so I think what we're really excited about is continue to invest heavily in this sector continue to work with entrepreneurs as early as we possibly can to go and build in that new future here and I think that some of the businesses that will be built they maybe started today

right after this podcast is listened to by someone are going to become some of the largest companies on earth because that's what the incumbents are in this category. And so I think that we'd all love to chat with whoever's building companies here, but hopefully at a minimum, going into the weeds, it gets people excited and gives people a little bit of fodder for a net new business or one that they're already working on, and we'd love to chat. Financial services, insurance, it's 20, 30% of GDP of most countries. I think the other trend we're seeing here is as new companies are starting, the customer, at least the really strong influencer as a developer. And so I just, as this gets easier and easier, I think there's going to be more experimentation.

There's going to be more new products built because it's going to just be easier for the builders, the PMs and the devs, to test things out and just discover and build better and better user experiences. All right. If you made it this far, thank you so much for listening. But I also hope you're invigorated by this idea of the opportunity to turn payments global. And if you are, make sure to go check out the full package at A16Z.com slash global dash payments.

There, you'll find a bunch of resources. My favorite part are these case studies that they have covering India, Colombia, Mexico, and more. Plus, don't forget to check out the Global Interactive Payments Map. With that said, thank you so much for listening, and we'll see you next time.