Pierpaolo Barbieri on Latin American FinTech (Ep. 122)

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Gifted young Argentines tend to leave home to “make it in America” and never look back, but after earning a degree from Harvard, writing a book about the Spanish Civil War, and living in the United States for 12 years, Pierpaolo Barbieri has returned to Argentina. And he’s bringing foreign capital and talented expats with him. Pierpaolo’s FinTech startup Ualá works to bring universal banking to a Latin American market in which huge swaths of the population are still stuck using cash for everything. By giving the working classes power over their own money, he hopes to produce greater prosperity and social mobility in his home country and beyond.

Pierpaolo joined Tyler to discuss why the Mexican banking system only serves 30 percent of Mexicans, which country will be the first to go cashless, the implications of a digital yuan, whether Miami will overtake São Paolo as the tech center of Latin America, how he hopes to make Ualá the Facebook of FinTech, Argentina’s bipolar fiscal policy, his transition from historian to startup founder, the novels of Michel Houellebecq, Nazi economic policy, why you can find amazing and cheap pasta in Argentina, why Jorge Luis Borges might be his favorite philosopher, the advice he’d give to his 18-year-old self, his friendship with Niall Ferguson, the political legacy of the Spanish Civil War, why he stopped sending emails from bed, and more.

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TYLER COWEN: Hello, everyone, and welcome back to Conversations with Tyler. I’m here today with Pierpaolo Barbieri of Argentina. He is the CEO and founder of Ualá, a major fintech firm in Latin America. He’s an executive director at Greenmantle, a geopolitical consulting firm; general all-around very smart person; and his senior thesis that he wrote at Harvard, called Hitler’s Shadow Empire: Nazi Economics and the Spanish Civil War, was later published by Harvard University Press. Pierpaolo, welcome.

PIERPAOLO BARBIERI: Thank you. It’s a great pleasure to be here, Tyler. Thanks for the invitation.

On digital currencies

COWEN: The onset of central bank digital currencies — how will that change the world?

BARBIERI: I think it has the potential to change the world dramatically, but it’s going to take time. The world needs a new way to send money across borders, and over the medium run, what the Chinese are trying to do with their own digital currency threatens the overall supremacy of the dollar and the ability of the United States to impose sanctions beyond its borders.

The centrality of the dollar in the international financial architecture is threatened by the fact that other countries will want to use their new digital currencies to push forward first international transfers, then bilateral trade, and finally, potentially, trade and transfers within their blocs in a way that will erode — not destroy, but erode — the supremacy of the dollar that we have seen over the last hundred years.

COWEN: In this scenario, does China have free capital movements?

BARBIERI: Not necessarily, but it does have a protocol of transfer that is digital that allows you to do external transfers with some state-approved entities, and then bilateral trade between two central banks. What they’re premiering with Thailand and with Malaysia is very interesting because it suggests a possible future where the digital yuan is used to open the capital account on a selective basis in ways that they can control without opening it to everyone.

COWEN: The digital yuan and the internal yuan in China — do they trade at a one-to-one rate, or they’re in essence different currencies?

BARBIERI: In theory, yes, but you could potentially see a scenario where there’s a divergence in price. It’s not necessarily my base case, but I think what they’re trying to do — and this is less important for the US dollar because it’s freely convertible — is the ability to decide who you open with and how you open, and meanwhile push an alternative way to denominate international trade that is not dollar dependent. I think that’s the real optionality that they’re gaining.

COWEN: Given the failures of Chinese soft power, and that China more and more seems to have global preferences over what happens, why would other countries trust the Chinese digital architecture more than, say, SWIFT? Aren’t they just trading in one master for another, and ultimately they prefer the devil they know, which is the United States?

BARBIERI: I think for a lot of countries, that will be true. But you have to consider the weight of Chinese trade for certain countries, and how Chinese trade for certain countries in Southeast Asia and also in Latin America is so important to at least certain countries driven by ideology, or just the need to diversify their future options, would choose to at least leave the option open of doing some transactions in this new currency, and not entirely depend on the US dollar.

I’m not saying you fully replace one master with another, but you hedge masters in a way that somebody would have done in 1910 when you were thinking about the British-sponsored international system or the American system.

You’re an emerging market. You might want to hedge your bets and see what happens. We all have to recognize — and this is something we spent a lot of time thinking about — SWIFT is old, and it’s inefficient, and it’s extremely expensive. The real opportunity of digital currencies lies not in necessarily the novelty, but rather the possibility of supplanting a system that has been very cumbersome and extremely expensive for a long time.

It doesn’t start by replacing the system, but it’s just inserting competition into the system. If you are going to have a transaction on SWIFT that costs you $200, and it takes days to clear, that won’t change in years if you have to think about decades. People may want to start transacting in that mode in a way that lowers the transaction costs and makes international transfers easier.

Both from a firm perspective and from a government perspective, it may allow you to hedge bets in a way that you wouldn’t otherwise have been able to 10 to 20 years ago, where SWIFT was, and still is, the only real system that you have.

COWEN: I very often send remittances to Mexico as a form of charity, and I pay fairly high implicit fees on that transfer. Under this new payments architecture, how exactly does that transfer become cheaper in a relevant ground-to-ground sense? Where is the cost removed?

BARBIERI: That’s fantastic. The cost is removed because you have a direct way to connect, say, a Mexican wallet, where we operate now, to an American wallet, where we do not operate. If, say, we have a way to connect Ualá in Mexico to an American financial institution, then we can net out the transactions and do one transaction at the end of every day because we have a protocol of transfer so that, instead of doing a SWIFT each time an individual sends money to another individual or a firm sends money to another firm, we can just net it out at the end of the day with one financial partner.

You drastically reduce the cost, and then you insert competition, and if you’re not doing this in . . . TransferWise is doing a version of this in Europe, and increasingly in other countries. But I think that you could foresee a world where there’s a federation of financial institutions or wallets that have non-SWIFT connections between them that allow those private protocols. You could even have it with a stable coin in the middle at some point to net it out in a way that it doesn’t involve individual transactions that increase the cost.

COWEN: The people I send money to, they’re not really literate. In most regards, they’re not numerate. Do they still have to schlep to a branch office in Iguala and show an ID and pick up the money?

BARBIERI: No, that’s the revolution, that’s the revolution.

COWEN: How do they handle a wallet?

BARBIERI: That’s the revolution. If you want to specifically talk about Mexico, it’s fantastic because it’s my first international market. We spent two years designing the product that we released there, and today we reached the first 100,000 accounts. It took us less than half the time it took us to reach that amount in Argentina.

The real difference in Mexico is that 70 percent of people are, as you said, outside of the system. They don’t have a means of payment that isn’t cash, and that’s one of the real tragedies of Mexico because 86 percent to 87 percent of transactions, even after COVID, take place in cash. The first thing that you have to do is introduce these people to the idea that you can have a means of payment that allows you to buy something or get something that isn’t within your immediate 8-block or 10-block radius.

When you have a card and an account, then you free yourself from that branch where your friends or your family members go to to get the cash. That’s the guy that has the racket. The real expensive fees are charged by the company that says, “I’m the only game in town. I’m the only place where you can send these people cash.” Why? Because cash is the only thing they know.

However, if you have a card and a universal account, which 70 percent of Mexico doesn’t have, then you have the ability to use that account to receive the funds and cut out the person that has that little branch. That branch is unnecessary at this point because even if Mexican networks are not as good as US networks, you still have 4G in most of the country.

The problem is that we cannot give people accounts. Across Latin America, the reason we started Ualá is that over 50 percent of adults are in that situation of never having had a payment mechanism. You need to make it super easy, but it turns out you can teach people how to use a MasterCard because everybody wants Netflix, and everybody wants to have the ability to have Spotify.

Once people learn how to use the account on the card, then you can boost that and give them the ability to receive funds in those accounts. You don’t have to do the financial engineering at the personal level. You do it at the company level, but the person sees radically lower transaction fees.

COWEN: Okay, my friends — they’re comfortable with prepaid cards. What does Ualá offer them that a normal, plain old prepaid card does not?

BARBIERI: Well, first of all, we’re a debit card. In Mexico, we’re fully regulated as a debit card, so what we give them is the ability to build an ecosystem from the card. A prepaid card usually is issued in emerging markets by a company to spend only on that company. It’s an Amazon prepaid card and a Netflix prepaid card. They go with cash, and they literally exchange that cash for a card that can only be used on Amazon.

The beautiful thing about a Ualá account is that the account can be used for anything, and the card can be used for anything. It sounds like nothing new for a developed market, but it’s revolutionary for an emerging market. Why? Because what you’re giving them is the ability to transact in anything. You’re doing away with one of the biggest costs that they have and the reason they use prepaids in the first place, which is that whenever they take cash, they charge you a fee for turning that cash into an Amazon prepaid card.

The little spot in Mexico, the little bodega charges you a 2 percent fee, and then they charge Amazon, too. We do away with that. We say there is no digitization tax, so if you have 100 pesos, you’ll see 100 pesos reflected on your wallet card. Suddenly, all these people that are now over 100,000 in Mexico say, “Wait a second. You just made digital money as cheap as real money, so why would I use money?”

In the physical sense, I use digital money because, with this, I don’t have to worry about my cash being stolen. I can use different services. I can pay my bills without having to pay an extra to the guy there. Eventually, I can receive a remittance without having to pay an egregious fee.

I can top up money. I can re-top up my cell phone, which, also, other people charge for and we don’t. In the meantime, we’re building that person’s credit history, like we’re doing in Argentina but we’re not yet doing in Mexico. I can then lend you against that credit history that is now digital because before, when you transacted only in cash, there was no way to know if you’re going to pay your bill.

Suddenly, if I know where you pay your bills, and how you pay your gas and your water, and how much you spend on Netflix, and how much you get every month from your friend across the border in the United States, then I can finally create a credit history in a way that is more transparent and, frankly, easier than what existed before, where 70 percent of the country was outside of the system completely.

COWEN: Where will a cashless society come first?

BARBIERI: I think in Northern Europe, and definitely China is headed that way.

COWEN: Why in those countries and not others? In the US, currency per capita is rising. That may be held abroad, but still, currency is far from disappearing.

BARBIERI: Absolutely. I think the dollar is very particular because a lot of emerging markets — people want to save in US dollars. As you mentioned earlier, I grew up in Argentina. Argentines hold an amazing amount of physical dollars because they don’t trust their banking system after the implosion of 2001. I think that it’ll remain a constitutional right to hold cash if you want. Cash is anonymous in a way that a lot of people value.

But I think that there are societies in which you basically don’t need a card. When I’m in New York — I don’t remember the last time I used cash in New York City. I think a cashless society is driven by the fact that the regulators want to see a lot of transactions, as in China. But it also could be driven by the fact that from a convenience perspective, you can create a better credit history without having to deal with the difficulties inherent in cash, which is dirty, expensive for the state, hard to manage, easy to steal, hard to save on. I think that in places like Sweden or Denmark, cash is going away very quickly.

The problem is that there are certain regions in the world — and that’s why I do what I do — where 50 percent of adults have been completely left outside of the system. They don’t have a way to transact because the banking system gave accounts to the people they wanted to give accounts to, and they left everyone [else] out, which is why those banking systems are so damn profitable.

The Mexican banking system, which serves only 30 percent of the population, is amazingly profitable. It has much better margins than a European banking system or an American banking system because they just said, “Well, I’m going to serve this stratum of society and leave everyone [else] out.”

COWEN: And it’s almost cartelized, right?

BARBIERI: Exactly. The same in Argentina and the same in Brazil, where another company like Nubank is triumphing. What we see is a Latin America where we need a lot of people to provide those services so then we can build a credit history, and we can insert some competition into a system that had been kept for very few people by a few people. I always say the same thing. We ask the public to believe in democracy and capitalism, and then we don’t even give them a way to pay for Netflix.

It’s a very inherently unequal situation. When we launched Ualá in Argentina, people used to sell Netflix subscriptions on our eBay, which is Mercado Libre. That’s outrageous because Netflix prices their services to be freely available to anyone in these geographies for $4 or $5 a month, and yet they couldn’t access it because they didn’t have a payment mechanism.

The payment mechanism opens the door to a credit history, to savings funds, to insurance, to making all those financial services that are readily available in the developed world, in the developing world that are really an interesting cost structure.

COWEN: What factor will determine whether or not crypto outcompetes you?

BARBIERI: I don’t think crypto is competing with me because it’s very difficult to go from cash directly to 100 percent crypto.

COWEN: But an intermediary can do that. There can be a startup akin to yours, but the transfer occurs in crypto. There’s an option of final conversion into cash. If you’re dealing with people at the wallet level, why not trust crypto more than a government currency, especially for Mexico and Argentina, two countries the history of which I don’t need to tell you about.

BARBIERI: Actually, Mexico has pretty good financial stability since 1994.

COWEN: Recently.

BARBIERI: We see very high levels of adoption in places like Venezuela and Argentina for crypto. I respect that. I think Bitcoin is a very useful store value; not great to transact on your daily needs. I don’t remember ever seeing anyone pay for a coffee in Bitcoin. Those people who used to sell coffees in 2011 for Bitcoin — now they want to forget about those transactions, given what they missed out on. But there could be a crypto option, and I think it’s part of the ecosystem.

When you think about it, when 50 percent of adults have never had a payment mechanism, what they want to do when they first get it is sign up for Netflix, sign up for Spotify, pay for a game on PlayStation, pay for something on Steam, buy something on Mercado Libre or Amazon. None of those platforms take crypto. The day after tomorrow, when they do, maybe there’s an argument to be had. But it’s not a first transaction you do when you digitize to go buy a Tesla in Bitcoin. It’s quite rare.

COWEN: Say you’re outside of the earlier phase of your company, where you’re just seeking to build the size of the network and become a dominant source of network externalities, and you have a portfolio. You’re taking money from people, in a sense, that’s like deposits. For Ualá to make money, don’t you need to make loans? And if you make loans, then aren’t you a bank?

BARBIERI: That’s a fantastic question. It depends on the geography, and it depends on what we do. First of all, we operate like a narrow bank. We can have the argument about whether I should be regulated as a bank or not. In fact, it was reported on Friday that we bought a traditional bank, although we are waiting for central bank approval to integrate it because, obviously, you need central bank approval. We’ve always operated with 100 percent of reserves. We never lent out deposits.

The rule in Argentina has been, if you operate with 100 percent of reserves and legally you don’t lend those deposits, you do not need to be regulated like a bank. Why can I have a business model that relies on that? First of all, we do have lending, but we do it with investors’ money. We don’t do it with our deposits. The deposits are kept on separate accounts that are never lent because, otherwise, I would violate the rule by the central bank. Therefore, I would have to be regulated by the central bank as a bank.

Unlike other fintechs, we don’t derive most of our income from lending. In fact, most of the revenue we derive is either from the very low fees that we charge on asset management, which are the lowest in the market. We charge less than one-fifth of our competitors. I’m sure you’re not going to be surprised when I tell you that in Argentina and in Mexico, the incumbents charge 4 percent or 5 percent fees on AUM just to give you a low-risk money market fund because inflation’s high. So they charge you egregious fees.

Second, we make quite a bit of money on interchange. In that sense, we’re more similar to the United States than we are to the European neobanks because interchange in Latin America is quite high. We can make a lot of revenue just by having those MasterCard transactions on our network versus someone else’s network.

Thirdly, we’re also in the business of merchant acquiring, which is growing a lot. Once we’ve built the network on the payment side, we can build a network on the merchant acquiring side, which is reverse Square. Square started with merchants, and then it went into personal accounts. We started with personal accounts and eventually moved into merchants.

All those transactions are amazingly profitable. We are once again the most competitive player in the system because, lo and behold, the only player that existed in Argentina doing merchant acquiring at this level — giving you live transactionality — used to charge 6 percent of every transaction versus 2 percent that you pay in the United States. Why? Because there was no competition.

What did we do? We launched a product that was 45 percent cheaper than the competitor, and guess what? We’re growing 100 percent month on month. We have a suite of products that allows us to be competitive and drive a lot of revenue without having to lend deposits.

COWEN: I can see if what you’re doing is forcing cartelized banks to become more competitive. But it seems to me, in the broader sweep of economic history, which you know quite well, 100 percent reserve banking has never really been competitive. Won’t it be the case you simply evolve into being a bank or merge with a bank, with superior software capabilities, but you have to end up lending just to stay profitable?

BARBIERI: I don’t think you need to end up lending. I think that lending eventually becomes 20 percent to 30 percent of your revenue share. That’s what we project five years from now, but there are other fintechs that rely more heavily on that because they don’t have a full ecosystem.

If you look at the Chinese players like Baba and Tencent — Tencent, full disclosure, is an investor in Ualá — you don’t need to rely on lending for so much if you have a very good payments product and if you have fee-earning products on the asset management side or on the merchant acquiring side. In fact, merchant acquiring, for instance, what Square does, is more profitable on per dollar invested than lending is.

Even in geographies like Argentina, where lending has very low competition, the problem at the core is what you said. There are cartelized banks that never wanted competition, that always charged for things that were never a reality in the developed world. It’s the same institutions in Spain that don’t charge opening fees, maintenance fees, renewal fees that do so in Latin America, in places like Mexico or Colombia or Argentina. Every time you go to the bank, they charge you for an opening fee or a maintenance fee or a renewal fee.

We insert competition, and we do it with radically lower costs because we lower the cost of running a financial entity by 85 percent. Why? Because we don’t have any branches. We don’t have any other fiscal infrastructure. We don’t do our credit history on paper as the banks still do in Latin America, and we give an account to everyone. That gives us an economy of scale that other people just cannot have, and the banks don’t move fast enough.

COWEN: Let’s say we take away your short-run advantage just from being smart and better at software, and we look at a longer-run steady-state equilibrium. What is the factor or the variable that determines if the market will be filled with institutions that make money from loans as opposed to institutions that make money from payments on fees? What does that depend upon?

BARBIERI: That is a fantastic question. I think it depends on a variety of factors. First of all is the microeconomic stability. In a place like Argentina, if you only depend on loans, there are times when you have a recurring crisis, and if you have a crisis every ten years — that used to be the norm — or a crisis every four years, your whole lending book could blow you up if you don’t have access to any other type of fees. That is why, historically speaking, Argentine banks have pivoted in and out of lending a lot very regularly.

In a more stable economy, I think it depends on the kind of quality of the ecosystem that we have and what kind of competition exists out there. I could have a very profitable asset management business on its own, but it’s less defensible. Eventually, there’s going to be more competition, and more people are going to get into that business.

Eventually, I think the value is in the whole ecosystem, and that’s something that we can learn in the new steady state that we learned from China, where people want to have all their money managed in very few platforms. Then different platforms are able to channel a variety of services.

Tomorrow in Argentina, we’re launching insurance in partnership with Willis Towers. We’re going to be the first fintech to offer direct access to insurance product on a fintech platform. There you want to move faster and offer services that are similar to what the banks do in a more digital way without the associated costs of the banks.

I think, eventually, there are positive externalities that come with having the best and fullest ecosystem, in the same way that Facebook was able to profit from having the network effects of having just a better ecosystem where more people wanted to join.

Then, economies of scale also help financial institutions because, unsurprisingly, when you have 10,000 cards, nobody picks up the phone. When you have 100,000 cards, people start picking up the phone. When you have three million cards, then everybody wants to be your partner, and everybody wants to sell services through you. That means that they want to sell it through you and not someone else.

That should help you keep staying ahead of the game and, in the steady state, diversify away from having an 80 percent revenue-from-lending institution to a 20 percent revenue-from-lending institution, which I think is also, from a stability perspective, smarter in a place like Latin America where, historically speaking, you have a lot of potential macroeconomic negative effects.

On Argentina and Latin America

COWEN: Why did Argentina’s liberalization attempt under Macri fail?

BARBIERI: That’s a great question. There’s a very big ongoing debate about that. I think that there was a huge divergence between fiscal policy and monetary policy in the first two years of the Macri administration.

The fiscal consolidation was not done fast enough in 2016 and 2017 and then needed to accelerate dramatically after the taper tantrum, if you want to call it, or perceived higher global rates of 2018. So Macri had to run to the IMF and then do a lot of fiscal consolidation — that hadn’t been done in ’16 and ’17 — in’18 and ’19. Ultimately, that’s why he lost the election.

Generally speaking, that’s the short-term electoral answer. There’s a wider answer, which is that I think that many of the deep reforms that Argentina needed lack wide consensus. So I think there’s no question that Argentina needs to modify how the state spends money and its propensity to have larger fiscal deficits that eventually need to be monetized. Then we restart the process.

There’s a great scholar locally, Pablo Gerchunoff, who’s written a very good paper that analyzes Argentine economic history since the 1950s and shows how we move very schizophrenically between two models, one with a high exchange rate, where we all want to export a lot, and then when elections approach, people want a stronger local currency so that we can import a lot and feel richer.

The two models don’t have a wide acceptance on what are the reforms that are needed. I think that, in retrospect, Macri would say that he didn’t seek enough of a wider backing for the kind of reforms that he needed to enact — like Spain did in 1975, if you will, or Chile did after Pinochet — having some basic agreements with the opposition that would outlive a defeat in the elections.

COWEN: As you know, there are other Latin American economies that have reformed. Mexico, fiscally, used to be a mess. Now the central bank, the fiscal authority, are reasonably responsible. What is special about interest groups in Argentina that makes fiscal consolidation infeasible for governments that really mean to do the right thing?

BARBIERI: That is also a great question, and one I think a lot about. First of all, I don’t have the magic answer. I wish I did. Historically speaking, I think that, generally, we have oscillated between these two models. It is not widely understood sometimes in Argentina by certain politicians that if you run persistently large fiscal deficits, you eventually have to monetize them.

The monetization of those deficits leads to inflation in a way that it hurts the people who have the least in society. The rich are able to hold real assets that generally do well in an inflationary scenario. The losers of that are the people that end up voting for those policies.

But we do have politicians that don’t really see that. Even just 10 days ago, there was one very prominent politician that is part of the governing coalition who said, “We need lower inflation for the elections, and we also need more pesos on the streets.” He literally said that as if the two things were not an oxymoron.

COWEN: The Peronista movement won in Argentina, right? Ruled for some time. The reforms in 2001 failed. The more recent reforms failed. Is it that Argentina —

BARBIERI: Look, Argentina was an amazingly successful reform story in 1995, 1996, 1997. The convertibility that Domingo Cavallo brought and the liberal presidency of Peronista Carlos Menem in the 1990s, under that aegis of the Washington Consensus, was successful.

I think the problem there was that Argentines became enamored of the idea that they were suddenly a rich country, that they were suddenly developed, that suddenly had this peg that nothing could touch, so they kept it too long.

If Argentina had exited convertibility in 1997 or in 1998 after the Russian crisis, let alone after Tequila in ’94 — if they had known that they needed to float the currency to avoid an unsustainable fiscal path, then you would have avoided the collapse of 2001, which caught me as a 14-year-old, so I know firsthand what it is to feel it.

I think that there weren’t deep reforms done in 2001–2002, but there was a social collapse that led to a very radical change in the Peronist party and a destruction of the consensus that had existed until then. Suddenly, Argentina was able to grow at Chinese rates with no inflation despite fiscal spending because the effect was just so high.

Ultimately, that was not used as a time to do the necessary reforms for long-run economic growth. A lot of the political timelines and the personalities involved can be blamed for that, but I think we can all agree now, 20 years since then, that Argentina didn’t enact the reforms that Mexico did, that Colombia did, that Peru did.

A lot of it — there’s a cultural answer to this, which is that Argentines think that we can take the easy way out. For these things to be fixed, we cannot. We have to do what everyone else did — what Israel did, what Peru did, what Mexico did — to bring down inflation. What Brazil successfully did to bring down inflation. It takes years, and it needs a broad consensus because you cannot avoid doing it between one election and the other.

COWEN: What is the economic future for Uruguay, your neighbor?

BARBIERI: Uruguay has a very good economic future. If you’re on a PPP basis, very successful economy, open, small. You cannot really be closed when you’re that size. It has a great future exporting digital services to the world. I personally believe that that’s what also Argentina should be doing. That’s part of why I did Ualá and started Ualá here, because I think that Argentina needs a digital soy.

Argentina has had a very efficient agro-exporting sector since the 1860s and 1870s, which led to its fantastic wealth in 1880 and 1890 and 1900. But it hasn’t reinvented that model. It hasn’t reinvented itself. It still has a fantastically good educational system. It creates a lot of interesting companies and great talent, and so it should be exporting services.

I think that’s a little bit of what Uruguay is doing with a more pro-market, pro-world-integration view that is making Uruguay richer every year, more developed every year, and more competitive every year.

COWEN: Will Miami be the tech center of Latin America, or some other place?

BARBIERI: That’s a great question. I think Miami is making strides, but for now, the tech center of Latin America remains São Paulo. The Brazilian companies are five to seven years ahead of the rest of the ecosystems in the region. I think that it’s a great place to start a company. We had an incredible success story, starting with my competitor, Nubank, which started there, as well as Banco Inter or QuintoAndar or Loft, which was started by a friend in college.

All those companies are there, and there’s readily available capital. Everybody wants to invest more in Brazil, and you have a huge domestic market. As I always say, when you’re a Brazilian company, you have zero incentive to go abroad because you have such a large internal market in a way that also the United States does. A lot of the internet revolution, if you think back to 1998 and 1999, started with Argentine companies. That’s when Mercado Libre was started in Argentina. That’s when Wences Casares started Patagon.

I think that Argentina does have a great talent pool, and it needs a better ecosystem, which has been eroded in the last 10 years. I think that that’s starting to change, with companies like Auth0 and Despegar here, and obviously, Mercado Libre, which is still a huge employer, and of course, Globant. Argentina has a good chance of regaining lost ground, but for now, the capital of tech in LatAm is very much São Paulo.

COWEN: In cultural terms, the startup market in Latin America still seems underdeveloped to me. A few days ago, I looked at the per capita income of Paraguay, which is not a country that leaps to people’s minds. It was about seven times higher than that of India — a highly imperfect comparison, but nonetheless much wealthier than India. Yet in the world of startups, India compared to Latin America — it doesn’t even seem close. What, culturally, do you think is keeping Latin America behind? Or would you dispute the categorization?

BARBIERI: I would say that, first of all, there’s a huge cultural difference in the proclivity of people to go into startups. I think it’s only become cool in recent years to become an entrepreneur in Latin America. Even when I grew up in the early 2000s in Latin America, it wasn’t very cool. A lot of the people that have gone abroad from Latin America stay abroad. They don’t want to go back. I lived 12 years in America and then returned to Argentina to start Ualá.

Those two lead me to a more important point, which is the availability of capital. There’s a lot of people that want to deploy more capital into Chinese tech or Indian tech. Their relative stability, demographic profiles, and size of domestic markets means that every VC fund that loves risk wants more exposure into those.

Whereas, for Latin America, that has lagged behind. When we started Ualá, I can’t tell you the amount of funds that told me, “Yes, we might sit in San Francisco. We might sit in New York, three, four hours away from Mexico, but we don’t look at Mexico. We don’t look at Brazil. We don’t deploy any capital in Argentina. Please don’t bring me your idea. You’re based in Argentina. That’s too unstable a market for us to invest.”

In 2019, when we raised our Series C, it was the first time Tencent invested in Argentina. It was the first time that SoftBank invested in Argentina. Only the first time in 20 years that Goldman Sachs invested in Argentina in a real economy play.

We represented 96 percent of all the venture capital funds raised by Argentine companies in 2019. Yes, 2019 was the year when Macri lost the reelection. We can have that conversation, but the truth is that there’s a dearth of capital. You cannot really have entrepreneurship and people willing to take the bet if you don’t have readily available capital.

That has changed first in Brazil. Why? Because of its macroeconomic stability, generally speaking, and also because of its availability of a huge domestic market. A lot of entrepreneurs are saying, “Well, if nothing else, I’m just going to copy that American idea or copy that Chinese idea and bring it to Brazil.”

Finally, if people are willing to deploy the capital, I think Latin America is generally grossly underinvested outside government bonds and the energy sector.

COWEN: Are Latin American families somehow too happy, too supportive, and not nagging enough, because it strikes me that relative to per capita income, a lot of Latin countries seem happier than average, or happier than comparably wealthy Southeast Asian countries. Have you in some social ways engineered the family too well? And that you could just stay put in the family and be accepted, and no one kicks your butt across the room?

BARBIERI: I’ll interpret it in a different way, slightly more negative than yours, which is that there’s a lot of the European cultural aversion to the kind of risk inherent in entrepreneurship. And I think that’s a bad thing, especially when you want to get into the technological sector, which is a less certain sector, a less known sector, a less stable sector, where change happens a lot more drastically and rapidly. Think about the last three years in crypto — completely changing paradigms in even three years.

I think that in Latin America, it’s less widely accepted that people are going to go into that risk and take that risk. A lot of the people that are willing to do it just find their way to the United States, or find a way to the UK, and never come back.

For instance, we’ve had a hard time — and we’ve talked about this with many prominent American entrepreneurs — how hard it is to find talent in Mexico because, unless you are an heir or an heiress, if you found your way to an American college or an American business school or a UK degree or a French degree, what’s your incentive to go back?

There is no capital. It’s hard to hire. The incumbents are powerful. A lot of the sectors like banking are cartelized. Why am I going to go back? I’m just going to stay in New York, make a better salary, take less of a gamble, and not have to explain to my family why I’m betting my farm in coming back.

We’ve hired a lot of people for Ualá that have moved back from the United States or from the UK to work at Ualá, and they’ve had to explain to their families why on earth they were headed back to Argentina when they had made it to America. It reminded me of what my forefathers used to say in Italy. You left to “fare l’America,” to make it in America, and you certainly never looked back.

COWEN: Putting aside COVID, why does it seem that political economy in Brazil has so much just flung off the rails? You have Bolsonaro maybe against Lula, everything a mess, constitutional crises, never got on a stable track. What’s going on? How do you explain that?

BARBIERI: Obviously, Brazil for Argentina is a necessary partner. Brazil is at the heart of MERCOSUR, which should have become a European Union for Latin America and never did, never embraced free markets in the way that the free trader of the Americas would have done, but Chavez and Lula and Kirchner stopped it, I think negatively affecting the whole region back in 2004, 2005 when Chavez famously said, “ALCA, ALCA, al carajo.”

I think that what Brazil has is a profound political crisis, where you’ve had a loss of representation on the center-right. The center-right has been hijacked by Bolsonaro, who has a very free-market-thinking finance minister in Paulo Guedes but remains somebody that you cannot predict.

One day, you think that Bolsonaro is going to do the right thing. Then he suddenly replaces the managerial head of Petrobras, one of the largest companies in the country, by an army person, and everybody’s thinking about a coup. The following day, he puts forward a very liberal tax reform plan designed by Guedes. That kind of player has taken over the center-right in a similar way to how Donald Trump hijacked and replaced the elite of the Republican Party in 2015 and 2016.

Then on the left, you have a deepening problem of the judicial issues associated with Lava Jato, which was a little bit of a Brazilian Mani Pulite, going back to the Italian scandal in the early 1990s that imploded the political scenario until Berlusconi appeared in ’94.

So you have a vacuum of power. Lula has been in jail. Now he’s out, and I expect him to form back together the PT, which is the Worker’s Party, the Partido dos Trabalhadores, and I think that Lula will become the rallying cry of the center-left and the left. Then it remains to be seen if Bolsonaro can still build an anti-Lula coalition.

But the answer to your question is, you have a radical politically with a liberal — in the British sense — economic agenda, who has been trying to build a coalition that is becoming smaller, and a resurgent left. It’s very difficult for Bolsonaro not to give in to spending as much as he can, as fast as he can, to secure reelection next year.

That bodes ill for Brazil’s long-term reform since the Cardoso administration. Brazil is at the risk of throwing out, of wasting the difficulty and the time spent in lowering inflation and building credibility in its domestic economy by spending too much, too fast to stave off Lula’s return.

COWEN: Take Chile — they’re fairly wealthy by regional standards. They have reasonable state capacity. Yet, even with their economic growth, they don’t seem to have made much of a dent in their inequality problem, and the quality of their educational system for maybe even the bottom two-thirds still seems quite poor. Why is that such a hard problem for them to fix?

BARBIERI: That’s another great question. I’m not an expert in Chile. I would think that Chile went a little bit too far in the neoliberal playbook, and there are certain things in Chile that are private or overwhelmingly private that make it difficult for social mobility to exist. The amount of privatization in the healthcare sector and in the education sector make it difficult for families from the lower-income quintiles to have the ability to access the services needed to move to the third or second or first quintiles, and that reduces social mobility.

However, you should still think about Chile as an amazing success story of the last 40 years — development, much lower poverty, much lower hunger, much higher educational achievements. I think Chile is still a success story, especially when you compare it to Argentina, which has created net poor people in the last 30 years versus reducing it. But I think it could have been done in a smarter way if healthcare and education had had more of a public element than they have had.

On things under- and overrated

COWEN: We now move to the overrated versus underrated section. I toss out an idea, name, or thing. You tell me if it’s overrated or underrated. The French author Michel Houellebecq — overrated or underrated?

BARBIERI: Underrated.

COWEN: Why?

BARBIERI: He’s my favorite French novelist right now. I think that nobody has been able to epitomize or put in words the angst that I’ve seen over the course of my lifetime in a Europe that feels sometimes aimless, and in particular France that feels at odds with the modern world.

COWEN: Chinchulines — overrated or underrated?

BARBIERI: Overrated.

COWEN: Why?

BARBIERI: I can’t stand them. I know it’s not consistent with my passport, but I cannot stand them. I find it disgusting. [laughs]

COWEN: Wittgenstein?

BARBIERI: Underrated, I think. Essential for 20th-century philosophy and how we conceive of ourselves in the world.

COWEN: Who’s the philosopher who’s influenced you the most, including in business?

BARBIERI: That is a great question. That really threw me off.

COWEN: We can come back to it if you want. Bring it up anytime.

BARBIERI: Yes, we can come back to it. Sorry.

COWEN: Charles de Gaulle — overrated or underrated? You read the long biography. What do you think?

BARBIERI: I really enjoyed that book. I think he was the right personality at the right time but, ultimately, overrated as a political leader, and my Macronista friends will have to forgive me for that.

COWEN: Italian neorealist cinema?

BARBIERI: Underrated always. The best cinema, and Fellini, I think, the best filmmaker of the century.

COWEN: What’s your favorite Fellini movie?

BARBIERI: 8 1/2.

COWEN: Ingmar Bergman — what do you think?

BARBIERI: I’m not an expert. Overrated. I never quite understood why everyone loved him so much.

COWEN: The best movie from Argentina — is it Nine Queens, Nueve reinas?

BARBIERI: It is a strong contender, but I would think El secreto de sus ojos, The Secret in Their Eyes, is my favorite film about Argentina because of what it says about the very difficult period of modernization, and in particular, the horrors of the last military regime that marked us so much that it still defines our politics 50 years since.

COWEN: Why is the best pasta in Buenos Aires often so cheap? You can get an amazing —

BARBIERI: Because everything —

COWEN: But even relative to prices there, you can get an amazing pasta for $3, right?

BARBIERI: Yes. First of all, the macroeconomic instability of Argentina, and if you come here with dollars, everything seems quite cheap most of the time, except for the very few times when it seems ridiculously expensive.

Generally, it’s the amount of Italians that live in Argentina. Around 40 percent of the population is directly or indirectly descendant of Italians, and so there’s this attachment to Italian culture and Italian food as a result. My name should tell you everything you need to know about that.

COWEN: I think the average pasta, not the big pasta, but the average pasta in Rosario is better than in Buenos Aires. Agree or disagree?

BARBIERI: I agree. I love Rosario, and I go every time I can. It also has an amazing scene of, not just food, but also entrepreneurship.

COWEN: Should Borges have won a Nobel Prize in literature?

BARBIERI: One hundred percent. Borges is my favorite author, and The Other is my favorite story. If you haven’t read it, you should. It’s an amazing inquiry about Heraclitus and who we are — the one we are today or the one we were 30, 40 years ago. It’s about him meeting himself on the Charles River, and it makes me want to tell you that my favorite philosopher is Jorge Luis Borges, but I won’t —

COWEN: Yes, it’s a good answer. If you were to meet yourself 15 years earlier, what would you tell yourself? And would the earlier you listen?

BARBIERI: I will guarantee you that the earlier me would not listen, especially if you were on the banks of the Charles as Borges is on that.

COWEN: Just to be clear, you’re 33 now, and 15 years ago you would have been 18, for those who don’t know.

BARBIERI: Yes, I would have been in my first year at Harvard. I would have just encouraged me to make mistakes and to enjoy the years of free inquiry in college. I often worry that the people that are there now don’t get the freedom to explore ideas and explore different visions of the world, as I did when I was there — at least from the general literature around what is happening in colleges and what kind of dissent is accepted.

I would certainly cherish my time with professors there and the time in the United States. It’s important to really explore different visions of your life and areas to explore. I arrived at Harvard thinking I was going to do film, and I ended up studying history and writing a book about Nazi Germany and the Spanish Civil War, as you mentioned in the beginning — that nobody read, by the way.

COWEN: I’ve read it.

BARBIERI: Okay, well, that makes some of you.

I think that it’s often undervalued in the world — the great aspects of a liberal arts education, especially when you come from a geography where I come from, and I see what other people studied and how they were closeted into certain ideas very early on. I think that that’s an amazing time and an amazing opportunity, and it remains a great luck I had in life to go from Argentina to studying at Harvard, having the friends I did there and what I learned there.

COWEN: Who is your best or most important professor at Harvard?

BARBIERI: I had many wonderful professors. Obviously, Niall Ferguson has been a mentor and friend for almost 20 years now. He’s the person that encouraged me to turn my thesis into my graduate work and then a book. Also, he greatly encouraged me to start Ualá, not to mention Greenmantle, where we work together.

Also, having the ability to work with people like Charles Maier and Patrice Higonnet and wonderful historians like Stanley Hoffman, Emma Rothschild — all of them. I was just lucky to be there.

I know that education needs a tech revolution so that education is more readily available to more people because it is amazingly stratified and opaque as it is, but Harvard is an amazing institution. I’m so grateful that somebody from Argentina could go there on a scholarship because God knows I couldn’t pay for it three years after the 2001 crisis. Thanks to the reforms that Larry Summers implemented as president, and the whole body of the faculty put together, I was able to go. I can’t even choose.

COWEN: Why is Spain still obsessed with Civil War from the 1930s, which is now a very long time ago?

BARBIERI: Yes, it’s a long time ago, but as I say in the introduction of my book, there’s a lot of bones hidden beneath the surface. The Civil War itself crystallized many conflicts in Spain that had been brewing for 150 years.

Niall once joked to me that I wrote about Spain because I didn’t feel old enough to write about Argentina. But the process of economic decline that Spain endured since the 1830s to the Civil War, that culminated in the Civil War between a republican Spain that looked to France and a very Catholic, conservative Spain that wanted to turn back the clock, are still the dividing fault lines of Spanish society today. But at least Moncloa happened. At least democratization happened. At least European integration happened.

Spain today has a developed, open, competitive democracy with a developed, open, competitive economy, so people can be less tied to old stigmas, but the Civil War was a very dark time. A lot of the crimes were never prosecuted, and a lot of the faults were never inquired about, so they keep coming up in culture — just like the American Civil War is still a really important part of American culture, and just like the Dirty War in Argentina in the 1970s still defines our politics today. It’s not that unique.

COWEN: Did the Nazi German desire to use Spain for mercantilist purposes ever have much of a chance of succeeding? What I have in mind — if I look at the German balance of trade with Eastern Europe, which was another area that was to be used for mercantilist purposes — as the German economy recovered, the balance of trade worsened with Eastern Europe. Wasn’t simply the same going to happen with Spain in any case, and this whole big Nazi plan was not really very wise? What says you?

BARBIERI: That’s a great question. I think that what the Nazis needed from Eastern Europe was different. Yet, if Schacht had been able to implement the policies that he wanted to start implementing in 1937, to avoid such large percent of net new GDP going into weapons, they could have had a different type of way out where they could have tried to craft — I’m not saying that would have been necessarily successful — but tried to craft an informal empire over Europe that would have allowed them to reduce the dependence that they had on final armaments.

But I don’t think that the leadership of the party — and at that point, of the state — would have gone with that. Because the general conclusion of my book, in terms of Nazi economic policy, is that unless you really tap the brakes in mid-1937, war was the only possible way out. At one point, as Adam Tooze wrote masterfully in Wages of Destruction, you ended up having 20 percent to 25 percent of GDP going into armaments and that’s wholly . . . you’re not going to sell that to the French, so ultimately, war was decided upon as early as 1937.

COWEN: Now, you could have become a historian. You could have become an academic. You didn’t, but that modal possibility — to bring up an idea from Borges — how has that shaped the kind of founder you have ended up being? Because it’s unusual background for a founder, right?

BARBIERI: It’s certainly unusual. One of my investors said, “I broke two rules with you. I never invest in Argentines, and I never invest in nontechnical founders.” I said, “Great, fantastic.” The problem of contingency and understanding contingency in history allows you to be a great founder.

Obviously, learning and knowing financial history is essential to wanting to disrupt a cartelized group of banks. Because I’ve seen it elsewhere and I know what universal banking can do to a society, to its development possibilities, to social mobility, to democratization, as I was saying earlier. I think that understanding possible paths — and here’s a good time to bring up another Borges — the divergent paths of your history and the possibilities of building product are good for bringing together a team.

Ultimately, what a founder does is provide a vision and hire people. I can’t claim that I wrote a line of code, and I can’t claim that I run everything in the company, but the key job is to inspire, to set the direction, and to trust people and hire well.

When you have the better people, the best people — and I’ve done that in a way that is different from most Latin American founders because over 15 percent of the company is owned by their management team, and that excludes me, but that can only be born out of the humility that comes from the idea that I cannot do it myself. I cannot write the code, but I know where we have to go to disrupt the system because historically, I’ve seen it elsewhere.

I know what needs to happen to have universal financial literacy and financial education so that people can be integrated into the system. I want us to take us that way. In that sense, this unusual background is useful.

Some of the best backgrounds for founders are people who come from different industries, from different walks of life, that have the gall — for lack of a better word — to try to disrupt an industry, and it remains to be seen if I succeed or not. But if it does, it will have something to do with the fact that we wanted to start from scratch and ask the basic fundamental questions in a different way.

COWEN: Anyone can equitize, and many companies do. What is it you think that you understand about spotting talent — possibly from your background in history — but other founders might not?

BARBIERI: In Latin America, it’s a very American idea, which is that in order to spot the best talent, you need to attract people that have to be fully aligned with you. I don’t know any other line of an American company where over 15 percent of the company is owned by the management. That allows me to convince all those people that were in the diaspora to come back to Argentina and change the game with me.

When the big banks try to hire my people, they can offer them great salaries, but they’re not going to offer them 1 percent of Santander, and they’re not going to offer them the growth trajectory of what we’re building here. That’s how I’ve gotten people to quit from Goldman, from J.P. Morgan, from McKinsey, from Mercado Libre to join Ualá and share the dream.

As a founder, you have to recognize that you don’t have all the answers. When you build a better team, they improve on your idea. I think the worst founders are the ones who obsess with their own centrality to the process. Whereas learning from history, I think that in order to craft the best team, you have to have them fully aligned with you, and give them the power to really execute on what they know about.

I can’t tell my head of cards, who ran cards at Citibank for 25 years, how to do a credit card. I cannot tell my head of ops, who used to run ops for a division of J.P. Morgan here, how to do ops. I just have to trust them and have the humility to know that they know how to do things that I just couldn’t learn how to do.

COWEN: Let’s say you’re speaking to some other founders, and they’re interested in learning a bit of history, but obviously, their time is limited. What kind of tips would you give them for how to get started on that project?

BARBIERI: That’s a great question. The best way to learn history is to read history. I would choose a timeline or a time period that you like and read some great books. If you like economic history, I would recommend Wages of Destruction by Tooze. If you’re interested in the Nazi period, if you want to learn about the First World War, for instance, I would recommend Sleepwalkers [How Europe Went to War in 1914] or Niall’s Pity of War.

Great books teach you a lot, and biographies are a great way to get there. Obviously, Chernow’s biography of Hamilton has been so widely recommended that it cannot be more recommended. Lately, I’ve read a fantastic biography of Bismarck. I read a great biography of Gabriele D’Annunzio, the proto-fascist poet. It could be a great way to read about personal histories if you don’t love — as I do — diplomatic or military — how old fashioned of me — economic history.

COWEN: Last two questions. First, other than the general benefits of exercise, how does going for a run improve your thinking?

BARBIERI: It clears the mind. I work 14, 15 hours every day, and the run is when I crystallize my best ideas. It’s very important to save some part of the day to really think and clear your head. I always go in with problems and come out of the run with solutions.

I work 14, 15 hours every day, and the run is when I crystallize my best ideas. It’s very important to save some part of the day to really think and clear your head. I always go in with problems and come out of the run with solutions.

COWEN: Final question — what is your best weird work habit?

BARBIERI: My best weird work habit — it’s actually a non-work habit. Now, I really never try to do email in bed. I used to do a lot of email in bed, and cutting that out has been fantastic to be able to sleep better and create a boundary for your personal life. I think that the importance of sleep is one of those things that has been massively undervalued in the last 30, 40 years with our work obsession.

God knows I work a lot, but I wouldn’t be able to work as I do if I didn’t sleep well. Not doing email on your bed, not doing work on your bed is absolutely essential for that. That’s a relatively new development. I force myself to actually get up, turn on the coffee machine, open the windows, and only then think about my email.

COWEN: Pierpaolo Barbieri, thank you very much.

BARBIERI: Great pleasure, Tyler. Thank you for your time.